DICK'S Sporting Goods Inc (DKS) 2007 Q1 法說會逐字稿

Good day, ladies and gentlemen.

Thank you for standing by, and welcome to the first quarter 2007 Dick's Sporting Goods earnings conference call.

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

We will facilitate a question and answer session towards the end of today's conference.

(OPERATOR INSTRUCTIONS)

I would now like to turn the presentation over to your host for today's call, Mr.

Dennis Magulick, Director of Investor Relations.

Please proceed, sir.

Thank you.

Good morning to everyone participating in today's conference call to discuss the first quarter financial results for Dick's Sporting Goods.

Please note a rebroadcast of today's call will be archived on the Investor Relations portion of our website, located at www.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 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 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 and financial operating results, and review the guidance contained in our press release.

Also joining us this morning are Bill Colombo, President and Chief Operating Officer, and Tim Kullman, Senior Vice President and Chief Financial Officer.

Bill will highlight our first quarter store openings, and Tim will review in more detail our financial results.

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

Thanks, Dennis.

I am pleased to report the results of our first quarter, a quarter in which we delivered earnings at the high-end of our guidance.

With the Golf Galaxy acquisition having been been completed on February 13th, our results include Golf Galaxy beginning on that date.

This quarter we are reporting net income of 21.7 million, or $0.38 per diluted share, as compared to our guidance of $0.35 to $0.38 per share, and $0.21 last year.

Total sales for the quarter increased 28% to 824 million.

At Dick's stores, comp sales increased 2%, adjusting for the shift in retail calendar comp sales at Dick's stores rose 0.1% which is on top of a 6.5% increase in last year's first quarter.

At Golf Galaxy stores, pro forma comp sales increased 5.5%.

On a shifted basis, pro forma comp sales at Golf Galaxy stores were flat.

During the quarter we believe several businesses were held back by a later than expected start to some of the key spring sports seasons, including golf, baseball, soccer, and athletic footwear, and as indicated during our last call the exercise business remains soft.

We are very pleased with our sales results considering the later than expected start to the spring sports seasons.

There are several reasons that a number of locales postponed the start of these seasons, including timing of spring break due to the Easter shift, and unplayable conditions in the Northeast and Midwest.

Even in these challenging conditions, we were able to achieve earnings at the high end of our range.

Our private label businesses represented 13.9% of sales in the Dick's stores versus 12.5% last year.

We have introduced several of our products into the Golf Galaxy stores, and are very pleased with the early results.

We are reaffirming our earnings guidance for the total year 2007, and providing initial guidance for the second quarter.

For the year we expect earnings per diluted share of approximately $2.37 to $2.40 a share.

This represents an increase of approximately 18% versus 2006.

We expect comp sales at Dick's stores to increase approximately 1 to 2% in '07 on top of a 6% gain in 2006.

For the second quarter 2007 we expect to earn approximately $0.74 to $0.77 per diluted share.

This compares to $0.47 in 2006.

From an earnings perspective, Golf Galaxy's results have the largest impact in the second quarter.

We are expecting comp sales at Dick's stores to increase approximately 3 to 5% in the second quarter, or approximately 2 to 4% adjusting for the shifted retail calendar, and versus a 6.5% gain in last year's second quarter.

There was a significant shift in the 2007 retail calendar resulting from the 53rd week in fiscal 2006.

Our comp sales are positively impacted in the first and second quarters.

This impact is then offset in the third and fourth quarters.

Our performance this quarter represents once again our ability to deliver consistent profitable growth.

These results are a testament to the strength of our business model, our portfolio of businesses, and our ability to execute in a number of different environments.

I am very pleased with the performance of our associates, their ability to react quickly to maximize opportunities is the key reason we were able to produce earnings at the high end of our range in such a difficult environment.

We experienced margin expansion once again, controlled expenses and inventory, and produced a very meaningful year-over-year earnings increase.

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

Thanks, Ed.

We opened 15 new Dick's stores in the first quarter and 10 new Golf Galaxy stores.

We added 9 Dick's stores to our existing markets in Boston, Charleston, South Carolina, Chicago, Colorado Springs, Jacksonville, Nashville, Providence, St.

Louis, and Washington, D.C.

During the quarter we entered five new markets, with one store each in Bradenton, Florida, Columbus, Georgia, Dothan, Alabama, Florence, South Carolina, and two stores in the Tampa, Florida market.

14 of our stores were single level stores.

Golf Galaxy stores were opened in existing Golf Galaxy markets of Charlotte, Columbus, Minneapolis, Philadelphia, and Golf Galaxy markets added new stores in Albany, Boise, Fort Myers, Florida, Madison, New Haven, Connecticut, and Tucson.

The new Golf Galaxy stores average 14,000 square feet, consistent with the 65 Golf Galaxys operating at the beginning of the quarter.

At the end of the first quarter we operated 309 Dick's Sporting Goods with 17.4 million square feet, and 75 Golf Galaxy stores with 1.1 million square feet.

We continue to expect to open 45 new Dick's stores, and 17 new Golf Galaxy stores in 2007.

We expect six new Dick's stores and two new Golf Galaxy stores to open in the second quarter, and most of the remaining stores to open in the third quarter.

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

Thanks, Bill.

Sales for the quarter increased 28% to $824 million, with a comp sales gain at Dick's stores of 2%, or 0.1% on a shifted basis.

Higher price points offset a slight decrease in traffic.

Gross profit was $244 million, increasing 216 basis points to 29.68% of sales.

This increase was driven by expanded merchandise margins, and better freight and distribution expenses, resulting from initiatives to increase our efficiencies in these areas.

As a reminder, 2006 gross profit included a $3.4 million store relocation charge.

SG&A expenses of $198 million were 24% of sales, and 46 basis points higher than last year's first quarter.

This increase is primarily the result of higher advertising spend.

Operating income increased $18 million, or 85%, to $39 million.

As a percent of sales, operating income increased 147 basis points.

Net income for the quarter increased 90% to $21.7 million.

Moving to the balance sheet, inventory per square foot increased 3%, as compared to last year, which did not include Golf Galaxy.

When including Golf Galaxy in both years, the inventory per square foot decreased 1%, the result of a decrease in both Dick's and Golf Galaxy stores.

We ended the quarter with $159 million in outstanding borrowings on our $350 million line of credit, as compared to $48 million in outstanding borrowings last year.

This increase is the result of our acquisition of Golf Galaxy, which was funded using cash on hand, and approximately $147 million in borrowings against our credit line.

Our average borrowing rate for the quarter was 6.68% reflecting LIBOR plus 125 basis points.

Our expectation continues to be that we will end the year with no outstanding borrowings.

We continue to expect net capital expenditures of approximately $115 million in 2007, or approximately $175 million on a gross basis.

Our store development program is an important element to our success, and our new stores continue to perform well.

New store productivity for Dick's stores was greater than 90%, in-line with historical levels.

I would like to make a few addition comments on our guidance, which Ed outlined earlier.

For the full year 2007 we expect earnings per diluted share to increase approximately 18%, despite having one fewer week, and being up against the favorable impact of the Chicago Bears and Indianapolis Colts Super Bowl runs in 2006.

We estimate the combination of these two factors contributed approximately $0.09 to our 2006 fourth quarter earnings.

From a quarterly earnings per share perspective, there are several factors influencing our growth rate throughout 2007.

Based on our first quarter results in the mid-point of our second quarter guidance, we expect earnings per diluted share to increase more than 66% in the first half of this year.

This increase is due to the growth of the Dick's business, the shift in the retail calendar, and the inclusion of Golf Galaxy whose largest portion of annual earnings occurs in the second quarter.

We expect the Golf Galaxy business to be $0.11 accretive in the first half of 2007, and continue to expect the Golf Galaxy business to be $0.02 accretive for the year.

As a result of the extra week and the Bears and Colts Super Bowl runs in 2006, the retail calendar shift, and the effect of Golf Galaxy, we expect earnings per diluted share to be down slightly in the back half of 2007 compared to 2006.

This is not a change from our original plan for 2007, but merely a further clarification of how the year will play out.

The Dick's Sporting Goods portfolio of businesses are healthy and performing well.

All of which is reflected in our expectations for approximately 18% earnings per diluted share increase in 2007, based on our reaffirmation of full year guidance of $2.37 to $2.40.

This ends our formal remarks.

At this point, Operator, I would like to open the line for questions.

(OPERATOR INSTRUCTIONS) Your first question will come from the line of Sean McGowan of Wedbush Morgan.

Thank you.

A couple of questions on housekeeping.

First regarding putting the Golf Galaxy on a pro forma basis, is that looking at golf on the same quarter that Dick's would have been on, or pro forma for the quarters that Golf Galaxy was on?

That is pro forma for the quarters Dick's would be on.

That is helpful.

And then another question is on that $0.09 in the fourth quarter of last year from the extra week and from the Colts and the Bears, can you split that out for us?

I think we prefer to leave the two together, Sean.

Okay.

And then care to comment on what the expectations would be for comps in the third and fourth quarter, given the challenges up against the calendar shift?

We have always provided guidance one quarter in advance.

We will stay with that, but we have kind of tried to outline to you just how this year is going to flow, and not that there is any issue with the back half of the business, but just it is all driven by the shift.

Fair to assumes more of a challenge in the fourth quarter?

Actually, no, it is more of a challenge in the third quarter.

Okay.

That is helpful.

Thank you very much.

Sure.

Your next question will come from the line of Kate McShane of Citigroup.

Thank you.

Can you tell us how much of gross margin expansion, or roughly how much of the gross margin expansion you experienced during the first quarter were from synergies from Golf Galaxy?

Not an awful lot.

Golf Galaxy was, it is certainly an important strategic acquisition, but the results, the performance doesn't really move the needle in the first quarter.

As we said it would be more impactful in the second quarter, but that gross margin rate increase was, very little of it was driven from Golf Galaxy.

Okay.

And can you talk a little bit about what you are seeing in terms of the health of the consumer?

Is there any concern that the decline in traffic trends goes beyond the weather impact you discussed in the call?

We don't see any.

We still think the consumer is healthy out there, and we have indicated a number of times that our business travels in a narrower band in the economy as a whole.

Where these athletes and kids that are playing junior high school, high school, college sports, they are out there playing those sports, and we haven't seen any decline in that.

These kids still want equipment they feel is going to help them perform better, and we haven't seen any change to the consumer behavior at all.

Okay.

Thank you.

Sure.

Your next question is from the line of Mitch Kaiser of Piper Jaffray.

Good morning guys.

On the gross margin side, obviously very impressive expansion in Q1, and you mentioned you didn't get much benefit from Golf Galaxy at this point.

In terms of purchasing, how should we be thinking about when you might be able to leverage in your combined purchasing departments, and show some further gross margin expansion?

I think as we continue to go forward, we will continue to get that.

Part of the margin rate expansion will come in Golf Galaxy, as some of the private label products that we put into the Golf Galaxy gain some additional traction.

We have got some early products in there, we are very happy with the results to date.

We continue to work with vendors with our increased buying power, so as we, throughout the year we will continue to gain some leverage from a margin rate standpoint.

Okay.

So it might be, to see the full effects it might be next year before we really start to see that, though?

To get the full effects I would say yes.

Okay.

That is helpful.

Then you provided a very nice table in the back showing Golf Galaxy to adjust to your calendar.

Is there any chance that we could get those numbers just for comparability purposes?

Because I think people probably had that mismodeled for Q2, Q3 and Q4 by chance?

I think we can find a way to provide that.

Okay.

Is it something you could post on the website, or something you can give us now?

Let us post it on the website.

Okay.

Thank you very much.

Your next question will come from the line of Robbie Ohmes of Banc of America Securities.

Thanks.

Hey, guys, I am going to ask a third question on gross margin.

It was a big increase in the first quarter.

You are saying that Golf Galaxy wasn't a major contributor to that.

Can you give us a little more detail in terms of where the merchandise margin improvements came from?

Was it better sell-through on technical apparel, or was there something unusual in the quarter, and if there there wasn't, should we expect this type of merchandise margin improvement for the rest of the year, excluding the contribution or benefit you are going to get from Golf Galaxy in the second quarter, and then I have a follow-up question on that.

Thanks.

Robbie, I will give you this much color on the margin rate.

A couple things did happen.

As you saw that our private label percentage increased fairly substantially.

That certainly helped drive our margin rate expansion, and then the cold weather we had earlier in the first quarter helped drive that.

This year we were able to, since it had been a fairly warm winter up to that point, the cold weather came in, we were able to sell our cold weather product at a higher margin, a substantially higher margin than we were able to the year before, and that helped drive that margin rate expansion.

Got you.

Part of it is, shouldn't be repeating obviously for the rest of the year.

Correct.

Got you.

Just the other follow-up question.

You mentioned some of the weaker categories, the late team sports and the athletic footwear side.

Can you give us more on what was really, what your strongest categories were?

Was it led by technical athletic apparel, or what was strongest?

The technical athletic apparel was very good.

We get some of our, some portions of athletic footwear were very good, and including cleats, again, were very good as the launch of the Under Armour cleat was quite successful, along with the marketing program we did with Nike around the shocks A-rod cleat that was exclusive to us.

We really had a great run with cleats.

Then also Crocs and Heelies continued to do very well in the quarter.

Terrific.

Thanks a lot, guys.

Thanks, Robbie.

Your next question will come from the line of Jim Duffy of Thomas Weisel Partners.

It is actually Christian calling.

Jim is traveling today.

Wondering if you can talk a little about the fixturing programs with Under Armour and Crocs that have been announced?

Have those started going into stores yet?

The Under Armour shops, we are just beginning that process.

We are very enthusiastic about that, and think that will be very helpful to our business and the Under Armour business in our stores.

And as Crocs, we have Crocs in a couple of stores, and the Croc merchandising that we have done has been extremely helpful also.

Okay.

How many stores do you expect that to go into this year?

The Croc ones, I don't have that number off the top of my head, but Under Armour should be close to 100.

Thanks a lot, guys.

Thank you.

Your next question will come from the line of Matthew Fassler of Goldman Sachs.

Thanks a lot and good morning.

I would like to ask a couple questions.

First, if you could talk a bit about the mix of traffic and ticket driving your comp store sales growth, please?

Matt, this is Tim.

From a ticket basis, we had an increase of about 2.3%, and on the traffic side, it was basically flat at 0.3 negative.

That is if you adjust for the calendar shift you are saying?

Yes.

Got you.

Secondly, if you can shed light on the distribution efforts helping your gross margin rate, are they significant relative to the impact of merchandise margin, and what kind of lags would you say that they have here?

I think, this is Bill.

A lot of the freight and distribution efforts focus on optimizing cube on the trailers that we ship to stores.

We are working on the inbound side to reduce freight.

I think we have legs going forward.

The wild card is the fuel costs, and we will continue to run programs to mitigate any impact of fuel costs on freight going forward.

And, Bill, in terms of where those initiatives are from inning 1 to inning 9, how far along would you say you were during the quarter in any event?

These weren't new initiatives to the quarter.

We have been working on these initiatives for probably the last year-and-a-half now, so their continuation has been issued as we have had in.

Fair enough.

I think we still have some upside on this, but I think we're in a bit more later innings than we are earlier innings.

Okay.

Finally, a little more clarity on Golf Galaxy.

Your $0.11 of accretion, was that a first half number or a second quarter number?

First half number.

What does the mix look like between Q1 and Q2 if you would for that impact?

It is about $0.02 dilutive Q1, $0.13 accretive Q2.

Great.

Thank you so much.

Your next question comes from the line of Nancy Hoch of JPMorgan.

Thanks.

Good morning.

On the Q2 guidance, I am wondering what was baked in, in terms of the assumption from the sales shift in Q1, given you felt you saw a delayed start to a lot of the spring sports seasons?

There is a bit of catch-up but not a lot.

Some of the issues around golf X amount of golf rounds not being played, that's X amount of golf balls people didn't lose, et cetera, et cetera, so there is a bit but not an awful lot.

And just a question on golf.

Are you where you would like to be in terms of inventory, or are you still feeling some supply constraints from the OEMs?

We are in pretty good shape.

There is a couple of items that have really done extremely well like the FTI, would we like to have a few more, yes, but Callaway has kind of caught up, and we are in much better shape than we were, and we're fairly pleased where we are at from an inventory standpoint.

Great.

And then one last question.

You mentioned an advertising build in the first quarter.

Was that a timing shift, or something we would expect to see continue throughout the year?

That was a timing shift.

Okay.

Great.

Thank you.

Your next question will come from the line of Jeff Sonnek of FBR.

Thanks.

Congratulations on a great quarter!

Just from a housekeeping perspective, from a modeling perspective, can you just let us know, will you be providing kind of these metrics on Golf Galaxy going forward, in terms of new store counts as well as same-store sales on a quarterly basis?

We will give you certainly new store count, and we will give you comp sales on a quarterly basis, yes.

Can you give us a sense of where the new Golf Galaxy stores are in terms of first year sales run rate?

No.

For competitive reasons we are not going to do that.

Okay.

Thank you.

Sure.

Thank you.

Your next question will come from the line of Jonathan Cramer of Cowen and Company.

Hi, guys.

Quick question on your private label.

If you could tell what categories you are focusing on, your goals and what your target is as a percentage of revenue?

Our percentage of revenue hasn't changed to get it on an annual basis to 15%, and we continue to focus as we have indicated a very balanced private label approach across some outdoor footwear apparel, the golf business, and the team sports business, and the fitness business, and we have done really a very good job in all of those categories.

We bought, we have got the rights to Umbro in the United States right now, which now will be in our private brands business, and early indications on the spring selling of Umbro has been very good.

Soccer cleats, soccer balls, so we continue to build a very balanced portfolio of private label and private brand products.

Okay.

Thank you.

Could you also give us a little more color on your expectations for your footwear and fitness business?

I think the fitness business we have indicated we thought is going to continue to remain soft in the, through the second and third quarters.

We have restrategized, done some things coming in in the fourth quarter that we think, we hope will improve that business.

From a footwear standpoint we are very pleased to, we have got a fairly balanced portfolio of footwear businesses between athletic footwear, the cleat business, and then what we are doing with Crocs, Heelies, sandals, and the outdoor footwear, and we continue to be enthusiastic about our footwear business.

Thank you.

Sure.

Thank you.

Your next question will come from the line of Dan Wewer of Raymond James.

Ed, in looking at Under Armour's filings, it looks like the rate of sales growth of their product at Dick's is growing about 35% year-over-year, but a year ago was up by almost 140% year-over-year.

Do you think this is contributing to the slower same-store sales growth that we are seeing this year for Dick's , the fact you begin to maximize the amount of space that you can devote to such a popular

I don't think it is, no.

I think some of the things, there were some new products added from Under Armour.

We are building out the shops in roughly 100 stores this year, and expect to go to more stores next year.

Some of the new products that Under Armour is bringing out, their baseball cleats were very quite successful.

They are moving into the athletic footwear business.

We continue to remain very enthusiastic about our growth opportunities with Under Armour.

I also had a question about your golf business.

You noted you would like to have more Callaway FTI.

When you look at the entire category of the high MOI drivers, is this meeting your expectations, and the reason I am asking is other independent golf shops we have talked to have been disappointed with the initial sales results they are getting?

We are fairly pleased with it, now you have got other high MOI drivers that are not square drivers.

Right.

Like Titleist?

The Titleist driver, the TaylorMade Super Quad, the Burner, and we are doing very well with those traditional shaped drivers, or more traditional shaped drivers than a square driver, so the driver category we are fairly pleased with, especially since the people in the Northeast and the Midwest are actually now able to play golf.

And then just a follow-up.

You had noted in prior year the benefits from when the Steelers won the Super Bowl.

Given this year's U.S.

Open is at Oakmont there in Pittsburgh, do you think the golf category will get a big pop for you, given the focus of your stores in that region?

No.

I think that it won't have really any impact at all.

People will be coming to the U.S.

Open to see the U.S.

Open.

They really won't be shopping.

There is a 75-mile buffer zone for selling U.S.

Open merchandise, so we are not able to sell U.S.

open merchandise in the Pittsburgh stores, so we feel it will have very little impact on our business, not like a Steelers Super Bowl win.

Great.

Thanks.

Thank you.

Your next question will come from the line of Paul [Konan] of Stephens Inc.

Please proceed.

Good morning and congratulations.

I am on the line for Rick Nelson.

First question with the flat comp adjusted for the calendar shift, are you seeing any catch-up in the seasonal merchandise, now that the weather is a little better both at the end of the quarter and the beginning of second quarter?

As we indicated, we have got baked into our guidance a bit of catch-up in some, sports such as baseball, soccer, where they actually will still play the same amount of games.

They just postpone the season, or the season is just played in a bit more of a condensed time frame.

Other areas such as golf as I said you have got less rounds played, especially in the Northeast and the Midwest, because of courses not being open.

We don't have anything planned to get that particular business back.

Understood.

Thanks.

Going back to the ad spend, I know you talked about in the past leveraging ad spend in existing markets as you had stores where you already have existing stores, and as you open, I realize you don't like to transmit your store opening plans, but do you see that leveraging more, or is it about the same, or are you expanding westward so quickly that you are actually going to be in new markets this year?

Well, it will still be a balanced approach to our store development program, but what we saw from an advertising increase in Q1 versus Q1 last year was really a timing difference, and you should not expect to see that on a go-forward basis.

Understood.

Finally just a question on the merchandise mix as you expand westward.

Are you noticing any changes, or are you planning any changes as you go further west than and experiment with the merchandise in some of your more western stores?

In some of the western stores, we do get a slight difference.

Lacrosse isn't as strong in the western markets as it is in the eastern markets.

There is a different type of fishing tackle and a different hunting business in the western stores than it is in the eastern stores.

Certainly in the western stores there is a lot more rifles and obviously rifled ammunition sold than in the east.

Those are just kind of some of the differences.

It is really not as big of a difference.

We see the apparel to be fairly similar although as we move a little bit more west, we see ski apparel and heavier outerwear being a bit more important than it is in some of our southern markets, and we have got a pretty big presence in southern markets today.

Thank you very much.

Thank you.

Your next question is from the line of Sam [Potter], a private investor.

Investor anyway.

I just have a question.

Can you really walk through how you look at this calendar shift, and how it is impacting Q2, Q3 and Q4?

Can you give us more details on that, please?

Well, I am not sure we are going to go into an awful lot of detail on this, but I will give you one example here in Q2 versus Q3.

Our peak football week as kids are going back to high schools for football, our biggest football week, and it's meaningful is last year it was the first week of August, which would have been the first week of our third quarter.

Because of this calendar shift, that actually falls into the last week of the second quarter, so it positively impacts our second quarter and negatively impacts our third quarter, so I will just, that is directionally some of the things that happen from one week to the next with the shift, and this football shift between Q3 and Q2 is very meaningful.

Some of the schools like Florida and Texas I believe are going back-to-school later this year, some of the tax-free days have shifted forward into that last week of July while some are going to shift back.

Does that balance it out at all?

You know what, to be honest with you I haven't looked at it at that detail.

We're looking at our peak selling weeks one year to the next, and where they are going to fall this year.

We will get one school going back to school earlier.

We will get another school going back to school later, and those shifts you really can't count on where New York state, for example, it is always the Wednesday after Labor Day.

Now there is a shift in Labor Day, but that doesn't shift out of quarters.

That can just shift from August to September, but it stays in the same quarter.

Right.

Okay.

Thank you very much.

Appreciate it.

You are welcome.

Your next question will come from Reed Anderson of D.A.

Davidson.

Good morning.

Just a couple quick ones.

In terms of the, you commented in your prepared remarks about price points going up, being part of the gross margin gains, et cetera.

Just curious if that is more pronounced in your private label business, or more pronounced in the branded product?

It is balanced between the two, but if I had to give weighting to one or the other, and I don't have the information, so this is my feeling directionally, is it would be more on the branded side, not on the private label side.

That makes sense.

Curious if you have done anything recently, or thinking about doing more stepped-up efforts to market directly to the loyalty members, or reach the customer more directly yourselves?

Any thoughts on that recently?

We are in the process of doing that.

Part of our, I think we talked about this before, that we're moving some of our advertising dollars out of traditional newspaper, and becoming somewhat less dependent on our Sunday inserts, and moving more dollars into TV advertising with what we are doing with ESPN, and more direct to consumer communication via e-mail and direct mail.

Too early to have any thoughts on how that is working at this point?

We are fairly pleased with the ROIs we have gotten from our direct communications with our customers, and we are very pleased with what we have done with ESPN and the Golf Channel from an electronics standpoint.

Last one, just curious what percent or number of your stores, and I am sure it is very small, are actually attached to like a regional mall, whether you went in and built a new store, or it was a Galyan's acquisition, or you went in and took an old Mervyn's.

I am curious what percent would that make up of your stores?

Again, I don't have that number off the top of my head, but I would say somewhere between 15 and 20%.

Will that grow a little bit this year, or will that be around this number at the end of this year, do you think?

I don't think it will change meaningfully one way or the other.

Thanks very much.

Good luck.

Thank you.

Your next question is from John Shanley of Susquehanna Financial.

Thank you and good morning.

Ed, can you explain a little bit further why you believe the calendar shift in the back half of of the year will have a greater degree of impact on the third quarter versus the fourth quarter?

Does this have something to do with a possible change that you envision may happen in the key back-to-school selling period the third quarter?

It has got nothing to do with any fundamental change in the business.

It is just merely a calendar shift of where weeks fall.

I think a very good example of it is what I talked about two questions ago or so, about the impact of football.

That is an impact of football and an impact of back to school, so we have got a bit of a back-to-school shift is that moves out of the first week of Q3 into the last week of Q2, so there is a bit of a back-to-school shift that moves into Q2, and the football component is very meaningful.

As we get into other times of the year, the back half of the year, you have got a couple of those shifts going on, and we have been very, very detailed on taking a look at week by week, business by business what is going to shift from one quarter to the next.

We need to make sure that we advertise and focus our business on what the consumer, the timing that the consumer wants to buy the products, because the consumer has no idea what a retail calendar shift is.

They are going back to school this many weeks, back-to-school shopping is going to start X amount of weeks before back-to-school starts.

The football season starts on a particular date.

Many places in Pennsylvania a lot of it is the first of August.

That doesn't matter what week or what quarter that falls into.

We have looked at this ad nauseum, at a very detailed level to make sure that we are doing what is right.

That is just how this is falling out.

That is very helpful.

Thank you, In terms of the golf product sales in the first quarter at both Dick's and Golf Galaxy, can you give us your sense of whether the sales met your expectation, and whether the sell-through rate for a number of the new products you highlighted, like the golf drivers, is that likely to translate into similar sales results in the key second quarter for those product categories?

Golf is always much bigger in the second quarter than it is in the first quarter.

The second quarter certainly is a key quarter for Golf Galaxy, and it is a very important quarter for Dick's in the golf business also.

We were pleased with the sell-throughs, and we are pleased with the results we got on the high MOI drivers across all brands, Nike, Callaway, TaylorMade.

Were we pleased with the sales results?

We were hoping they would have been a bit better, but we are also realistic to know that if people, if golf courses aren't open and they are not out there playing, then we understand that, but we are very, we are very enthusiastic that the second quarter will meet or beat our expectations in golf.

That is great to hear.

Can you also highlight for us the performance of the key product categories in Dick's footwear apparel and hard lines, in terms of first quarter actual results versus your business plan expectation for those three major merchandise categories?

Well, for competitive reasons I am not going to get to that granular of a level, but it is safe to say that overall we were really fairly pleased with the performance in a pretty difficult environment, and have made some adjustments from an expense standpoint, terrific on the gross margin side, and we were able to deliver earnings at $0.38 which was the highest end of our guidance range, and what I think everyone would agree was somewhat of a difficult environment in the first quarter.

It certainly was obviously from all your competitors also had difficulty, but did you do as well as you expected, for example, on the big footwear category, which seems to have been a problem for a number of other retailers selling similar products?

As we take a look at footwear as a whole overall we were pleased with our footwear business, yes.

Okay, great.

Last question I have, of the 45 Dick's stores that you are scheduled to open in '07, can you give us an indication of how many are in new markets not currently serviced by Dick's, and how many may be in geographic trading areas that are currently occupied by a TSA store?

40% of that number will be in new markets, and 60% or so is in fill-in markets.

How many going up against the TSA stores?

Approximately what percentage?

Probably you ought to look at virtually all of them.

There is very few markets where there is not a TSA in the market.

Not everyone goes up against a TSA in a particular trade area, but there is not many markets where one of us aren't in today.

Ed, is the game plan for the Company going forward to try to be in close proximity to a TSA store?

Is that part of your expansion where you see there is growth opportunity?

We are not specifically trying to be in an area where TSA is.

We are looking to go in the best retail notes, so wherever the best retail, the center of retail is is where we are looking to be.

If there happens to be a TSA across the street, then there happens to be a TSA across the street, and we have continued to perform as you can see over the last number of years, we performed very well as we compete against TSA.

If TSA is, what we have seen many times is TSA is just slightly off the mark, and as the retail node has changed, they are slightly off the mark, and we are able to with our growth rate, we are able to position ourselves in better proximity to other retail.

Great.

Thank you very much.

That is very helpful.

Thank you.

Your next question will come from the line of Sujata Shekar of CIBC World Markets.

Thank you.

First question I had was you are opening up several stores in Florida over the last quarter.

What differences do you see operating in those markets versus your stores in the Northeast?

We have had a store in Florida which is kind of what our MO has been.

We move into a trade area, test it, understand it, and then roll the market which is what we are doing in Florida.

Some of the things that we have seen in Florida, the tackle business is much more important, the fishing business is much more important in Florida, primarily driven by salt water, which has got higher average unit retails than freshwater tackle, which we are pleased about.

More of the sports are played twelve months of the year in Florida, so you have got a solid twelve-month a year golf business, pretty solid twelve-month a year soccer business, baseball business, so we are really seeing those businesses that the kids are out there playing twelve months a year, versus what happens up in the north.

Do you see it as more competitive of a market relative to the other regions?

No.

The only big box retailer in Florida is, other retailer in Florida is Sports Authority, and as we have indicated we perform pretty well in the same market with the TSA.

Any update on your new distribution center location?

We are in the final stages.

It will be in the Atlanta area, and we just have not executed a lease yet.

We will give more details after we do that.

Okay.

I had a question on the real estate front.

When you are opening up stores for Dick's as well as Golf Galaxy, do you have in mind a certain through proximity between the two, and separately, do you have any leverage when you are negotiating real estate deals together?

Do you do so together?

Well, we don't negotiate real estate deals together, because there is markets that we are in that Golf Galaxy is entering and vice versa, but we do deal with a lot of common landlords.

I think our relationship with many of these landlords will help us as we negotiate real estate deals for Golf Galaxy.

We have no predetermined distance between a Dick's store and a Golf Galaxy store.

There may be a time they would be right across the street.

The reason for that would be is if it is the best retail location for a Golf Galaxy store, it is across the street from a Dick's, or it is the best retail location for a Dick's and across the street from a Golf Galaxy, we will put both stores in.

The thought process being that if we don't, there may be a TSA that would take the space that Dick's would have, there may be another specialty golf retailer that would take the space that Golf Galaxy would have.

We really operate these as where do we need a golf specialty store, and where should the Dick's Sporting Goods go, and we think it will really help us gain even more of a significant market share in the golf business than we have today.

Okay.

And then turning to the golf services initiative, did that help gross margins in the first quarter at all, and more importantly, do you build in certain expectations for that in the second quarter?

The golf services business is, we think is an important strategic element of the business, but we haven't seen a meaningful gross margin impact from services, and we got these rolled out kind of toward the end, or middle to the end of March in the first quarter, so we are just start to go see the impact of this now, but it is not something that is, the services component on its own is not something that is going to move the needle.

We think it is going to help our overall golf business from a credibility standpoint, but by itself it is not going to move the needle.

Okay.

The last question I had, there is one store relocation in the second quarter.

Would there be any cost impact that we should be aware of?

That cost impact would already be embedded in our guidance.

Okay.

Thank you so much.

Thank you.

Thank you.

Your next question will come from the line of Bob Simonson of William Blair.

Good morning.

I am assuming that you can tell me whether that is right or wrong, that you would expect Golf Galaxy's operating profits to rise faster than their sales both this year and last year, since they were quite a ways under yours.

Is that a fair assumption?

Bob, can you just repeat that, the second?

I lost you with the connection.

Golf Galaxy's margins were materially below yours.

They were going in the right direction, but they were below yours.

Is it fair for us to assume that Golf Galaxy's profits will grow faster than their sales both this year and next year?

I think next year, yes.

This year, and part of the issue is that as we close the transaction, there were a number of commitments that had already been made by Golf Galaxy, for inventory that needed to be kept in place with many of our vendor partners.

They had to continue to run their business as if the deal was not going to close, and then we closed it on February 13th, and we are in the process of moving some products and private label products and that into Golf Galaxy, so it is going to be, it will be more toward the back half of the year that we see more of that margin rate improvement, and in to next year.

Okay.

And then next year if that's when it kind of blossoms, and you have free reign over how you are going to run the business, I am just thinking strategically as you think about your growth next year, if you have a normal Dick's Sporting Goods year, in terms of how you pattern your growth longer term, and Golf Galaxy which is approaching 10% of the business, not quite, if they have a disproportionate gain in profits, do you grow faster overall than you have set the benchmark for in the past?

We are not planning to do that, Bob.

We could grow faster right now if we wanted to.

We don't think that it is appropriate to do that.

We are very comfortable with our 15% unit growth.

We have been able to support that, and our earnings as you know have grown faster than our top line at a pretty rapid rate.

We think there is still process improvements inside our business that we can make, and you should continue to look at us as growing the business on a 15% unit growth basis, and being able to grow EPS on a long-term basis around 20%.

That was kind of my point.

That is kind of the way I have always looked at your company, and that is the way you produced your results, but next year you layer on top of that base what could be a disproportionate gain in Golf Galaxy's earnings.

Doesn't that make the 1 plus 2 grow a little faster than the 1?

We haven't looked at that.

We are not going to give guidance into next year.

Okay.

Your thought process is not flawed, but I thought part of the question was to grow faster meaning--

No, no, just it would, the amalgamation of putting Golf Galaxy, having Golf Galaxy in a rebounding, not rebounding but a disproportionate growth phase next year in profits, would take what your own expectations are internally for Dick's Sporting Goods and layer them up a little bit?

Do we think Golf Galaxy could grow faster, yes.

I think Randy and Greg and their team are doing a terrific job.

They have embraced some of the private label products that we can bring, they are enthusiastic working with us in how that fits into Golf Galaxy, and we think there is an opportunity to grow that faster.

Still, the impact that Golf Galaxy is going to have to Dick's as a whole, is still going to be relatively minimal, and I can't say that it is really going to move the needle.

Would you move any of what Golf Galaxy was doing on golf club construction, et cetera, into a Dick's ?

We are talking about what components of golf works or what we can do there to help us, at Golf works they have a terrific design opportunity so some of our private label products that we were having designed by someone outside the company, we feel that can be done by the Golf works operation, and that will be certainly additive to our profitability.

Great.

Thanks very much.

Your last question is a follow-up from Mitch Kaiser.

Just on Q2, I know we have the calendar shift positively impacting Q2, but if you take the mid-point of your guidance, and roughly $0.75, $0.76, and you subtract off the accretion from Golf Galaxy, it still looks like about 30% earnings growth year-over-year, 32% as I calculate it.

How much of the calendar shift do you think is going to attribute to that?

Mitch, we are not going to get that particular that level of detail, but that shift of kind of the first week of back-to-school, the first week of Q3 last year going to Q2 this year has an impact.

We are not going to identify exactly that, just for competitive reasons we don't want somebody being able to back into this from kind of what the earnings are associated with that, but it is an important piece of it.

Okay.

So we can certainly attribute the 32% Xing out Golf Galaxy to that?

That is not all of it, but a part of it, yes.

Yes.

I think we tried to be pretty clear that this is going to have a positive impact in Q2, and a negative impact in Q3 and Q4, and more meaningful in 3 than 4.

Very helpful.

Taking out the 53rd week in Q4.

Right.

Okay.

That is helpful.

Thanks, guys.

Sure.

Thanks.

There are no further questions at this time.

I would like to turn the call over to Mr.

Stack for closing comments.

I would like to thank everyone for joining us on our first quarter conference call.

Again, we are pleased to be able to report earnings at the high end of our range, and look forward to talking to everyone during our second quarter call.

Thank you!

Ladies and gentlemen thank you for your participation in today's call.

This concludes the presentation.

You may now disconnect.

Have a wonderful day!