Dick's Sporting Goods 2008 Annual Report Download - page 29

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.
As a percentage of sales, gross profi t decreased to 28.67% in 2008 from 29.78% in 2007. The gross profi t percentage decreased
primarily due to a de-leverage of occupancy expenses resulting from the comparable store sales decline in the current year, lower
vendor program income, partially offset by merchandise margin improvements across several of the Company’s product categories.
Selling, general and administrative expenses increased by 9 basis points. The increase as a percentage of sales 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.
We ended the year with no borrowings on our line of credit and excess borrowing availability of $417.5 million.
Results of Operations
The following table presents for the periods indicated selected items in the Consolidated Statements of Operations 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:
Basis Point Basis Point
Increase/ Increase/
(Decrease) in (Decrease) in
Percentage of Net Percentage of Net
Sales from Prior Sales from Prior
Fiscal Year 2008A 2007A 2006A Year 2007–2008A Year 2006–2007A
Net sales 1 100.00% 100.00% 100.00% N/A N/A
Cost of goods sold, including occupancy
and distribution costs 2 71.33 70.22 71.21 111 (99)
Gross profi t 28.67 29.78 28.79 (111) 99
Selling, general and administrative expenses 3 22.47 22.38 21.92 9 46
Impairment of goodwill and other intangible assets 4 3.98 — — 398 —
Impairment of store assets 5 0.70 — — 70 —
Merger and integration costs 6 0.38 — — 38 —
Pre-opening expenses 7 0.39 0.48 0.53 (9) (5)
Income from operations 0.74 6.91 6.35 (617) 56
Gain on sale of asset 8 (0.06) — — (6) —
Interest expense, net 9 0.27 0.29 0.32 (2) (3)
Income before income taxes 0.53 6.62 6.03 (609) 59
Provision for income taxes 1.38 2.64 2.41 (126) 23
Net (loss) income (0.85%) 3.99% 3.62% (484) 37
A Column does not add due to rounding.
1 Revenue 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 Operations 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.
2 Cost 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, fi xture lease expenses and certain insurance expenses.
3 Selling, general and administrative expenses include store and fi eld support payroll and fringe benefi ts, advertising, bank card charges, information systems,
marketing, legal, accounting, other store expenses and all expenses associated with operating the Company’s corporate headquarters.
4 Attributable to the impairment of Golf Galaxy’s goodwill and other intangible assets.
5 Impairment of store assets in connection with certain underperforming Dick’s Sporting Goods, Golf Galaxy and Chick’s Sporting Goods stores.
6 Merger and integration costs primarily include duplicative administrative costs, severance and system conversion costs related to the operational consolidation of Golf
Galaxy and Chick’s Sporting Goods with the Company’s pre-existing business.
7 Pre-opening expenses consist primarily of rent, marketing, payroll and recruiting costs incurred prior to a new store opening.
8 Gain on sale of asset resulted from the Company exercising a buyout option on an aircraft lease and subsequently selling the aircraft.
9 Interest expense, net, results primarily from interest on our senior convertible notes and Credit Agreement borrowings partially offset by interest income.
DICK’S SPORTING GOODS, INC. 2008 ANNUAL REPORT 27