DICK'S Sporting Goods Inc (DKS) 2007 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second-quarter 2007 Dick's Sporting Goods Incorporated earnings conference call.

My name is Sean and I will be your operator for today.

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

We will conduct a question-and-answer session toward the end of this 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.

Thank you and good morning to everyone participating in today's conference call to discuss the second-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 detailed in our press release, a dial-in reply 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 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 second-quarter financial and 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 second-quarter store openings and provide an update on our plans for a third distribution center.

Tim will then review in more detail our financial results.

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

Thank you, Dennis.

I am pleased to report the results of our second quarter, a quarter in which we exceeded our guidance for both comp store sales and earnings.

This quarter we delivered net income of $48 million or $0.83 per diluted share, as compared to our guidance of $0.74 to $0.77 per share and $0.47 last year.

A very strong top-line performance was the most significant contributor to our earnings greater than guidance.

Further, the strength of our business resulted in stronger cash flow and therefore lower borrowings on our revolving line of credit and lower interest expense.

Total sales for the quarter increased 38% to over $1 billion.

At Dick's stores, comp sales increased 7.2%.

Adjusting for the shift in the retail calendar, comp store sales at Dick's increased 5.8%.

I am very pleased with our performance in the second quarter, which is on top of a 6.5% comp sales gain last year and is approximately 200 basis points ahead of our guidance.

During the quarter, we saw increases across most of our businesses including golf, athletic apparel, footwear, and the outdoor category.

At Golf Galaxy stores, comp sales increased 4.7%.

On a shifted basis, pro forma comp sales at Golf Galaxy stores were 5.5%.

I am very pleased with the performance of our Golf business, which outpaced the overall Company this quarter.

We delivered strong results at both Dick's and Golf Galaxy in the biggest golf period of the year.

Our merchant teams maximized our opportunities, capitalizing on new technologies and managing inventories appropriately.

We believe that our two retail formats position us to continue to capture market share in the golf industry.

Our private-label businesses represented 17.6% of sales in the Dick's stores versus 17% last year.

Seasonally, our second quarter is typically the highest penetration for private-label, and is the result of higher penetration in some seasonal businesses.

On a year-to-date basis, private-label sales represented 15.9% of sales versus 14.9% last year.

For the total year 2007 we expect private-label sales to represent 15% of sales versus 14.1% in 2006.

We have recently partnered with several key brands and have introduced exclusive products under the Slazenger name in golf and tennis and Umbro in soccer.

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

We are increasing our earnings guidance for the total year 2007 and providing our initial guidance for Q3.

For the year we now expect earnings per diluted share of approximately $2.47 to $2.50 a share.

This represents an increase of $0.10 from our previous guidance and now indicates an approximately 23% increase versus 2006.

We expect comp sales at Dick's stores to increase approximately 2% in 2007 on top of a 6% gain in 2006.

For the third-quarter 2007 we expect to earn approximately $0.09 to $0.12 per diluted share, compared to 14% in Q3 of last year.

The year-over-year comparison is impacted by several factors.

On the top line, the shift in the 2007 retail calendar, which positively impacted quarters one and two this year, is offset in Qs 3 and 4.

Secondly, last year's third quarter benefited from some very favorable cold weather in the last week's of the quarter.

Finally, from an EPS perspective, the inclusion of Golf Galaxy is approximately 2% dilutive in the third quarter.

We are expecting comp sales at Dick's stores to decrease approximately 1% to 3% in Q3.

On a shifted basis we are expecting comps at Dick's stores to be approximately flat to negative 2%.

Our business delivered a very strong second quarter.

We exceeded our expectations as the result of strong sales across many categories and solid cash flow.

Golf Galaxy delivered in their important second quarter, and inventories are well positioned as we enter the second half of the year.

Our increased expectations for the total year 2007 of an approximately 23% earnings improvement and positive comp sales of 2%, on top of a 6% gain last year, are further testament of our confidence in the sustainable profitable growth of our business.

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

We opened six new Dick's stores in the second quarter and two new Golf Galaxy stores.

All of the new Dick's stores were added to existing markets in Charlotte, North Carolina, Chicago, Dallas, Long Island, Millville, New Jersey, and Nashville, Tennessee.

Our new store in Long Island is a two-level store.

Golf Galaxy stores were opened in new markets in Sacramento and San Diego, California.

At the end of the second quarter we operated 315 Dick's Sporting Goods stores with 17.8 million square feet and 77 Golf Galaxy stores with 1.1 million square feet.

We expect to open 45 new Dick's stores and 16 new Golf Galaxy stores in 2007, most of which we expect to be open at the end of the third quarter.

Approximately 40% of the new Dick's stores this year are in new markets.

I am pleased to announce our plans to open our third distribution center, which will be located in Atlanta, Georgia.

This distribution center will be approximately 650,000 square feet, similar in size to our two existing distribution centers, and have the capacity to service approximately 210 stores.

We expect the Atlanta distribution center to be operational at the end of 2008, at which point our total network capacity will be 670 stores.

Much of the buildout cost associated with this distribution center will be financed through leases, thereby minimizing our net capital expenditures.

The location and capacity of this distribution center will support our growth for the next several years, especially as we grow deeper into key southern markets like Florida and Texas.

The state of Texas will be an area of focus for us for the next few years.

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

Thanks, Bill.

Sales for the quarter increased 38% to over $1 billion, with a comp sales gain at Dick's stores of 7.2%, or 5.8% on a shifted basis.

Higher price points and a 1% increase in transactions, on a shifted basis, accounted for the comp sales gain.

Cannibalization impacted comps by approximately 1%, similar to recent levels.

Gross profit was $299 million, increasing 122 basis points to 29.5% 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.

We also achieved occupancy leverage resulting from two consecutive years of positive comp store sales and the magnitude of Golf Galaxy's contribution in their seasonally large second quarter.

SG&A expenses of $213 million were 21% of sales and 70 basis points lower than last year's second quarter, driven by leverage of payroll and store expenses and, once again, the magnitude of Golf Galaxy's contribution.

Operating income increased $37 million or 82% to $83 million.

As a percent of sales, operating income increased 198 basis points.

Net income for the quarter increased 87% to $48 million.

Let's move to the balance sheet.

On a per square foot basis, inventory increased 2% as compared to last year, when excluding Golf Galaxy.

Including Golf Galaxy in both years, inventory per square foot decreased 2%.

We ended the quarter with $52 million in outstanding borrowings on our $350 million line of credit as compared to $41 million in outstanding borrowings last year.

The strength of our business has allowed us to repay much of the $147 million in borrowings resulting from our acquisition of Golf Galaxy in February.

Our average borrowing rate for the quarter was 6.7%, reflecting LIBOR plus 125 basis points.

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

Our recently renewed credit facility will reduce our borrowing rate to LIBOR plus 75 basis points and provides for an additional $100 million in borrowing capacity up to $450 million.

The new facility expires in 2012.

We 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 additional comments on our guidance, which Ed outlined earlier and which we first discussed in last quarter's call.

For the full-year 2007, we expect earnings per diluted share to increase approximately 23% 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 earnings.

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

Earnings per diluted share increased 78% 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.

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 as compared to 2006.

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

We experienced increases across most of our businesses in the second quarter; and our strong cash flow is contributing to the increased earnings expectations in the back half of 2007.

We have reflected these trends in our guidance, providing for a 23% increase in earnings per diluted share in 2007.

This ends our formal comments.

At this point, operator, I would like to open the lines for questions and answers.

(OPERATOR INSTRUCTIONS) Sean McGowan, Wedbush Morgan.

Thank you.

First, a question regarding the new distribution center opening.

When do you expect that to have any adverse impact on earnings ahead of the opening, or around the time of the opening?

Secondly, related to that, when would you expect it to start providing some positive leverage?

We expect in the first year it would have a very slight impact.

But by the second year, as we realign the stores, we are going to be in good shape.

When you say first year, do you mean 2008, or the first year after it is opened?

2008.

Okay.

Then, second question is, is there any impact in any of your markets, either in the second quarter or the third quarter, expected from either new sales tax holidays or shifts in sales tax holidays that you can measure?

There has been a few shifts here and there, but nothing meaningful.

Okay, that's it for me.

Thank you.

Michael Baker, Deutsche Bank.

Hi, thanks guys.

So two questions.

One, the comp in the third quarter.

So I understand the calendar shifts, I understand the tough comparison.

But, so you are up against a 9.

I mean, jeez, you are up against a 6.5 in the second quarter, and you still comped north of 7 -- or north of 5 with the adjustments.

So the third quarter being guided negative, is it because of the weather at the end of the third quarter last year that you talked about?

Is there some trend that you have seen towards the end of the second quarter, with it sounds like consumers are weak, generally speaking?

Or is there something else we need to think about there?

Then my second question would be on Golf Galaxy.

It sounds like you paid it off a little bit, the debt, a little bit quicker than expected.

Yet, you are only $0.02 accretive.

I am wondering if you could square that for me.

Thanks.

As far as the second quarter, if you remember, we talked about at the first quarter call that our comps were less than 1% in the first quarter.

We indicated that there were a number of golf courses that didn't open up, there were a number of leagues that postponed the start of Little Leagues and youth soccer leagues.

We thought that there would be some bounce into the second quarter; we weren't sure how much.

There was a bigger bounce than we had anticipated, which was part of the help in the second quarter.

The third quarter issue is -- it is the calendar shift; and it is that cold weather we had at the end of the third quarter last year, which we called out on our third-quarter call last year, that we had taken full advantage of the cold weather that we had, and moved up deliveries of Under Armour Cold Gear, Nike products, The North Face products.

We called all this out on the quarter of just how we did take full advantage of the weather that was given to us.

As far as any trend in the -- toward the end of the second quarter, we have seen no issue with any sales trend that would make us think there is some fundamental issue with our business.

The trend at the end of the second quarter was very good, also.

Okay, great.

That's helpful.

In terms of your question on the dilution for Golf Galaxy, the performance of the Dick's business is what we're indicating on the strong cash flow.

We are being cautious on the second half of the year because the Golf Galaxy business is the weakest in the second half of the year.

Okay, but is it fair to say that you did pay off the debt associated with Golf Galaxy quicker than expected?

That is true.

Okay, thank you.

Mitch Kaiser, Piper Jaffray.

Thanks guys.

Nice quarter.

Obviously, the gross margin trends have been very favorable.

I understand that Golf Galaxy has contributed to some of that due to the seasonal strong parts of their business.

But could you talk more broadly about kind of how you see gross margin trends playing out?

Particularly, I know you have talked about the transition from private label to private brand, kind of within the context of where you are thinking in terms of that program and the impact on gross margins might be.

Sure.

We continue to see gross margins positively impacted in three categories.

As we continue to gain scale from a buying leverage standpoint with our vendors, we have been able to do a better job there.

We have also talked that systemically we have been able to do a better job mitigating markdowns on the back end by planning our inventory better.

You can see that on a pro forma basis, including Golf Galaxy in both years, that our inventory is down 2% versus last year.

We have done a much better job of clearing inventory and done a better job of allocating inventory into stores, which has helped mitigate markdown pressure on the back end.

Then also the continued increased penetration of private label and private brands into our business has helped leverage our gross margin and has helped -- positively impacted that.

Along with the comp gain that we had in the second quarter that helped leverage some of our operating expenses, occupancy cost, etc.

Okay.

At this point, do you feel that you have been able to recognize a lot of the synergies, purchasing synergies, on the golf side?

Or is that something we should look for more next year?

We still feel that the majority of that is going to start coming into next year.

There was -- we will get some of that a bit in the fourth quarter, but the vast majority of that will come next year as we develop the programs from a private-label standpoint with Golf Galaxy; do some things that the Golf Galaxy management team wants to do inside the business with apparel.

So most of that is going to come into next year.

Okay.

Thanks, guys.

Good luck.

Robby Ohmes, Banc of America Securities.

Good morning.

Nice quarter, guys.

Just two quick questions.

First, on the Field & Stream announcement, I think it was yesterday or the day before, on the licensing side.

Is there anything else that might be in the works or any categories on a private-label side that you could see doing more licensing like that (technical difficulty)?

Well, we have actually had Field & Stream for a while, we just broadened it.

We just broadened this agreement with Field & Stream.

We have done a couple of other things.

We have got the exclusive rights to design, source, and sell Adidas baseball products in the United States including gloves, bats, batting gloves, catchers' equipment, training aids.

So we did this deal with Adidas, also.

So that is another one.

We are looking at a couple of other ones that -- for competitive reasons and we are in negotiations with right now, that we are not able to talk about.

But we are looking at a couple more.

Hardy Bowen, Arnhold and Bleichroeder.

That's pretty close.

Good quarter.

Ed, the gross margins for the second quarter are less than the gross margins in the first quarter.

I think that is the first time in history that that has happened.

Was that because we had cold weather early in the quarter, so we ended up with somewhat more markdowns as a percent of sales?

Or why would that be?

Give me the question again, Hardy?

Yes, the gross margin in the second quarter was lower than the gross margin in the first quarter.

I think, it has always been higher in the second quarter than the first quarter in previous years.

I was wondering if -- we had a lot of cold weather, and I know the sales were postponed by that -- if that had an influence on the gross margin in the second quarter.

Is this something that we are going to have in the future, I guess, is the question?

A couple things that happened.

We worked from a clearance standpoint and moved a lot of clearance product out of the -- we were more aggressive from a clearance standpoint in the second quarter than we have been in the past.

You can see that with the -- our inventory levels at 2% below last year, we are very pleased with what we did from a clearance standpoint.

Our merchant team has just done a great job there.

Then also in the second quarter, the golf business is at a bit of a less, less of a margin rate than the Company as a whole.

Right, sure.

With Golf Galaxy being included in this, that had some pressure on the gross margin rate that you see.

But it certainly helped impact our overall earnings.

I guess our assumptions going into the third quarter for weather is just normal weather, average of the last couple of years, is the way we would look at this?

Absolutely.

The big pop that we called out on our third-quarter call last year, that cold weather that really helped drive Under Armour mocks, Nike, similar products from Nike, that we're not planning on having that this year.

We are planning to have a more seasonable weather pattern.

Okay.

With private-label being 15% of sales, are we thinking that that is high enough?

Or we might go somewhat further?

Or we just want to do more exclusives to capture this kind of thing in a different kind of way?

We expect that it can probably go higher than that.

We have guided to 15%; so we are not going to be guiding to any further number than that.

But some of the things that we have done with some of our main vendors, with some of the licensing agreements that we have done -- the Adidas one I talked about; Nike; a couple of them -- we think that this exclusive and private brand product can move up past that 15%, which we think will continue to help expand margin rates.

Okay, good quarter.

Kate McShane, Citigroup.

It sounds like there was improvement in your footwear business during the quarter.

What was this driven by?

Have you seen any pickup in women's athletic footwear?

The footwear business as a whole was really quite good.

The women's athletic footwear business has been a bit better; but it is still not as robust as it was a few years ago, with the introduction of Nike Shox, etc.

But the women's business as a whole has been quite good.

The athletic portion of it has still been a little bit softer.

Okay, thanks.

Then can you talk a little bit about the competitive environment and what you are seeing there?

Some of your competitors have not had as successful quarters or outlooks as you have.

I was wondering if you were seeing any more price competition in the market.

Then also wondered if there were any signs that things may be changing at the Sports Authority, now that the company has been private for over 15 months.

Yes, from a competitive situation, pricing, we don't see any irrational pricing out there to date.

We really haven't seen much of a difference in Sports Authority since they have gone -- since the company has become private.

Okay, thank you.

Jon Cramer with Cowen.

I just wanted to see what your outlook is for both the footwear and apparel categories.

Specifically, what key drivers you see for those segments.

We think that the footwear category, we are still quite bullish on the footwear category around the outdoor category.

The Crocs have continued to do quite well.

We continue to be enthusiastic around the training category from an athletic standpoint.

From the apparel standpoint, technical apparel still continues to perform extremely well, driven by both Nike and Under Armour.

The early indications are product from The North Face, which we have indicated we think The North Face is one of those brands than can really help drive sales in the future, they have been very positive also.

Any new releases coming out for the back half of the year in any of those categories?

New releases?

There's new products that are out from Under Armour, some additional products that we are pleased with the early results, and we are enthusiastic about them.

Nike's cold weather product will be -- is coming out.

We like how that looks.

The North Face products, the second year of the Bionic, the soft shell products, continue to be gaining strength.

So we are real pleased with the product offering that is on the floor right now.

Okay, thank you.

Jeff Sonnek with FBR.

Thank you and congratulations, guys.

Can you give us traffic ticket, please, for comps?

Sure, the traffic was increased on a shifted basis 1.1%; and ticket was 4.7%.

On an unshifted basis we were at 2.5% increase in traffic and 4.6% increase in ticket.

Thanks,.

Then, can you give us a sense of how inventory flows through for the balance of this year?

I guess we kind of have modeled last year with the Golf Galaxy, but should we expect this to continue to trend lower on a per store basis or per foot?

We don't see any different trend in our inventory.

We have got no trend modeled differently than the way it is laying out right now.

Which would imply further inventory leverage?

Or the same inventory leverage.

I am not going to say we are going to leverage any more.

But it is going to be consistent inventory leverage.

Do you care to kind of characterize how you see the back half playing out, just in terms of kind of the margin structure, 3Q versus 4Q?

Just directionally, gross margin versus SG&A, for example.

Let's do it this way.

In Q3, as you can see, with our guidance at 9 to 12% -- $0.09 to $0.12, excuse me, with potential negative comps, there is going to be very -- it's going to be very difficult to leverage operating expenses.

So most of the contribution for Q3 will come through gross margin improvement.

In Q4, with more sales, we will have a slight contribution from an operating expense leverage; but still the majority of the contribution for the fourth quarter will come from gross margin enhancement.

Fantastic.

Thank you.

Sujata Shekar, CIBC World Markets.

My first question was on this sort of increased trend that I see from private label into exclusive brands.

What is the difference in your economics of the two as you tie up with more and more of these exclusive brand arrangements?

The private brands and private label margin rates compared to the products that they replace are going to be roughly the same right now, roughly 600 to 800 basis point difference.

With private brands, they are more recognizable by nature, and we are able to move the average unit retails up on private brand product versus private-label product.

Okay.

My second question was on Golf Galaxy's new stores in California that you mentioned.

Are they going to just test the market there, or do you plan to aggressively open up stores in that state?

The stores that we have put into California have opened up quite well.

Very pleased with them, and you can expect to see more stores in California.

Okay.

Then the third question I had was related to soccer, the category.

You have invested a lot in soccer and in the marketing side and inventory.

Do you see the benefits of that coming in already?

What is the status there?

Yes, we do.

This is really the second year of our meaningful soccer push.

It was very successful last year.

We continue to get more traction with that enthusiast soccer player, as average unit retails in our soccer shoes have gone up.

We are very pleased with what is going on from a soccer standpoint.

We have also developed the -- and licensed the Umbro brand in the United States; so we are the exclusive supplier of Umbro product in the United States, that we design and source ourself.

That program has been very successful.

We introduced it this spring.

We are getting a big push on it right now for the back-to-school and fall soccer season and are very pleased with the results we are having in our soccer program overall and in particular our Umbro soccer program.

Okay, very good.

My last question was on the fitness side.

Obviously, that is more important in the second half of the year.

You had mentioned that you were going to be making some changes in reacting to the external market environment.

Could you share some more of that with us?

Sure, you will start to see some of those changes on the sales floor now.

There has been a bit of an improvement in the fitness business from a sales standpoint, although we still feel that we have a ways to go.

We indicated that we thought we would see this softness through the second or third quarter.

As we get into the fourth quarter, which really kicks off the fitness business, we are anticipating to see some improvement.

Some of the products that we have got coming into the market are some different designed treadmills that have more entertainment built into the treadmills and elliptical machines, that are iPod compatible, TV compatible.

We have done some really terrific things in the strength category with some new machines.

We are still optimistic about the fitness business going into the fourth quarter.

Okay, thank you very much.

That's all I had.

David Cumberland, Robert W.

Baird.

Thank you.

Can you comment on how you feel about your recent marketing efforts, including changes versus your past approaches and also your marketing plans for the second half?

We are obviously quite pleased with the marketing programs that we have put in place, as you can see from the results in both the first quarter and the second quarter.

So those efforts that we have put in place have paid off.

We are really quite pleased with them.

You will see similar marketing efforts in the back half of the year to what you saw in the first half of the year.

As we move forward, as we move forward into next year, you will see a further reduction in print advertising and continued increase in the TV market and direct-mail, the direct to consumer marketing.

My other question.

In which categories, maybe other than fitness, did you see relative weakness?

What are your initiatives to improve results in those areas?

Other than really the women's athletic footwear business, which really wasn't that weak, we didn't see much -- we didn't see much weakness.

I think that our entire team, the merchandising team, marketing team, store operations, allocations, have really done a great job of looking at places to grow the business in this difficult environment; and have really done a wonderful job.

Other than fitness, there is really nothing that comes to mind that is meaningful that would be -- that was a difficult business.

Thanks.

Well done.

Dan Wewer, Raymond James.

Thanks.

Bill, you had noted that Texas was going to be an area of focus for Dick's going forward.

Do you think that we are going to see a faster rate of unit growth in Texas than in Florida?

I think it will be close.

Both areas are a focus of ours.

Texas has obviously moved up a little bit.

I talked about the distribution center, the third one opening in Atlanta.

We have been for a while working on our supply chain network and have already started to investigate our fourth distribution center.

Right now, preliminarily, that is looking like it's going to be in Texas.

Okay, that [tells me] a follow-up question.

I couldn't figure out why you would locate a distribution center in Atlanta to support the Texas market.

So as you get a critical mass in Texas, then you will look at a DC in that region?

Absolutely.

Second question I had on the golf category, are you seeing stronger demand in golf footwear and apparel than you are in equipment?

We are seeing it across the board in golf.

The apparel business has been quite good.

The equipment business has really been quite good, also, driven by the new technology of the high MOI drivers.

I think that some of the marketing that we did on the Golf Channel was certainly helpful with that.

The TaylorMade quake spot that we did featuring Justin Rose was a terrific spot and drove a lot of that high MOI driver.

That is a terrific ad and it is seen nationally even though Dick's today is a regional company.

You alluded earlier to opening Golf Galaxy stores now as far as California.

At some point do you ask yourself, do we need to start using a co-branded marketing strategy to leverage these national ads, like you're doing on the Golf Channel, for the Golf Galaxy business as well as Dick's?

Yes, we have talked about that.

We are not sure where that's going to go.

But right now we will continue to market these brands independently.

The national exposure that we are receiving with the ads that we are doing have really helped us as we enter new markets.

Some of the markets in Florida that we have opened up, some of the new markets that we will be opening up, it has really given our brand some recognition that in the past it hadn't had when we opened up in new markets.

Do you think that, alluding to the seasonality of Golf Galaxy in the third quarter, is that business more seasonal than the golf business in Dick's?

I would say that it is right now, because Golf Galaxy has more stores kind of north of the Mason-Dixon Line, if you will.

As the Golf Galaxy management team continues to roll out stores, the majority of the rollout is going to be in markets where you can play golf 10 to 12 months out of the year.

That would provide some less seasonality to the Golf Galaxy business as we go forward.

Okay.

The last question I had, during the month of July in our store visits we saw more in-store clearance markdowns than in the past.

But on the other hand, it appears that you are not using the tent sales and sidewalk sales like you have in the past.

Was that a strategy that was successful?

Would you expect continuing that next year?

It was very successful.

We did the clearance in-store as opposed to going out in the tents.

That certainly saved us some expenses associated with actually renting the tents, the payroll savings of moving product in and out of the tent each day.

So that is the strategy going forward.

It was -- we were able to do this with our merchant team and our operation team really working the inventory situation and having less clearance this year than we have had in the past.

So we didn't feel like we needed to go out to the tents, and it was absolutely the right thing to do.

So yes, that is what you would expect to see in the future.

That is why when you walked into the store, you felt there was more clearance this year than last year, because it was all in the store and not spread out into the tent also.

But in effect, it was really less clearance.

Our clearance inventory today on a per square foot basis is approximately 5% less than it was last year.

That's amazing.

Great, I appreciate the help.

David Magee, SunTrust Robinson Humphrey.

Good morning, good quarter.

Just a quick question.

The new store productivity seems -- is very impressive and being achieved at the same time when more and more stores are being opened farther afield.

That has been seen as a risk factor, I guess, as you move farther from the East Coast and your stores are doing very well.

Are you finding that the geographic differences -- to be less than they did, than folks thought of five years ago?

Or is the competitive environment maybe a little less intense as you move westward?

Actually no.

I think that geographic diversity and seasonal diversity that has been in this business for a long time is still there.

I think we have just done a better job of managing to it.

We have got a new store opening team that gets out into the markets before the stores open, bringing back information to the merchandising group and the planning group as to what sports are important, with the seasonality of that is.

We continue to open stores in markets and test them and understand that seasonality and those geographical differences, as we did in Florida.

We opened up -- we had two stores in Florida for about 24 months, understanding the differences in Florida versus other areas.

Now we have rolled out and we have got over six stores in Florida; continuing to ramp Florida up; and that new store productivity in Florida is terrific.

The same in Texas.

We had the two Galyan stores, former Galyan stores in Texas.

We indicated that Texas would be a state that we wouldn't start really developing until about now.

We are in the process of doing that.

We just opened another store in -- outside Dallas and continue to understand those differences,

We are ready to roll the state of Texas and to roll the state of Florida right now.

We have a tremendous amount of data available to us, so that we don't make those mistakes.

We have just done a better job of managing getting out in front of this.

Great job.

Thanks, Ed.

Reed Anderson with D.A.

Davidson.

Yes, good morning.

Just a couple questions.

First, just circling back to the private-brand initiatives you have got kind of underway now.

Specifically Field & Stream.

Just wondering from a timing standpoint, does it make sense that, as early as next year, that the Field & Stream brand will essentially take the place of what your current private label is in the outdoor categories?

Or is it going to weight in more gradually than that?

You can pretty much assume that next spring the Field & Stream category will be the vast majority of our private products in the outdoor category.

Okay, that makes sense.

Thank you.

Could you remind me?

How many stores do you have out of the core Dick's Sporting Goods stores that are attached to a regional mall?

Then secondly, I am just curious.

The performance of those relative to the corporate average, was it a little bit worse this quarter or was it better or about the same?

I'm going to tell you that the performance of the mall-based stores is really no different than the Company as an average.

We are really a destination, so we don't rely on mall traffic to support our business.

We are really a traffic generator to the mall.

I don't have the exact numbers off the top of my head of what the mall-based stores are; but I am going to say directionally it is around 15%.

Perfect.

Thank you.

Rick Nelson with Stephens Inc.

Thank you and good morning.

Congrats.

I may have missed this, but did you break out Golf Galaxy contribution to EPS in the second quarter?

No, and we have indicated right from the beginning that we weren't going to do that.

That we would provide the Golf Galaxy's comps on each quarter; but we were not going to break out their contribution for competitive reasons.

Did you have a first-half guide for Golf Galaxy, $0.11?

I thought I had it in my notes.

We said that Golf Galaxy would be approximately $0.11 accretive in the first half.

Accretive?

Okay.

How was that coming in relative to expectation?

We are in -- it is in the zone.

We are very pleased with Golf Galaxy's performance.

Just to dig a little deeper on the penetration of private label in Golf Galaxy stores, specifically where are you now?

And where do you see that going?

Can you hit the 15% in those units as you are planning (multiple speakers)?

Golf Galaxy's private label sales right now, you can look at are minimal.

Less than a couple percent right now.

But as we go forward, we're testing products, getting a better understanding of what can go into Golf Galaxy's business.

I suspect over the next couple of years it can approach that 15% number.

Thank you for that.

Any plans for a smaller store format?

Not at the present time.

Thanks a lot.

My other questions have been asked.

Bob Simonson, William Blair.

Good morning.

You have done a -- you did a very good job of explaining how the quarterly pattern of earnings would be influenced this year by the extra week and the shift in the calendar.

Without quantifying it necessarily, but qualitatively, are there any factors outside of the economy or weather differences that will impact the pattern '08 versus '07?

Not that we see, Bob.

None.

It is just the actual calendar shift and then the weather in the third quarter that we got last year, we're not counting on getting that this year.

Then the 53rd week which we have talked about.

Then we had about as good as it can get with the Super Bowl run, with the Bears and the Colts being in the Super Bowl.

Again, our group merchandising marketing operations team did a great job, logistics team did a great job of taking full advantage of that -- those teams in the Super Bowl.

We sold an awful lot of licensed product.

Between the 53rd week and the Super Bowl run, it was approximately $0.09 a share that we are just -- we don't have a 53rd week this year, and we have no idea who is going to be in the Super Bowl, so we don't have that planned in the -- we don't have that in the plan.

You also noted for, like this most recent quarter, their shift in high school football dropped in the second quarter versus the third quarter last year.

I believe that was the case.

Is that (multiple speakers)?

Yes, that is correct.

(multiple speakers)

Does that shift again next year, or are there other factors like that that will influence the year over year change in the quarters next year?

No, the only thing influencing the changes this year is the 53rd week.

So we won't have this again for -- I think the 53rd week comes again in seven years or something like that.

So we won't have it.

We don't have to talk about this again -- after we get done with this year, we don't have to talk about it again for seven years.

That's good.

We feel the same way.

On the inventory turns, you didn't say that private label overall couldn't rise above 15% in the Dick's stores, but -- and it can go up at Golf Galaxy.

But it probably will rise as a percent of sales more slowly in the future than it has in the last three or four years.

How will that impact your inventory turns?

Will it be a bigger positive?

Do you have a target for inventory turns?

We have got a target of what we are trying to get inventory turns.

We're not going to guide to what that is.

But we feel that we can continue to move our inventory turns up, and even as private label and private brand products gain additional traction in the merchandising mix.

Thank you very much.

Christopher Svezia, Susquehanna Financial.

Good morning and I add my congratulations as well.

I have two quick questions, mostly on product.

I guess first, Ed, could you just update us on the number of Under Armour and Nike shop in shop concepts you currently have in your stores, and kind of what your plans are for the balance of the year?

I think you previously mentioned Under Armour you expect to have roughly 100 shops.

Would it be fair to say that these shops are more profitable in terms of sales than the product being sold on separate racks, or prior to the shop in shop concept being installed in your stores?

The shops are quite profitable for both Under Armour and us; and also the Nike shops.

By the end of the year, we will have approximately 100 Under Armour shops.

We will have more than 200 men's Nike shops and more than 150 women's Nike shops by the end of the year.

Okay, and the 200 men's Nike shops and 150 women's, are those also in the same stores as well?

Or is there a trade-off where there is a women's shop and not a men's shop?

I don't believe we have any place we have a women's shop without a men's shop.

They usually go hand-in-hand.

We have got them usually in the first position when you walk into the store, on the first two pads on the right and left when you walk into the store.

I can't think of a store --.

The only store that we have a very meaning -- we have one store in Cincinnati that we have a very meaningful women's area versus the men's area.

But we still do have a men's presence in that store.

Okay, that's helpful.

Then just want to circle back quickly on the footwear end of your business.

You guys have kind of seemed to have weathered some of the issues in the overall footwear business with regard to some of the more mall-based operators.

Granted you can make arguments that they are tied more to the urban consumer or more fashion focused.

You guys seem to be more team focused.

I was wondering maybe if you can talk about your non-cleated footwear business, more the basketball product or running product.

How that fared relative to your expectations?

Particularly in those mall-based stores, roughly 15% or so of your base, where you might back up against a Foot Locker or Finish Line type store?

We really -- I mean, calling out performance by store type in a particular category, we are not going to do.

But there is not a big difference between those two.

The footwear business, athletic footwear business, for the most part met our expectations.

There is a trade-off between athletic shoes right now and brown shoes or sandals or flip-flops, three-points, slides, etc.

We are very heavily invested in the three-point business and in the slide business and in the sandal business.

So our overall footwear business has done really quite well.

We have indicated on a number of occasions -- and asking the Street so to speak -- to please not confuse the performance of our footwear business with the performance out of the mall-based specialty channel, which is really much more fashion driven than what we are.

Okay, that's helpful.

Congratulations.

Jim Chartier, Monness, Crespi, Hardt & Co.

Good morning.

Two questions.

Just to follow-up on a previous question, how many shop in shops do you currently have for Under Armour and Nike?

Right now, with Nike we have about 200 men's and 140-something women's.

In Under Armour shops, there is probably 20 out there right now, 25; and the majority of -- getting up to that 100 is going to be put in this year and right after the first of the year.

Okay.

Then you mentioned earlier that you were more aggressive in clearing inventory in the second quarter this year.

Was that a benefit to second quarter comps at the expense of third-quarter comps?

It is not at the expense of third-quarter comps.

They really have nothing to do with one another.

We cleared through it to move that inventory down.

We had less clearance than we have had in the past because of better inventory management and better systemic solutions to our allocation process.

We still have a ways to go.

We are not through.

We still have real opportunities in that area.

We have just done a better job of clearing inventory and planning our business.

You can see that through the comp store sales gains, the inventory improvement, and the margin rate improvement.

Right, thank you.

Michael Keara, Merrill Lynch.

Good morning, guys.

Great quarter.

Certainly in contrast to a lot of other names.

I know you guys game aim at a much different demographic; and most of your core stores are located in what are probably considered -- not considered -- probably not located in what are considered bad housing markets.

But have you seen any signs of weakness in demand, say like in the Detroit area which is probably considered a tough housing market?

We really have not.

We have talked about this before, we are going to travel on a narrower band than the economy as a whole.

Right.

So these athletes, young athletes and high school athletes, they are going to be playing baseball, they are going to be playing soccer, football, etc., and we have been fortunate to be the destination of choice.

We work very hard at that, and the housing market really has not impacted our business with these athletes.

As far as '08 plans for store openings, we are all set and secured on that?

Yes, we have got that plan basically done.

We have got a number of '09 sites done; and we have even got some '10 sites, leases signed and executed.

Okay, thanks a lot.

Ralph Jean, Wachovia.

Great, thank you.

Just wanted to ask a couple follow-up questions on the Adidas business.

You mentioned you're going to have exclusivity on the baseball equipment.

I assume that would be for next baseball season.

Then how long does that exclusivity last?

In other words, do you own their baseball equipment brand or not?

What percentage of the category square footage do you think you would allocate to the Adidas baseball branded products?

Well, the exclusivity is kind of in perpetuity while we hold the license.

Although I won't go into the exact structure of the deal, if we hit certain levels then it continues to roll over.

But this is a multiyear deal, so we have this for a very long time.

Square footage associated with this, it will replace primarily our Powerbolt brand that we had in the past.

Adidas will have, I'm going to say directionally, probably 10, maybe 15% of the square footage associated with baseball.

And directionally that is kind of where it is at.

Great, then just one last question.

On the Field & Stream product, is that a situation where you would put their label on -- their logo on product you make?

Or do they actually make it and ship it to you for distribution?

This is all product that we make.

So we have the licensing agreement to design, source, sell, and market Field & Stream product in these categories.

So it is all product that we design and source ourself.

Great, thank you very much.

This ends our Q&A session.

I would like to turn it back over to Mr.

Stack for closing remarks.

I would like to think everyone for joining us on our 2007 second-quarter earnings call, and look forward to talking with everyone at our third-quarter call.

Thank you.

Thank you for your participation in today's call.

This concludes the presentation.

You may now disconnect.

Good day.