DICK'S Sporting Goods Inc (DKS) 2005 Q4 法說會逐字稿

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

My name is Anne Marie, and I will be your coordinator for today. (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 fourth-quarter financial results for Dick's Sporting Goods.

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 the (inaudible) of 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 would like to remind you any projections or statements made today reflect our current views with respect to future events and financial performance.

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

Our actual results can 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 fourth-quarter financial and operating results and review the guidance contained in our press release.

Bill Columbo, President and Chief Operating Officer, and Mike Hines, Executive Vice President and Chief Financial Officer, also joins us here.

Bill will be discussing some of our accomplishments in 2005 and 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're pleased to be able to report the results of our fourth quarter, a quarter in which we generated earnings per share at the high end of our guidance.

This quarter we are reporting net income of $54 million or $1.00 per diluted share as compared to our guidance of $0.95 to $1.00 per share.

Net income increased 25% and earnings per diluted share increased 23% versus last year's results, which exclude merger, integration and store closing costs and gain on sale of investment.

Sales for the quarter increased 8% to $850 million.

Comparable store sales increased 4.1%.

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 13 months after the completion of the rebranding and remerchandising effort.

During the quarter, we saw favorable results throughout much of our business, including athletic footwear and apparel, exercise, licensed merchandise and a number of the outdoor categories.

Our women's business continues to be strong across multiple categories.

For the year, comparable store sales increased 2.6%, the sixth consecutive year in which we posted a comparable store sales gain.

In the fourth quarter, private-label sales represented 11.7% of sales versus 9.1% on a Dick's/Galyan's combined basis last year.

For the year private-label sales represented 11.9% of sales versus 8.6% on a combined basis last year.

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

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

The marketing and advertising programs have been synchronized since October, and the former Galyan's stores are now fully integrated into our overall marketing strategy.

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.

We're providing our mutual guidance for the first quarter and full-year 2006.

For the year we expect to earn approximately $1.77 to $1.81 per diluted share, which includes $0.27 per share of stock option expense.

This represents an increase of approximately 20% versus 2005 after adjusting for a $0.25 impact of stock option expense in '05 and excluding merger, integration and store closing costs in gain on sale of investments.

We expect comp store sales to increase approximately 3% in 2006.

For the first quarter of 2006, we expect to earn in the range of $0.15 to $0.17 per diluted share, which includes $0.07 of stock option expense per share and $0.04 of store relocation expense per share.

This compares to earnings per share of $0.16 in the first quarter of 2005 after adjusting for the impact of $0.06 of stock option expense and excluding merger, integration and store closing costs.

We're expecting comp sales in the first quarter to be approximately 3 to 5%.

We expect to open 40 new stores and relocate two stores in 2006.

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

We generated earnings per share at the high end of our guidance, exceeded our guidance from a comp store sales perspective and achieved improved growth and operating margins.

I am proud of our company and our associates' performance and their accomplishments in 2005.

Not only did we complete the conversion of the 44 former Galyan's stores, we executed within our existing store base.

Meaningful comp store sales gains and substantive earnings improvement signify that the Galyan's conversion is completed.

We're well-positioned as we enter 2006.

We continue to be the preferred full-line Sporting Goods tenant, and that shows in the quality of our new store real estate.

Our blend of new markets and infill stores will ensure we continue to capture new market share, and our ongoing emphasis on execution is reflected in our results.

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

Thanks, Ed.

In 2005 we opened 26 new stores.

We also relocated four stores and remodeled two stores.

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

These are significant accomplishments in any year and especially one in which we also completed the conversion of 44 acquired stores.

But that is not all we accomplished in 2005.

We continue to execute against our plans to create the capacity necessary for us to capitalize on our growth opportunities.

We began servicing more stores from our recently expanded Smithton, Pennsylvania distribution center and initiated an expansion at our Plainfield, Indiana distribution center, which when complete will expand our total supply chain capacity to 460 stores.

On the information technology front, we implemented the Manhattan warehouse management system in one distribution center.

Manhattan is a scalable supply chain platform geared to drive productivity and improved response time.

The second distribution center will go live later this year.

From an operation standpoint, we continued a practice that we started in 2004 of opening nearly every new store with an experienced Dick's manager, and we provide our store associates with a mix of proprietary and vendor sponsored training programs.

These training programs along with our assortment and our attention to service continue to be a point of differentiation for us in the marketplace.

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

Thanks, Bill.

Sales for the quarter increased 8% to $850 million with a comp store sales gain for the Dick stores of 14.1%.

Gross profit was $258 million, increasing 163 basis points to 30.35% of sales.

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

In-stock positions were dramatically improved at the former Galyan's stores as they were in an inventory liquidation mode in Q4 of last year.

This had a favorable impact on margin rates.

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

SG&A expenses of 164 million were 19.3% of sales and 16 basis points higher than last year's fourth quarter caused by a general increase in benefit expense and the deleverage of store payroll and benefits in the former Galyan's stores which were liquidating inventory last year.

Also, increased advertising expense as the non-overlapped Galyan's markets were put on the same tab frequency as legacy Dick's stores and an increase in bank card charges due to tender mix and a rate increase.

Operating income increased 24% from $75 million last year to $93 million this year.

Last year's results exclude $12.5 million of merger, integration and store closing costs.

As a percent of sales, operating income increased 145 basis points to 11%.

Net income for the quarter increased 25% to 54 million as compared to 43 million last year, which excludes merger, integration, store closing costs and gain on sale of investment.

Our earnings release included a statement of operations prepared in accordance with GAAP which compares to 2005 year-to-date 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 and fourth quarter.

In order to enhance the comparability of our results, we also compare this year's GAAP year-to-date against pro forma results of last year as if the Galyan's transaction had occurred as of the beginning of 2004.

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

For the year net income of 94.5 million increased 52% and earnings per share of $1.75 increased 50% on a pro forma combined company basis, excluding merger, integration and store closing costs and gain on sale of investments.

On a GAAP basis, earnings per share were $1.35 this year compared with $1.30 last year.

Comp store sales for the year increased 2.6%.

Moving to the balance sheet, we ended the year with $536 million of inventory as compared to 458 million last year.

Inventory per open store was 2.5% higher at year-end on a per square foot basis, excluding domestic and international inventory in transit and after adjusting for purchase accounting reserves in the books at the end of 2004.

We ended the year with no outstanding borrowings on our $350 million line of credit versus $76 million outstanding at the end of last year.

Excess borrowing availability totaled 276 million, and we had 37 million in cash at year-end.

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

(OPERATOR INSTRUCTIONS).

Robby Ohmes, Banc of America Securities.

A couple of quick questions.

The first question, just the new store productivity levels on my calculation in the fourth quarter -- and I know Galyan's is in there -- looked a little light, especially with your comp coming through the plus 4.

Was there -- when you separate out the new Dick's stores versus the converted Galyan's, can you just give us a sense of what was going on there?

Was there sort of an approach taken where you were going for profits going into the Galyan's stores but the sales might have been lower than you expected, or can you just sort of fill us in?

Then I have a quick follow-up.

I think you're still dealing with the noise associated with the Galyan's stores not included in the comp base.

That obviously gets much more clear in the second quarter of next year when they are included in the comp base.

The new store productivity is still running at the traditional high 70s, low 80% when you back out the impact of the Galyan's stores.

And then my follow-up to that was, when the Galyan's stores come in in the second quarter, can you give us a sense of what impact you expect them to have on your overall comp?

Twofold.

I would say that directionally they will have a favorable increase, that the magnitude of that favorable increase would be somewhat impacted by the ongoing cannibalization.

I think we have been pretty consistent in terms of our objectives from a real estate strategy of continuing to infill markets.

The Galyan's stores and the rationale for that transaction is getting access to Atlanta, Chicago, Minneapolis, Denver with focus on those markets from a new store program standpoint, so they will be dilutive to the directional increase in comp sales.

Matt Fassler, Goldman Sachs.

I would also like to ask about the Galyan's productivity.

I know you addressed the productivity of the new Dick's stores directly.

If you look at the difference between total comp growth -- total sales growth and comp sales growth -- it narrowed from 4.8% to 3.7%.

Your square footage growth moderated only nominally.

So that would imply if the Dick's stores are doing just fine that the Galyan's stores were a bit slower in the fourth quarter, and I was hoping you could directly address the sales and performance otherwise of the Galyan's stores?

We will be consistent as we have been in the past in not breaking out the specific performance of the former Galyan's stores.

But the Galyan's stores in the fourth quarter, if you remember, the stores improved in the third quarter over the second quarter, and they improved in the fourth quarter over the third quarter.

Do you measure, Ed, in terms of their relationship to the rest of the chain?

Do you measure them in terms of the performance versus last year?

How do you -- what metrics do you use to kind of make that characterization?

Looking at the performance versus last year, and we were particularly pleased with what happened in the former Galyan's stores this year based on the fact that last year we were in a heavy liquidation mode of cleaning out excess inventory in the former Galyan's stores and inventory that was not going forward.

So you're saying that those sales a year ago probably popped the top-line of those that probably were not too helpful to profits?

They were not, but this year here again the variation in sales in the third quarter was better than the second quarter, and sales in the fourth quarter were better than the third quarter.

So we see a continued improving trend in the former Galyan's stores.

Got you.

I appreciate that.

And then secondly, on the inventory front, if you could just give us a little more color on -- obviously it sounds like you were trying to blow inventory out of Galyan's last year in the fourth quarter, so that might have made you a little bit light.

But given just the year to year increase and the change in the fourth quarter versus the change in the third quarter, did weather factor into that?

Obviously January was warm;

February has turned cold.

So it has not probably been a bad thing to be in-stock winter goods, or wasn't a bad thing to be in-stock winter goods at the outset of the year, but if you could just kind of relate the inventory increase that we saw to any of those factors?

And I think there is a couple of things.

There are two components of this.

One is the winter merchandise, and we did end with a bit more winter merchandise than we would have liked at the end of the fiscal year.

But to your point, that has not necessarily been a bad thing based on the fact that it got cold again in February, and that we have been pleased with that, that we have had the cold winter merchandise as the cold weather rolled in and stayed through most of February.

We have also, as we take a look at our private-label product, that represents in-transit product for spring merchandise.

The other component of this is bringing in spring merchandise a little bit earlier to get a job on the spring business.

And also at the end of the year, we had pretty significant investment in Steeler's merchandise as they were the Super Bowl winners, and we were very aggressive in the 13 greater Pittsburgh stores with the Super Bowl merchandise with the Steeler's winning that.

And all of that kind of leads up to the 3 to 5% comp store sales gain in the first quarter, which is higher than what we have traditionally guided.

Understood.

And then finally on the first quarter, Mike, you have some relocation expenses discussed in the guidance.

It is a pretty meaningful number.

If you can kind of discuss the relo activity in Q1 versus year ago level and whether you see a benefit from lower relocation or other kind of real estate activity in the rest of the years as perhaps the comparisons swing the other way?

The relocation expense relates to one store that was frankly done as a defensive move.

It was in the first quarter, and it is, frankly, as we have talked about in prior quarters, some of the rationale in doing the Galyan's transaction.

In this particular case, it was a defensive move prior to having acquired Galyan's to go in and take a spot that, frankly, was an improvement in the real estate.

That in this era, I'm not sure that we would step up and do that from a cost standpoint as we have indicated in the guidance.

It is in the first quarter, so therefore, by deduction it is also in there for the full year, too.

So that earnings guidance includes the impact of a $0.04 charge on relocation, and that is essentially it for the year.

Jim Duffy, Thomas Weisel Partners.

Looking through the numbers, it looks like there is some leverage on the gross margin with the comp.

The gross profit dollars per square foot improved nicely.

In fact, it looks to be roughly in line with where you work Q4 '04.

SG&A per square foot, however, seems to be higher than it was a year ago.

Are you not seeing some of the synergies that you had anticipated?

No, I think actually we grew -- we have, in fact, seen the synergies.

I think also the reality is I think what we talked about in the past is that those synergies we started capturing sooner than we expected, such that we started capturing those synergies in the fourth quarter of '04, so they are already baked into that year-over-year comparison.

Okay.

And are you doing more branded advertising?

Is that some of what we're seeing in the SG&A line?

We have modified our advertising execution, but we did not -- we are not doing more branding per se.

We have done -- we did a little more TV advertising in the fourth quarter, changed out -- took out some radio advertising, put that into TV advertising.

And you can see from our comp store sales gain in the fourth quarter we thought that that was effective.

Okay.

Also, I was very encouraged by your comp outlook for '06.

With that, I thought we might see some more leverage on the earnings line.

Can you speak to that?

Is there going to be some reinvestment of what could be some gross margin leverage into SG&A?

We expect to leverage SG&A.

We are looking at our guidance from a cautiously optimistic but conservative standpoint going forward.

Okay.

And then the final question on your new store expansion efforts, what is the mix of two-level stores and single-level stores?

Of the 40 stores we are going to open this year, approximately six of them are two-level stores.

The balance are single-level stores.

[Nancy Hope], J.P. Morgan.

I was interested that given you took the comp run-rate up to 3% for the year in terms of expectations and you have been guiding to a pretty muted 1 to 2%, what are you seeing that is giving you the confidence that the underlying trend might be improving?

We're pleased in a number of areas of our business.

The apparel business continues to perform very strongly, especially on the women's side of the business.

The men's side of the business has been helped by the continued penetration in sales of underarmor.

We are also enthusiastic on the athletic footwear front as there has been some average AUR expansion in athletic footwear.

The Nike 360 shoe, which is $160 retail shoe, we had terrific sell-throughs on, which has kind of raised that average unit retail across our athletic footwear category of both men's and women's, and we are enthusiastic in the entire running category from an athletic footwear standpoint.

Great.

And then you have given some pretty guarded guidance for the option expense impact in 2006.

Do you have any preliminary indications as we start to look out to '07 what the option expense might be next year given that you are vesting a number of your '02 grants this year?

No, we have not really provided anything specific.

I would say directionally that it will begin to trend down both in absolute costs, as well as a percentage of EPS.

John Shanley, Susquehanna Financial.

You gave us some pretty good insight in terms of some of the merchandise changes and performance in the fourth quarter.

Can you give us some more specificity in terms of how the merchandise categories as a percentage of sales performed between hardlines apparel and footwear in fourth quarter, and do you expect any changes from that mix as you get into '06?

We will not give specific for competitive reasons, we won't give specific numbers, but the apparel side of the business is increasing as a percent to total driven by the women's business and also driven by the underarmor business.

We expect that there could be some increase in the footwear business also as a percent of sales growing faster than some other areas of the business, driven by the running categories and driven by some of those successes we have had with Nike at the higher price points and a few other brands.

Those categories generally carry higher product margin levels.

Is this something that could drive your gross margin up a little bit more than it has been running as those categories expand in terms of your merchandise mix?

These categories do run at traditionally higher margins than the company as a whole.

So it could provide some expansion.

We do see that some other categories that what may offset is the competitive nature in the outdoor category.

Gander has become a bit more promotional, and we feel that there could be some price pressure in the outdoor category.

Our outdoor category for the second consecutive quarter has comped positively, which we are very pleased about based on what is going on in the rest of the marketplace.

But we do see that there could be some pricing pressure on that side of the business.

Do you see reallocating some [OIBDA] buy dollars away from the outdoor category and reallocating them to the footwear and the apparel that are the likelihood in '06?

I would not say re -- I would not say taking away from the outdoor category.

We are still very bullish and aggressive in the outdoor category, especially as we're seeing these areas comp positively.

But, as we grow our business from a growth standpoint, we do see investing more dollars in the apparel business and the footwear business, but that is not at the expense of the outdoor categories.

Fair enough.

In terms of the 40 new stores that are planned for '06, how many are in new markets and how many would be located West of the Mississippi?

There will be only very few located West of the Mississippi where Denver is the most aggressive area that we are West of the Mississippi.

But 25% of them are new markets.

25% new markets?

Are you clustering the new markets?

In other words, opening multiple locations in a given market?

Some of each.

We have got single store new markets, and we have got some multiple store markets that are new.

Then looking way beyond the timeframe of '06, do you eventually see the company being a nationwide chain?

Is this something that you aspire to?

Eventually yes, but we have been very consistent in articulating our growth strategy that we will continue to grow in somewhat concentric circles and expect to continue to do that.

We don't feel a rush to be coast-to-coast, and we will do it in an appropriate and step-by-step manner that will be profitable for both the company and our shareholders.

And lastly, could that also include further acquisitions, or are you more inclined to open your own individual stores going forward?

We would never say never, but you can anticipate that our growth will be primarily organic going forward.

Fair enough.

Thanks a lot.

Jason West, Deutsche Bank.

I was wondering if you guys could talk a little bit more about the first quarter?

I think even if you include the higher expenses from the stock options and the relocation costs, it seems like you're looking at a pretty modest gross margin improvement there.

Am I doing the math there right, or is there anything unusual going on in the gross margin in the first-quarter outlook, or is that just conservative?

We have not provided any gross margin guidance.

I think if you adjust for stock options and the store relocation charge that the EPS improvement will be 31%.

Okay.

And can you talk a little bit about what you guys are targeting in terms of private-label penetration over the next one to two years?

Well, we have indicated over the next several years we think we can get it to 15%.

We are still comfortable with that target, and we expect to see an improvement in private-label this year versus last year.

Okay.

And do you guys have a CapEx number yet for '06?

We would expect it to be in the same range as what we have done in '05 based on the increase in the store count and some of the supply chain initiatives.

Okay.

And the last thing, can you give us a rough breakout of traffic versus ticket and driving the 4% comp in the quarter?

Our ticket was up about 3% and average units were down 3, so they pretty much negated one another.

Okay.

How did you get to plus 4 then?

There was an average -- the average unit retail went up.

Traffic was up slightly, and that is how we got to 4.

We are not going to call out for competitive reasons specifically what the components were, but we had a slight increase in traffic and an increase in AUR.

[Harvey Bil], [Arnold & Blackrock].

Yes, I guess we have been putting higher price merchandise in the stores, higher price points that seemed to be selling well.

Do we expect to continue doing this in 2006 to the same degree, a greater degree, or is that going to moderate some because we have achieved a lot of what we want to do?

We think it will be more of the same.

We feel that we can continue to increase the average unit retail.

Some of the products that we had higher average unit retails on we experienced a few more out of stocks than we would have liked based on the fact that these products sold better than we anticipated.

As we take the average unit retails up in some athletic footwear products, we have seen great acceptance to the customer, as I said on the Nike 360 shoe, which is at $160.

There are other shoes coming down that will be taken off that platform from Nike at the 180 and the 90, again raising that average unit retail.

So we feel we will be able to continue to do that.

We feel we have been able to continue to do that in the lodge component of our business selling some better firearms products that we had not really had in the past.

And as we continued to grow that business, we will expand that program across a broader area of stores.

We're also able to increase that average unit retail in the apparel side of business driven in part by the women's athletic business.

The technical performance apparel brands, Nike and underarmor on the athletic side, and we had terrific success with the North Face this past year and look to expand our offerings and price points in the North Face product on the outdoor category.

And I guess one of the things that seems to be happening is that the gross margin dollars per square foot are going up for the chain fairly substantially, and I presume this is happening for Galyan's as well?

It is happening across the entire company, yes.

Bob Simonson, William Blair.

Bill, do you have a number for the size, the average per square footage of the 40 new stores you have got planned for this year?

I don't have that number handy.

It is going to be about six two-level stores, Bob, and the balance are going to be the single stores.

Two of those are relocations.

Okay.

And on your guidance for this year, I know you don't give it specifically, but historically you have said you have had a goal of about 30 basis points of operating margin improvement.

You did -- I think it was you or Mike said -- that you expect some leverage on expenses this year.

Correct.

If you do 30 -- I said that, you did not -- is that split equally, or is it more on the gross side?

It sounds from the answers to some of your questions that there might be more opportunity in gross than the expense side?

Yes, Bob, as you know, we don't get that granular on our guidance, so the operating income is a long-term objective.

It is increasing at 30 basis points, and as we go through the year, the reality is depending upon how we are performing, we may choose to make investments that have a short-term detrimental effect on a particular line item.

But it is an investment in the future.

As long as we are heading down the path of delivering our profitability, we, as we have in the past, continue to revisit where we invest money.

Okay.

And you suggested, Mike, that CapEx would be about the same this year as last year.

How about a depreciation number?

I don't -- we're not providing that degree of granularity.

And the last question, Ed, do you have any comments or thoughts on how you view the competitive environment with Sports Authority becoming privately owned?

Well, I think we need to wait and see what happens in that vein.

You know, they announced today, their counts were, I think, better than people anticipated.

We will have to wait and see what happens from a competitive standpoint going forward.

We continue to -- obviously with the comps that we delivered, we're very comfortable in our position in the marketplace, and this year we, from a sales standpoint, became the largest full line Sporting Goods retailer with over $2.6 billion in sales.

We think we will probably widen that lead this year with our development program versus other people's development programs, and we like our position in the marketplace a lot.

Sam Poser, Mosaic Research.

Can you talk a little bit about the fitness business?

And also on the outdoor business, can you discuss where the strengths were there outside of you mentioned the North Face?

There was a couple of areas.

We're not going to get too granular here for competitive reasons, but the fitness business continues to perform very well for us.

Primarily, as we have articulated in the past, primarily in the cardio category with treadmills and elliptical machines have really been the big winners there and have driven that business.

In the outdoor category, we have done a great job in the -- our group did a terrific job in the firearms category and the hunting category and with being able to provide positive comps for the second quarter in what would arguably be the most competitive, most difficult area of our industry.

And based on what some other retailers have reported from a comp standpoint, we are extremely pleased with the outdoor category.

A lot of the comments that you made were based on higher average ticket.

As the Galyan's stores as you converted them over and started to make changes, are you finding that the higher average ticket goods are working beyond your original expectations?

They are.

As I said, some of the higher AURs we experienced more stockouts than we are comfortable with and as this product is sold at a faster rate than we had anticipated.

Some more expensive treadmills, some more expensive elliptical machines, some apparel that we would be much better with at higher price points than we anticipated, firearms the same way.

So we found that customers are looking for a quality product, and as we provide more quality products at a higher price, the consumer sees the value in that product and has responded.

So we can expect that to continue going forward?

We expect that to continue.

Mitch Kaiser, Piper Jaffray.

I was wondering if you could comment on store openings by quarter how should we should be thinking about that?

I know you said 40 for the year and then two closures.

I would break them out as a percentage in a manner similar to this year.

Okay.

It sounds good.

And then in terms of strength for the year for the coming year, I know you talked about continued strength in footwear and apparel, and you probably I think you alluded to the fact that you should experience continued private-label expansion.

Wouldn't that suggest that your outlook for gross margin would continue the expansion on that line as well then?

Well, we have not provided guidance to that, but the private-label expansion will come in -- the big part of the private-label expansion will come in some outdoor categories and other hard line categories in the baseball category, the hunting category from an apparel standpoint, hunting category from a boot standpoint, some fishing tackle and some camping business.

That will be where the -- and also the fitness business.

So that is where primarily the increase in private-label products will come from.

They do carry a higher margin rate.

We do expect the apparel business and the footwear business to grow at a faster rate, which has higher margin rates.

But also what I said a few questions before is that we think there could be some pricing pressure in the outdoor category.

As some of these outdoor retailers continue to experience negative comps, we feel that that category could become more promotional as retailers try to at least get to flat from a comp standpoint.

So some of the increase in margin rates associated with the categories I just talked about may be offset with more promotional activity in the outdoor category.

Okay.

Okay.

I guess for that outdoor category then, it is your expectation that that is going to be flattish then for the full year?

From a margin rate standpoint or sales?

Well, I will try both.

Yes, as you know from both, I cannot answer them.

But I understand the question.

All right.

Thank you.

Sean McGowan, Harris Nesbitt.

I think you just touched on part of my question in that last answer, but I just wanted to circle back to some earlier questions.

If you look at your guidance in the past, it has traditionally been for 20% growth.

You had an expectation for '06 of 1 to 2% comps, and now it is meaningfully higher.

What specifically is it that is holding you back from taking that guidance up?

You talked just a moment ago about margin pressure maybe in the outdoor area, but are there specific spending trends that are causing you not to see a more positive outlook for '06?

We're not seeing anything significant from a spending standpoint.

We are looking at a number of alternatives to continue to invest in infrastructure that we need to support the business going forward, and we are being somewhat conservative.

I think also it is important to note if you add in the store relocation cost of $0.04, that that which is included at the high end of the range, at the high end of the range, that equates to a 23% increase in EPS.

Right.

But wouldn't that be just kind of a normal business expense, though?

Isn't that something we can expect to see from time to time?

It is not really that -- it is not that normal for us, no, not in that order of magnitude because they come in different sizes, and the relocations we have done to date have not involved anywhere close to that order of magnitude of expense.

Fair enough.

And the last question, just specifically, you had $0.06 a share of option expense first quarter of '05.

How did those expenses break out per quarter last year?

Do you have that?

Yes, it is a pretty straight line.

So it's $0.25 for the year, you have got $0.06 in the (inaudible) and the difference is just rounding.

There are no further questions at this time.

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

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

We are again pleased to -- the Company with the performance north of a 4% cap gain, the high end of the earnings guidance, and we're looking forward to 2006, and we will look forward to seeing everybody on the first-quarter call.

Thank you.

Once again, ladies and gentlemen, 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.