Dick's Sporting Goods 2010 Annual Report Download - page 50

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(8) Gain on sale of asset resulted from the Company exercising a buy-out option on an aircraft lease and subsequently selling
the aircraft.
(9) Interest expense results primarily from rent payments under the Company’s financing lease obligation for its corporate
headquarters, which it began occupying in January 2010, and interest on borrowings under the Credit Agreement.
(10) Other (income) expense results primarily from gains and losses associated with changes in deferred compensation plan
investment values and interest income earned on highly liquid instruments purchased with a maturity of three months or
less at the date of purchase.
Fiscal 2010 Compared to Fiscal 2009
Net Income
The Company reported net income of $182.1 million in fiscal 2010, compared to net income of $135.4 million in fiscal 2009. Net
income for fiscal 2010 includes expenses relating to future lease obligations and asset impairment charges resulting from the
closure of 12 underperforming Golf Galaxy stores of approximately $9.8 million, net of tax, or $0.08 per share, and expenses
related to a litigation settlement of approximately $6.5 million, net of tax, or $0.05 per diluted share. Net income for fiscal 2009
included approximately $6.1 million of merger and integration costs, net of tax, or $0.05 per diluted share.
Net Sales
Net sales increased 10.4% to $4,871.5 million in fiscal 2010 from $4,412.8 million in fiscal 2009, due primarily to a 7.4% increase
in consolidated same store sales and the opening of new stores. The Company’s e-commerce business is included in the
Company’s consolidated same store sales calculation beginning in fiscal 2010. The 7.4% consolidated same store sales increase
consisted of a 6.8% increase in Dick’s Sporting Goods stores, a 5.1% increase in Golf Galaxy and a 38.1% increase in e-commerce.
The inclusion of the e-commerce business resulted in an increase of approximately 76 basis points to the Company’s consolidated
same store sales calculation for fiscal 2010.
The increase in consolidated same store sales was broad based, with increases in apparel and footwear. The consolidated same
store sales increase was driven primarily by an increase in transactions of approximately 6.5% at Dick’s stores. Every 1% change
in consolidated same store sales would have impacted fiscal 2010 earnings before income taxes by approximately $13 million.
Store Count
During 2010, we opened 26 Dick’s stores and two Golf Galaxy stores, relocated two Dick’s stores, closed one Dick’s store and
closed 12 underperforming Golf Galaxy stores, resulting in an ending store count of 525 stores with approximately 25.9 million
square feet in 43 states.
Income from Operations
Income from operations increased $83.6 million to $309.2 million in fiscal 2010 from $225.6 million in fiscal 2009.
Gross profit increased 19% to $1,449.0 million in fiscal 2010 from $1,216.9 million in fiscal 2009. As a percentage of net sales,
gross profit increased to 29.75% in fiscal 2010 from 27.58% in fiscal 2009. The 217 basis point increase is due primarily to a
140 basis point increase in merchandise margins that resulted from changes in sales mix at our Dick’s stores, a reduction in
clearance activity at our Golf Galaxy stores and the inventory liquidation event at the Chick’s stores prior to their conversion to
Dick’s stores in May 2009. Gross profit was further impacted by the leverage of fixed occupancy and freight and distribution costs
resulting primarily from the increase in consolidated same store sales compared to last year. Every 10 basis point change in
merchandise margin would have impacted fiscal 2010 earnings before income taxes by approximately $4 million.
Selling, general and administrative expenses increased 16% to $1,129.3 million in fiscal 2010 from $972.0 million in fiscal 2009,
and as a percentage of net sales, selling, general and administrative expenses increased by 115 basis points. Administrative
expenses increased 77 basis points as a percentage of net sales from fiscal 2009 primarily due to higher costs related to our
relocated corporate headquarters as well as technology and other infrastructure related costs to support our business strategies.
The Company recognized expenses of $16.4 million relating to future lease obligations and asset impairment charges resulting
from the closure of 12 underperforming Golf Galaxy stores and $10.8 million related to a litigation settlement, or 34 basis points
and 22 basis points as a percentage of net sales, respectively. Advertising expenses increased 17 basis points as a percentage of
net sales, resulting from investments in marketing initiatives geared toward pursuing market share gains, which included the
promotion of National Runner’s Month as well as the Company’s collaborative marketing initiative with adidas related to the
30 Dick’s Sporting Goods, Inc. ¬2010 Annual Report