Dick's Sporting Goods 2007 Annual Report Download - page 31

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Income from Operations 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.
Gross profit increased 29% to $1,158.1 million in 2007 from $896.7 million in 2006. 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 improved merchandise
margins in the majority of the Company’s product categories and lower freight and distributions costs as a percentage of sales
(38 basis points) due to cost minimization practices at our distribution centers offset by higher occupancy costs as a percentage
of sales (35 basis points) due to the leverage from higher sales in fiscal 2006 due to the 53rd week of sales.
Selling, general and administrative expenses increased to $870.4 million in 2007 from $682.6 million in 2006 due primarily to an
increase in store count and continued investment in corporate and store infrastructure.
The 46 basis point increase over last year was due primarily to higher payroll and fringe related expenses related to bonus payments
to employees (40 basis points), an increase in net advertising expense (3 basis points), and fiscal 2006 including a 53rd week of
sales to offset fixed costs included in selling, general and administrative expense.
Pre-opening expenses increased by $2.4 million to $18.8 million in 2007 from $16.4 million in 2006. Pre-opening expenses were for
the opening of 46 new Dick’s stores and 16 Golf Galaxy stores, as well as the relocation of one Dick’s store in 2007 compared to
the opening of 39 new stores and relocation of two stores in 2006. Pre-opening expenses in any year fluctuate depending on the
timing and number of store openings and relocations.
Interest Expense, net Interest expense, net, increased by $1.3 million to $11.3 million in 2007 from $10.0 million in 2006 due
primarily to costs related to the financing of both the Golf Galaxy and Chick’s acquisitions during 2007. The Company ended
fiscal 2007 with no outstanding borrowings under its senior secured revolving credit facility.
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 $0.34, or 50% to $1.02 from $0.68. 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.
The increase in comparable store sales is mostly attributable to sales increases in men’s and women’s apparel, kids, athletic and
casual footwear, licensed merchandise, baseball, hunting, camping and guns, partially offset by lower sales of bikes, boots, snow
sports and outerwear accessories.
Store Count During 2006, we opened 39 stores and relocated two stores. As of February 3, 2007 we operated 294 stores, with
approximately 16.7 million square feet, in 34 states.
Income from Operations Income from operations increased 49% to $197.7 million in 2006 from $132.7 million in 2005 due
primarily to the increase in gross profit, partially offset by an increase in selling, general and administrative costs.
Gross profit increased 22% to $896.7 million in 2006 from $737.6 million in 2005. As a percentage of net sales, gross profit increased
to 28.79% in 2006 from 28.10% in 2005. The gross profit percentage increased primarily due to improved merchandise margins in
the majority of the Company’s product categories, lower freight and distributions costs as a percentage of sales (14 basis points) due
to cost minimization practices at our distribution centers and lower occupancy costs as a percentage of sales (14 basis points) due to
the leverage from higher sales.
Selling, general and administrative expenses increased to $682.6 million in 2006 from $556.3 million in 2005 due primarily to
an increase in store count and continued investment in corporate and store infrastructure.
The 73 basis point increase over fiscal 2005 was due primarily to an increase in net advertising expense (29 basis points), the
recording of stock compensation expense in fiscal 2006, due to the Company’s adoption of FAS 123R (78 basis points) and higher
bonus expense (19 basis points) partially offset by a decrease in store payroll (40 basis points) due to the leverage from higher sales.