DICK'S Sporting Goods Inc (DKS) 2005 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Dick's Sporting Goods, Inc. first-quarter 2005 earnings conference call.

My name is Anne-Marie and I will be your coordinator for today.

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

We will be facilitating a question-and-answer session towards the end of today's conference. (OPERATOR INSTRUCTIONS) I would now like to turn the presentation over to Mr. Dennis Magulick, Manager of Investor Relations.

Please proceed sir.

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

We are pleased that you could join us today (technical difficulty) 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 respective 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.

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

Ed will discuss our first-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;

Bill Newlin, Executive Vice President and Chief Administrative Officer; and Mike Hines, Executive Vice President and Chief Financial Officer, also join us here.

Bill Colombo 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.

Thank you, Dennis.

We are pleased to be able to report the results of our first quarter, which is the third full quarter Galyan's has been a part of our Company.

This quarter excluding merger, integration, and store closing costs, we're reporting net income of 12.2 million or $0.23 per diluted share as compared to our guidance of the $0.18 to $0.20 per share.

Including merger, integration, and store closing costs, we are reporting a net loss of 7.3 million or $0.15 per share, compared to guidance of $0.19 to $0.21 per share.

Total sales for the quarter increased 57% to $571 million.

Comparable store sales increased 3.2%, which is higher than our guidance of 1 to 2% and is on top of a 4.6% comp sales gain in last year's first quarter.

During this quarter we saw favorable results throughout much of our business including athletic footwear and apparel, exercise, sport games, and accessories.

Those favorable results were partially offset by a few businesses including bikes, paint ball and in-line skates.

As we reassorted the Galyan's stores, we rolled out our price private-label program into these converted stores.

In the first quarter in total for all stores, our private-label sales represented 10.1% of sales versus 7.7% on a pro forma Dick's and Galyan's combined basis last year.

I would now like to provide an update on our progress with the conversion of Galyan's.

At our fourth quarter call I told you that we had achieved a number of milestones including -- in the conversion process -- including conversion of all systems, resigning and resetting of the stores, and closure of Galyan's corporate office.

Merchandising reassortment initiative was well underway and we were about to launch the re-grand opening.

Since that time, we have refinished the merchandise reassortment and I'm very pleased to be able to report to you today that we have essentially completed the conversion of the Galyan's stores.

The grand re-opening of the former Galyan's stores as Dick's stores was a success and with the merchandising reassortment initiative also now complete, we expect to be operating the former Galyan's stores with the same merchandise assortments, financial disciplines, and customer service expectations as we have for the rest of our stores.

Accordingly beginning in the second quarter of 2006, the Galyan's stores will be included in our comp store base a quarter earlier than originally planned.

On the fourth quarter call we announced our plans to close ten stores as a result of the acquisition, which consisted of four Galyan's stores and six Dick's stores.

Nine of these stores have now been closed and we expect the final store to be closed in the second quarter period.

Our expectations for merger integration and store closing costs are unchanged.

We continue to expect merger integration and Dick's store closing costs of approximately $70 million pre-tax, of which $20 million was incurred in 2004 and 32.5 million in the first quarter of 2005.

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

We have increased our guidance for the full year of 2005 and are now providing guidance for the first time as to the second quarter of 2005.

For the full year 2005 on a fully diluted share count of 55 million shares, we are expecting earnings per share of $1.82 to $1.87 excluding merger, integration and store closing costs.

This represents a 29 to 33% increase over 2004 GAAP EPS of $1.41 adjusted for non-recurring items and compares to pro forma EPS on a combined company basis and excluding non-recurring items of $1.17 a share.

We expect comp sales to be approximately 1 to 2%.

The guidance excludes the impact of expensing stock options which has been delayed until 2006.

For the second quarter of 2005 on a fully diluted base of 54 million shares outstanding, we expect to report earnings per diluted share of $0.43 to $0.45 versus $0.34 in the second quarter of 2004, which includes only the results of Dick's and not Galyan's and excludes merger, integration and store closing costs.

Pro forma combined company EPS for the second quarter of last year was $0.21.

We're expecting comp sales in the second quarter to be approximately 1 to 2%.

Our earnings guidance includes $20 million of estimated annual cost savings and merchandise buying improvements associated with the Galyan's purchase.

We continue to expect to open 25 new stores in 2005.

In the first quarter, the achievement of record sales, margins, and earnings, the addition of seven new stores, and the completion of the Galyan's conversion is a testament to the discipline, focus, and collective abilities of our thousands of associates.

With the conversion behind us we can now return to managing one business.

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

Thanks, Ed.

During the first quarter we opened a total of seven new stores of which five were single-level Dick's stores and two were two-level Dick's stores.

Three of those stores were in new markets, Jacksonville, Florida, a two-level prototype;

Hadley, Massachusetts and Bloomington, Indiana, both single level stores.

Four of the stores were opened in existing markets, Hartford, Connecticut, our sixth store in the Hartford market and a two-level prototype;

Greensburg, PA, our tenth (ph) store in Pittsburgh;

Seekonk, Massachusetts, our fourth store in the Providence, Rhode Island market; and Hamilton, Ohio, our eighth store in Cincinnati.

Over the last 12 months we have opened a total of 29 stores.

Nineteen or two-thirds of them were in existing markets and ten in new markets.

We closed five overlapping stores during the quarter, four Dick's stores and one Galyan's store, all due to the conversion.

At the end of the first quarter we operated 236 stores with approximately 13.6 million square feet in 34 states.

Looking to the second quarter of 2005 we expect to open four new stores, three of which are single-level and one is a two-level.

All of those stores are in existing markets.

Finally during the second quarter we expect to close the last overlapping Dick's store resulting from the conversion.

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

Thanks, Bill.

Our earnings release included a statement of operations prepared in accordance with GAAP which compares to 2005 first-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 GAAP first-quarter results against pro forma results of last year as if the Galyan's transaction had occurred as of the beginning of the period.

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

This quarter sales increased 57% from last year's 364 million to 150 (ph) -- to 571 million this year.

Gross profit increased by 48% to $152 million this year.

This represents a gross profit rate of 26.62% of sales versus 28.21% last year.

This change was driven by an increase in our merchandising margin rate offset by the higher occupancy costs of the former Galyan's stores and higher freight and distribution costs.

SG&A increased from 82 million to $126 million.

As a percentage of sales, SG&A declined from last year's 22.6% to 22.1% this year.

This represents a leverage of 44 basis points as synergies were obtained with lower corporate administrative costs as a percentage of sales.

Preopening expenses of 2.6 million were 624,000 less than last year, the difference resulting from timing differences as the cost per store remains consistent.

Merger, integration, and store closing costs were 32.5 million this quarter, essentially equal to the 34 million we guided to during the year-end release.

Included here are costs to close Dick's stores, marketing costs associated with the rebranding of the stores in March, duplicative corporate costs, and system conversion costs.

Interest expense increased 2.2 million to $2.8 million due to borrowings under our line of credit resulting from the acquisition.

On a GAAP basis including merger integration costs, we're reporting a net loss of 7.3 million or $0.15 per share, as compared to net income of 10.6 million or $0.20 per share last year.

Excluding merger costs, earnings were $0.23 per diluted share.

Also excluding merger costs, earnings before interest, taxes, depreciation and amortization increased 55% to 35 million.

There are a number of schedules attached to the release to help understand our results including a pro forma operating statement which compares this year's first quarter to last year's first-quarter pro forma, which includes the results for both Dick's and Galyan's providing what we believe to be a more meaningful comparison.

Sales for the quarter increased 9.5% to 571 million with a comp store sales gain from Dick's stores of 3.2%.

Gross profit was 152 million, decreasing 9 basis points to 26.62% of sales.

This change was due to expanded merchandise margins offset by higher occupancy and freight costs.

Our SG&A expenses of 126 million were 22.1% of sales and 153 basis points lower than last year's pro forma first quarter.

Synergies were attained with lower corporate administrative cost and lower advertising cost as a percentage of sales.

Operating income excluding merger integration and store closing costs more than doubled from 10.9 million pro forma last year to 23.1 million this year.

Merger integration cost of 32.5 million this year included Dick's store closing costs of 18.2 million, 12.2 million advertising expense for rebranding the former Galyan's stores, and 2.1 million of other merger-related costs such as duplicative corporate occupancy, system conversion and store conversion payroll.

Net income for the quarter excluding integration store closing costs increased from 5 million last year to 12.2 million this year.

As for the balance sheet, we ended the quarter with $533 million of inventory as compared to $315 million last year when we did not own Galyan's.

On a pro forma combined company basis, inventory per square foot is down 1% compared to last year from 39.69 to 39.21 and inventory turn increased 2% on an LTM basis to 3.47 times.

The inventory reserve recorded in conjunction with purchase accounting totaled $6 million at year end, of which $5 million was utilized in the first quarter, leaving a balance of $1 million.

We continue to liquidate any remaining non go-forward items from the Galyan's assortment and believe this reserve is adequate.

Goodwill remains unchanged.

We ended the first quarter with 122.5 million of outstanding borrowings on our 350 million line of credit.

Excess borrowing availability totaled 186 million at quarter end.

Finally I would like to speak to new store productivity.

Including the former Galyan's stores which are not part of the comp store base, our new store productivity for the first quarter was approximately 80%.

This metric continues to be influenced by several factors, most notably the conversion of the former Galyan's stores and the balance of new store openings broken out between new markets versus infield stores, of which the latter often generate required returns at lower of sales volumes.

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

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

Great quarter.

Just a couple of quick questions.

First could you talk about Galyan's in the first quarter and where the revenue contribution was versus your expectation?

If it was sort of in line or above or below?

And then the second, you're sticking to that 1 to 2% comp guidance for the year but you just came out with a pretty good comp number against the tough comparison.

Can you walk us through -- is it a cannibalization pressure over the next few quarters that hits that you weren't seeing in the first quarter?

Or if you could help us understand that dynamic, that would be great?

Thank you.

Thanks, Robby.

The question on the Galyan's sales, we have indicated that we -- we are not going to break out the performance of the former Galyan's stores to the Dick's stores.

We've been pretty consistent with that since we talked about this.

One thing I think everyone should be pleased about is that we have indicated that the conversion is complete and that these stores will be in the comp base beginning a quarter earlier than originally anticipated.

So hopefully that makes everybody pretty happy with the progress that we have made.

As far as the comp guidance on a go-forward basis and our comp performance this year, and the first quarter being at 3.2% versus our guidance of 1.2, it is primarily a cannibalization impact.

We have talked that we are aggressively filling in some markets and have indicated for the last couple of quarters that that cannibalization is going to certainly have an impact on the comp sales.

I would like to reiterate though as we continue to fill in these markets although it can put some pressure on the comp store sales, the increase in earnings coming out of those markets is pretty substantial and we would like people to understand that.

As we add these stores, the earnings coming out of these markets where we are cannibalizing ourself, with the leverage we get from the -- primarily from an advertising standpoint, the earnings are pretty substantial.

Great, thank you very much.

Matthew Fassler, Goldman Sachs.

A couple of questions.

First of all, if you could give us any color on how the synergies are tracking against your original expectations for the year?

I know at some point it gets harder to kind of unscramble that egg but you probably have some pretty precise expectations of work down of corporate facilities and the staffing etc.

So any sense as to how you're progressing against those would be helpful.

Matt, it's pretty much right in line.

We had indicated early on that the $20 million would be -- we anticipated it would be divided between corporate savings, G&A leverage, and also buying improvements in margin rate expansion.

And we're seeing those come in pretty close to what we had originally anticipated.

Thank you and the second question, can you talk about what you are seeing from your private-label offerings in terms of penetration within the Dick's stores and if you could give us some sense as to the pace at which you intend to roll your Dick's private brands or controlled labels into the Galyan's stores?

Sure, our private-label program -- we have basically rolled that out.

It was not rolled out for the entire first quarter.

But in the Company as a whole, the private-label report was about 10% of sales, just a little more than 10% of our total sales compared to on a pro forma basis last year about 7.7% and in the former Galyan's stores, the private-label penetration was 7% of sales, which we were very pleased with.

Especially in light of the fact that we did not have all of the product in there for the entire first quarter.

So we were actually very pleased with the performance of our own products inside the former Galyan's stores in the first quarter.

Ed, what does that imply then for the Galyan's Stores -- I'm sorry, the Dick's stores on a comp basis?

What you saw for private-label as a percent of sales?

They were -- this year in the first quarter it was approximately just a little bit north of 11%

Versus the prior year?

About the same, Matt.

Got you.

Any initiatives that you see jump starting that progression again?

I know that there has been a number of years of growth -- are there categories that you would compensate adding or other things that you think would drive that further?

As we have done this, we have focused on areas that were escalating the private-label, some other areas that are holding flat.

One of the areas that we continue to be very enthusiastic about and is gaining market share in our private-label is the Walter Hagen brand.

The equipment side of that has done great this year, having two drivers available under the Walter Hagen label, one of them being a 460cc adjustable-weight system, which is the largest adjustable weight driver in the market today.

So we think that -- we are pretty enthusiastic and we have indicated that we feel we can move this private-label to 15% of sales and we're very confident that we will be able to do that over the next couple of years.

We have not changed that at all.

Thank you so much.

Gary Balter, UBS.

Brian Dunn as well, but I will start with a couple of things.

I know you don't get too specific on Galyan's, but could you tell us what kind of areas that you feel are working well and some areas, some categories maybe that you have been surprised by in terms of weakness or more struggle?

That's the first question.

Some of the areas that we -- there has been no surprises.

So areas that we had anticipated would do very well have done very well.

When we went in and looked at Galyan's from an athletic footwear standpoint, we thought that there would be some real opportunities in athletic shoes across traditional athletic shoes and in the cleat business.

And that has happened.

We are doing pretty well there.

We also anticipated that the golf business would be -- that there was a great opportunity in the golf business and the golf business has been terrific inside the Galyan's stores.

We also knew that a couple of other categories would be a bit softer because we were exiting some of those.

That casual apparel piece which we characterize as rugged outdoor, some of the fashion apparel that had been sold in Galyan's has struggled a bit as we try to anniversary those numbers.

The margins that have been associated with that product inside the Galyan's stores is nothing that we would want to go forward with.

So we anticipated this and it is pretty much right on plan.

We also knew that in the hunting category would be somewhat difficult to anniversary those numbers because we would exit the handgun business.

We haven't been in the handgun business for probably close to 15 years now and as we exited the handgun business, there was some ancillary items associated with the handgun business, holsters, ammunition, handgun scopes that that business went away all so.

But all pretty close to what we anticipated.

I had a complaint from one in a Texas that you got out of the handguns.

Yes, Texas is where we have probably had the biggest complaints and I don't remember the statistics but I think there is a big number, there's a big percentage of people in Texas that are registered to carry firearms.

That's why I'm in New York.

Second question, your comp guidance and I think Robby asked this and I'm not sure we got the answer.

You've had a really strong first quarter comp in difficult cold weather and you are guiding one to two.

Is there reason why the comps wouldn't stay at the levels they are at?

Yes.

We talked -- I thought that I had answered it.

Based on the continued cannibalization as we continue to fill in markets, that is going to continue to put some pressure on our comp store sales. (multiple speakers) And we're going to continue to fill in these markets and we feel that the increase in earnings driving that EPS number, these in-fill stores are pretty significant to helping drive that EPS number.

Brian, did you have anything?

Thank you very much.

Bob Simonson, William Blair.

Have you at this point -- summer -- concluded what merchandising changes you will carry forward from skis and things like that that are changes to the Dick's footprint?

Yes, we have Bob.

And what are they?

I knew that would be your next question.

And I have a follow-up to that one.

We are going to go forward with skis in approximately 35 stores.

That is downhill?

That is downhill.

We're going to go forward with skis in about 35 stores.

The vast majority of those are going to be the former Galyan's stores and we are going to test them in a couple of our higher volume Dick's stores in the Northeast.

But this is going to be a test and the vast majority of our focus in winter sports is going to be in snowboarding.

So we will be much heavier invested in snowboard than we will be in Alpine skis.

But we are going to be doing that in 35 stores.

Any other changes other than that ski area?

No, that is the only thing that had still been up in the air that we hadn't made a decision about that we haven't told you about.

Mike, the 70 million estimate for the reserves, it looks like you have done about 52.5 million through the end of the first quarter.

That gives you 17.5 left.

With it pretty much done, what does that represent?

What is that for?

It is the burn off of the remaining leases.

When you book the charge you need to time value that and that is why that tail goes on as long as it does.

Okay, and the last question.

Mike, do you have an estimate that you can offer for -- since accounting for option expense got pushed into next year, a ballpark number for next year?

We have not provided any guidance in that yet, Bob.

Our practice is and what we have said is that we are looking at the compensation practices and the long-term incentive basis and we will have some more definitive things to say about '06 as we go through that.

Fair to say when you look at the results that we reported for this past year where the impact was about $0.22.

We had provided some guidance earlier that as to '05 when we thought that this was going to be applicable for the latter half of '05.

That put that number at about $0.26 and I don't expect any dramatic changes.

So directionally you're going to be in the same kind of zone.

Okay, thanks very much.

Sean McGowan, Harris Nesbitt.

Two questions.

One, can you get more specific about what has been done already regarding remerchandising Galyan's and what is left to be done, noticeable things that you'd see in the store?

And secondly can you address if you have seen any change in the impact that you get from the openings of some of the hunting, fishing, camping specialty stores?

What has been done in merchandising is primarily -- it has been done.

The stores have been re-laid out.

The new merchandise content is in the stores and it is effectively completed.

There really is not anything else to do other than it is now business as usual on a go-forward basis.

As far as the hunting, the outdoor stores, the hunting/camping/fishing stores, we've seen no real change in the performance that we have guided to in the past when we compete with them.

When we compete with them, those areas take a bit of a hit the first year.

After we cycle through that, the business starts to come back.

We have put together this strategy focusing on the outdoor area a year ago which we outlined that continues to have success and has mitigated some of that exposure going forward.

So we are fairly pleased with what is going on in that area right now.

Thank you very much.

Rick Nelson, Stephens.

Thank you.

Good morning and congratulations as well.

That re-grand opening advertising that you did for Galyan's, how many overlapping Dick's stores did that touch separate from the former Galyan's?

And did you get any bump there?

We did this in really two forms, if you will.

We took the markets that had never -- that we had not been in in the past such as Chicago, Minneapolis, Denver, Atlanta, those markets, and rolled out a very aggressive pre-opening and grand opening campaign similar to when we enter a new market.

We employed that strategy.

Then the second leg on the stool of that strategy was in the markets where we already had a presence and we did a similar strategy of when we open up a new store in that market, which is much less advertising and in a very different approach.

We were pleased with both of those.

So it was something -- we did not apply one strategy to markets where we had competed with Galyan's and where we had not competed with Galyan's.

I see.

Can you comment on comps as they track during the quarter and any comment on traffic versus ticket?

We have not commented in the past on monthly comps or progression.

Obviously we were very pleased with reporting comps at 3.2% and a portion of that came from ticket and a portion of it came from traffic.

Very good, thank you.

Virginia Genereux, Merrill Lynch.

Thank you and good morning.

Maybe another way -- if I look at sales per square foot on a pro forma basis, Ed and Mike, it lagged the comps by about 6% and that is what it lagged in October and in January, which was understandable because our thought was you were clearing a bunch of product at Galyan's.

Is that -- I know that math is right -- but if I go forward, sort of two questions.

One, in the July quarter, Mike, do you think that -- and also Galyan's was higher on a sales per square foot -- a little higher than you guys on a sales per square foot basis -- do you expect that the comp would see some pressure related to this kind of mix shift from their being higher sales per square foot and you having a little bit lower sales per square foot model?

Do you understand what I'm asking?

Not entirely.

Let me just give you a reaction based on others having asked this question ahead of you.

On an LTM basis through the second quarter of '04, the sales per square foot were at 199 versus 194 at Galyan's.

So Galyan's sales per square foot had come down over a period of time.

We have also been consistent about our focus on earnings and economics.

And the sales is one metric we're not exclusively focused on, frankly, we're a little bit more focused on gross profit per square foot than we are sales per square foot.

I think we have been consistent in how we have talked about the disciplines on the inventory management side of the house and what we expect from a margin improvement standpoint and some of the surprises that we spoke about at the last call about some of the inventory management techniques that were being employed at Galyan's which resulted in late and large markdowns which we don't expect to experience here.

So when you look at the sales per square foot in Galyan's historically, it would suggest just looking at some of the profitability metrics per square foot as well because we don't think those sales were necessarily profitable sales.

We know that they weren't profitable sales.

As we looked at the margin rates that they were able to obtain on those sales, they weren't profitable.

They weren't sustainable.

And as far as the sales inside the Galyan's versus Dick's and the sales per square foot lagging the comps, we did not kick off that grand opening campaign until about halfway through the first quarter also.

So through half of the first quarter, the Galyan's stores were going through that conversion process and we were not really marketing that business.

We were just trying to run the kinks out of the operational side of the business.

Okay, but I guess I feel like Galyan's should help your comp.

You should be anniversarying a bunch of Galyan's clearance in the back half, right?

And we're also dealing with sort of real numbers but for the July quarter I know what the pro forma sales per square foot were -- but you at Dick's didn't own Galyan's last July.

So is it fair -- would you still expect in July that sales per square foot growth would lag the comps and lag last year's number?

May I ask?

We have not provided specific sales guidance.

Directionally again, I'll come back to we're managing the business based on income levels and to the extent that there was clearance activity, I don't know frankly that I would suggest that that makes for an easier comparison because you are moving more merchandise to get items out of the assortment that you're not going to go forward with.

I would actually suggest it could be a tougher comparison.

And if you look back at what Galyan's was talking about before we purchased them, they were talking about exiting a number of these business or down trending a number of these businesses and really trying to turn their business into exactly what we are, which is focusing more on sporting goods and more on athletic footwear, more on athletic apparel and scaling back a lot of the things that they had done in the past.

And they started that process before we bought them.

That's very helpful, okay.

And then sort of related to that, everybody is asking about this comp guidance.

Does your -- and Ed your response is that we are going to get this leverage from advertising but we're going to have more effective cannibalization in local markets.

Does that specifically -- is the reason we didn't see that in the first quarter is because a big portion of that relates to Galyan's entering the comp base?

Galyan's has not entered the comp base.

Galyan's will enter our comp base in the second quarter of 2006.

So Galyan's is not in this comp base today.

Understood, but I thought you --

Probably the easiest way to think of this is that we think we had a pretty good quarter here and we manage the business.

We've been conservative life to date.

We've got a cost structure built on 1 to 2% comp sale gain.

That's how we manage the business and that's the guidance we are comfortable in providing.

We think that's prudent.

I'm sorry, but the reason that the comps might get -- Ed, does this quarter -- do you start to have more clustering in markets that might impact you or -- there's no reason you didn't see that this first quarter, you're just expecting that to happen?

Is that right?

As we continue to open more stores throughout the year, Virginia, we will have a bit of a greater impact on the cannibalization until we anniversary that.

And in the second quarter and through the third quarter of this year there will be a fair amount of stores that have been opened that have this cannibalization effect on putting pressure on the comps but have significant upside in earnings.

Understood.

And then lastly could you tell us what advertising -- what advertising was as a percent of sales this quarter versus the year ago quarter?

Can you give us any sense or any quantification of how much that came off on a basis point?

We have never provided guidance to a line item like that. (multiple speakers) And for competitive reasons, we're not going to do that now.

Okay, thank you.

Jim Duffy, Thomas Weisel Partners.

You mentioned that the mix (technical difficulty) between markets versus new markets in 2004 was about two-thirds/one-third.

How do you see that mix going forward?

Jim, could you repeat that question?

You cut out and we couldn't hear you.

Okay.

You had mentioned in '04 that about two-thirds of your stores were opened in existing markets versus one-third in new markets.

How do you expect that mix (technical difficulty) going forward?

I think that that will vary, Jim, based on the availability of real estate.

We try to balance it.

We know and a lot of people are asking questions about the comp.

We are not blind to it.

We're not going to manage the business based on it but we are going to be sensitive to it.

We have always tried to have a balanced approach to any new store opening program because there is an element of risk associated with new markets that we try to blend that with infills.

I think for the next 12 months that kind of blend, that two-third/one-third is going to be in the zone.

But it is really going to be dependent upon the available real estate because we are getting the best real estate we can and that's what we will bring to the table.

Do you have any expectations for the new store productivity metrics going forward?

They have been -- they have vacillated between in the 90s and 80s and that is a metric that we speak to only because you folks don't have enough granular information to get to a number.

We actually track it obviously by store and we don't expect it to behave differently than it has in the past in that the 80s to the 90s and any dip what we have seen life to date and have spoken directly to has been a function of timing of new store openings.

Okay, Mike, is there a change on the financial metrics that you are focused on?

Is it more return on capital at this point?

Would your focus on opening in existing markets?

What are some of the (multiple speakers)

It has really been, Jim, focused on return on invested capital since 1995.

That is no change for us.

As we have spoken about some of the history here, the fact that we could not rely on outside capital given the condition of the sector going back ten years, we felt that that was the most prudent basis to be managing the business on.

Okay.

And one final question.

There's been a lot of discussion about the late start to spring.

How has that affected your business?

It seems the comp was very strong in the face of all this.

Were there certain categories where you saw slow results?

Do you expect some pent-up demand from that?

We try not to hide much behind the weather.

Yes, you do a very good job of that.

Our group did a very commendable job managing this business through a difficult weather environment.

Somewhat of a difficult economic environment would be the price of gas and all the play that that got, and going through converting the former Galyan's stores to the Dick's stores.

So just think, all in all it just shows once again that this management team and the associates we have working in this company do a great job executing their jobs.

Okay, very good.

Nice quarter.

David Magee, SunTrust Robinson Humphrey.

Good quarter.

A couple of questions.

One, on a per foot basis if our math is correct, it looks like the gross profit per foot was a little flatter in the first quarter year-to-year versus pro forma, versus the modest increases in the last couple of quarters.

Was that in case the fact -- in fact, was the case?

And secondly, if so, would that indicate maybe a slightly more promotional environment in the first quarter?

That is, in fact, the case relative to the math.

And no, I don't think it has got to do with more -- to do with the promotional environment.

As Ed said, we went through the conversion halfway through the first quarter.

There really was not a lot of advertising going on with Galyan's.

There was, in fact, zero prior to that grand reopening as we tried to successfully reassort those stores and reset those stores.

So if you think about actually what went on during the quarter and the magnitude of the work and the substantial amount of change that was introduced, frankly keeping that flat year-over-year when you're changing so much square footage in terms of content and presentation, we think is a pretty strong accomplishment.

Secondly, the loyalty card, how is that being received in the Galyan's stores and what percent of transactions, I guess, maybe even qualitatively versus the core Dick's base; how would that be trending at this point?

We're ramping that card up in all of the former Galyan's markets just on the same metrics as we did in the Dick's market.

So it is really tracking exactly as it had been when we opened a new Dick's store.

In the former Galyan's stores that are in a Dick's Sporting Goods market, obviously where we closed a Dick's store or there was an existing Galyan's store, we had a store card base and we have just continued to grow it.

Great, thanks a lot.

Charles Grom, JP Morgan.

Nice quarter as well.

Not to beat a dead horse here on the comp, but how much does your one to two comp have something to do with the health of the consumer right now?

Obviously, retail is a pretty tough spot right now.

I'm just wondering if you could comment there.

I know there's cannibalization issues, but what about the consumer here?

I think the results you saw in the first quarter, the consumer, at least in our business, is fine.

We've indicated in the past that our business I think will travel in a narrow band, a narrower band than the economy swings as a whole.

When the economy gets very good, we won't get the same spike that some other retailers or some other industries may get, but when it gets difficult, we won't see it dip down as much either.

I think it's the fact that we focus on that core athlete and outdoor enthusiast and as I have said at a number of conferences that this is product that a lot of parents need to buy for their kids.

If your kids are playing soccer and they wore a size 6 soccer shoe last year and they grew to a size 7.5, you don't look at the young man or young woman and say curl up your toes, tough it up and wear the size 6 shoes.

You go out and buy them a pair of size 7 shoes.

And I think we have the ability to resist some of those highs and lows that happen in the economy as a whole.

So we believe that the consumer is in okay shape.

I think the fact that oil prices seem to be coming down a bit is certainly going to help going forward.

But we're pretty confident in what's going on and the vast majority of the pressure on our comps is the cannibalization or the deep market penetration that we're trying to accomplish in a number of these markets.

I think it also makes sense to look at the two-year comp number and if you look at the Q1, Q2 and Q3 of last year on a two-year basis, those numbers are 3.7, 4.4, 4.0.

We had a 2.9% comp in the second quarter of last year.

If you put our number in the middle of the range of 1.5, it's 4.4 that we're guiding on two-year basis -- guiding 2 for the upcoming second quarter.

So I would suggest also that there is a continuum of some strength from the beginning of the first three quarters of last year.

That color was very helpful.

Walking down the P&L, on a pro forma basis it looks like your SG&A costs were down 150, 160 bps.

Can you walk us through the components of that increase and how much, Mike, are one-time costs that you were able to cut out from Galyan's versus those that are sustainable over the balance of the year?

The most dramatic reduction has been in the area of administration, the elimination of the Galyan's corporate office, the leveraging of activity over a lower headcount here in Pittsburgh.

We have seen some reductions in advertising as we expected.

And those are the two primary contributors, which is pretty much what we expected.

And last one and I'll pass on to others, I may have missed it but did you comment on how hunt, fish and camp did relative to budget in the first quarter?

And Ed, I know you get this question a lot but how do you see the hunt, fish and camp sector playing out over the next few years and where do you see some rationalization?

Who do you see as the better operators, etc?

We indicated that the hunt, fish, camp category has not changed significantly.

We are pleased the progress that we have made, the strategies that we have put in place in that hunt, fish, camp category beginning a year ago.

As far as the competitive landscape going forward, we don't really see much of a significant change and I think that you take a look at Bass Pro and Cabela's and I think they are by far and away the best operators in that category.

Their stores are terrific and from a financial standpoint they know how to run their business.

So I think they do a very good job.

Great, thanks.

Good luck.

Chris Jones, Oppenheimer.

Two quick questions.

You've completed the conversion of the Galyan's stores.

Can you just talk quickly about the conversion of the DC that you bought, the Galyan's DC and how that's progressing?

That is for the most part completed also.

The warehouse management system that was put in place there has been completely converted.

The way that we distribute product inside our distribution centers has been completed.

The last thing that we're going to do which begins in the next couple of weeks is change the routing of the stores.

So the stores being serviced by the Indianapolis distribution center or by the Pittsburgh distribution center will be changed to optimize the freight costs associated with getting products to the stores.

But it is essentially complete.

How many stores did you expect to be impacted by that change?

There's probably 20, 25 stores.

Thanks and the next question in terms of looking at the first quarter on a pro forma basis and the changes or the impact or the change that you had in gross margin in SG&A, would you expect to see that same sort of magnitude in the second quarter on a pro forma basis?

We actually don't get that granular on the guidance.

We would like just to stick with the EPS number.

Directionally I won't get into the proportion of the change, but directionally those are the buckets that we expect to produce some of these year-over-year increases.

Okay, thank you.

Jason West, Deutsche Bank.

Congrats on another solid quarter.

One thing you have not mentioned I am assuming it is unchanged but your long-term store growth plans -- I am assuming you're going to ramp back up to the 15% square footage growth starting in '06.

Is that still the plan?

Yes.

It is the plan.

We will be back to 15% unit growth on a go-forward basis.

Okay.

Unit, not square footage.

So unit -- the number is like about 40 stores.

Got you and do you see a need for a new distribution center any time soon given some of the stores are now becoming in the deeper Southeast trying to get down to those stores?

Is there any plans on the table for a new DC?

We think with the acquisition, our current capacity is about 350 stores.

We are looking at growth plans and distribution needs, but right now we feel we are in pretty good shape.

Okay.

We have the ability in the Indianapolis distribution center to expand that facility also, which will grow that 350 capacity even more.

Okay.

Last thing on the synergies -- I know you have made some big progress on the SG&A line if you look at the pro forma numbers, is that sort of where we should see the synergies coming through?

And can you talk a bit about what inning we are there, on the $20 million number and maybe where you see that number going on a longer-term basis?

I think as we have said, we're comfortable with the 20 million synergy number.

It is being realized in the manners that we had expected, that we projected as we went through our acquisition analysis.

So you'll see improvement on the margin line and the SG&A line on a go-forward basis.

The synergies on a go-forward basis become frankly muddled from the standpoint that we're operating this as one business.

We have described the rationale for the transaction as a real estate transaction that allowed us to get some density in markets that we had difficulty penciling market entries into like Chicago, Denver, Minneapolis because of the competitive landscape.

And getting that critical mass has allowed us to now go after real estate in those markets.

So given we're operating this as one business, we are not -- I guess we feel our obligation is to hit the earnings guidance we provided for '05 based on the premise that we made assessments about where we expected synergies to come from.

As we anniversary the acquisition of Galyan's and the conversion of Galyan's, it will truly be one business and that's how we are running it now.

So I don't really expect to be speaking about -- we are not speaking internally about any synergy number for '06.

Okay.

Any sense on where we are on maybe the first -- or the 20 million, what inning maybe we are there?

I think given that our guidance is essentially on plan, which includes the 20 million in synergy but for the increase that we've added to the full year guidance as a result of our exceeding guidance in the first quarter, we are essentially on plan.

Okay, got it.

Thanks a lot.

Hardy Bowen, Arnhold and Bleichroeder.

That was close -- Arnhold and Bleichroeder.

Are the two-level stores now -- the Galyan's stores operating like a two-level store at this point in time or do you expect them to operate better than a two-level store given that some of these are blockbuster locations really?

Well, when we take a look at how these stores operate, we are looking at a return and so the return -- our run or return on these stores we expect to be in line with our two-level store.

Some of the blockbuster stores that we have in here are -- they are absolutely blockbuster stores but some of them have occupancy costs that they need to be blockbuster stores from a sales volume standpoint.

So we expect them to be in the zone of our two-level store.

Okay, what is the plan for new stores in the former markets where Galyan's was operating and you were not operating?

It seems like this in theory any way should be some of the highest profit opportunities that you have and the least cannibalization.

You're right.

We expect -- there were a number of markets that Galyan's hadn't filled out or hadn't gotten very far in filling out and we will continue to be aggressive in Chicago, Minneapolis, Denver, Atlanta in order to fill in those markets.

We think there's great opportunities in those markets for us.

I know the stores would mostly come next year I would presume?

They will come when the real estate is available.

In Chicago we think there's a big opportunity for a number of stores in Chicago and that will come over the next couple of years, adding a number of stores each year.

The other area that we have talked about we opened our first store in Florida this year in Jacksonville and that is off to a great start and we look at Florida as a terrific market for us also.

So you would fill out Jacksonville first and then go to other markets?

We're pleased in Florida and we're pretty confident in our ability to do business in Florida.

So we do have another store going into Jacksonville and we are moving on to other markets in Florida now.

Okay.

It seems that you're leading competitor is shifting their advertising dollars from very intense promotions towards more institutional advertising.

Do you think that makes it less of a promotional environmental or it doesn't make any difference or --?

I think that they are trying to reallocate some of the dollars that from Tabs advertising the four different banners that they were operating under.

They are going to continue to do an awful lot of inserts with -- the last thing I read I think they are doing 50 or 52 inserts a year, which is up from what they have done in the past.

So I think it's still going to be aggressive out there.

Okay.

To what degree if we had stockouts in Galyan's -- is this like a new store where you don't know for sure what is going to sell so you -- we're trying to find out what does sell in specific locations of our merchandise so we will have since stockouts when we start and later on we will be adjusted?

Absolutely.

Whenever we open up a new market you get it going both ways.

You get some stockouts based on some products, categories and/or SKUs that sell faster than anticipated and you get some inventory that backs up.

And we are in the process right now with the data that we have of almost two months now since we re-grand opened these stores.

And we are moving very quickly to increase inventory in some categories and decrease it and others.

And we are going at this the same way as we would in any other new market.

We are seeing no real issues, nothing different than we see any time we open up in a new market.

Well, they look good.

Congratulations.

Anthony Lebiedzinski, Sidoti & Co.

A couple of questions.

I know you spoke about the expectations for your comps for '05, but what is your long-term outlook for annual same-store sales, if you could just talk a little bit about that?

We guided that same-store sales for the year would be in the 1 to 2% range.

Right but I'm saying like the longer-term -- let's say two to three years from now, what is your annual comp outlook?

We've never provided guidance out past the year that we are in and we provide guidance from quarter-to-quarter.

Okay, in terms of your private-label products, do you still intend to increase that to about 15% of your sales over time?

Yes, we are very confident that we can do that.

And what would be the timeframe for that?

That would be over the next couple of years.

Okay.

In terms of the two-level stores, I want to just follow up on the previous question.

Are your two-level stores doing as well as your one-level stores?

What we have indicated and they continue to be providing the same type of returns that the single-level stores are.

Have you seen any impact from the Sports Authority remodels?

To date we really haven't.

I'm not sure -- and they have remodeled some stores inside -- in markets where we compete with them and we looked at our sales at a very granular basis and we take a look at the sales of stores that compete directly with Sports Authority and we really have not seen any impact.

Lastly in one of the tables in the release, I think this is the first time that actually you reported what the July quarter of last year was for Galyan's?

Right, and that is intended just to provide you some basis for the pro forma results that we are comparing our guidance against.

Right.

That is certainly helpful but can you tell us what the same-store sales for Galyan's was for the last quarter -- for the July quarter of that year?

That is not something that we have or will be disclosing.

That was a quarter that they did not file anything.

We are providing a P&L to give you some sense of how the numbers fall so that it ties out to the $0.21 that we're citing.

So I mean they owned it -- we only owned for two days during the quarter.

That lends itself to an entire -- what went on during the quarter which is a conversation we're not prepared to get into and won't next year either because we were not running the company.

Okay, thank you.

Sam Poser, Mosaic Research.

Good morning, very good quarter.

I just wanted to take it the other direction.

What have you learned in the last few months as the Galyan's stores have been rebranded that you may put to work or are considering to put to work in some of your Dick's stores?

We've taken a look at a couple of categories that Galyan's did better than we did at Dick's and are looking to increase those categories as a percentage of our total business.

Galyan's did a much better job in the sandal and hiking boot category than we did.

Significantly more.

So we are looking to roll out that sandal business into the Dick's stores.

We also found that they did better job in water sports than we did.

So as we go forward, we're expanding our assortment of water sports in the Galyan's stores and in Dick's stores where an expanded water assortment would be appropriate.

They carried more SKUs; they carried some higher end SKUs that actually sold pretty well.

So we are moving to add those to our assortment.

Will we see the water sports this year?

You'll see a big part of them this year, yes.

And following up on the question regarding the state of the customer right now, can you just talk to the demographic to the average income and so on of your customer?

We have not -- again for competitive reasons, we don't want to lay out the demographics of our sweet spot, our consumer primarily for competitive reasons.

Thank you very much.

Congratulations again.

Ryan Vinteria (ph), with (indiscernible).

Congratulations on a great quarter.

I know the weather was tough in the Northeast.

I appreciate you not mentioning that.

First question is do you expect the impact of cannibalization over the next couple of quarters to be greater than it was over the past couple quarters?

It will be pretty much in the same zone.

Got you, okay.

I guess the second question is several years before you bought Galyan's they were a very profitable company when they were a sporting goods retailer and now that you have added some of your core sporting goods merchandise into their stores and seen a favorable response, I'm wondering if there's anything structurally that will prevent some time in '06 being able to get the Galyan's stores up to the Dick's operating margin levels?

I think that is the objective.

And as we continue to understand these markets that we are doing business in now, Chicago, Minneapolis, Denver, Atlanta, etc., we will do a better job of having the right products in there at the right time and there really isn't any reason we can't get these stores to our same operating metrics.

Excellent.

The last question is you've had this 20% earn earnings growth target long-term out there for awhile.

Is that achievable in 2006 even against this pretty massive earnings growth year you are going to have this year?

We are very confident that we can continue to grow the Company at 20% EPS and we have got that laid out, yes.

Fantastic.

Thanks very much.

Congratulations.

There are no further questions at this time.

I would like to turn the conference back over to Mr. Edward Stack for closing remarks.

Again I would like to thank everyone for joining us today on our first-quarter call.

We are very pleased to be able to report these terrific results which again are a great testament to the people we have working in this company and look forward to speaking with all of you in a few months on our second-quarter call.

Thank you.

Ladies and gentlemen, thank you so much for your participation in today's conference.

This does conclude the presentation.

You may now disconnect.

Have a great day.