Dick's Sporting Goods 2010 Annual Report Download - page 48

same store sales will be a key factor in achieving its targeted levels of earnings per share growth and continuing its store
expansion program to an ultimate goal of at least 900 Dick’s locations across the United States.
•Operating cash flow — The Company generated $390.0 million of cash flow from operations in fiscal 2010 compared to
$401.3 million in fiscal 2009. The decrease in operating cash flows is due primarily to the Company’s efforts to reduce fiscal
2008 ending inventory levels and to extend payment terms with its vendors, which favorably impacted fiscal 2009 operating
cash flows. See further discussion of the Company’s cash flows in the Liquidity and Capital Resources section herein. The
Company believes that a key strength of its business has been the ability to consistently generate positive cash flow from
operations. Strong cash flow generation is critical to the future success of the Company, not only to support the general
operating needs of the Company, but also to fund capital expenditures related to new store openings, relocations, expansions
and remodels, costs associated with continued improvement of information technology tools and costs associated with
potential strategic acquisitions that may arise from time to time.
•Quality of merchandise offerings — To monitor and maintain acceptance of its merchandise offerings, the Company monitors
sell-throughs, inventory turns, gross margins and markdown rates on a department and style level. This analysis helps the
Company reduce cash flow requirements and deliver optimal gross margins by improving merchandise flow and establishing
appropriate price points to minimize markdowns.
•Store productivity — To assess store-level performance, the Company monitors various indicators, including new store
productivity, sales per square foot, store operating contribution margin and store cash flow. New store productivity compares
the sales increase for all stores not included in the same store sales calculation with the increase in square footage.
Executive Summary
The Company reported net income for the year ended January 29, 2011 of $182.1 million, or $1.50 per diluted share, as compared
to net income of $135.4 million, or $1.15 per diluted share, in fiscal 2009.
The Company closed 12 underperforming Golf Galaxy stores in fiscal 2010. The poor performance of these stores was primarily a
function of inadequate real estate locations, sites that were too expensive or a combination of both factors. The Company
continues to evaluate and refine the preferred location, size and format of its Golf Galaxy stores. The Company continues to
believe there is long term growth potential in the golf business and believes the Golf Galaxy acquisition has provided the Company
with significant leverage with its vendor partners and the opportunity to capture market share in the premium golf business as
this niche of the market continues to consolidate. Net income for fiscal 2010 includes expenses relating to future lease obligations
and asset impairment charges resulting from the 12 Golf Galaxy store closures of approximately $9.8 million, net of tax, or $0.08
per diluted share.
On January 28, 2011, the Company filed a settlement agreement to settle Barrus and the related State Claims. For further
discussion see Part I, Item 3. “Legal Proceedings”. Net income for fiscal 2010 includes a charge for this settlement and related
fees of approximately $6.5 million, net of tax, or $0.05 per diluted share.
Net sales increased 10.4% to $4,871.5 million in fiscal 2010 from $4,412.8 million in fiscal 2009 due primarily to a 7.4% increase
in consolidated same store sales and the opening of new stores.
As a percentage of net sales, gross profit increased to 29.75% in fiscal 2010 from 27.58% in fiscal 2009 due primarily to higher
merchandise margins that resulted from changes in sales mix at our Dick’s stores and leverage of fixed occupancy costs resulting
from the increase in consolidated same store sales compared to fiscal 2009.
Selling, general and administrative expenses increased as a percentage of net sales by 115 basis points in fiscal 2010 compared
to fiscal 2009 due primarily to the aforementioned Golf Galaxy store closures and litigation settlement charge. Fiscal 2010 also
includes higher administrative expenses due to costs related to our relocated corporate headquarters and technology and other
infrastructure related costs to support our business strategies.
We ended fiscal 2010 with no borrowings on our line of credit and total borrowing capacity of $418.5 million.
28 Dick’s Sporting Goods, Inc. ¬2010 Annual Report