Dick's Sporting Goods 2007 Annual Report Download - page 29

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with “Five-Year Financial Summary” and our consolidated
financial statements and related notes appearing elsewhere in this report. This Annual Report contains forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995. See page 36 – “Forward Looking Statements”.
Overview
Dick’s is an authentic full-line sporting goods retailer offering a broad assortment of brand-name sporting goods equipment, apparel
and footwear in a specialty store environment. On February 13, 2007, the Company acquired Golf Galaxy by means of merger of
our wholly owned subsidiary with and into Golf Galaxy. On November 30, 2007, the Company completed its acquisition of Chick’s
Sporting Goods, Inc. The Consolidated Statements of Income include the results of Golf Galaxy and Chick’s for fiscal 2007 from their
respective dates of acquisition.
As of February 2, 2008 we operated 340 Dick’s stores, 79 Golf Galaxy stores and 15 Chick’s stores, with approximately 21.1 million
square feet, in 40 states, the majority of which are located throughout the eastern half of the United States. On September 12, 2007,
the Company’s board of directors approved a two-for-one stock split of the Company’s common stock and Class B common stock
in the form of a stock dividend. The split was affected by issuing our stockholders of record as of September 28, 2007 one additional
share of common stock for every share of common stock held, and one additional share of Class B common stock for every share
of Class B common stock held. The applicable share and per-share data for periods prior to fiscal 2007 included herein have been
restated to give effect to this stock split.
Executive Summary
The Company reported net income for the year ended February 2, 2008 of $155.0 million or $1.33 per diluted share as compared
to net income of $112.6 million and earnings per diluted share of $1.02 in 2006. The increase in earnings was attributable to an
increase in sales as a result of a 2.4% increase in comparable store sales, new store sales and an increase in gross profit margins
partially offset by an increase in selling, general and administrative expenses as a percentage of sales.
Net sales increased 25% to $3,888 million in 2007 from $3,114 million in 2006. This increase includes a comparable store sales
increase of 2.4%, or $66.4 million on a 52 week to 52 week basis. The remaining increase results from the net addition of new Dick’s
stores in the last five quarters which are not included in the comparable store base and the inclusion of Golf Galaxy and Chick’s during
fiscal 2007 from their respective acquisition dates, partially offset by the inclusion of a 53rd week of sales in fiscal 2006.
Income from operations increased 36% to $268.8 million in 2007 from $197.7 million in 2006 due primarily to the increase in sales
and gross profit margin, partially offset by an increase in selling, general and administrative costs.
As a percentage of net sales, gross profit increased to 29.78% in 2007 from 28.79% in 2006. The gross profit percentage increased
primarily due to an increase in the merchandise margin percentage, lower freight and distribution costs as a percentage of sales and
lower inventory shrink costs as a percentage of sales.
Selling, general and administrative expenses increased by 46 basis points. The increase as a percentage of sales was due primarily
to recording higher payroll and fringe related expenses related to bonus payments made to employees, an increase in net advertising
expense and last year including a 53rd week of sales to offset fixed costs included in selling, general and administrative expense.
We ended the year with no borrowings on our line of credit and excess borrowing availability totaled $333.2 million as of
February 2, 2008.