Dick's Sporting Goods 2006 Annual Report Download - page 28

Results of Operations
The following table presents for the periods indicated selected items in the consolidated statements of income as a percentage
of the Company’s net sales, as well as the basis point change in percentage of net sales from the prior year’s period:
Percentage of Percentage of
Net Sales Net Sales
from Prior Year from Prior Year
Fiscal Year 2006A2005A2004A2005–2006A2004–2005A
Net sales1100.00% 100.00% 100.00% N/A N/A
Cost of goods sold, including occupancy
and distribution costs271.21 71.90 72.19 (69)(29)
Gross profit 28.79 28.10 27.81 69 29
Selling, general and administrative expenses321.92 21.19 21.04 73 15
Merger integration and store closing costs4–1.44 0.96 (144) 48
Pre-opening expenses50.53 0.41 0.55 12 (14)
Income from operations 6.35 5.06 5.26 129 (20)
Gain on sale of investment6–(0.07) (0.52) (7) (45)
Interest expense, net70.32 0.49 0.38 (17) 11
Other income ––(0.05) – (5)
Income before income taxes 6.03 4.63 5.44 140 (81)
Provision for income taxes 2.41 1.85 2.18 56 (33)
Net income 3.62% 2.78% 3.27% 84 (49)
AColumn does not add due to rounding
1Revenue from retail sales is recognized at the point of sale, net of sales tax. A provision for anticipated merchandise returns is provided through a reduction of
sales and cost of sales in the period that the related sales are recorded. Revenue from gift cards and returned merchandise credits (collectively the “cards”), are
deferred and recognized upon the redemption of the cards. These cards have no expiration date. Income from unredeemed cards is recognized in the consolidated
statements of income in selling, general and administrative expenses at the point at which redemption becomes remote. The Company performs an evaluation of
the aging of the unredeemed cards, based on the elapsed time from the date of original issuance, to determine when redemption is remote. Revenue from
layaway sales is recognized upon receipt of final payment from the customer.
2Cost of goods sold includes the cost of merchandise, inventory shrinkage, freight, distribution and store occupancy costs. Store occupancy costs include rent, common
area maintenance charges, real estate and other asset based taxes, store maintenance, utilities, depreciation, fixture lease expenses and certain insurance expenses.
3Selling, general and administrative expenses include store and field support payroll and fringe benefits, advertising, bank card charges, information systems,
marketing, legal, accounting, other store expenses and all expenses associated with operating the Company’s corporate headquarters.
4Merger integration and store closing costs all pertain to the Galyan’s acquisition and include the expense of closing Dick’s stores in overlapping markets, advertising
the re-branding of Galyan’s stores, duplicative administrative costs, recruiting and system conversion costs. Beginning in the third quarter of 2005, the balance of
the merger integration and store closing costs, which relate primarily to accretion of discounted cash flows on future lease payments on closed stores, was
included in rent expense.
5Pre-opening expenses consist primarily of rent, marketing, payroll and recruiting costs incurred prior to a new store opening.
6Gain on sale of investment resulted from the sale of a portion of the Company’s non-cash investment in its third-party Internet commerce provider.
7Interest expense, net, results primarily from interest on our senior convertible notes and Credit Agreement borrowings partially offset by interest income.
Fiscal 2006 (53 weeks) Compared to Fiscal 2005 (52 weeks)
Net Income Net income increased to $112.6 million in 2006 from $73.0 million in 2005. This represented an increase in diluted
earnings per share of $0.68, or 50% to $2.03 from $1.35. The increase in earnings was attributable to an increase in net sales and
gross profit margin percentage, partially offset by an increase in selling, general and administrative expenses as a percentage of sales.
Net Sales Net sales increased 19% to $3,114 million in 2006 from $2,625 million in 2005. This increase resulted primarily from
a comparable store sales increase of 6.0%, or $105.9 million on a 52 week to 52 week basis, and $383.1 million from the net
addition of new stores in the last five quarters which are not included in the comparable store base and the inclusion of a
53rd week of sales.
DICK’S SPORTING GOODS, INC. 2006 ANNUAL REPORT
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