Dick's Sporting Goods 2015 Annual Report Download - page 30

Income from Operations
Income from operations increased $17.3 million to $554.1 million in fiscal 2014 from $536.8 million in fiscal 2013.
Gross profit increased 7% to $2,086.7 million in fiscal 2014 from $1,944.0 million in fiscal 2013, but decreased as a percentage
of net sales by 67 basis points compared to fiscal 2013. The decline in the gross profit rate was driven by a decrease in
merchandise margin of 58 basis points and an increase in shipping expenses of 17 basis points in fiscal 2014 compared to fiscal
2013. During fiscal 2014, the decrease in merchandise margin was primarily driven by higher promotional activity, partially
offset by changes in sales mix to higher margin categories. The increase in shipping expenses during fiscal 2014 was the result
of the growth and increased penetration of eCommerce sales as compared to the Company's total net sales. The decline in the
gross profit rate was partially offset by leverage in occupancy costs, which decreased 10 basis points as a percentage of net
sales. Though overall occupancy costs increased $62.3 million from fiscal 2013, these costs decreased as a percentage of net
sales as occupancy costs increased at a lower rate than the 10% increase in net sales during fiscal 2014. Every 10 basis point
change in merchandise margin would impact earnings before income taxes for fiscal 2014 by approximately€$6.8 million.
Selling, general and administrative expenses increased approximately 8% to $1,502.1 million in fiscal 2014 from $1,386.3
million in fiscal 2013, but decreased as a percentage of net sales by 27 basis points. Fiscal 2014 includes (i) a pre-tax gain on
the sale of a Gulfstream G650 corporate aircraft of $14.4 million, (ii) severance charges totaling $3.7 million and (iii) non-cash
impairment charges totaling $14.3 million related to the Company's golf restructuring. Fiscal 2013 included a $7.9 million non-
cash impairment charge to reduce the carrying value of a Gulfstream G450 corporate aircraft held for sale to fair market value.
Apart from the enumerated items, the year-over-year change in selling, general and administrative expenses as a percentage of
net sales is due primarily to lower administrative payroll and related benefit costs, which increased in fiscal 2014 by $6.1
million from fiscal 2013€but decreased as a percentage of net sales by 20 basis points.
Pre-opening expenses increased to $30.5 million in fiscal 2014 from $20.8 million in fiscal 2013. Pre-opening expenses in any
period fluctuate depending on the timing and number of store openings and relocations. Pre-opening rent expenses for our self-
developed store sites will generally exceed those for sites built to our specifications by our landlords since we are in possession
of the site for a longer period of time, which accelerates expense recognition but does not impact the timing of rent payments.
Income Taxes
The Company's effective tax rate was 38.1% for fiscal 2014 as compared to 38.2% for fiscal 2013.
Liquidity and Capital Resources
Overview
The Company's liquidity and capital needs have generally been met by cash from operating activities with additional liquidity
from the Company's revolving credit facility. Cash flow from operations is seasonal in our business. Typically, we use cash flow
from operations to increase inventory in advance of peak selling seasons, with the pre-holiday inventory increase being the
largest. In the fourth quarter, inventory levels are reduced in connection with sales during the holiday season and this inventory
reduction, combined with proportionately higher net income, typically produces significant positive cash flow.
Net cash provided by operating activities for fiscal 2015 was $643.5 million compared to $606.0 million for fiscal 2014. Net
cash from operating, investing and financing activities are discussed further below.
The Company has a $1€billion revolving senior secured credit facility, including up to $150€million in the form of letters of
credit, in the event further liquidity is needed. Under the Credit Agreement, subject to the satisfaction of certain conditions, the
Company may request an increase of up to $250€million in borrowing availability. The Credit Agreement is further described
within Note 7 to the Consolidated Financial Statements.
The Company generally utilizes its Credit Agreement for working capital needs based primarily on the seasonal nature of its
operating cash flows, with the Company's peak borrowings occurring during its third quarter as the Company increases
inventory in advance of the holiday selling season.
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