DICK'S Sporting Goods Inc (DKS) 2005 Q3 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Dick's Sporting Goods Incorporated third-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 conducting a question-and-answer session at the end of today's conference. (OPERATOR INSTRUCTIONS).

I would now like to turn the call over to Mr. Dennis Magulick, Director of Investor Relations.

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're 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 also be available for approximately 30 days.

In order for us to take advantage of Safe Harbor rules, I'd like to remind you than 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.

In 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;

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 third quarter, a quarter in which we generated earnings per share at the high end of our guidance and exceeded our guidance from a comp store sales perspective, achieved expanded growth and operating margins and once again grew our bottom line faster than the top line.

This quarter we are reporting net income of $4.2 million or $0.08 per diluted share as compared to our guidance of $0.06 to $0.08 per share.

Net income increased 56% and earnings per diluted share increased 60% versus last year's results, which exclude merger, integration and store closing costs.

Total sales for the quarter increased 8% to $583 million.

Comparable store sales increased 2.9%, which is on top of a 1.5% comp sales gain in last year's third quarter.

As a reminder, the former Galyan's stores will be included in the comp store base beginning in the second quarter of 2006, which is thirteen months after the completion of the rebranding and remerchandising effort.

During the quarter, we saw favorable results through much of our business, including golf, athletic footwear and apparel.

These results were partially offset by a few businesses, including hockey and paintball.

As we reassort the Galyan's stores, we rolled out our private label program into these stores.

In overlap markets where already a Dick's store was present, customers were familiar with our private label brands.

Many customers in new markets are seeing these brands for the first time.

Our experience thus far is that these markets are behaving in a manner very similar to other new Dick's Sporting Goods markets.

In the third quarter, which is the second full quarter following the conversion of the former Galyan's stores to Dick's Sporting Goods stores, private label sales represented 8% of sales versus 7.8% on a Dick's and Galyan's combined basis last year.

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

This was the second full quarter following the conversion of the former Galyan's stores to the Dick's Sporting Goods format and merchandise assortment.

At the end of the quarter, the marketing and advertising programs are now synchronized and they will continue to be so in the fourth quarter and beyond.

Our expectations continue to be that these stores will perform much like any new Dick's Sporting Goods store, which over time have historically produced increasing sales and returns as each new store matures.

Our guidance incorporates this expectation.

We are reaffirming our earnings guidance for the full year.

We continue to expect to earn $1.70 to $1.75 per share in 2005 representing an approximate 48% increase over pro forma combined company EPS for the full year 2004 of $1.17 a share.

Both period's results exclude merger, integration and store closing costs and gain on sale of investment.

We expect comp store sales to increase approximately 2%.

For the fourth quarter of 2005 on a fully diluted share base of 54 million shares outstanding, we expect to report about a 20% increase in earnings per diluted share of $0.95 to $1.00 versus $0.81 in the fourth quarter of 2004, which excludes merger, integration and store closing costs and gain on sale of investment.

We are expecting comp sales in the fourth quarter to be approximately 1% to 2%.

We have completed our store opening program for the year, opening 26 new stores in 2005.

The third quarter was a solid quarter for Dick's Sporting Goods.

In addition to generating earnings per share at the high end of our guide, exceeding our guidance from a comp store sales perspective and achieving improved growth and operating margins, the quarter marked another milestone for the company.

We opened 16 new stores and relocated three, the largest number of new store openings during any one quarter.

Our associates once again demonstrated in this quarter their ability to produce industry-leading performance and we are well-positioned as we embark on our approximately 40 new store program in 2006.

At this time, I'd like to turn the call over to Bill.

Thanks, Ed.

During the third quarter, we opened 16 stores, three of which were two level stores.

They were in Charlotte, North Carolina, Lexington, Kentucky and Boston.

We also relocated three stores and remodeled one store.

Six stores were opened in new markets.

Those markets were Charlotte, North Carolina, Rutland, Vermont, Morgantown, West Virginia, Keene and Concord, New Hampshire and Fort Collins, Colorado.

The remaining stores were opened in existing markets as follows; three stores in Boston and one each in Rochester, New York, Charlotte, North Carolina, Lexington, Kentucky, Pittsburgh, Columbus, Ohio, Worcester, Mass. and Denver, Colorado.

At the end of the third quarter, we operated 255 stores with approximately 14.7 million square feet in 34 states.

Our 2005 store opening program is now complete and for the year we opened 26 stores and relocated four and completely remodeled two stores.

Nine of the stores were in new markets and six were two level stores.

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

Thanks, Bill.

We've anniversaried the Galyan's transaction.

As a result, this is the first quarter in which the comparison to 2004 on a GAAP basis includes both Dick's and Galyan's operations.

Sales for the quarter increased 8% to 583 million from $541 million for the comp store sales gain for Dick's stores of 2.9%.

Our gross profit was $153 million, increasing 80 basis points to 26.34% of sales.

This change was due to expanded merchandise margins caused by better purchasing as well as the impact of more private label product.

Margin gains were partially offset by higher freight costs caused by fuel surcharges.

SG&A expenses of $137 million were 23.45% of sales and 38 basis points higher than last year's third quarter.

Savings in corporate administrative expenses were offset by higher advertising costs and costs associate with the timing of the change of physical inventories.

Operating income increased 38% from 7.9 million last year to 10.9 million this year.

Last year's results exclude merger, integration and store closing costs.

As a percent of sales, operating income increased 40 basis points to 1.9%.

Net income for the quarter increased 56% to $4.2 million as compared to $2.7 million last year, which excludes merger, integration and store closing costs.

Our earnings release included a statement of operations per (indiscernible) in accordance with GAAP, which compares 2005 year-to-date third quarter combined results of Dick's and Galyan's against last year's Dick's only results for the first and second quarter and Dick's and Galyan's combined results for the third quarter.

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

The press release includes schedules that reconcile these amounts to facilitate their understanding.

Through the third quarter, net income of 40.5 million and earnings per share of $0.75 more than doubled on a pro forma combined company basis, excluding merger, integration and store closing costs and gain on sale of investment.

On a GAAP basis, earnings per share was $0.75 this year compared with $0.59 last year, a 27% increase.

All results exclude merger, integration and store closing costs and gain on sale of investment.

Comp store sales through the third quarter increased 2.1%.

Moving to the balance sheet, we ended the quarter with $675 million of inventory as compared to $625 million last year.

On a combined company basis and adjusted for purchase accounting reserves, inventory per square foot is down 3.9% compared to last year.

We ended the third quarter with $203 million of outstanding borrowings on our $350 million line of credit versus 260 million of outstanding borrowings at the end of last year's third quarter.

Excess borrowing availability totaled 128 million.

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

(OPERATOR INSTRUCTIONS).

Matthew Weir, Goldman Sachs.

Thanks a lot.

It's Matt Fassler and Matt Weir at Goldman Sachs.

A couple of questions.

First of all, if we digest your guidance for the fourth quarter, which is essentially unchanged from where it had been as best I can tell, do you need to show a little more operating leverage in the fourth quarter than you delivered in the third quarter?

That's using your sales numbers in essence.

And if you could -- obviously you showed nice leverage in the quarter and it was a good quarter but given that you are expecting, it seems a bit more.

If you could shed a little light on where you think the operating margin expansion is likely to come from?

I think one thing to keep in mind is that the fourth quarter, as you know, it is a very profitable quarter for us.

It's a very busy quarter for us.

So from a sales perspective, that top line is going to be greater than it would be in the prior quarter.

We have got a history of expanding the gross profit margin in each of the last two quarters.

That has increased by about 100 basis points and if you recall, we remerchandised the Galyan's stores back in March of this year.

So we are still going up against activity where we were liquidating product.

Given that the Dick's margins had been higher than the Galyan's margins, we expect to continue to see, as we did this quarter, the margin rates at those converted stores increasing as they benefit from the Dick's merchandise assortment.

That's helpful.

My second question relates to the Galyan's stores.

We tried to do some math on the performance of these units and as best we could tell on a year-to-year basis, in the third quarter, the acquired stores were down, call it, low teens versus maybe midteens in the prior couple of quarters.

If you could shed any light on whether we are warm with that forecast and also just us a sense qualitatively ask to how the stores are evolving.

You are not warm.

I think that the performance in the third quarter was -- although we're not going provide detail, I can tell you that the performance of the Galyan's stores in the third quarter were significantly better than they were in the first and second quarter of this past year.

Does that mean I was too conservative in the estimate I just gave you?

Well from a numbers standpoint, I'm not going to comment on that but the performance -- you indicated that the stores performed relatively the same in the second quarter as the third quarter if I understood what you said.

Had a little bit of improvement.

There was a lot more than a little bit of improvement.

In the numbers, even though you won't tell us exactly what they were.

Exactly.

And we talked about this as we got toward the end of the third quarter, that marketing plan would be sinked up between the two types of stores, the former Galyan's stores with the legacy Dick's stores.

As we did that, we saw a very significant improvement.

And qualitatively, any other color in terms of merchandising uptick particularly in categories?

You talked about private label acceptance but obviously there were a lot of categories that you flexed up and down.

Are you seeing the ramp ups in those categories.

I think that golf would be one.

Hunt, fish, camp would be another.

Are you seeing uptick consistent with your expectations in those categories?

We are.

The uptick in some of these businesses that we talked about -- golf has been very good.

Athletic footwear has been very good.

The lodge has gotten a lot better.

Our lodge business and you saw with some of the other people in this category have reported.

Our lodge business for the third quarter was actually flat with last year.

All in?

Yes, which was a big improvement and you can see what's going on out there in the marketplace.

We're outperforming that marketplace pretty significantly.

And one final question, on the new storefront, with Galyan's in the non-comp base, it gets harder for us to try to estimate the performance of the new organic Dick's stores.

Can you shed some light on how they are performing versus prior years?

Sure.

The new productivity and the drill that you go through there is -- as we go through it and try to emulate what you're trying to accomplish, I would tell you that the new stores are opening up in the mid-80s, which is comparable to where they have opened in the past.

The one suggestion, because I know you're going to want to try to quantify that, if you go back and look at the stores that we closed, we have broken out the number of stores, we've broken out on a closed relative to Galyan's as well as Dick's and if you take that square footage, which is also in the footnote to the press release, and assume a chainwide sales per square foot number and apply those numbers, adjust your base, you are going to get to that kind of result.

Got you.

And the double-decker stores, there seem to be more of them among your new stores, they are performing similarly?

We are pleased with the way they are all performing.

Just on the two level stores, a couple of those stores this year were leases that we inherited with the Galyan's acquisition on two levels stores.

But some of them are of your own choosing?

That's correct.

Robert Ohmes, Banc of America Securities.

This is actually Ben Rosen (ph) for Robbie Ohmes.

Just a quick question, for the Galyan's stores, now that the conversions are complete, are you finding the stores more seasonal than you thought even with the Dick's format?

We don't see them behaving any differently than the Dick's stores do.

So they are not still weighted more towards the Q4?

We haven't gone through Q4 yet.

So we'll see if we get a pop in there.

But we haven't seen business -- penetration of business by category is coming right in line with what we have seen traditionally in the Dick's stores.

And you may be referring to the mall-based locations that we have alluded to and Dick's has a number of mall-based stores ourselves and there can sometimes be a seasonal flex relative to that.

But it is really on a mall by mall basis.

The regional malls being more sensitive to that kind of uptick.

So there is not really a blanket conclusion that you can draw.

Jim Duffy, Thomas Weisel Partners.

The last couple of quarter's SG&A excluding the preopening has grown ahead of revenue.

Is this seasonal?

As we look into Q4, do we expect to get some leverage on SG&A as the sales ramp the seasonality there?

We actually don't, as you know, guide on a line by line basis.

I will tell you though that relative to Q3 that we did add back advertising as we talked about.

We were going to do at the end of the second quarter.

So the third quarter, we did add back expense there on that line item.

We do expect to leverage SG&A for the year.

And then the heightened advertising will continue in Q4.

Is that a correct assumption?

Yes.

The advertising in the former Galyan's stores will be synchronized with what we have traditionally done in Dick's Sporting Goods stores and that will continue through the fourth quarter and will continue in perpetuity really.

I'm thinking about your comparisons with a year ago in Q4.

There were some big price promotions that were driving traffic to the Galyan's stores.

Does this make for difficult comparisons and how should we think about this from a modeling standpoint or how do you think about it from a business management standpoint?

The sales promotion activity is all baked into our guidance and the Galyan's stores don't roll into the comp base until the second quarter of '06.

And we have baked -- from an earnings standpoint, we have baked into what we feel the sales in the former Galyan's stores will be.

We're very comfortable with that.

I think the other thing to keep in mind think about why we were doing that.

I mean we had gone through a pretty detailed identification of what was going to be included in the go forward assortments.

So we wanted to maximize cash flow.

We didn't want to trash prices in overstated markdowns.

So we were trying to promote our way out of those non go forward items from the assortment.

So there is going to be a little bit of noise there.

But it was designed to liquidate inventory, which we did have some protection from in the form of the purchase accounting investments.

Got you.

In Q2, Mike, you talked about gross profit dollars in the Galyan's stores on a per square foot basis being comparable year to year.

In Q3 do we indeed see improvement?

You expect to continue to see that on a go forward basis as the margin increase we get from the Dick's merchandise assortment that continues to flow through the Galyan's stores.

That will happen on a go forward basis.

David McGee, SunTrust Robinson Humphrey.

Good morning.

A couple of things.

One, with regard to Galyan's, it's good to here that the performance there has picked up in the third quarter.

If you go back to the second quarter when we lowered the expectations for that business, how much of that shortfall was made up through increased advertising and how much of the shortfall was just how these stores turned up relative to your initial plan?

I'm not sure if we can actually separate when sales go up.

It is difficult to determine who gets credit, which effort gets credit for the sales dollar.

I think the way I would think of it is the way we spoke about it in the second quarter was that the top of mine awareness was not at the levels we thought it should be.

We got a little bit aggressive on expectations and advertising spend.

Once we synchronized the advertising to be consistent with what we've done in the past, we saw the results we expected to see, which is evidenced by the earnings release that we put out yesterday.

And secondly, could you say those numbers again with regard to private label, the percent of the merchandise now versus last year?

It was, in the third quarter, it was 11% of sales versus 7.8% between Dick's and Galyan's the year before.

And lastly, any initial thoughts on the impact of the option expense next year at this point?

We have included that in this press release and we are anticipating it in connection with the adoption of 123 option expense of about $0.27 per share.

John Shanley, Susquehanna Financial.

Could you share with us the product categories, the general merchandise product categories that is, that contributed most to the 70 basis points improvement in gross margin that you obtained in the third quarter?

On a category by category basis, I won't comment on it.

But I can tell you that across virtually all areas, we had some margin rate improvement that was a result of both better buying that we have been able to do from a leverage standpoint on the vendor side and also the increased penetration of private label products.

Was there a noticeable improvement specifically in the Galyan's stores in terms of their product margin contribution than there had been in the second quarter?

The margin rates in the Galyan's stores are running very similar to the margin rates in the Dick's Sporting Goods stores, which was an improvement over what had been last year in the former Galyan's stores.

Can you give us a general sense of how your merchandise mix by sales revenue generation varied in the third quarter of this year versus last year in categories like footwear, apparel and hardlines?

They were -- all categories, as you take a look at a total of apparel, footwear and hardlines, all of them saw some increase on the broad category as you just described.

If you get down into a finer level of detail and not all categories were up, but if you take hardlines, apparel and footwear as a whole, each of those three categories were positive.

Is apparel and footwear growing at a faster clip than hardlines?

From a competitive standpoint, we're not going to get to that level of detail but we're very pleased with the growth that we're having in the apparel and footwear side and we've talked in the past on the technical apparel piece and how good that business has been with Under Armour, with some other technical companies.

Nike's Pro Compression revolution has done quite well.

So this whole technical apparel, which has really been led by Under Armour continues to do very well.

In terms of real estate, can you give us an idea of the average size of the units that you opened in the third quarter and the average sizes that are planned in terms of gross selling square footage for the 40 units that you're planning for fiscal '06?

Going forward, as we have indicated, the vast majority of what we will be going forward with will be the single level, 50,000 square foot store.

Somewheres between 80 and 85% of the unit development program will be that and somewheres around 15% to 20% will be in the two level stores.

That's very helpful.

Just as a reminder, we do have some square footage information at the back of the press release.

Mike, a question for you on the SG&A expenses.

How much of the 30 basis points decline in SG&A would be attributable to the increased advertising spend for the Gaylan properties in the third quarter?

Pretty much all of it.

So if we factor out, in terms of our modeling, that particular contribution, that is how you reach the conclusion that Ed gave us in terms of basically seeing an improvement in SG&A for the full year.

Is that a correct assessment?

Well, there's that plus the comment I made earlier in the call, which is simply we do more sales in the fourth quarter has do many seasonal retailers.

So that line has a tendency to be more leverageable or easier to leverage in the fourth quarter as a result of a heavier top line.

Mitch Kaiser, Piper Jaffray.

I was curious, just first of all, how many of the former Galyan's stores are still open?

Is it 47?

44.

44 now.

Okay.

And then in terms of categories, with hunt, fish, camp, did you expand your assortment on that side with the others reporting.

I'm surprised that you would have comped flat in that category.

Did you expand your merchandising?

Well we expanded some products in the category.

If you remember, we have been talking for approximately the last 18 months that we've put together a strategy in the lodge to gain back marketshare and it is clear that this strategy is working.

And we continue to pick up momentum in the outdoor category.

And just as a reference point, what would option expense impact be to 2005 so we get an apples-to-apples comparison?

It is about the same.

It's about $0.26 versus the $0.27 we've guided to for '06.

Sean McGowan, Harris Nesbitt.

Two questions if I may.

First, can you comment a little bit on how stores opening in the Colorado market are doing relative to your expectations and second, are we not going to see anymore merger and integration charges going forward?

Thank you.

In the stores in particular markets, we have never commented on a particular geographic region.

We are pleased with what is going on in our new stores and we will continue our development program in Colorado quite aggressively.

As far as the merger and integration --.

We are done with the merger and integration costs.

Rick Nelson, Stephens.

Thank you.

Good morning.

Congratulations. (indiscernible) advertising in Galyan's markets.

I'm wondering how many Dick's stores that would have touched and did that affect comps out of the Dick's side of the house.

That didn't affect any of the Dick's stores.

We talked about the stores that were going to get the increased advertising, which would bring the advertising up with legacy Dick's stores, were the markets where we did not operate a Dick's store in the past, such as Chicago, Denver, Minneapolis, Atlanta.

So the increase in advertising over what we had done in Q2 to bring the former Galyan's stores in concert with legacy Dick's stores didn't touch any Dick's Sporting Goods stores.

Thank you for that.

Fitness equipment, how did that perform during the quarter?

We haven't guided that on a category by category basis.

We continue to be enthusiastic about the fitness business, some of the things that we have put in place with our certified fitness trainers, taking some price points up in fitness products, continuing to expand our private label penetration in fitness.

We continue to be very pleased with the performance and enthusiastic going forward on the fitness business.

And the gross margin improvement so many basis points, is that the type of improvement that you think is sustainable?

Well we are pleased with the gross margin improvement.

We don't think that we're done improving the gross margin.

We continue to get leverage from our vendors from a buying standpoint.

We continue to improve our systemic issues in mitigating markdowns on the backend through better inventory controls and we still feel that there is increased penetration of private label products that we will bring in.

We are also starting to see some leverage in private label pricing overseas where we are now getting to some scale where we have talked about a year, a year and a half ago, we really didn't have an awful lot of scale overseas.

We are now starting to get scale and starting to see the benefits from a buying standpoint associated with our own private products.

One thing to keep in mind is the fact that we haven't yet anniversaried the remerchandising of the Galyan's stores.

So as we are enjoying that uptick from that remerchandising effort, that, as you recall, happened midway through the first quarter of '05.

You mentioned that private label 8% of sales compared to 7.8% last year.

How far do you think you can push that level of proportion?

In the third quarter, it was 11% of sales roughly versus 7.9% the year before.

We do believe that over time we can get that to 15%.

This year, it will probably be in the vicinity of 12 for the year.

Hardy Bowen (ph), Arnold & Liecharter (ph)

I would think that the weather being what it has been would have hurt the outerwear business and the hunting business to this point.

Is that fair to say?

Last year I think was warmer than normal and this year has been warmer than last year.

We are somewhat sensitive to weather conditions this time of year.

Although a lot of people wouldn't like it, we would like it to snow September 15th.

The weather does have an impact and based on the weather patterns, I think it makes our results even more remarkable what we were able to accomplish in a difficult economic environment with what you saw has happened with some other people, especially in the outdoor category and also with the weather.

Has this been helped by the higher priced rifles and the higher priced crossbows and so forth have been selling very well.

That is one of the things that is helping the lodge at this point?

We've certainly been -- we've taken some price points up and are selling some better product.

But I also give our group a lot of credit.

They have done a very good job of being in stock on key items at all price points.

I think we have got some work to continue to do in that area but they've certainly done a very good job identifying key items being in stock and those key items and that's certainly helped driving that business and moving marketshare back to Dick's Sporting Goods.

I guess on the Galyan's stores, I can't remember when we dropped handguns last year, but I think we are still running against handguns last year in this quarter.

That's correct.

We had not fully exited the handgun business and we're still going through the promotional activities to liquidate the handgun and some of the ancillary handgun products that were in the store.

So we are losing some sales on handguns and picking up sales on rifles I guess from the promotions and the Galyan's.

It's working that way?

We're definitely up against -- in the handgun business, and I don't remember it off the top of my head, but the handgun business was fairly significant at Galyan's and they are high average ticket retails also.

So yes, we continue to anniversary that.

Although, in the fourth quarter, we'll basically be done with that.

By holiday, we were done.

I see.

Good quarter.

Thank you.

Jason West, Deutsche Bank.

Thanks a lot.

I wonder if you guys could talk a little bit about the timing of some of store openings in the third quarter.

It seemed like the square footage growth was much higher than the total sales growth.

Well we opened stores throughout the entire third quarter.

That was a big quarter for us and we got some of these -- right here, we open two in August.

We opened -- one, two, three, four -- we opened seven of them in September.

Most of those toward the end of September and we opened the balance in October and roughly half of those toward the end of October.

Okay.

So I guess the timing of the store openings is sort of skewing the sales per square foot there.

You can't -- you take a look at when they opened, the square footage increase -- opening them up toward the end of the quarter, the square footage goes up and your calculation will look as if it has been open the entire quarter.

But we haven't had sales for the entire quarter.

And did you guys have any purchase accounting reserves in the quarter or were you done with that as of the second quarter?

We are done with that as well.

And I believe you guys mentioned on the SG&A some change in physical inventories.

Can you explain what that was?

Yes.

We took some physical inventories in the third quarter that last year we took them in the fourth quarter so that the expense shifted into the third from the fourth on a year-over-year basis.

Okay.

And that affects SG&A?

Correct.

Yes.

Anthony Lebiedzinski, Sidoti & Company.

Good morning.

A couple of questions.

First regarding the same-store sales increase, how much was that ticket versus traffic in the quarter?

It was more -- it was more ticket than traffic.

It was more ticket than traffic.

Is that as far as the details that you'll provide?

It was primarily ticket.

Now looking at the guidance for the full year, I just wanted to clarify.

You are keeping the EPS guidance $1.70, $1.75 unchanged but it looks like the expected share count has decreased a little bit.

Is that correct?

That's just a function of the share price.

We provide guidance to that.

We have included that in the press release.

Alright.

Because I think prior guidance was 55 million for full year.

It was based on, as you know, stock equivalents are affected by share price.

I noticed that you guys filed an amended 10-Q filing yesterday.

What was the reason for that?

It was a mathematical error in one number in that filing.

We thought we would fix it.

It was a net income number that shows up in about 15 different places and one place it was incorrect.

So we corrected it.

And I know that you guys did a promotional event with the Apprentice.

Was wondering if you could comment on that, if you have any plans to do any similar marketing events.

I don't think there is any marketing event similar to the Apprentice.

It is pretty unique unto its own.

We're very pleased with it.

But we don't have -- there is nothing else in the hopper similar to that.

Got you.

What is your expected CapEx budget for the year?

It approximately 90 million.

Any idea where you will finish the year in terms of long-term debt?

Less than last year.

We don't provide guidance that granular.

Ryan Wintaria (ph), Karsh (ph) Capital.

Congratulations on a very good quarter.

First question is backed into the Galyan's numbers for the third quarter, they were substantially better in the second quarter.

But is it fair to say the marketing wasn't fully sinked up in the third quarter because there's some dark periods and so theoretically in the fourth quarter when they are fully sinked up the advertising increase should have a bigger impact.

Yes.

It was not fully sinked up in the third quarter and the time frames that we did have it sinked up we saw a very significant change in the sales.

Second question is people are having some problems with getting to the assumptions of the fourth-quarter guidance.

Is it also correct that last year you bought separately and this year you bought together so the timing of the synergies and the higher volume period should help you?

Well there were some products that we needed to keep the purchase orders open and accept products in that we had not purchased.

They had been purchased by the former Galyan's management team.

Any products that we bought in the fourth quarter were bought under Dick's Sporting Goods vendor agreements if you will.

But also in the fourth quarter of last year, we were cleaning inventory.

We took an opportunity to liquidate the Galyan's inventory trying to make sure that that inventory was very clean on a go forward basis.

We cleaned up some inventory at Dick's Sporting Goods stores through some of those also and we're confident with the expectations that we have for the fourth quarter.

Third question is if you could say anything about the macroeconomic health of your consumer.

Obviously your same-store sales this quarter were above the high end of your guidance and I'm just curious of your thoughts going into the holiday on the macroeconomic backdrop?

We are still fairly optimistic.

I think with gas prices coming down, that has made people breathe a bit easier.

The consumer is alive and well at least at Dick's Sporting Goods.

And this year's fourth-quarter guidance implies a similarly warm winter as last year.

Is that correct?

We are not taking any advantage of -- we're not looking at -- hoping that the weather is going to be any colder or any snowier than it was last year.

We're looking at it very similar to last year.

Congratulations.

Thank you.

David Schick, Legg Mason.

First on gross margin, could you quantify the impacts that you talked about at the beginning of the call?

I guess merchandise and buying better, private label and transport, transporter fuel costs.

If you could give some sense of magnitude of each of those it would be helpful, or at least ranking them.

Between mitigation of markdown, increased buying leverage from suppliers and increased penetration of private label kind of directionally it would be split relatively evenly across all three of those categories.

And how much of an offset was transport and fuel working against it?

It was something that we managed to -- I mean, I guess that is the best way I'd like to leave it.

Not something we should think about for modeling 3Q '06 I guess is what I'm -- I'm just trying to think about how to play that out.

It depends on what happens with gas prices in Q3 '06, if they are up, down, sideways.

I mean, that's going to have an impact that way.

With gas prices coming down we are pretty comfortable.

You talked about getting scale on overseas manufacturing on the private label.

Can you talk about how meaningful that will be as that scale fully develops?

So there is the mix shift of private label but on a standalone basis how good can private label rate be not as a percentage of sales but where is that going?

Well, right now we are roughly 6, 700 basis points higher than like product from other categories.

We expect that we can move that higher.

We don't want to provide guidance as to how much higher we think that will go but we don't believe we are done from a margin rate expansion in the private label products as we continue to gain scale.

Would you say it is meaningful from 6 to 700?

We believe it will be meaningful. 100 basis points is meaningful.

How about an update on cannibalization relative to second quarter trends?

Sure.

Cannibalization in the third quarter was about 1.8%. 1.5% of that had to do with self cannibalizations of organic Dick's stores and 0.3% due to Galyan's.

Mitchell Kaiser, Piper Jaffray.

Mike, this question is for you.

Depreciation on a per square foot basis has come down from the first quarter.

Can you just explain the dynamics there?

Sure.

When you close some of the stores, some of the stores that we closed had higher investments in them.

A lot of stores at the beginning of the year.

Okay.

So that's why the first quarter number would be higher than the second and third quarters?

Correct.

Ladies and gentlemen, there are no further questions at this time.

I would like to turn the conference back over to Mr. Stack for any closing comments.

I would like to thank everyone for joining us on this -- on our third quarter conference call.

Again we're pleased to be able to report these results and we look forward to talking with everybody at our fourth quarter call.

Thank you.

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

This does conclude the presentation and you may now disconnect.

Have a great day.