DICK'S Sporting Goods Inc (DKS) 2004 Q1 法說會逐字稿

Good morning and welcome to GALYANS' first quarter 2004 earnings conference call. (OPERATOR INSTRUCTIONS). Today's conference is being recorded. If anyone has any objections, you may disconnect at this time. I would now like to turn the call over to Mr. Ed Wozniak, Senior Vice President and CFO. Sir, you may begin.

Thank you. Good morning. And we thank all of you for joining us on our first quarter fiscal '04 conference call. The format for today's call will be as follows. I will address forward-looking statements. I will cover financial highlights for the first quarter. Ed Holman, our CEO, will cover our business results and outlook, as well as an update on progress against our '04 initiatives. We will then entertain Q&A.

The information contained in today's press release, this call and the webcast contain forward-looking statements which reflect GALYANS Trading Company's current view of future events and financial performance. We caution that any forward-looking statements that such term is defined in the Private Securities Litigation Reform Act of 1995 contained in today's press release or made by our management involve risks and uncertainties, and are subject to change based on various important factors many of which may be beyond our control.

Accordingly, our future performance and financial results may differ materially from those expressed or implied in any such forward-looking statements. Words such as estimate, project, plan, believe, expects, anticipate, intend and similar expressions may identify forward-looking statements. For these statements we claim the protection of the Safe Harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

The following factors, among others, in some cases have affected and in the future could affect our financial performance and actual results, and could cause actual results for '04 and beyond to differ materially from those expressed or implied in any forward-looking statements included in today's press release or otherwise made by management.

Risks associated with our ability to implement our growth strategies or manage our growing business, including the availability of suitable store locations on appropriate financing and other terms and the availability of adequate financing sources, the impact of increased competition and its effect on pricing and expenses associated with advertising and promotion and response thereto, risks related to the level of markdowns necessary to clear aged inventory, risks associated with the seasonality of the retail industry, the retail sporting goods industry and our business, the potential impact of national disasters or national and international security concerns on the retail environment, and risks relating to the regulation of the products we sell including firearms.

See our annual report on Form 10-K for the year end January 31, 2004 as filed with the Securities and Exchange Commission for more a detailed discussion of these matters and other risk factors. We do not undertake to publicly update or revise our forward-looking statements, even if experience or future change make it clear that any projected results expressed or implied therein will not be realized.

Overall our financial results for the first quarter of '04 were in line with our expectations. Gross margin increased to 27.3 percent of sales, up 130 basis points from last year. The increase in gross margin was primarily due to the impact of EITF 02-16 and leveraging distribution costs.

SG&A was 31.4 percent of sales up 250 basis point from last year, primarily from expenses associated with the resignation of our former CEO and Chairman of the Company, increased marketing and depreciation costs and higher preopening expenses. Preopening expenses were 1.8 million versus 1.1 million last year. They were four new store openings in the first quarter of '04 versus two last year.

Net loss was 4.5 million or 26 cents per share. This includes approximately 5 cents per share for expenses associated with the resignation of our former CEO and Chairman of the Company. Interest expense, net of interest income, was 1 million this year versus 400,000 last year, reflecting higher debt levels and including the capital lease obligations as a result of our sale leaseback transaction.

Inventory was up 3 percent year-over-year compared to a sales increase of 21.7 percent. Other inventory metrics also showed significant improvement. Turnover on a quarterly basis was .69 this year versus .62 last year, up 11 percent. And inventory per store and inventory per gross square foot year-over-year were also down 21 percent. This is the third quarter in a row we have seen improvement in inventory turnover versus last year, and the sixth quarter in a row we have reduced inventory per store and gross square foot versus last year. Inventory management has been a focus for the Company and will continue to be so in the future.

As we have disclosed in previous press releases, earnings calls, and SEC filings regarding our credit facility, we will not be subject to any financial covenants provided we maintain a minimum of 35 million of availability. As of May 1, 2004 we had 55 million in outstanding borrowings against the credit line and a remaining availability of 53.9 million net of 5.6 million used in support of letters of credit. We see no issue with maintaining the required minimum 35 million of availability for the remainder of fiscal '04.

At quarter end our debt to capitalization was only 24.2 percent. Our financial structure remains strong. New store productivity for the quarter was 81 percent. Average sales for the first quarter was $57.64, down slightly from last year. Average unit retail was $22.37, up 2.4 percent versus last year, and units per transaction were down 2.7 percent. Gross square feet for the first quarter totaled 4,087,000, up 30.6 percent versus last year, and this excludes the Greenwood outlet store, which is not part of our future strategy.

As mentioned in today's press release, our Capex spending is projected in the range of 36 to 40 million for fiscal '04, almost half of last year's level. This is primarily a result of all nine stores in '04 receiving a landlord contribution, where only six of nine stores received a landlord contribution last year. We also continue to value engineer the cost of new store construction and critically analyze all other capital investment decisions.

We reiterate that we do not expect an increase on our year-end debt level in '04 above last year's level. The strength of our balance sheet remains intact, and we will continue to preserve the financial strength of the Company. I would like to now turn the call over to Ed Holman, our CEO.

Good morning to everyone, and thank you for joining us today. As Ed stated our first quarter sales and earnings were in line with our expectations for the quarter. Comp store sales of a -1.4 percent reflects an improvement from the -5.7 and -4.5 respectively in the third and fourth quarters off last year.

Although we know our initiatives will take time to reposition the Company, we see clear signs of progress, especially in light of the flurry of new competition in our existing markets. Our performance in these competitive markets has been consistent with our projections coming into the year, so no surprises from our perspective.

As a brief update on the progress made in the Company's five key priorities for 2004, we said that we're going to focus on improving the quality of our management team. And I think our first announcement on that front is a good example of initial success. We're pleased that Rick Leto will be joining our team June 14th. The hiring of Rick as our President and Chief Merchandising Officer was one of the more important items in our to-do list. Rick will be responsible for marketing, merchandising, planning and allocation. He will also be a partner with me on the merchandising aspect of the stores.

Rick was previously Executive Vice President of Merchandising at Kohl’s. Rick was one of the early players at Kohl’s and helped them grow from a small retailer when he joined them to the $10 billion sales company they are today. Previous to Kohl’s Rick was Executive Vice President of Merchandising of Macy's East. He has extensive experience in both merchandising and stores.

Next on our to-do list is the area of hiring a new Director of Stores who will have a solid background in both merchandising and store operations. We believe having a qualified individual in this position will assist us in taking our customer service and our merchandise presentation to a much higher level. This position will work with Rick and myself to reach these goals. We will continue to strengthen our management team throughout the weeks and the months ahead. We continue to make progress in strengthening our merchandise assortment, and we expect Rick will make a significant contribution to this area.

We have several categories that performed very well during the first quarter. They include athletic apparel, athletic equipment, and athletic footwear. We have two challenging businesses both with new divisional merchandise managers. One is the outdoor equipment. We have cleaned up the aged inventory and the broken assortments. While the outdoor equipment is within our aging standards, we still in my opinion are probably a quarter or two away from having that business on track from a new receipt perspective. The other area of focus is casual apparel where that assortment also needs work, and we will not be on track until the back half of this year.

Inventory turns have improved due to our diligent attention to this important metric. We have made progress on the SKU rationalization program -- actually we're well ahead of plan. Our comp store inventories are down 14.9 percent. As Ed mentioned, our inventory per square foot on a total store basis is down 21 percent. Our inventory turn is 18 basis points better than last year. Overall our inventories are in good shape and will be equal to or better than our aging standards as we conclude the spring season.

We're making strides in improving our marketing strategy. There are a couple of points I would like to emphasize. We have begun to test the sales promotion cadence in our business model as it relates to the recreational consumer. However, it is important to note that we will continue to embrace everyday low pricing and the upscale segments of our business that attracts the avid enthusiast. The goal of the promotional strategy is to increase traffic coming into GALYANS and better attract the recreational consumer into our stores.

Our fifth and final priority is enhancing our customer shopping experience. Everything we're doing, including the addition of new managers, presenting a stronger merchandising assortment, and the marketing message we're sending out has a direct impact on our customers. We have completed our stores' reorganization and getting ourselves positioned for the all-important fall season. One real measurement of success of these initiatives will be seen as a positive comp store sales by the end of this year.

Turning to new stores, we remain on track to open nine stores in 2004. We have already opened new stores in Hoover, Alabama, Middleton, Wisconsin, Virginia Beach, Virginia, Lakewood in Colorado. Our next new store opening will be in Freehold this summer. We also have two stores opening in both third and fourth quarters, one being a replacement store in the Indianapolis market.

As we look forward in to the second quarter we have several new competitor store openings in our existing markets, therefore, we expect comp store performance will be a challenge for us. But I will tell you, we're up to the challenge.

As we stated in our last update, 2004 is a transition year. We still have a lot of work ahead of us. We're focused on positioning the Company for long-term success. We're on track with our new store openings in 2004 and our plan for 2005 and beyond. We feel very good about the progress we have made to date. And if I will now, Ed and I will be ready to answer any questions you have at this time.

(OPERATOR INSTRUCTIONS). Anthony Lebiedzinskin.

I just have a couple of questions. Could you give us a little bit more color on the SKU rationalization program? What areas are you focusing on the most, and what is also -- how much more work needs to be done in those areas?

Well, the one principally we have looked at, Anthony, is the outdoor equipment where we were over assorted in that area of business. And our real focus there is how we can be more narrow and deeper in our assortment. I would tell you the SKU rationalization program is really an ongoing process. It is not a onetime initiative. We're taking that same strategy and the processes and running it across every family of business within the GALYANS organization. And we're seeing improved turn in virtually every aspect of the business.

Okay. And as far as the new promotion you have, the Titanium-Clad Guarantee, anything you could comment about that so far?

We have actually always had that in place. We have always guaranteed to meet or beat a competitor's price. I think that with all the promotion around us about lower prices or lowest prices we have felt compelled to reinforce the message that we do have the best values in the market, if the customer wants to challenge a price in our stores.

Okay. Could you also comment a little bit about your advertising strategy? One of the stores in the New York area has -- I spoke to some of the stores associates there and they have said that they just don't see the store traffic that they should because you guys just don't advertise in the New York market. So I was wondering if you could just comment about that, please?

I would say you are probably talking about Roosevelt Field. And we have not advertised in that market as heavily as we have in our multi-store markets. And it is one of the items that we're looking at as we look at the balance of our marketing effort going through the second quarter and the remainder of the year. We certainly believe that marketing drives traffic, and in some of the one store markets that is a challenge for us, and one that we're in the process of addressing.

Okay. And with respect to the comp store sales it sounds like it was primarily decreased traffic or did you all see decreased ticket as well?

Actually, Anthony, our traffic -- and we measure that by transactions -- was better than the sales performance. So it is a metric that we look at every quarter, and that is consistent with all of our experience last year. So we still feel that the traffic is coming. And I think the issue again this quarter, as it was all through last year, was units per transaction. But our average retail is holding up very nicely, and I think that is worthy of note.

You remember year end we took these additional markdowns, and most of those have flowed through in the first quarter. So we even with those higher markdowns that we accrued for last year the average ticket is holding up nicely.

Sean McGowan of Harris Nesbitt

Two questions. One, as you work down the average level of inventories in the stores, can you give us an idea of what, if anything, you plan to replace the inventory with? In other words as SKU rationalization goes on there will there be an increase as you begin to focus on some additional categories in the future?

And secondly, perhaps more broadly, has there been anything that you have noticed either in your own stores after some strategic review, or what the competition is doing that would lead you to tweak the formula going forward, so that the stores that might be open next year might have a different look, or anything different about them? Thanks.

Well, I would say that the key strategy, the SKU rationalization program, is really focused on newness and freshness of inventory. We really believe our customer wants the latest and the greatest coming into the market. And we want to position ourselves to where we have a new fresh inventory flowing through on a consistent basis.

In terms of new categories, we are looking to the new categories, but at this point in time I am not really willing to say that we going to move -- be moving one direction or another. As it looks to next year I would tell you that we are looking a little bit at how we going to tweak the format. We have certainly done some value engineering on the construction side of our stores, and they are not going to be as costly. But I think the wow factor of our stores will definitely stay in place; that will not be impacted at all. But we're going to continue to tweak the stores. And what we're trying to do is create more flexibility in the stores so we can take advantage of businesses that really taking off and contracting those businesses that are slowing down.

Matthew Fassler of Goldman Sachs.

I have a couple of questions for you. First of all, just Ed, as you give us an insight as to the progression of the debt balance over the course of year -- last year I guess if you look at your debt in the first quarter the debt was kind of flat, if you will, on a year to year -- on a sequential basis from the end of Q1 to the end of Q4. Given that you were up a bit year to year in Q1 and look to be down -- or look to be flat by year end that would imply some debt reduction from this level by year end. Would the difference be presumably higher net income? Are there different moving pieces on the working capital front that would probably drive that change?

Well, certainly is our anticipation that net income will improve, but the main drivers of debt levels are Capex and inventory. And I think as we continue to open new stores with the level of financing that we've gotten here there is just could be a lot less laid out for capital. And you know from our last call we also have goals to improve inventory turn, and I think you have seen that again in the first quarter. So the level of debt increase and decrease will be the same obviously from the seasonality of the business. But we will put less debt on the books because of lower Capex spending primarily.

Got you. Thank you. And my second question, you have done a terrific job resourcing the stores in terms of working capital appropriate with your sales level. That being said, if you look at the run rate, and this is obviously going to be give or take depending on how sales trend later in the year, you're tracking probably below 17 million per average store right now, whereas two years ago you were at a 20, three years ago 21, etc.

I guess the question is putting aside the working capital line item, where once again you've done a terrific job, can the stores make money at a $17 million volume versus something 20, 25 percent higher that we had seen earlier in the decade?

Well, I think to answer your question in terms of can the stores make money at 17 million, absolutely.

And Matt, I would tell you again we had no store other than the outlet store that we're just running because we have to open the store that didn't -- that weren't positive at EBITDA last year.

Got you. And related to that from a cost structure perspective are you basically where you want to be in terms of labor allocation and such, because we focus primarily on gross margin and working capital management, but is there a cost opportunity as well at this point, or is that something that you will save for later?

No, I think there's a cost opportunity. I will tell you our number one focus is driving topline sales. And we want to be responsible in terms of the expense management, and we see opportunities there. But we're really going to focus most initially on driving topline sales and improving our margins.

Okay. And my final question, if you gave this before and I missed it, I apologize. But if you could just quantity the shift between gross margin and SG&A associated with the EITF 02-16 and just clarify whether that is simply moving from one line item to the next, or whether there is still some transition charge, if you well, some net impact to the P&L?

Well, for the quarter, Matt, gross margin was favorably impacted by 1 million 3, and it is about 80 basis points. And marketing was unfavorably impacted about 600,000, so that was 40 basis points the other way. And the reason gross margin was up so much is you take those credits as you turn the inventory, and with all the co-op and all of the advertising allowance that we got in fourth quarter that really rolled through the inventory in the first quarter. So we're cycling EITF in the second year, and this was exactly as we had planned it.

Is the reason that there is a net benefit compared to a year ago simply because you're cycling in that hit last year?

That's right.

So in other words the net benefit should equate to last year's net hit, if we look back to previous calls?

That's right.

Harry Ikenson with First Albany Capital.

Just a follow-up on the gross margin, a couple of things. In the release you said that you got leverage on the DC, and I think that is the first time. Do you think you'll continue to get leverage on the DC going forward?

Secondly, also on the components of gross margin, could you go over IMU, markdowns and overall merchandise margins? And then I have one other follow-up question.

Yes, we do think we will leverage the rest of the year in the DC. I remind everybody that the first quarter is our lowest sales quarter. And the DC has been, as I have said many times before, starting to leverage very nicely. So if they leverage in their first quarter they certainly are expected to do that throughout the year.

In terms of the components of gross margin just for color I will certainly tell you that IMU was favorable to last year. It certainly was up. It was offset by markdowns, and the net net it was probably up about 20 basis points. And again, as I have told you EITF was favorable 60. And the DC was up about 40 basis points. As I think that gets you pretty close to the 130 for the quarter.

Great. And then also while you're talking about markdowns, also about markdowns, when do you think you'll get to the point where markdowns get to a more normal rate as you're going through these initiatives?

I think we will get there as we go through the year. You know as Ed said we're making good progress on SKU rationalization, particularly in the camping zone. We have other categories we're looking at. But I would tell you that all of these are baked into our expectations and how we're running the business and -- but we would certainly expect to get through that sometime this year. But as Ed said, before SKUs rationalization is never done, and what we want to do is get more current on taking markdowns (indiscernible) the merchandise and getting those out of the system so that we have open to buy for fresh merchandise, and that is the focus of inventory turns.

And I will just highlight that. I think the reality is the aged inventory issue is behind us. We're very focused on keeping the inventories current. We're taking timely markdowns on slow-moving goods, and we will continue to take timely markdowns on slow-moving goods. We want to keep the inventories fresh. We want to keep them new, because we think that is what will differentiate us in the marketplace.

Have changed the markdowns policy as far as what you do on a first markdowns and what it might have been before you came to the Company?

Yes, we are a little more aggressive.

Okay. And then regards to stores for next year, is it still seven stores? And is there third party financing in the plan for that also?

Next year, Harry?

Yes.

Yes, absolutely. And you know we said in or 10-K that we are looking to do between three and five stores next year, but yes they will have the same level of financing we had this year.

Okay, and then finally, you refer to your expectations a lot. You share with us that you think comps could be positive by the end of the year. I assume that is the fourth quarter. But could you give us any color on operating margin going forward?

You know, I don't think we want to be very specific, Harry. As Ed said, fourth quarter and today, this is a transition year for us. We have a lot of initiatives that we're working through. Certainly our expectation is to improve topline. And you know to follow-up on a question before, the leverage opportunity we have on the cost infrastructure on higher sales is tremendous. So again, Ed said his initiatives and his goal is to drive topline sales and that is our number one focus.

Mike Napolitana from JMP Securities.

I just had a follow-up question regarding inventory and gross margin. Ed, maybe you can share what is your reserve for inventory heading out out of the first quarter? It was up to 3 percent at the end of the year, and with the cut in inventories that you made in the first quarter, is it still at that 3 percent range or did you take that down a little bit (multiple speakers)?

No, inventory is lower. We accrued 3.1 of cost last year for aged inventory. I will tell you that 90 percent of that was taken in the first quarter. But as Ed just commented, we're getting more aggressive on how we look at taking markdowns, and we established what we think is an appropriate reserve at the end of the first quarter to deal with aged inventory and keep it fresh. But it is a lot lower than it was at the end of the year. And I would tell you it is less than 50 percent of that. And I think that reflects the fact that the aging is behind us.

So you're saying that your inventory reserve is more in the 1 5 range, which is closer to maybe your historical range over the last couple of years where was in the 1 2, 1 3 range?

Yes, I think that is fair.

And then with respect to inventory going forward, are we expecting to see inventory per store or per square foot -- I don't expect to see it drop this significantly for the remainder of the year -- but maybe give some color on where that might settle out over the next couple quarters in advance of Q4?

Yes, well as I said on the last call, and I think we had this same question, I certainly do expect that we'll have lower per store and per gross square foot inventories. And that is really going to be driven by our ability to -- in our goal to increase turn. So as we increase turn, the inventory per store is going to decrease further, but not to these levels, Mike.

I would also say there is a balance in terms of inventory to sales. Sales are a function of stock. And if you look out at us over the last quarter our comp store inventory was down 14.9 percent. Our comp store sales were down 1.4. As we balance these inventories, and I think we do at this point have them balanced, we think there are areas where we can invest in the inventories and drive topline sales.

So we are going to stay very close to the inventory. We are going to keep it tight. We are going to turn it. But where we see items where we can buy key items in depth, we going to buy key items in depth and drive topline sales.

I guess the question is -- I understand the inventory turns going up, but if inventories are continuing to go down and your gross margin continues to go down that return seems like it is heading in the wrong direction. And your goal is to drive topline sales. Where do you see the improvement, and what categories are you really focused on specifically?

Well, I think that we have several categories were we're doing very well and we're investing in the categories. As I said earlier, we're doing very well in athletic equipment. We're doing very well in athletic apparel. We're doing overall very well in footwear. And we see opportunities to drive all those businesses. We actually see an ability to drive outdoor equipment in camp, hunt, fish. But I don't see that happening for another quarter.

I think the casual apparel area in the longer-term basis is a home run for us. But it isn't over the next quarter. So I think we have strategies in place on a business by business basis in terms of where we can optimize sales, and we will invest in those inventories appropriately. We're not going to over buy inventory. We're basically going to keep a relationship between what we think the inventory levels should be to drive topline sales.

And then I guess it goes in conjunction with the planning and allocation that is starting to come online as well?

Absolutely.

And then lastly, Ed, with respect to the EITF impact is it natural to assume that that type of relationship is going to extend through the remainder of the year or will that taper off a little bit?

It will taper off. I don't expect a significant increase in EITF year-over-year once you know -- because don't forget we will start cycling again the vendor co-op and hang it up on the balance sheet, and won't flow that through until the first quarter of '05. So I don't see EITF as a big earnings impact in '04.

Ralph Gene from Wachovia Securities.

One of my questions has been answered, but would you mind providing the dollar value of the CEO departure expense, please?

Well, it is 5 cents per share, and I think if you just do the math and is about 1 million 5.

Brad Leonard from ETG.

What is the goal on the SG&A? I have noticed this has gone up four years in a row for this quarter. I mean are we going to see continued that for the rest of the year or is that going to be the goal to get that back to a better level?

The goal is to get it back to a better level. And on the last quarter call we were asked if we could get this business back into the 5 percent operating margin range, and the answer was absolutely. And part of that is going to be the leveraging of SG&A on stronger sales. So it is really the topline is the issue here when you look at leverage.

And I think if you look in our business today we have the infrastructure in place to grow this business significantly. So we don't see a lot of added G&A as it relates to growing the business. And I think there are opportunities to improve upon the G&A as it is today. So we look at SG&A overall going down.

Well, you know, even if I look at this -- if I strip out some of these costs, onetime you get down to maybe -- I don't know -- a 30.5 or 30.4 versus in '01 it was 27 8. And depreciation, it just doesn't seem like it would get it back down there yet.

Well, it in the first quarter we had increased marketing costs with the competitive situation. Again we're looking at first quarter as the lowest sales quarter, so you're going to get significant leverage on depreciation, the increased marketing spend and the straight line event. So I think the seasonality of this business, it is what it is. It is very heavily skewed to the fourth quarter. And I think to look at the first quarter in a vacuum is probably not a good indicator of where we see the rest of the year playing out. But we also intend to perform better in terms of our expectations to the Board. So we're building in some potential bonus pay out. And there are a lot of things running through the P&L that were not there last year.

So I would say your challenge is a good one, and we're focused on it. But I will tell you our number one goal is driving sales, and number two is we will bring expenses into line. I don't have a concern with bringing expenses into line.

Okay. So you think on the year-over-year basis for the rest of the year is going to be more flat with last year, or is it still going to be higher?

We're not going to make any specific predictions. I think what we said is we expect comp store sales to get into the positive range by the end of year. And we think this business over the long-term has the ability to get to a 5 percent operating margin. And I think that is about as specific as we're comfortable getting right now.

Okay. One more question. What kind of impact do you think Dick’s had overall in the sales number coming into the Indianapolis market?

I would say think Dick’s is, according to their advertising, is up. They had a stellar opening. But their performance, at least as it relates to us, was right on our plan. It was well within our radar screen. And while we had some impact to our market share it was not significant.

Okay. You know is this kind of the goal how they came to the market here and then they just blast you with advertising. They opened three stores. They have plans to open two more. Is that what you guys are going to plan to do in the future when you go into these new markets -- instead of a single store in New York you're going to go in there was maybe two or three where you can leverage advertising a little bit?

Absolutely. That is what we have said in the past. As we look at our markets we're going to look at markets where we can have a multi-store formula where we can leverage marketing and the logistics costs and in addition to get a greater brand presence in those markets.

(OPERATOR INSTRUCTIONS). Ryan Esposda (ph) from Thomas Weisel Partners.

Could you guys please, if you can, elaborate a little bit on 2005 store openings? Do you have a feel for that?

At this point in time we have two signed deals. We have one that is very close to signing. We're looking at a couple of other locations at the present time. Our expectation at the moment is not to go beyond five. And I think we're comfortable with that number. As something presents itself that is terrific, we will certainly consider it. But right now we're well within the guidelines of where we said we would be, three to five stores in 2005.

Okay. And your cost per store opening, where is that now or where is it planned to be?

Well, it gets a little bit more complicated since we have a greater mix now of 65,000 square foot stores. And I think if you refer to our 10-K, we gave some ranges here on (indiscernible) being between 3 and 5 million, inventory being between 2.5 and 3.5, and preopening about 500,000. So there is a pretty wide range, 6 to 9 million. But it really depends upon the size of the store, and also the market where we are opening that store, because labor costs are certainly very different in different markets. But that is the range of costs. And those are our costs, obviously we get the financing from the landlord and he's providing the building and the land, and we pay him a rent stream and that is his return.

And should we assume that you're going to see similar levels of landlord contribution going forward?

Yes. Absolutely.

Okay. And on the merchandise front, you guys mentioned that you had some strength in footwear and apparel. Could you elaborate a little bit on that?

Well I think that in terms of where we had nice strength in athletic equipment we actually had very good performance in golf, team sports, racquet sports, baseball. I mean, almost across the board in athletic equipment we saw positive performance. In the area of athletic apparel we saw very strong performance in men's. Under Armour is performing extremely well for us. Nike is. In the footwear area our performance really is in women's footwear, Nikes Shocks. Asics is performing well. So we have got a lot of businesses at this point that are performing nicely.

Bill McHenry of Manning Capital.

I had seen that you folks have moved into new headquarters, and I was wondering if your lease payments have stepped up very much? And also on your old headquarters I still understand I guess you don't have any place to go with that quite yet?

We have moved in our new headquarters. It was probably the easiest transition that I have ever experienced. As it relates to the old building, that building has value. We think it is going to grow in value. So at this point in time we are keeping it as an asset, but we're always open to discussion.

Has the lease payment stepped up very much in your new facility versus your old one?

Yes, they stepped up. But it is not significant in the big scheme of things.

All right. Another question. Has your vendor co-ops changed much year over year? I understood -- someone else was saying in another firm that in '02,'03 it was a little higher than it is currently relative to sales. Do you see it as the same or has it diminished at all?

Well, the vendor really tracks purchases since that is what the vendor is giving you the funds on. So as our sales increase and our purchases increase, the absolute dollar level absolutely is up. But I wouldn't tell you as a percentage it is that much different.

Pretty static. Okay, thanks a lot.

(OPERATOR INSTRUCTIONS). Scott Krasik of C.L. King.

Just on the merchandising, to expand that a little bit, what sort of impact do you expect the better weather to have on some of your hard goods in the second quarter? And maybe if you could expand a little bit on which categories in particular? One of your competitors indicated that fishing and hunting was pretty weak in the first quarter, but because of easier comps they expect a good second quarter. So if you can give any detail on that?

I would say that when you look at first quarter to second quarter in the world of outdoor equipment, our penetration to total business rises fairly significantly. I think, as you said, the competitor -- our fishing business has been soft also. Our hunting business actually has been pretty good. We think the real opportunity going into the second quarter will be in the area of camp and hunt, to a lesser extent, fish.

But I would say, as I said in my opening remarks, I don't think we're totally on track there. We're making very good progress. I think by the end of the second quarter we will be basically on a full stride. But I think the first part of this quarter we're not exactly where we want to be.

Well do you have pretty easy comps for most of your hard good categories from last year?

No, not necessarily. I think it does vary a little bit by business by business. I would not call them easy comps. I think overall we had a negative comp store performance last year, and we had a negative comp store performance, as I remember, in outdoor equipment. So I think there is some opportunity there particularly as it goes to the latter half of the second quarter.

Sir, at this time there are no further questions.

All right. We would just like to close by saying thank you for joining us on today's call. We look forward to giving you an update on our progress at the conclusion of the second quarter. Again, thank you and have a great day.