Dick's Sporting Goods 2009 Annual Report Download - page 49

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The Company recorded $10.1 million of merger and integration costs during fiscal 2009. These costs relate to the integration of
Chick’s operations and include duplicative administrative costs, management, advertising and severance expenses associated with
the conversions from Chick’s stores to Dick’s stores. The Company recorded $15.9 million of merger and integration costs during
fiscal 2008. These costs related to costs incurred to integrate the operations of Golf Galaxy and Chick’s with Dick’s pre-existing
business and included duplicative administrative costs, severance and system conversion costs.
Pre-opening expenses decreased $7.1 million to $9.2 million in fiscal 2009 from $16.3 million in fiscal 2008. Pre-opening
expenses were for the opening of 24 new Dick’s stores and one Golf Galaxy store, as well as the relocation of one Dick’s store in
fiscal 2009 compared to the opening of 43 new Dick’s and ten Golf Galaxy stores and relocation of one Dick’s store in fiscal 2008.
Pre-opening expenses in any year fluctuate depending on the timing and number of store openings and relocations.
Gain on Sale of Asset
The Company exercised its early buy-out rights on an aircraft lease during the first quarter of fiscal 2008. The Company
recognized a $2.4 million pre-tax gain on the subsequent sale of the aircraft.
Interest Expense, Net
Interest expense, net, decreased by $16.5 million to $2.4 million in fiscal 2009 from $18.9 million in fiscal 2008. The Company’s
repayment of its $172.5 million senior convertible notes in the first quarter of fiscal 2009 resulted in a $12.1 million decrease in
interest expense. The Company recognizes interest income or interest expense to reflect changes in the investment value of
assets held in its deferred compensation plans. The Company recognized interest income totaling $2.1 million in fiscal 2009
compared to interest expense of $2.0 million in fiscal 2008 due to an overall improvement in the equity markets, which impacted
the deferred compensation plan investment values. The remaining decrease in interest expense for the current period is primarily
due to lower average borrowing rates. The average interest rate on the Credit Agreement decreased by 215 basis points from last
year, while average borrowings outstanding on our Credit Agreement decreased to $63.7 million for fiscal 2009 from $74.8 million
for fiscal 2008.
Income Tax
The Company’s effective tax rate was 39.3% for the year ended January 30, 2010 as compared to 388.4% for the year ended
January 31, 2009. The 2008 effective tax rate was primarily impacted by the non-deductible $111.3 goodwill impairment charge
and by non-deductible executive separation costs that increased income tax expense by $2.5 million.
Fiscal 2008 Compared to Fiscal 2007
Net (Loss) Income
The Company reported a net loss of $39.9 million in fiscal 2008, which included impairment charges of $161.7 million, net of tax,
or $1.45 per share, and merger and integration costs of $12.3 million, net of tax, or $0.11 per share, from net income of
$150.6 million in fiscal 2007.
Net Sales
Net sales increased 6% to $4,130.1 million in fiscal 2008 from $3,888.4 million in fiscal 2007, due primarily to new store sales,
which include Chick’s Sporting Goods in fiscal 2008, partially offset by a comparable store sales decrease of 4.8%. Golf Galaxy is
included in the Company’s comparable store sales calculation beginning in the second quarter of 2008 and is included in the full
year comparable store sales calculation beginning in fiscal 2009.
The decrease in comparable store sales is mostly attributable to sales decreases in exercise, other footwear and golf equipment
and accessories. These sales decreases were partially offset by increases in hunting, guns and outerwear and outerwear
accessories.
The comparable store decrease was driven primarily by a decrease in transactions of approximately 4.4% and a decrease of
approximately 0.4% in average unit retail price at Dick’s Sporting Goods stores, reflecting declining consumer confidence that
resulted in lower traffic and more cautious spending. Every 1% change in comparable store sales would have impacted fiscal 2008
earnings before income taxes by approximately $11 million.
Dick’s Sporting Goods, Inc. ¬2009 Annual Report 47