Dick's Sporting Goods 2008 Annual Report Download - page 30

Fiscal 2008 (52 weeks) Compared to Fiscal 2007 (52 weeks)
Net (Loss) Income The Company reported a net loss of $35.1 million in 2008, which included impairment charges of $161.7 million,
net of tax or $1.45 per share, and merger and integration costs of $12.3 million, net of tax or $0.11 per share, from net income of
$155.0 million in 2007.
Net Sales Net sales increased 6% to $4,130.1 million in 2008 from $3,888.4 million in 2007, due primarily to new store sales, which
include Chick’s Sporting Goods in fi scal 2008, partially offset by a comparable store sales decrease of 4.8%. Golf Galaxy is included
in the Company’s comparable store sales calculation beginning in the second quarter of 2008 and will be included in the full year
comparable store sales calculation beginning in fi scal 2009.
The decrease in comparable store sales is mostly attributable to sales decreases in exercise, other footwear and golf equipment and
accessories. These sales decreases were partially offset by increases in hunting, guns and outerwear and outerwear accessories.
The comparable store decrease was driven primarily by a decrease in transactions of approximately 4.4% and a decrease of
approximately 0.4% in average unit retail price at Dick’s Sporting Goods stores, refl ecting declining consumer confi dence that
resulted in lower traffi c and more cautious spending. Every 1% change in comparable store sales would have impacted fi scal 2008
earnings before income taxes by approximately $11 million.
Store Count During 2008, we opened 43 Dick’s stores and ten Golf Galaxy stores, relocated one Dick’s store and converted one
Chick’s Sporting Goods store to a Dick’s Sporting Goods store, resulting in an ending store count of 487 stores, with approximately
23.6 million square feet, in 42 states.
Income from Operations Income from operations decreased 89% to $30.4 million in 2008, which included impairment charges
of $193.4 million and merger and integration costs of $15.9 million, from $268.8 million in 2007.
Gross profi t increased 2% to $1,184.0 million in 2008 from $1,158.1 million in 2007. As a percentage of sales, gross profi t decreased
111 basis points in the current year. The 111 basis point decrease in gross profi t is due primarily to a 124 basis point increase in
occupancy expenses caused by the de-leverage related to the comparable store sales decline in the current year. Freight and
distribution costs were consistent between years as the costs associated with the opening of a new distribution center in Atlanta,
Georgia in the second quarter of 2008 were fully offset by initiatives to improve freight effi ciencies. The gross profi t decrease was
partially offset by merchandise margin improvements across several of the Company’s product categories (16 basis points).
Merchandise margin improvements were impacted by lower initial markups and higher markdowns to liquidate inventory and bring
levels closer to the current sales trends. The Company’s inventory per square foot declined 13.9% to $36.23 at January 31, 2009
compared to February 2, 2008. Every 10 basis point change in merchandise margin would have impacted fi scal 2008 earnings before
income taxes by approximately $4 million.
Selling, general and administrative expenses increased to $928.2 million in 2008 from $870.4 million in 2007 due primarily to an
increase in store count and continued investment in corporate and store infrastructure.
The 9 basis point increase over last year was due primarily to an increase in store payroll and other store costs that de-leveraged
as a result of the comparable store sales decrease partially offset by decreases in advertising costs (18 basis points) and
administrative costs, including payroll (45 basis points) as the Company took steps to reduce costs during a declining comparable
store sales environment.
In 2008, the Company recorded an impairment charge related to goodwill and other intangible assets acquired in the Golf Galaxy
acquisition of $164.3 million, before an income tax benefi t of $20.4 million. The deterioration of the economy experienced during
the fourth quarter of fi scal 2008, lower than expected full year 2008 operating results, projections that fi scal 2009 will be in line with
fourth quarter 2008 business trends and signifi cant uncertainty about when the economy will recover, caused signifi cant changes
to the projected cash fl ows of Golf Galaxy used in our goodwill test compared to those used in our Golf Galaxy goodwill test in fi scal
2007 and carried forward through our earlier considerations. As a result of the goodwill and trade name impairment tests, the
Company concluded that the carrying amounts of the Golf Galaxy reporting unit exceeded its fair value. The goodwill impairment
charge of $111.3 million was determined by comparing the carrying value of goodwill of Golf Galaxy with the implied fair value of
DICK’S SPORTING GOODS, INC. 2008 ANNUAL REPORT
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