DICK'S Sporting Goods Inc (DKS) 2004 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Dick's Sporting Goods third-quarter 2004 earnings conference call.

My name is Rachel and I will be your coordinator for today.

At this time, all participants are in a listen-only mode.

We will be facilitating a question-and-answer session towards the end of today's conference. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today's call, Mr. Jeff Hennion, Senior Vice President of Strategic Planning.

Please proceed, sir.

Thank you, and good morning to everyone participating in today's conference call to discuss the third-quarter financial results for Dick's Sporting Goods.

We are pleased that you could join us today.

Please note that a rebroadcast of today's call will be archived on the Investor Relations portion of our website located at DicksSportingGoods.com for approximately 30 days.

In addition, as detailed in our press release, a dial-in replay will be available for approximately 30 days.

In order for us to take advantage of Safe Harbor rules, I would like to remind you any projections or statements made today reflect our current views with respect to future events and financial performance.

There is no assurance that such events will occur or that any projections will be achieved.

Our actual results could differ materially from any projections due to various risk factors which are described from time to time in our periodic reports with the SEC.

Certain financial and statistical information discussed on this call is non-GAAP financial information for the purposes of Reg G. Reconciliations for non-GAAP information can be found in our press release or at www.DicksSportingGoods.com.

Leading our call today will be Ed Stack, Chairman and CEO.

Ed will discuss our third-quarter financial and operating results, review the guidance contained in our press release, and provide an update on the Galyan's conversion.

Bill Colombo, President and Chief Operating Officer, and Mike Hines, CFO, also join us here.

Bill will be discussing our store openings, and Mike will review in more detail our financial results.

I would now like to turn the call over to Ed Stack.

Thanks, Jeff.

We are pleased to be able to report the results of our third-quarter, which is the first full quarter Galyan's has been a part of our Company, and represents another quarter in which we've demonstrated consistent growth.

This quarter, excluding merger integration and store closing costs, we are reporting net income of $2.9 million or 5 cents per diluted share, which compares against our guidance of 3 to 4 cents per share.

Including merger integration and store closing costs, we are reporting a net loss of 1.8 million or 4 cents per diluted share.

Total sales for the quarter increased 60 percent to $541 million.

Comparable store sales increased 1.5 percent.

Galyan's stores will not be included in the comparable store base until 13 months after the completion of the rebranding and remerchandising effort expected to occur by the end of the first half of 2005.

We will be reporting only the consolidated results now and in the future.

However, I should reiterate that we continue to expect the acquisition to be accretive this year and are pleased with the results we've seen to date.

During the quarter, we saw favorable results throughout much of our business, including women's and kids' footwear and apparel, team sports, cleats (ph), accessories, sport games and bikes.

We also saw favorable results in licensed product, primarily due to the sales of Red Sox championship merchandise.

Those favorable results were somewhat offset by a few businesses including boots, in-line skates, and cold weather-related products.

Our private-label business continues to grow.

In the third quarter, private-label product sales in Dick's stores represented 9.6 percent of sales, an increase from last year's 9.2 percent.

The private-label sales represented here are for programs developed by Dick's and do not include any remaining private-label products developed by Galyan's.

On a year-to-date basis, the private-label products sales were 10.5 percent of sales as compared to 9 percent last year.

As we progress through the reassortment of the Galyan's stores, we will be rolling out our private-label program, and we will begin to report private-label sales on the full chain.

We expect this will be complete by the end of the first half of 2005.

Net income through the third quarter, excluding merger integration and store closing costs, increased 18 percent over last year's net income of 26.8 million to 31.7 million.

Comp store sales through the third quarter of the year increased 3 percent.

This year's operating results include Dick's only for the first 2 quarters and the combined company for the third quarter, except for comp store sales noting that Galyan's stores will not be included in the comparable store sales base until 13 months after the completion of the rebranding and remerchandising effort.

I would now like to provide an update on our acquisition of Galyan's.

At this point, our conversion efforts at Galyan's are progressing well.

In the 3 months since we've owned Galyan's, we have re-signed 16 of the 47 Galyan's stores in order to begin to leverage the advertising spend in the markets where both Dick's and Galyan's operate stores, and we've also begun the effort to synchronize the assortments in the store.

In the first half of 2005, we plan to convert the Galyan's distribution center to our warehouse management system and begin to optimize the stores that each DC serves based on geographic location.

We have approximately 60 associates remaining in the Galyan's corporate office in Indianapolis, down from approximately 300 at the time of the acquisition announcement.

This building is on track to be closed early next year, and 30 to 40 associates are in the process of moving to Pittsburgh.

Overall, our plan is on track to complete the conversion by the end of the second quarter of next year.

At that time, we will be operating these stores under the Dick's name with the same merchandise assortments, financial discipline, and customer service expectations as we have for the rest of our stores.

We have completed our analysis on store closings.

As a result of the acquisition, we are closing 9 stores.

These 9 stores consist of 3 Galyan's stores and 6 Dick's stores, and all but one are targeted to close at the end of the fourth quarter this year.

In addition, we closed 2 Dick's stores during the third quarter, one that was replaced by a new store which opened last year and the second due to performance.

Adjusted for these closings, we now expect at the end of the year to operate 230 stores in 32 states.

We are prepared to now provide our expectations for merger integration and store closing costs.

In total, we expect to incur merger integration and Dick's store closing costs of approximately 70 million pretax, of which 7.7 million was incurred in the third quarter.

These costs include the expense of closing stores, advertising the rebranding of the Galyan's stores, duplicative costs, recruiting and system conversion costs.

In addition, Galyan's stores and corporate office estimated closing costs totaling 35 million as of October 30, 2004, have been included in the purchase price allocation.

We have updated our guidance for the remainder of this year and next.

For the full-year 2004, we now expect to report earnings per diluted share, excluding merger integration and store closing costs of $1.37 to $1.39, based on an estimated 53 million diluted shares outstanding.

This is an increase from the guidance provided at the end of the second quarter of $1.35 to $1.37.

This guidance includes a comp store sales assumption for the year of approximately 2 to 3 percent.

We are also increasing our earnings per share guidance for the full-year 2005 to $1.79 to $1.84, from $1.77 to $1.82.

Beginning in 2005, our earnings guidance includes $20 million of estimated annual cost savings in merchandise buying improvements and excludes merger integration and store closing costs associated with the Galyan's purchase.

We now expect to open at least 20 new stores in 2005, and trimming back to our 15 percent annual square footage growth in 2006 and beyond.

For the fourth quarter of 2004, we expect to report earnings of 77 to 78 cents per diluted share, which excludes merger integration and store closing costs, and compares to last year's earnings of 26 million or 50 cents per diluted share.

Including merger integration and store closing costs, we expect earnings per share of 37 to 38 cents per diluted share.

These expectations for the fourth quarter assume a comp sales gain of 1 to 2 percent.

This has been a very busy quarter for us, and I have to commend our associates for delivering these strong operating results while opening 14 new stores in the quarter, as well as making significant progress on the conversion of Galyan's within 3 months.

At this time, I will turn the call over to Bill.

Thanks, Ed.

During the third quarter, we opened a total of 14 new stores. 7 of the openings were new single-level Dick's stores; 1 was a single-level Galyan's store, and 6 were two-level Dick's stores. 5 of the stores were in new markets;

Bangor, Maine;

Lafayette, Indiana; 2 stores in Madison, Wisconsin; and Muskegon, Michigan. 9 of the stores were in existing markets;

Enfield and Meriden, Connecticut, our 4th and 5th stores in the Hartford market;

Pottstown, Pennsylvania, our 13th store in the Philly Southern New Jersey market; our second store in Fort Wayne, Indiana;

Algonquin, Illinois, our 7th store in Chicago; our 7th store in Charlotte, North Carolina;

Carmel, Indiana, our 5th store in Indianapolis; and Westlake and North Homestead, Ohio, our 7th and 8th store in Cleveland.

As previously disclosed, the Chicago store was opened as a Galyan's store since Dick's does not yet have a presence in the market.

The store will be converted along with the entire Chicago market by the end of the first half of next year.

All stores that open in the future will open as Dick's stores.

As Ed mentioned, we closed 2 Dick's stores during the quarter, which includes 1 store in Cleveland that was replaced by a store we opened last year and another store in Philadelphia that was closed due to performance.

As of October 30th, we operated 233 stores in 32 states.

Total square footage for the combined companies at the end of the third quarter was 13.4 million square feet versus 12.7 million at the end of the second quarter.

Looking to the fourth quarter, we expect to open 5 stores in total, and these stores have all opened.

All of the stores are single-level Dick's stores, and they are located in Easton, PA, our second store in the Allentown market; 2 stores in Indianapolis, our 6th and 7th in the Indianapolis market;

Portsmouth, New Hampshire; and West Mifflin, PA, our 9th store in Pittsburgh.

For the year in total, we have completed the 2004 new store openings, having opened 29 new stores.

Including the 8 stores planned to close for the fourth quarter, we expect to end the year with 230 stores.

I will now turn the call over to Mike to go through our financial performance in more detail.

Thanks, Bill.

Our earnings release included a statement of operations prepared in accordance with GAAP, which compares the 2004 third-quarter combined results of Dick's and Galyan's against last year's Dick's only results.

In order to enhance the comparability of our results, we also compare this year's third-quarter and year-to-date results against pro forma results of last year, as if the Galyan's transaction had occurred as of the beginning of all periods presented.

Adjustments made to the pro forma results included the reclassification of discounts on Galyan's associates' purchases as a reduction of sales rather than as an operating expense, an increase in interest expense to reflect the increase in borrowings required to fund the acquisition, and other reclassifications to bring these statements into conformity with Dick's classifications as described in the footnotes to those statements.

I will begin by giving an overview of the GAAP results.

For GAAP purposes, the 2004 third quarter includes both Dick's and Galyan's operations, whereas last year's results do not include Galyan's.

This quarter, sales increased 60 percent from last year's $338 million to $541 million this year.

Gross profit increased by 56 percent from $89 million to $138 million this year.

This represents a gross profit rate of 25.54 percent of sales this year versus 26.27 percent last year.

This change was driven by an increase in merchandise margin, offset primarily by higher occupancy costs at the Galyan's stores.

SG&A increased from $80 million to $125 million.

As a percentage of sales, SG&A declined from last year's 23.72 percent to 23.07 percent this year.

This represents leverage of 65 basis points.

Merger integration and store closing costs were $7.7 million this year.

On a GAAP basis, including merger integration costs, we are reporting a loss of $1.8 million and 4 cents per share this year as compared to net income of 4.7 or 9 cents per share last year.

Excluding merger costs, earnings were 2.9 million or 5 cents per diluted share.

The pro forma operating statement compares this year's third quarter to last year's third-quarter pro forma, which includes results from both Dick's and Galyan's.

Sales for the quarter increased 11 percent to $541 million from $485 million, with a comp store sales gain for the Dick's stores of 1.5 percent.

Gross profit was 138 million, increasing 66 basis points from 24.88 percent to 25.54 percent of sales.

This increase was due primarily to expanded merchandise margins, offset somewhat by higher occupancy costs as a percentage of sales at the Galyan's stores.

Our SG&A expenses of 125 million were 23.1 percent of sales and 61 basis points lower than last year's pro forma third quarter.

Incentive accruals were recorded earlier this year, and some synergies were attained with lower corporate payroll and benefits at Galyan's.

Pre-opening expenses of 5 million approximated last year's level.

We opened 14 new stores this year compared to 16 new stores in last year's third quarter.

Pro forma operating income, excluding merger integration and store closing costs of 7.7 million, increased from $600,000 pro forma last year to $8.2 million this year.

Merger costs of 7.7 million this year include Dick's store closing costs of 2.6 million, duplicative Galyan's corporate payroll and occupancy costs of 3.2 million, and 1.9 million of other costs such as recruiting and temporary services.

Interest expense of $3.5 million increased from $3 million last year, due primarily to the interest expense associated with our notes issued in February of 2004.

Third-quarter net income, excluding merger integration and store closing costs, increased from breakeven last year on a pro forma basis to $2.9 million this year.

Year-to-date GAAP results include Dick's only for the first 2 quarters plus Dick's and Galyan's for the third quarter of this year, while 2003 includes Dick's on a stand-alone basis.

Earnings per share of 51 cents this year compared with earnings per share of 54 cents last year.

Excluding the impact of merger costs, earnings per share this year were 60 cents versus 54 cents last year.

Again, in the interest of enhancing the meaningfulness and comparability of our reported results, our pro forma operating statement has been prepared as if the Galyan's transaction had occurred at the beginning of each period presented as described in the footnote to those statements.

Pro forma earnings per diluted share before merger integration and store closing costs from 39 weeks in 2004 of 36 cents compares to 34 cents last year.

As for the balance sheet, we ended the third quarter with $625 million of inventory as compared to 370 million last year when we did not own Galyan's.

On a pro-forma basis, combined company inventory per square foot is down 9 percent compared to the last year, which was primarily caused by Galyan's.

If you recall, the Galyan's inventory levels had been reduced by 20 percent on a per square foot basis at the end of Q1 this year, as a result of a skew rationalization effort which had begun before we purchased the company.

We ended the third quarter with $260 million of outstanding borrowings on our $350 million line of credit.

Excess borrowing availability totaled 74 million at quarter-end.

October is the high point for the year in terms of our quarter-end borrowings, and we expect to use cash generated during the fourth quarter to pay down a portion of this debt by year-end.

Goodwill associated with the Galyan's acquisition increased 22 million from the end of the second quarter.

This is due primarily to a decrease in the deferred tax assets resulting from the booked tax difference of Galyan's fixed assets at the time of acquisition.

Other changes to the purchase price allocation include a $37 million decrease in other current assets, due largely to the decrease in deferred tax assets, a decrease in long-term liabilities of $16 million due to the write-off of deferred rent and change in deferred taxes; a decrease in property and equipment of $8 million due to an increase in the original Galyan's store and corporate office closing estimates; a $5 million decrease in long-term debt due to the elimination of a capital lease associated with a store scheduled to close; and $5 million were recorded for the value of store leases based upon a recently completed appraisal.

All of this will be provided in our 10-Q, which we expect to file in about 2 weeks.

Moving to the cash-flow statement our capital expenditures year-to-date through the third quarter were 19 million net of sale leasebacks.

We anticipate CapEx for the year to be approximately $30 million, which excludes the cost to retrofit the existing Galyan's stores to Dick's stores, as this cost, if any, has not yet been determined.

Finally, I would like to speak to a couple of operating metrics.

We have spoken in the past about the single-level store model.

At this point, given the number of two-level stores we've opened in addition to the Galyan's stores, we wanted to provide the two-level model for your consideration.

Our model for the two-level stores is based on second full-year sales of $13.7 million, cash flow of 1.2 million, and a net cash investment of 3 million, for a cash-on-cash return of approximately 40 percent.

This compares to the single-level store model, which is based on the second full-year sales of 8.7 million, cash flow of 700,000, and a net cash investment of 1.8 million for a cash-on-cash return of 40 percent.

The return expectations are essentially the same for both formats.

Top-line expectation can vary based on occupancy and advertising costs, but our return expectations are consistent.

Many of you are also tracking new store productivity.

We have added a square footage schedule to this release to help with that analysis.

Including the Galyan's stores which are now part of our non-comp base, our new store productivity for the third quarter was a bit over 80 percent, essentially equal to the second-quarter statistics.

This compares to prior quarters new store productivity rates in the 90 percent range.

Both quarters are less than previous levels for 3 reasons.

First, a number of stores will open late in the quarter.

If you exclude the stores opened in the last 2 weeks of the third quarter this year and the stores relocated this year, new store productivity increases to 85 percent.

Secondly, a greater number of this year's new stores have been opened in existing markets as in-fills as opposed to new markets.

Through the third quarter of last year, one-third of the stores were opened in existing markets.

This year, 60 percent of new stores opened in existing markets.

This is relevant as our expectations for sales in an existing market can be lower than our sales expectations for a new market.

The leverage in advertising allows us to achieve targeted profitability and return hurdle rates at lower sales levels.

Thirdly, this year our stores have opened slightly later.

On average, our new stores have been opened 4 weeks less than the average new store last year.

As a result, the new stores have had less time to generate sales.

In the end, our primary focus is on profitability.

We are at least meeting our new store performance and return expectations, which has allowed us to deliver another quarter of improved earnings.

At this point, operator, I would like to open it up for questions.

(OPERATOR INSTRUCTIONS) Robby Ohmes of Banc of America Securities.

Thanks.

Just a quick question on Galyan's in the integration.

As we are looking at those stores through holiday here, how are you going to manage those stores?

Have you taken inventory write-downs and you will be clearing inventory through holiday, or sort of if you could just give us a kind of picture of how these stores should look to us as we go through them before they are converted to the fixed format?

Thanks.

Sure.

We are in the process right out of clearing through that inventory.

If you walk into the stores, you will see a clearance area where we've pulled the majority of the clearance product together.

Through December, through the best of November, December, and into January, you will see us cleaning out the product that is not going forward.

If you also walk into the store even today, you will see a number of products that we've already started to synchronize those assortments.

You will see Walter Hagen golf apparel in the stores, along with Walter Hagen equipment.

You will start to see some of our private-label field boots from Field and Stream.

You'll also start to see an assortment of a greater degree of products that we carry.

There will be more general sporting goods in there, more team sports in there, and that process is well on the way.

Okay, just ask a quick follow-up.

I was surprised the private-label percent to the mix didn't skew up a little more this quarter.

Was there a specific category in your private-label that performed, or can you just tell us what happened there?

No, nothing underperformed.

We were pleased with our private-label product sales, and the third quarter is a quarter that is still -- is a big back-to-school quarter.

And you take a look at the footwear component, the footwear component of our third-quarter sales is pretty significant.

From a private-label standpoint, we are certainly -- and we've always indicated this -- that we would be replacing our private-label product with second-tier vendors.

And Nike, Adidas, and some of those upper-tier vendors from a footwear standpoint are a big part of that third quarter.

So it was right where we expected it to be.

Great.

Thanks a lot.

Matthew Fassler of Goldman Sachs.

Thanks a lot and good morning.

A couple questions.

First of all, following up on the question about the inventory write-down, it seems like you are clearing a bit of inventory at Galyan's.

There was no mention in the context of the charge of any provision for inventory write-down, so presumably you're flowing that off through the P&L.

And just curious what impact that might be having on your gross margins in the quarter you just reported and also going forward?

Matt, we did, in fact, take an adjustment in connection with the purchase price allocation for inventory.

So there is activity on that line.

A portion of those markdowns are going through the P&L, and a portion of those are being applied against the reserves.

The accounting pronouncement is based on the nature that the profit margins are normalized as you go through this kind of conversion, and that is what we're doing.

So the reserve is part of the purchase price adjustment and not reflected, say, for example, in the second quarter pro-forma Galyan's numbers that you gave us?

I don't understand your question.

Could you --?

Basically, that adjustment does not show up on the P&L, either for the third quarter or for the first half.

The adjustment is included in the results as we've reported them.

Okay, very good.

Second question, just to understand as we work to forecast your numbers for the fourth quarter and the first half of next year trying to integrate our old Galyan's models with our old models for Dick's, were there differences in the line items, if you will, in terms of classifications, in terms of what you included in cost of goods and SG&A versus the way Galyan's has treated those line items?

Yes, included in cost of goods for ourselves is store rent, store depreciation.

They did not include depreciation and cost of goods.

They included merchandising, salaries, and cost of goods, which we don't.

We have all that in SG&A.

Those were the 2 most substantive differences.

Okay.

In terms of the comp for the quarter, you printed a 1.5; the guidance had been 2 to 3.

It sounds like weather, at least cold weather apparel, if you will, might have been a bit of an issue.

How should we think about the comp trend that you emerged with for the quarter, if there is anything that didn't go the way you wanted it to, whether it was in the environment or in your execution?

What would you peg it on, understanding that that is only a 50 basis point shortfall?

Matt, the comps shortfall was more than 100 percent related to cold weather products and cold weather activities.

The other areas of our businesses we indicated were fine, and we hate to hide behind the weather, but when you just take a look at the sales associated with cold weather product, it was more than the entire miss from a guidance standpoint on comp store sales.

And, as you know, it has been extremely warm here in kind of the Mid-Atlantic states in the Northeast.

That makes actually a good point, that we don't hide behind weather.

You will note that we are using the word weather in response to your question.

And that we did, in fact, exceed our earnings guidance and have not made any reference to weather.

Fair enough.

And my final question, obviously with the businesses integrated, we will be working hard to find the ways to gauge the success of the merger integration from a quantitative perspective.

If there any light you can shed on the sales of the Galyan's stores relative to your expectations, or on the earnings contribution of those stores relative to your expectations?

Matt, what we can say is that this conversion is proceeding, and we're actually converting these stores, and we're really looking at this as a conversion.

But the conversion process is progressing right on schedule, and we haven't seen a hiccup.

We haven't stubbed our toe; we haven't found any real surprise.

Thank you very much.

Sean McGowan of Harris Nesbitt.

Hi, guys.

Good morning.

I have a couple questions.

One, just for a point of clarity in terms of adding the Galyan's stores to the comp base.

Will all of the stores be withheld from the comp base until they've all been rebranded, or will they be rolled in on an anniversary basis, the ones that have been re-signed now?

Will they be in the comp base 13 months from now, or are you waiting until all of them have been resigned?

After the individual stores themselves are rebranded.

We haven't finalized whether that is a big bang or based on some of the peripheral stores in the footprint.

We've got a couple in Dallas, we've got Las Vegas, Salt Lake; whether those get included in that big bang or not.

But it's after the individual store itself has been a part of that rebranding effort.

In the 16 that we've done to date, we have re-signed them and started to market them as Dick's stores, but we also indicated that they would be included in the comp base once they have been reassorted, and that they are not fully reassorted yet by any means.

So their timer has not started on that.

Yes, the clock hasn't started yet.

We actually think that that is the most pure way of handling this, because there's an awful lot of white noise to the extent we start including the store in a comp base prematurely and there's a good deal of clearance activity going on, it can overstate, in fact, the comp sales number.

So from our standpoint, we believe it is a more pure way of looking at it.

Do you have a sense at this point, understanding that there can always be some movement around, but with some sense of what the opening schedule and closing transformation schedule could be for 2005?

Well, as we said, the stores that we're going to close, all but one is expected to be closed in the fourth quarter of this year, and then the rebranding effort begins.

From a store opening standpoint, we haven't provided guidance into the first quarter of next year as has been our custom.

We will talk about that in the fourth-quarter call.

And I presume also that no comment on comp expectation for '05, or did you give that and I missed it?

We did not.

We gave our earnings guidance, and moved the earnings guidance up in '05 by 2 cents a share.

Okay.

Last question then; any detail on the breakdown of the $20 million in cost savings you're expecting to get next year?

We are looking at still about half of that coming out of merchandise margin, and the remainder coming out of advertising leverage and corporate G&A savings.

One other thing I did want to ask is what kind of impact have you seen in the hunting, fishing, camping area?

I mean, I understand that cold weather would probably have more impact there, but can you comment further on that?

Well, the -- and we hate to hide behind the weather.

As we said, we didn't put that in any of our releases, but the weather has impacted some of the hunting business, primarily in the cold weather apparel portion of it and the boot aspect of it.

That is a very -- as soon as it gets cold, and we anticipate that it will, as soon as it gets cold then everybody comes rushing in, people are buying product closer to need.

As soon as it gets cold, they will be in to buy that product.

We don't feel that that has been a market share issue.

It's just been that the market has postponed those purchases based on the warm weather.

Any positive or negative surprises from a competitive standpoint?

No, nothing negative.

On a positive note, we he had talked about the strategy that we had put in place in the first and second quarter to compete more effectively with the specialty outdoor retailers.

That has been in place in the -- was certainly more aggressive in the third quarter, which we talked about, and we've seen very favorable results in that.

So we're very pleased with that strategy.

Okay, thank you.

Jim Duffy of Thomas Weisel Partners.

Thank you.

Speaking with regards to the holiday season, you guys are going up against a strong Q4 comp last year.

What are some of the initiatives you have in place that you expect are going to improve the comps in 2004?

We think that the -- and we've talked about this -- the athletic footwear business, we continue to be enthusiastic about that as the shift has continued to move from more of a fashion-based athletic footwear component to a more performance athletic footwear component.

And we've done very well competing in that environment.

We continue to see very positive results in our women's apparel business, both along the athletic footwear component -- I mean the athletic apparel component of that, and the outdoor and rugged outdoor component of women's apparel.

We also see opportunities in the game business, and primarily driven by poker.

The poker component of chips in the Texas Hold'em games have been extremely strong.

You see that in a number of retailers, and it is very similar to the scooter business of a few years ago when it was certainly well distributed.

But it was just such a hot category at the time that most everyone was able to sell through and liquidate the product, and we're seeing poker as a real upside potential.

With regards to your comments on the underperformance of some of the cold weather merchandise, do you feel that TSA's efforts to improve their cold weather assortments in some of the stores in the Northeast has had any impact on Dick's performance in that area?

No, we look at our performance across a number of competitive attributes, and we've seen nothing different in markets where we compete directly with TSA and markets that we don't compete directly with TSA.

On a weekend a few weeks ago when we did have a bit of a cold snap in some markets, you saw that business pop right back in both markets where TSA is in the market and in markets where TSA is not in the market.

Okay; final question.

With regards to the changed banners, I understand you've made some progress changing the merchandise assortment.

But how do you advertise this if the Galyan's stores still have a lot of Galyan's type merchandise in there?

Is that a challenge for you?

It is a bit of a challenge, although we knew that and we planned for this, and as we took a look at our advertising.

We had this in the works for a while.

We just started that re-signing and rebranding effort on October 24.

So as soon as we announced or closed the transaction we had a plan in place and moved very quickly to get -- the vast majority of the advertised items are in those Galyan's stores.

So we don't disappoint the customers.

Excellent.

Thank you, guys.

Hardy Bowen (ph) of Arnhold & Bleichroeder.

As you've transitioned the Galyan's marketing to Dick's marketing, markets where you've converted to Dick's, do you believe that the traffic is picking up there?

Galyan's has been somewhat under promoted, I think, it would be fair to say.

What are you doing in the markets where there are just Galyan's stores, as far as promoting the merchandise?

I guess it must be hard to tell with the amount of clearance merchandise you have in there why people are coming in the store.

But what do you think of these efforts?

The first one, the stores that we have re-signed and are remarketing as going through the conversion to Dick's stores, the results have been right where we had anticipated them to be.

We're very pleased with that.

On the stores where we don't have a Dick's presence, such as Chicago or Denver, markets such as that, we have changed the promotional and advertising cadence of the previous Galyan's stores to mirror what we do at Dick's.

And there will be significantly more advertising in these Galyan's markets promoting the store for the holiday season than in the past.

And again, those results have been quite positive.

So the people where there are Galyan's stores and no Dick's stores are seeing significantly more print associated with trying to drive traffic into those stores, which has been successful so far.

I guess the initial wave of clearance merchandise in Galyan's we expect to be finished with by Thanksgiving?

Does that mean that things are going to change after Thanksgiving?

No, they won't be -- we don't expect the clearance merchandise in Galyan's to be completed until the middle of January, end of January.

That clearance activity will continue to be going on.

We are trying to -- we're managing that clearance rate in order to maximize the cash that we get out of that inventory.

We are very sensitive to that.

So that clearance activity will continue through the middle of January.

But it would be reduced after Thanksgiving?

Is that fair to say?

Or as a proportion of the store, as new merchandise is coming in, so it would say the same?

There's no new merchandise coming in.

We will go through a natural clearance cadence that you would go through the normal course of business; but there is no new clearance coming in.

As we continue to ramp up the sales, which is the normal holiday escalation, that clearance will continue to come down.

We don't expect to have an awful lot of that left at the end of or in the middle of January.

But we are cognizant to try to generate as much cash from that inventory as we possibly can.

Right.

Okay.

George Lusch, Fulcrum Global Partners.

Mike, I was wondering, could you give the detail on the merger integration costs as a total, similar to what you did for the third-quarter piece?

Then also, have you changed the contribution that you expect from Galyan's in the fourth quarter?

Or is that the same as what you had originally guided to?

2 things, George.

First, I would rather not provide the estimates on a go-forward basis.

We provided them in the aggregate.

I think frankly as you go through this kind of drill, as I am sure you have seen before, there is a number of different estimates involved in it.

I will tell you that directionally, and again no big surprise, the largest component of that merger cost is the closing of the Dick's stores.

Okay.

And as Ed mentioned earlier, we're going to be reporting the consolidated results on a go-forward basis.

We did provide a sense of what we thought those numbers could be in the third and fourth quarter, specific to Galyan's, to try to get folks comfortable with why we were saying what we were saying.

It is fair to say that given we have not changed our guidance for the fourth quarter that what we have said in the past still holds true.

Okay; that's helpful.

Can you give us a little more detail in terms of -- I guess what you're going to do in terms of advertising the rebranding of the Galyan's stores?

Will there be like a direct piece?

I know I think I have seen in some of the circulars right now you have a section with ski equipment and apparel that I think directs people to the former Galyan's stores.

As we take a look at how we're going to rebranding the stores on a go forward basis, we have a plan in place.

The plan is being refined, but the plan primarily is in place and ready to go.

For competitive reasons we would prefer not to lay that out.

Okay.

Thank you.

Virginia Genereux of Merrill Lynch.

This is Michelle Graham (ph) calling for Virginia.

Our first question was you closed 2 Dick's stores.

Are those included in the $70 million of closing or merger integration costs?

They are not.

One of the stores, the lease terminated in conjunction with its closing so there were no costs associated with it.

And the other store there was an expense of about $1.5 million.

That is included in occupancy expense.

Okay.

That store that was closed for performance reasons, where there circumstances sort of behind that, and have you done those sort of closings before?

We have not done those sort of closings before, and we made a mistake, not unlike other retailers.

We opened a store that we didn't -- that we could not make better.

And we stood up and fixed it.

Got it.

Okay.

And on the competitive landscape, we sort of noticed that Gander Mountain is in more stores, I guess particularly in New York region and in markets that you've been in.

Now Sears is going to this big box format and they have fitness equipment.

Have you noticed any change in the competitive landscape?

Have you been impacted by that at all?

I'm sorry.

They have what type of equipment?

Fitness, like treadmills and things like that.

Sears.

We've not seen any.

We haven't seen an impact from them from a fitness standpoint.

I was just in 2 Gander Mountain stores this past week and didn't see any fitness equipment in there.

So I don't know if they are testing this in a --

No, no, no.

I'm sorry, my question was 2 parts.

Gander Mountain is opening in more of your markets, right?

Particularly I have seen, we have seen (inaudible) in New York region.

The question was, are you seeing any sort of competitive impact from those increased openings in your markets?

We haven't seen anything other than what we have guided to in the past.

That when a retailer such as the outdoor retailers open up, we take a bit of a hit in that category the first year, then it comps back.

We can also, as you I'm sure can see from results that have been presented out there, that we've put together a strategy to more effectively compete with these retailers in the first and second quarter that we tested.

Rolled it out in the third quarter, and I am sure it is fairly evident that we had very good success with that strategy.

It will continue to be going forward into the fourth quarter and into next year.

Okay.

Thanks so much.

Bob Simonson of William Blair.

2 questions.

Ed, you were talking about in the cold weather footwear and apparel area, when it gets a little cold you can see it in the sales.

You hope it gets cold finally, maybe this weekend.

That process I am sure was disappointing, that it just didn't want to get cold.

Did you take much in the way of markdowns?

Or have you just kind of made a bet that -- which wouldn't seem like Dick's -- but did you make a bet that you could hold onto to the inventory and get rid of it?

Bob, we don't have all of that inventory in yet.

I think I have talked in the past a little bit about some of the partnership orders that we have on this cold weather product.

That if it gets cold, we have this product scheduled out in a number of delivery dates.

All of that product is not here, and we have agreements with the vast majority of these vendors that if it doesn't get cold we don't need that product; then we are not bound to bring that product in.

So our inventory levels in this cold weather product is in terrific shape.

We have these partnership orders sitting out there that the product is available to us, I am going to say, when it gets cold.

When it does get cold, then we start to liquidate this.

We can go back in and bring that product in and replenish the store.

So we're very confident that we do not have a markdown issue facing us.

And we don't have a shortage of inventory facing us when it does get cold.

You are our right; we do you hope it gets cold this weekend.

I think the other point is to recall, I noted that inventory per square foot on a pro forma basis, as if Galyan's and Dick's were combined last year, it is down 9 percent.

It is primarily driven by Galyan's, but the inventory per square foot number at the Dick's-only store was down as well.

Can you give an update on if you've made any decisions on the merchandise mix in the second half of next year?

Will it have some of the categories that Galyan's had that you didn't have?

We're primarily talking about the ski category.

We haven't made a final decision on all components of that.

We will stay invested in the snowboard category.

The alpine category we have not made a final decision on as to what extent we will stay in there.

We suspect we will stay in the alpine category in some very high-volume stores.

But we haven't made a decision as to how we would roll that out, and if we would roll that out, to a number of the Dick's stores.

So if you do alpine I assume you would have to have a fairly good selection on the boots, too?

Yes, and we have had very favorable response from the vendor community about going forward with that category.

(multiple speakers) Was any of that merchandise in a Dick's just to test it?

We have not, Bob.

We have not.

It was difficult to get additional inventory to roll into the Dick's store.

If we are going to put in a Dick's store, we need to make sure that we have the equipment in there to make sure that we can provide terrific service to the customer, including sharpening and waxing and all the ski tuning requirements.

We just didn't feel that we could slap that together quickly enough and effectively enough; and did not want to slap it together and give the customer a bad impression of us in the ski business.

So we will continue to monitor and participate in the ski business in the Galyan's stores; and we will make a decision what, if any, Dick's stores will have that product next year.

I assume that you would want to make that decision sooner than later, so you don't have to redo everything come the Fall of next year.

No.

We will make that decision right after the first of the year.

Okay.

Thank you very much.

Charles Grom, J.P. Morgan.

Could you just comment on how the 1.5 percent comp trended during the quarter?

We have never given guidance on a month-by-month basis and just for competitive reasons don't feel that that is appropriate.

Okay.

Could you give us any color, maybe you don't do this either, but just on how business has been through the first few weeks of November?

No, we don't do that.

We have provided our guidance for the fourth quarter.

We are comfortable with the comp store guidance we gave of 1 to 2 percent.

And that's as much color as we can really put on it.

Trends in fitness and golf, you didn't comment on that in terms of how things trended in the third quarter.

Those businesses continue to perform as they have in the past.

We're very pleased with our golf business and pleased with our fitness business.

We didn't have some of the issues in fitness that some other retailers had.

20 stores next year; how many of those stores will be single level versus 2 level?

The vast majority of the stores will be single-level stores.

We will open a few 2-level stores, but the vast majority of our development program will be the single level stores.

Similar to how we've guided even before the Galyan's acquisition, that we would do some 2-level stores.

But the majority of what we would do on a go-forward basis would be single-level stores.

Just to follow back on the last question.

It seems like the potential to put the ski products in your stores is a change in kind of your sentiment, at least from what I recall.

Is that correct?

And what is kind of behind that thought process?

The thought process is that we haven't made a final decision; and are there some very high-volume Dick's stores in high-participation ski markets that we may want to roll the ski product in?

We are looking at that to see what effect that might possibly would have on the store sales in total, what that would have from a margin turn impact, and what we think that can do to help drive additional outerwear business.

So if you know us, we test.

We look at -- the financial metrics are very important to us.

And we're still working through all those financial metrics.

Great.

Last question, just to follow back on my previous one, on the 20 new stores, are those going to be 20 stores in existing markets?

Or you guys going to de novo any of those?

There will be, as we've always done, varying degrees of participation on new markets and fill-in markets.

It will be a blend, as it has been in the past.

We just looked very quickly at the 2-level stores for next year.

We will open as of now 4 2-level stores.

The balance will be the single-level stores.

All right.

That's helpful.

Thank you.

Mitch Kaiser of Piper Jaffray.

I was just curious if you could give us an update on the square footage that you are thinking about merchandising the Galyan's stores to.

When you say merchandise their stores to, the square footage that we have inside the Galyan's stores we will merchandise.

We will buy to the volume of the store.

In a couple of the stores that are significantly oversized, we will take, as we talked about in the past, we will have ways to fill that space with products that will be interesting to the customer and bring some value to the store, but won't require us to increase inventory.

In a store that is oversized in the Spring season and Summer season, we may put up and fully put together 8, 9, 10 tents if required to fill up some of that square footage, which will be a great visual for the customer.

But we will not be filling inventory to square footage.

The way we run our business from the financial discipline of a turns standard, we can't do that.

So you will fill the space; but will we see a similar number of SKU sets?

You will see a similar number of SKUs that you would see in our 2-level store.

Okay.

Thank you.

Anthony Lebiedzinski, of Sidoti & Co.

There has been some retailers that have complained about the port delays on the West Coast, getting in inventory.

Have you had these issues?

Maybe you could just comment about that.

We have had not had to date any issues in the ports, and we have not seen any delays from our branded suppliers because of issues at the port to date.

As we take a look and have visibility to our private-label product that is coming in, our transportation group has done a great job of diverting that product to other ports.

We don't see that as any type of a meaningful risk in the fourth quarter or going into next year.

When I look back at your second-quarter press release, you said that you expected a loss of 9 cents per share from the operation of Galyan's.

Is that what happened here in the third quarter?

As Ed mentioned earlier, we're going to report results on a consolidated basis.

Because, frankly, as we go forward here and we begin to realize some of these synergies it actually gets a little bit more complicated as to where to assign costs.

We are not allocating administrative costs.

We are not going back and over-engineering advertising expense as we rebrand the Galyan's stores.

So I guess I would just leave it this way, that we exceeded the earnings estimate; and we would like to stay away from consolidated -- stick with consolidated results as opposed to by company.

It sounds like you guys don't like to talk about weather.

But how important is weather for the fourth quarter in terms of meeting your same-store sales expectations?

Weather is certainly important, although I won't say that it is -- it is important.

I don't know that it is vital.

The holiday time is still such an important gift-giving aspect to the sales associated there.

So the weather is important up until Thanksgiving.

It might be a little bit less between Thanksgiving and Christmas.

And then the weather will be important in January, as people are looking to go skiing, outdoor activities that require the purchase of that cold weather clothing.

Lastly, what are your debt reduction plans for '04 and then maybe '05?

We expect to use cash flow in the fourth quarter to pay down debt.

We have not provided a targeted debt level.

I will note that the debt to cap ratio that we are presently at, at the end of the third quarter, is at about 62 percent.

If you look back over prior years, that is up over 2002, 2003; going further back in 2000, 2001 as of year end we had debt to cap ratios of 65 percent and 56 percent.

It is logical, and we will be taking that percentage down by end of year.

But we don't have a specific number that we are disclosing.

Okay; thank you.

Jack Balos (ph) of Midwood (ph) Research.

I just want to clear up something you said.

Did you say that stores in existing markets start off at lower sales than stores in new markets?

I said that we can have lower sales.

Basically what it amounts to is saturating markets.

Depending upon where you are in that saturation process, your economics can still work at a lower sales volume.

That was principally my point.

So if you're looking at example, at a 6-store market, putting the third store in, you don't have yet critical mass.

Your sales expectations are going to the at the higher end of the range.

Bill disclosed we opened a store in West Midland which was our ninth store in Pittsburgh.

We have got the Pittsburgh market saturated.

As a result of that we find pockets where we can drop stores in.

The retail node is strong enough where we can get a top line that produces our economic return.

In that particular example, our sales expectations would be lower because the market is more saturated and we're getting the advantage of leverage.

Right.

But usually dropping into an existing market where you're already well known usually produces better sales than going into a new market.

Not necessarily.

I think, to my point, is that to the extent that the trade area isn't as large, then you're not going to draw as many people in.

But your numbers still work.

As we've seen this, it doesn't necessarily equate to larger sales volume.

It equates to a more profitable store.

Because you are spreading out the regional overhead?

Yes, you're spreading out the overhead associated with it.

You're spreading out the advertising cost.

It is more profitable, and the top line required isn't as high.

In my example, this ninth store in Pittsburgh, we have no incremental advertising expense for that store.

Because we were already servicing that via stores that were surrounding it.

So we were already advertising into that trade area.

Now we can drop that store in; there is zero incremental advertising.

Is that store affecting other stores around it, that are impacting nearby other stores?

Yes, definitely.

But that's part of our analysis.

We will look at it on an incremental basis.

So we will look at the cannibalization effect that that new store has on any surrounding stores; and then we will look at the leverage that we get from an advertising standpoint.

And before we proceed with a decision to open that kind of store, we will look at the incremental store contribution and return on capital.

So we consider all of that.

Regarding Galyan's, how much difference is there in terms of the way you manage a store and set payroll schedules, etc., compared to the way Galyan's was doing it?

How is that process going?

Did you have to replace some store managers?

We've started the integration, and we have moved some of our district managers into Galyan's-only markets to start that conversion.

But running the store will be no different than running a Dick's store when we're done with the conversion.

So in other words, there's similar methods of management and operations and setting payroll?

Yes, absolutely.

And the 2-level Galyan's store will be very similar to the way we run a 2-level Dick's store.

In fact, it will be identical.

1 last question, just wondering what your take is on how the golf industry is doing this year?

And how is your golf assortment doing in sales?

We haven't commented specifically by category.

But the golf business as a whole, we are pleased with our golf business.

I think that there's some things going on in the golf business that I think have been well chronicled on the manufacturing side.

I think we're very optimistic about our golf business going into 2005, especially with some of the changes that are being made on the vendor side.

We think some people are certainly headed in the right direction.

Okay; thank you.

Sam Poser of Mosaic Research.

A quick question.

Where do you see your inventory levels at the end of Q4?

We have not provided guidance on inventory levels in the past, and we're not going to do that now.

Obviously we haven't been in a situation for some number of years where we've seen that go up on a square footage basis.

How about as it reflects to sales?

It's up 68 percent; your sales were up 60.

Is that different the clearance that is going to leave the Galyan's stores for the most part?

I think, Sam, the more relevant metric which we provided was the inventory per square foot over comparable periods, and it is down 9 percent.

Frankly that is a more -- once you start dialing in the change in sales, what you need to know, also start to consider is comp, non-comp stores, and when stores have opened.

Because you can have a store, as we did, have a number of stores open at the back end of the third quarter, which are fully inventoried but have minimal sales.

So I think that statistic has a little hair on it.

So that's why we provide the inventory per square foot statistic.

Okay, great.

Then can you give us some color on the stand-alone gross margin of Dick's this year versus last year?

Is it merchandise gross margin you're talking about?

Yes.

That is something that for competitive reasons we've never guided anyone to.

Not the merchandise gross margin, just your normal gross profit number.

Again, Sam, speaking to consolidated results, which we think is the appropriate way to be looking at the businesses at this point, we are not going to start carving out the 2 companies.

It frankly gets less meaningful and more difficult to determine, as illustrated by the fact that we opened up 2 stores that were to be opened up as Galyan's; we opened them up as Dick's stores. 1 in Indianapolis, and 1 in Charlotte.

We do look at this thing as a real estate transaction.

The companies are converging, and as a result the consolidated numbers are still the most meaningful.

How do you see the promotional climate?

And then your new stores, just last question, in your new stores or the Galyan's stores, in the bigger ones, how do you see that laying out?

What are going to be the key drivers of that business?

Is it relative to what is going to go away and what are really going to be the driving forces do you see, in those real large ones?

We feel, and we've articulated this in our strategy when we announced the acquisition, some of the categories that will go away is that casual component, fashion component of Galyan's business.

Some of the categories where we think we have a big upside in our business versus what Galyan's did is in the performance athletic footwear component.

Certainly we think there is a big upside in golf, and in general sporting goods.

We also feel that there is an upside in the lodge as the hunt, camp, fish area, which Galyan's was slowly -- actually they were exiting, but they were significantly reducing their dependence on because of the specialty retailers.

We have found that we can compete very effectively with the specialty retailers.

So we think that scenario where they can be some upside from a sales standpoint inside the Galyan's stores.

Thank you.

Jason West of Deutsche Bank.

On that last comment, just wondering.

You guys talked about some of the strategies you put in place earlier this year in terms of the outdoor business.

Just wonder if you can give some examples, or a little more detail on what those are, and sort of why they work?

A couple things we did is we increased some of the marking spend associated with that category.

We also reassorted our business and brought in some more premium products that we had not had in the store.

This is an area that we had not focused on as effectively as we should have over the past couple of years.

Late last year we sat down, strategically walked through some of the issues that we had in that area, had a real heart to heart with ourselves, if you will.

And said some of these issues are self-imposed, and we need to be very aggressive as we go back out to compete in these areas.

And we have done that and it has been very effective.

As I said, increase the advertising.

We increased the assortment, where we are bringing in more premium products across not only hunting, firearms, but ammunition, hunting apparel, tackle products, camping products.

So we've really broadened the assortment of premium products, which has been very effective for us.

And just 1 other thing.

In terms of pricing, I mean generally can you talk about how you guys compare?

I mean, are you sort of beating them on average on pricing?

You think that is driving some people into your store?

Or any difference there?

We've been a bit more aggressive in pricing in that area on some key products.

But one of the things that we've always looked at is we don't really want to be the -- we never set out to be the price leader.

We will be very competitively priced; and we will be sure that we've got the product that is required; and have it in stock on a timely basis.

But we are certainly not trying to start a price war in this category.

Okay, great.

Thanks a lot for the integration details and the pro forma data.

It is really helpful.

Sean McGowan of Harris Nesbitt.

Just a quick follow-up.

Anything you're seeing in the sneaker and performance business that we should be aware of?

Are those good positive trends continuing?

We're still very positive about that category of product with Nike Shox, with the Asics family of shoes, Gel Kayano 2090s, the premium New Balance product has been very good.

So we are very, very happy with what is happening in the premium athletic footwear.

How about brown shoes?

Brown shoes is something that we have not really been very heavily invested in.

It's an area that Galyan's was more heavily invested in.

We expect to be making a significant part of our assortment going forward.

Now, please don't confuse brown with field boots, hiking boots, and hunting boots.

Because that product we are very pleased with and will continue to be very aggressive in that area.

It is the true brown shoes that --.

Right, the casual shoes.

The casual type shoes that we don't play in that area and we don't expect to play in that on go-forward basis.

Okay, thank you.

Brad Leonard (ph) of BMO Capital Management.

Did you guys say that you thought the square footage would grow 20 percent in '06 and beyond?

15.

15. 20 stores next year, 15 percent square footage growth '06 and beyond.

How long do you think you can grow square footage at that pace?

What a while.

So ultimate store base in U.S., ballpark?

Do you have any idea, in the next 5 or 10 years?

We have not guided to that, but it is significant.

We still feel that primarily east of the Mississippi or the markets that we're in now, we can just about double the size of the Company in that geographic footprint.

Okay.

What about the e-commerce biz?

Did you discuss that at all, or comment on that?

Sales trends?

How much business comes across there?

If it is up or down?

We have outsourced our e-commerce business to Global Sports out of Philadelphia.

They have done a terrific job with that.

That business continues to grow.

It is not reflected in our sales number, but it continues to grow.

The service provided by Global to our customers has been terrific, and we are very, very pleased with the relationship we have with them at the present time.

Is there any thought about bringing that back in then?

No, not at the present time.

Just not big enough?

It is not that it is not big enough.

It is just the complexity of running that online business.

Quite frankly at the present time I don't feel that we could do it any more efficiently or any more cost effectively than Michael Rubin and his group does in Philadelphia.

Okay.

Did you mention the specific locations of the store closings due to the merger?

We did not; and for competitive reasons and out to our associates we haven't done that yet.

1 last question.

Was there a thought about, on the merger, doing a stock deal versus the using cash?

Can you comment on that at all?

We felt that had we thought about that, yes, we looked at a number of different alternatives.

We felt that the cash deal was the best vehicle by which to do this acquisition.

It was accretive to the company and to our shareholders this year and beyond, and felt that that was the most appropriate vehicle to consummate this transaction.

I think the other point just to call out is that I know that some looked at our balance sheet and debt levels, and they contrast them with where we were a year ago and know that, in fact, they have gone up and the debt to cap ratio has gone up.

However, I would suggest that the balance sheet had more than ample capacity.

We didn't stretch to get to the $350 million revolving credit facility.

And our debt to cap ratio a few years ago was higher than it is today, and we do expect with the free cash flow to be paying down the debt and improving on that on a go-forward basis.

Okay.

I agree with you I was just a 1 percent Galyan's holder.

I think I would have rather had the Dick's stock.

I think you guys do a nice job of running the business, so thanks for your time.

We're traded on the New York Stock Exchange.

I know where you are.

Thank you.

Charles Hobbs of Conecos (ph).

I was just trying to get a little more granularity on the merger integration costs.

I guess in your press release you came out with your now official number of 70 million.

And if I went back to your Q from last quarter, I think you had already reserved approximately, call it 31 million, for 15 for severance and then 15 for store closings.

And then I noticed as you walked through, the increase in goodwill was primarily related to some deferred tax changes and some other liability items, not integration costs.

So am I to assume that the 40 million increase is primarily related to Dick's store closings?

Yes, but just 1 point of clarification.

The Galyan's store closings and the corporate office store closings are part of the purchase price adjustment, and that is the number that Ed spoke to in his piece in the 30 million, adjusted up to 35 million in connection with the purchase price adjustment.

That does not run through the P&L.

So 31 to 35 is what you're saying?

Right.

Okay, so the Dick's is really more of a 35 million piece.

No.

So the 70 million merger cost that we just disclosed for the first time today after having completed our analysis is in addition to that 35 that's on the purchase price allocation.

They run through different places.

So 70 is in addition.

Correct, that is running through the P&L.

The 35 as part of the purchase price allocation is, as a result of being part of the purchase price allocation, does not run through the P&L.

Right, so you're saying the total cost of this is over $100 million? $105 million?

Right.

Now, if primarily that's not -- I assume it's Dick's related as opposed to Galyan's because otherwise -- because you can adjust the purchase price adjustments for a year.

So for 6 stores then, it is $11 million almost her store?

Because your $70 million to close 6 stores?

I'm just curious as to why the number is so large.

Well, I think what I said was that the most significant component of that 70 was the closing of the Dick's stores.

Also included in there as described in the press release are the costs of rebranding the Galyan's stores, which runs through the merger line as opposed to a purchase price adjustment.

There are store closings, temporary closing charges, as we remerchandise, resign in connection with the grand opening.

There are system conversion expenses included there.

There are recruiting, relocation, and temporary services included on the merger integration line as disclosed in this last quarter, was a component of that 7.7.

So the 70 million merger cost includes more components than simply the closing of the Dick's stores.

And then where I assume you don't -- you just pay them as you go and then it runs through an integration line, because I don't see an accrual on the balance sheet for that number.

That's correct, because the accounting pronouncements require you to take those charges when the store is closed.

So you cannot book that charge and accrue that charge, if you will.

So we will not the booking the merger costs associated with the closing of the Dick's store until the store is actually closed, which is going to happen at the back end of Q4.

Okay, and then a couple of other things.

You mention the inventory.

There's a question earlier;

I just wanted to follow-up on it on the inventory, I guess, reserve when you took the Galyan's on the balance sheet.

I don't think you've ever disclosed what that was.

I mean, I back of the envelope got somewhere about 20 million, but it depends upon how much they were winding down their inventory.

Can you give a sense as to, I think you walked through how the accounting for the merger allows you to put some of that through the P&L as an offset to normalize margins, if you will, and then some of that goes through, I assume, this 70 million or the 35, one of the two, as the merger charge.

How much of that if you can give a ballpark number is the total, and what do we expect is going through the P&L, if you are willing to give that?

We have moved that number by about $2 million in the quarter.

So that 2 million went through the P&L this quarter?

Right.

Okay.

And how do you define normalized margins?

Is it whatever Galyan's traditional margins were?

I know you talked nicely in the past that a lot of their problem items were these apparel items that start with a higher markup and a higher margin, but then because of the markdowns end up, you thought, had a lower margin business at the end of the day, what was a lower margin business.

Do you normalize that to what you think they would be for you, what they should be, what that particular skew would be?

How is that determined?

I understand.

We've just looked at it from the standpoint of what the Company has generated historically on a consolidated margin basis.

What you as Dick's have done?

No, what Galyan's has.

What Galyan's has, okay.

So if they were having margin issues, you can look back; the merger accounting allows you to look back 2 years or whatever to when maybe there were less problems.

Then you can use that number.

Correct.

Okay, and then just one last thing.

And flow-through, so it's 2 million this quarter.

Any thought of what that will be for the fourth quarter?

I assume that's on the bulk of the rest of this will flow through?

Yes, I honestly don't know because it really -- it comes down to what the actual activity is and how much that --.

Where you have to sell it through.

Sure.

All right.

Thank you very much.

(OPERATOR INSTRUCTIONS) Gentlemen, at this time there are no further questions.

I'd like to turn the presentation back to Mr. Stack for any closing remarks.

Thank you.

I would just like to reiterate once again that we were very pleased to be able to announce the continued earnings and sales growth for the Company in a time that's been so busy for everyone here at Dick's Sporting Goods.

And once again to reiterate that the conversion process inside the Galyan's stores is going extremely well, and we look forward to updating everyone on our fourth-quarter call after the holidays.

Thank you.

Ladies and gentlemen, thank you for your participation on today's conference.

This does conclude your presentation, and you may now disconnect.

Have a wonderful day.