DICK'S Sporting Goods Inc (DKS) 2007 Q4 法說會逐字稿

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

fourth-quarter fiscal-year 2007 earnings conference call.

My name is Yahida and I will be your coordinator for today.

At this time all participants are in a listen-only mode and we will be facilitating a question-and-answer session towards the end of this conference.

(OPERATOR INSTRUCTIONS) As a reminder this conference is being recorded for replay purposes.

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 fourth quarter financial results for Dick's Sporting Goods.

Please note that a rebroadcast of today's call will be archived on the investor relations portion of our website located at dickssportinggoods.com for approximately 30 days.

In addition as 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's no assurance 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 fourth quarter financial and operating results and review the guidance contained in our press release.

Also joining us this morning with Joe Schmidt, Executive Vice President and Chief Operating Officer, and Tim Kullman, Senior Vice President, finance, administration and Chief Financial Officer.

Joe will review our store-opening program and provide an update on our plans for a third distribution center.

Tim will then discussion in more detail our financial results.

I'd now like to turn the call over to Ed Stack.

Thank you, Dennis.

I'm pleased to report the results of our fourth quarter, a quarter in which we exceeded our guidance on both the top and bottom line.

Our portfolio of businesses and emphasis on execution combined to produce another quarter of consistent finance at results.

This quarter we generated net income of $73 million, or $0.62 per diluted share, which is $0.03 above our original guidance.

Strong sales, higher margins and efficiencies in freight and distribution all contributed to earnings greater they guidance.

Total sales for the quarter increased 18% to $1.2 billion,, At Dick's Sporting Goods stores comp sales exceeded our expectations, increasing 2.7% or 3.4% adjusted for the shift in the retail calendar.

At Golf Galaxy pro forma comp sales declined 8.8%.

On a shifted basis pro forma comp sales declined 9.8%.

Comp store gains at Dick's Sporting Goods were driven by our athletic apparel, outerwear and footwear businesses.

These increases were offset by the NFL business, table games and the golf business, which overall was challenging.

We planned for the difficult NFL license business, which was up against last year's comparison of the Indianapolis Colts and Chicago Bears Super Bowl run.

We are providing our initial guidance for 2008.

For the year we expect earnings per diluted share of approximately $1 49 to $1.54, a 12% to 16% increase versus 2007.

We are expecting comp sales sim -- comp store sales to be approximately flat to positive 1% in 2008.

We are cautiously optimistic about our business prospects in 2008.

This year we will add approximately 46 Dick's Sporting Goods, ten Golf Galaxy stores, and will open a new distribution center in Atlanta to support our continued growth.

We will continue to build our private brand strategy with partnerships such as Nike ACG, Adidas Space Ball, Reebok Apparel, and our newest brand, Max Flight.

Even with all these key initiatives we can't ignore the uncertain macro economic environment we are all currently facing.

For the first quarter 2008, we expect to earn approximately $0.16 to $0.19 per diluted share as compared to $0.19 in the first quarter of 2007.

In addition to the challenging environment, the year-over-year comparison is impacted by the Super Bowl.

While the New York Giants victory did benefit our business, the impact was $0.01 less than the Indianapolis Colts victory last year, as we have very few stores in the core New York City market.

Our quarter is also impacted by $0.01 worth of expenses associated with the start-up our Atlanta distribution center.

We are anticipating comp store sales to range from -4% to -1% in the first quarter, where we still have not yet seen the start of the spring sport seasons due to many of the fields still being covered be snow.

Both Dick's's and Golf Galaxy are included in our comp store sales comparison for each quarter and the year.

Chick's Sporting Goods store will be included in the comp sales comparison one year after the conversion to Dick's Sporting Goods stores.

We are pleased to have delivered a solid fourth quarter culminating in year which our business generated a 30% earnings per share increase.

We also made two acquisitions, continued to capture market share in new and existing marts, expanded our merchandise margin, and improved our operating efficiency.

I'm proud of our associates who once again demonstrated their ability to execute against our business plan.

At this time I'll turn the call over to Joe.

Thanks, Ed.

The 2007 new store opening program for Dick's stores was completed in our third quarter.

Our new stores continue to perform well.

In quarter four, new store productivity for the Dick's stores was 91%, continuing a trend through 2007.

This calculation excludes the newly-acquired Chick's stores.

In the fourth quarter we opened four and closed two Golf Galaxy stores.

New Golf Galaxy stores were opened in Baltimore, Maryland; Fairfax, Virginia; Phoenix Arizona, and Washington D.C.

Golf Galaxy stores closed in Memphis, Tennessee and Pittsburgh, Pennsylvania.

At the end of the fourth quarter, we operated 340 Dick's Sporting Goods with 19 million square feet, 79 Golf Galaxy with 1.3 million square feet, and 15 Chick's stores with approximately 800,000 square feet.

We're planning to open approximately 46 Dick's and ten Golf Galaxy in 2008.

Much like 2007, we expect our 2008 new store program to include a mix of new and existing markets.

Nearly half the new store openings will be split among quarters one and two, with the other half opening in the third quarter.

Lastly, I would like to provide an update for our third distribution center, which as we outlined last year, will be located in Atlanta, Georgia.

Our Atlanta DC remains on track to be operational by mid year, at which point our total network capacity will be 670 stores.

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

Thanks, Joe.

Sales for the quarter increased 18% to $1.2 billion.

Comp store sales at Dick's stores increased 2.7%, or 3.4% on a shifted basis, driven by higher price points.

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

Gross profit of $376 million was 31.03% of sales, 18 basis points lower than 2006.

Expanded merchandise margins and lower freight costs were offset by deleverage on the occupancy line due to one less week in this year's fourth quarter.

SG&A expenses of $250 million were 20.65% of sales and 80 basis points higher than last year's fourth quarter.

Advertising expense leverage was offset by store payroll and admin expense, which much like occupancy, were higher as a percent of sales due to one less week in the quarter.

Operating income increased $9.5 million, or 8%, to $125 million.

As a percent of sales operating income margin of 10.28% was 94 basis points lower than 2006.

Merchandise margin gains, freight savings, and advertising leverage were more than offset by the impact of one less week in the quarter and the resulting occupancy, payroll, and administrative expense deleveraged.

Net income for the quarter increased 8% to $73 million.

Recall last year's fourth quarter included a $0.05 impact combined for the 53rd week and the Indianapolis Colts and Chicago Bears Super Bowl runs.

Let's move to the balance sheet.

At year end inventory per square foot was 3.5% higher than 2006 when including Golf Galaxy and Chick's sporting goods in the 2006 year-end number.

This increase was driven by increases in average price points.

We ended the quarter with no outstanding borrowings on our line of credit.

Our borrowing rate is LIBOR plus 75 basis points averaging 5.675% in the fourth quarter.

The strength of our business enabled us to repay the borrowings from both our acquisitions of Golf Galaxy and Chick's Sporting Goods in 2007.

This is the third consecutive year in which we've ended the year with no outstanding borrowings.

Net capital expenditures were $108 million in 2007, or $172 million on a gross basis, in line with our previous expectations.

We're expecting net capital expenditures of approximately $150 million in 2008, or approximately $230 million on a gross basis.

I would like to make a few remarks about our expectations for 2008.

Merchandise margin expansion has been important part of our earnings growth over the last several years, including 2007.

We continue to benefit from better buying, expansion of our private label, and more recently, private brand program, and improvements in inventory and markdown management.

We expect each of these factors to contribute to merchandise margin improvements in 2008 and beyond.

The freight and distribution gains achieved in 2007 were meaningful and the result of increased productivity and programs designed to improve our processes.

While continued improvements are planned, the magnitude of the gains in 2007 are not expected to carry in to 2008.

As Joe outlined earlier, we're planning to open our third distribution center this year.

As a result of preopening and other costs associated with opening and operating a new DC, we expect to absorb a P&L impact of about $0.01 in each quarter in 2008.

This impact is incorporated in our guidance.

We're also expecting a relative increase on the occupancy line in 2008 due to real estate costs associated with some of our new stores.

This impact is most influential in the first and third quarters and is in our guidance.

Specifically in the first quarter merchandise margin gains are likely to be more than offset by the combination of the factors I just described, especially distribution center start-up costs, and higher occupancy.

As a result of these factors, which occur in a quarter in which we are expecting our comp sales to be negative, we expect to report a declining gross profit margin rate for the quarter.

Over the course of the year we do expect to mitigate the effect of the occupancy and distribution center start-up costs.

Again, the impact of all of these factors is in our guidance, and while it is important to understand the factors which influence EPS growth rates throughout the year, we are focused on growing the business for the long term.

We are planning to provide guidance one quarter at a time throughout 2008 consistent with our customary practice, and we are guiding to an EPS increase of approximately 12% to 16% in 2008 on top of a 30% increase in 2007.

Moving to the balance sheet for 2008, we do expect to have seasonal borrowing needs consistent with how our business has historically operating.

Our expectation is to end 2008 with no outstanding borrowings.

Thank you.

This concludes our prepared remarks.

At this point, operator, I'd like to open the line for questions and answers.

(OPERATOR INSTRUCTIONS) And your first question comes from the line of Pete McShane with Citi.

Please proceed.

Hi, thank you.

Foot Locker just announced that they're going to be selling Under Armour at over 1,000 of their store locations by the end of the year, and although you don't compete directly with Footlocker how do you view this change in the competitive landscape, and will there be any differentiation between what you are selling and what Foot Locker sells with regards to Under Armour products?

Yes, I think there'll be a very big difference in some of the -- in what we sell versus Foot Locker from an assortment standpoint.

The Foot Locker stores are obviously much smaller than our stores, The large Under Armour shops that we have carry a much broader array of Under Armour product than what will be at Foot Locker and we've got a number of products that -- products and colors of Under Armour products that are exclusive to Dick's Sporting Goods, so we don't think it's going to have a meaningful impact.

Okay, thank you.

And then my second question is in regards to your private brand strategy.

Since it's a fairly new strategy in terms of the private brand as opposed to private label, can you talk a little bit more about how these brands performed over the last quarter?

And in terms of your initiatives with Nike ACG or some of the other brands, will we be seeing more categories for those brands, beyond apparel for Nike ACG, for example?

With Nike ACG right now we don't have any plans to do anything broader with Nike ACG than we have today.

We're very pleased with the program of Nike ACG.

We're very, very pleased with the performance of the other private brands that we have, whether it be Slazenger golf balls, which it did extremely well for us, along with Umbro from a soccer standpoint.

The early reads on Adidas baseball has been very promising, above our expectations, so the private brand strategy is working quite well.

And any indication that the Umbro private brand strategy will change now that Nike owns Umbro?

No, we don't -- we've talked with Nike there doesn't seem to be any -- there'll be no change.

We have a long-term agreement with Umbro which was in place before Nike bought them.

Okay.

Thanks very much.

Sure.

Next question comes from the line of John Shanley with Susquehanna Financial Group.

Please proceed.

Thank you, and good morning, everybody.

Ed, with the Golf Galaxy comp sales in 9% are you experiencing comparable showdown in golf product sales within the core Dick's operation as well?

Yes, it was -- the comps in golf at Dick's mirrors Golf Galaxy.

Were a little bit better than what Golf Galaxy was, but there was a big difference in this quarter versus last year in the fourth quarter, where people were playing golf in November and December in 2006, and this year they certainly weren't.

So we don't see this as a fundamental change to the golf business, and I won't comment by region, but where you see golf being played 12 months a year, the golf business performed much better than what those comps indicate.

All right, that's encouraging.

I wonder if you can drill down just a little bit more on the expectations for the flat to slightly up comps in first quarter.

Is this due to a falloff in shopper traffic or concerns about the economy or merchandise-related issues?

I wonder if you could elaborate a little bit for us.

On the first quarter, we actually indicated comps would be -4% to -1%, and that's primarily -- as I said, we haven't seen a start to the spring sports seasons versus even how it was last year, where many of the fields are still covered with snow and the kids just aren't there.

I know I've got -- two of my daughters play lacrosse and they have not been outside for lacrosse yet this year.

So it's weather-related as much as anything else?

Well, we think that there is a combination of weather, and a combination of just the difficult economic environment that we're all experiencing right now.

What the break down is between those, we really can't tell because of -- these spring sports seasons haven't started yet.

I see.

Okay.

And lastly, I wonder if you could comment on the various major merchandise sectors within the Dick's operation between apparel, footwear and hard lines.

Are all of the business plan -- or business sectors meeting expectations or are there some that are falling short of your business plan expectation?

We don't see a meaningful difference between any of these businesses.

As we said, the golf business was a bit difficult because of the -- people didn't -- hadn't -- they played last year, they weren't playing this year, but other than that we don't see any meaningful difference across any of the categories.

Great.

Thank you very much, appreciate it.

Sure.

Your next question comes from the line of Matthew Fassler with Goldman Sachs.

Please proceed.

Thanks a lot and good morning to you.

Morning, Matt.

A couple of follow-up questions.

I believe that in your third quarter guidance you quantified the expected impact of Golf Galaxy on fourth quarter earnings at roughly $0.04 a share.

Can you say it what looked like when all was said and done?

Matt, this is Tim.

We were just about there in terms of -- you're talking about the dilution?

Correct.

Yes.

Right about on target.

And did sales for Golf Galaxy misplan?

And if that's the case, how did you compensate there?

We've talked that we would -- we weren't going to provide guidance in Golf Galaxy specifically, Matt -- to call the two out -- but we would report what their comps were.

Their comps were a bit -- a bit less than what we anticipated, but with the portfolio of businesses we have in the Dick's Sporting Goods it more than made up for it.

The golf -- the comps in Golf Galaxy were not much different than we saw in the Dick's Sporting Goods golf business because of the factors we talked about earlier that people weren't playing, but as I said with the portfolio of businesses we have -- and we've talked about this before, we've got the ability to make that up, and you can see in the fourth quarter we did make that up.

Understood.

Secondly on the inventory -- thanks for the inventory per square foot guidance.

To the extent that the inventory was up a a little more than we thought -- we probably had not thought about Chick's appropriately in that context -- if you could give us a sense as to what the inventory looked like In the businesses that you've owned over -- for more than 12 months versus Chick's, which you had acquired more recently, that'd be quite helpful?

We don't see -- we don't see any inventory issues.

We don't have any inventory that's built up that we have concerns about.

We don't see any markdowns coming at us.

Our inventory's really in very good shape.

Gwen Manto and her group from a merchandising and planning perspective have really done a great job of focusing -- keeping our inventory in check.

We do have an increase in the average ticket, which is planned as we continue to try to move that average unit retail in a number of products.

So it's all planned and we're very, very pleased with our inventory.

If we weren't we would certainly be calling that out.

Understood.

And just to follow up on that, if you could take a look at the comp that you printed in the fourth quarter and differential between traffic and ticket just directionally as a driver?

Sure.

Matt, this is Tim.

For the fourth quarter we had traffic at -1.4%, and ticket was at 4%.

If you want on a shifted basis, traffic was -1.3%, and ticket was +1.7%.

Great.

Thank you so much.

Our next question comes from the line of Brian Nagel with UBS.

Please proceed.

Thank you, good morning.

My first question, I guess for Tim, with respect to the 2008 guidance you gave.

To what extent is the guidance -- you give the $1.49, the $1.54 predicated on a potentially improving macro environment in the second half of 2008?

Brian, I would say that our guidance is relative to how we think the business will perform through the year.

We are not counting on an upside in the macro economic environment for the year.

I think you'll see that the range for the year is probably a little bit wider than we've done in the past.

We're trying to accommodate whatever might transpire in the economic environment as the year unfolds.

Okay.

And then with respect to the Golf Galaxy business, the comps will be included in -- in -- be aggregated into your business in 2008.

Could you help us understand what type of assumption for comps in that 2008 guidance is for Golf Galaxy?

Brian, I don't think we're going to be generous with the details much anymore on Golf Galaxy as we go forward.

We'll give the consolidated comp and that will be our position in '08 and forward.

From a competitive standpoint we've talked that we weren't going to provide guidance for Golf Galaxy separately, and based on what's going out there in the golf business from a competitive standpoint we definitely don't want to do that.

Fair enough.

Thank you.

Your next question comes from the line of David Mcgee with SunTrust Robinson Humphrey.

Please proceed.

Thank you and good morning.

Just a couple of questions, one is with regard to your same-store sales this coming year, what do you have factored in as far as the ASPs?

I'm just wondering how you see people potentially trading down, I guess, in a tougher economic climate.

Well, we haven't see -- with what we've been able to do we haven't seen people trading down.

We still feel that technology is a big part of what is driving our business.

We think that that's going to continue, and we -- in a very difficult economic environment in the fourth quarter, which we've seen other retailers and certainly people in our category having a difficult time, we were -- you take a look at our fourth quarter, we had a really very good fourth quarter, and compared to the environment as a whole, we had a great fourth quarter.

Thank you.

And then secondly, how do you feel about the success right now of your national advertising?

Are you going to continue that this year in the same way that we saw it in the last half of '07?

Yes, we think that it was very helpful, very beneficial to the business, and I think if you take a look at the results we had with a 30% EPS growth in 2007 over 2006, a portion of that success has to be driven by the advertising program -- marketing program that our group put together.

Thank you.

And then lastly, the -- as we think about the second quarter, you have got a pretty tough comparison there on the core side at a +7% comp last year, should we be expecting a pretty -- maybe at least a flattish number against that, or was there anything last year in the second quarter that was unusual in terms of the calendar last year?

We talked about the second quarter last year being a pop from the first quarter.

We had a -- we don't have a great quarter from a sales standpoint last year in the first quarter.

We had very good earnings number, but the sales number was difficult, and we said that when the kids got out there to actually start playing and those spring sports started, then we thought that there would be a pop and there was.

So we're not going to comment on the second quarter right now.

We're here to provide fourth quarter guidance -- our fourth quarter quarterly call and guidance for the first quarter, but we're not going to do anything on the second quarter right now.

Fair enough.

Good luck this year.

Thank you.

Thank you.

Your next question comes from the line of Michael Baker with Deutsche Bank.

Please proceed.

Thanks, guys.

One or two questions.

One, just the square footage outlook for next year, it's pretty close to your typical 15%, but it is a little bit under that.

I think it's 13% and change.

Is that just -- is there a reason that you're pulling the square footage down a little bit, or is -- am I just being too fine with my details?

Well, I think you're -- I don't think you're being too fine with your details, but what we're doing is we're very discriminating is where we have put our stores and the way that the development cycle has played out this year these are the number of stores that we're comfortable opening up in the quality real estate that we've come to expect.

So no change in the business, just the way the real estate happened to fall.

Still same long-term outlook, 800 stores, et cetera?

Yes, absolutely, nothing's changed.

Okay.

Second question, would be -- so I think, as you just articulated, April was pretty bad for you last year because of the weather so in that sense you have an easy comparison, does your -1% to -4% guidance for this quarter anticipate things getting better later in the quarter or is that just sort of where you are running now, or just trying to understand how that plays out?

Well, as we take a look at the quarter that's how -- based on what we see today that's what we believe the quarter will be, will be a -4% to -1%.

But not necessarily including a pickup in April?

Yes, we're not going to talk -- we've never in the past nor are we going to talk about how things are trending in a quarter, what do we think by month in a quarter.

We believe the quarter right now will be -- based on what we see will be -4% to -1%.

Okay, thanks, if I could ask one more.

I think in the third quarter call just on the inventories you did articulate pretty clearly that the clearance was down year over year.

I think you said that earlier in the call, but is that the case that clearance levels are -- how a the clearance levels versus last year?

Not a lot different within what they were last year.

Okay.

Okay.

Thank you.

Sure.

Your next question comes from the line of Sean McGowan with Needham & Company.

Please proceed.

Thank you.

Can you comment on what the plan is for the conversion of the Chick's stores to Dick's stores timing wise?

The timing of that will be -- we talked about this before, we thought that it will be some time toward the back half of 2009.

Okay.

So they'll stay as Chick's stores this year and then when you have more of a presence in California do a conversion to Dick's, is that what you mean?

When we get more of a presence in California as our development cycle kicks in, and then also as we get a better understanding of the Southern California market, we will then modify those stores to be Dick's Sporting Goods stores, and that should happen some time in the back half of 2009.

And you mean calendar 2009 by that, right?

Yes, calendar year 2009.

So we shouldn't expect those to be in the comp base until really like the end '10, right?

Correct.

Okay.

Also it's only 15 stores.

Right.

So it's not going to affect the comp base a whole lot.

Not a big deal.

Right.

The timing of the store opens -- did I get this right, you said about half of them would be any the first two quarters of this fiscal year for the Dick's stores?

That's correct.

Okay.

And just to follow up on an earlier question, did you give -- or if you didn't, please could you provide what the percentage of private brands/private label is for the quarter and the year?

Yes, we said in our call last -- last quarter that we were not going to provide that information any more for competitive reasons, that -- but we did say that we would be at the 15 -- at least at the 15% number that we had always talked about.

So it's not below 15%, but for competitive reason, we indicated we are no longer going to provide that information.

It is fair to ask, did it grow?

It's fair to ask, but I'm not going to answer.

(LAUGHTER)

Okay.

Thanks a lot.

Sure.

Your next question comes from the line of Dan Wewer with Raymond James.

Please proceed.

Yes, thanks.

Ed, you had noted the inventory per square foot is up 3.5% heading in to the first quarter.

If your same-store store sales dropped 1% to 4% that would imply sales per square foot will drop about 2% to 5%.

You'd also noted that the clearance inventory is not any heavier than a year ago, so I'm just trying to reconcile why such an aggressive purchasing plan heading into the period where you appear to be a bit concerned about the top-line growth?

Well, we were quite enthusiastic as we were finishing up the fourth quarter.

The issues with these -- the high school and junior high school athletes not being able to get out and -- to the fields have -- has tempered our enthusiasm here a little bit.

We do have orders flowing in for product through the quarter -- not everything is here -- so Gwen and her team will be looking at orders coming in and modifying some orders coming in, changing the delivery dates to more closely mirror the spring sports seasons.

Do you think you'll be able to get out of this excess inventory without clearance markdowns and instead be able to return this product back to some of your suppliers?

Well, we think that our inventory's really in very good shape.

As we look forward with the inventory that's coming in versus our sales plan we're quite confident that our inventory will be in good shape.

And it's not so much returning inventory to vendors as it was pushing delivery dates out 30, 45 or 60 days, depending on when the season kicks in.

And then a separate question, I understand you don't want to provide outlook beyond the first quarter.

I think on the other hand you can appreciate the view of investors from looking at a first quarter sales forecast that could be down as much as 4% but for the year you're only anticipating a worse case scenario of flat comps.

And then further we've got this difficult second quarter comparison coming up, so I was just trying to get a better understand of why you're -- you appear to be a lot more optimistic for the year than for the first quarter?

Well, I think part of it is that the first quarter, what we see today -- and I can only reiterate that these spring sports seasons haven't started with the -- I mean the fields in Ohio and New York and these places are covered with snow.

These kids are not out there.

Practices have -- have been delayed.

They might be in the gym, but some of the products that they need, shoes, et cetera, they're not out there in the fields yet practicing, so --

No, I understand that but -- so you're assuming that business isn't lost but rather it comes back later in --?

That's correct and that's what -- I'm not saying that this is what's going to happen in the second quarter, gut that's what we talked about last year, and you saw that the business in the first quarter was -- from a sales standpoint was disappointing.

As I said earlier, the earnings number was very good, sales were disappointing, but the second quarter there was -- it was a terrific second quarter.

And then just real quickly, could you talk about Ed's -- or excuse me, Bill's decision to retire from the Company and your plan for replacing that position?

Well, Bill did -- Bill changed his position.

He moved in to the Vice Chairman role and has not left the Company completely.

He's certainly involved and involved in some special projects.

That was a personal decision that Bill made and he wanted to spend some more time with his family.

He has got -- so he made those personal decisions.

But he in no way shape or form wanted to leave the Company completely.

He's still very much involved here.

As far as replacing Bill, his responsibilities have been divided between -- Tim Kullman has picked up an area of responsibility and Joe Schmidt, who's now our Chief Operating Officer, has been moved into that role to make over the majority of Bill's responsibility.

Joe's been with us for close to 20 years now and has worked very closely with Bill over the years and will do a terrific job replacing Bill.

Great, thank you.

Your next question comes from the line of Vivian Ma with Oppenheimer.

Please proceed.

Good morning.

Just wondering whether you've seen any benefits from the Super Bowl game in your fourth quarter comps, and if so, what was that magnitude?

Actually, as we indicated in the script we saw about $0.01 reduction in earnings.

In Indianapolis we have a number of stores right in that core Indianapolis market, and although we have many stores in New York state, we have very few stores in that core New York City market.

And once you get outside the core of the main city with these licensed product sales, the falloff from a sales standpoint is pretty significant.

So we enjoyed great success when the Steelers won, as we have so many stores right in the core Pittsburgh market.

Indianapolis, a lot of stores right in the core Indianapolis market.

The Giant's won and we just don't have many stores in the core New York City market.

Okay.

Of the merchandise categories that you plan for increases in average ticket, can you just outline what were some of those categories?

We haven't -- for competitive reasons, we have never talked about specific categories of business, and as I said for competitive reasons, we don't want to do that now.

Okay, fair enough.

And then just lastly, given that many others in your sectors are performing weaker, have you noticed more accelerated share gains in any of your geographies and/or more opportunities for acquisitions?

Well, from an acquisition standpoint, we're not looking at anything right now.

You should look at it as an organic growth story.

Yes, we bought Chick's, which was 15 stores, as an entry into Southern California, but we're primarily an organic growth story.

And in the fourth quarter we were really quite pleased on balance with our -- with our sales performance across the entire country.

Great.

Thank you.

Sure.

Your Your next question comes from Michael Keara with Merrill Lynch.

Please proceed.

Good morning, everyone.

Good morning.

Hey, could you talk about inventory at the Golf Galaxy stores?

One of your competitors last week had said that some manufacturers were beginning to implement minimum pricing for retail.

I don't know where margins are going there.

I know you don't talk specifically for the Golf Galaxy business, but in general should we perceive that as a positive at some point?

From an inventory standpoint with Golf Galaxy, the Golf Galaxy inventories were actually down slightly year over year.

Oh, really?

Okay.

So the group really did a very good job of maintaining their inventory balance.

As far as minimum pricing, a number of manufacturers are implementing minimum pricing, and we don't think that will do anything to hurt the margins, it'll certainly stabilize margins in that category.

I assume those margins were probably under some pressure in the fourth quarter, as -- like you said, I think a lot of people weren't playing, so --

Yes.

Well, what we didn't do is we didn't go out and try to -- and reduce prices to try to artificially drive the business, so there's a couple of competitive markets that the Golf Galaxy group is involved in, with Golfsmith and PJ SuperStores and there was some margin pressure in some of those markets.

But taking those markets out, there was actually margin-rate expansion, especially in light of the additional private-label products that we were able to move into Golf Galaxy.

Okay, so you basically didn't chase sales in that category.

No, we didn't artificially go chase sales.

Okay, that's good.

Did you guys take down the store growth for them in '08/'09, or am I -- just reading the press release I guess I had a higher store count for Golf Galaxy in '08.

And I would expect you probably did.

It's going to be ten stores and this was really around the real estate strategy.

We are really trying to move Golf Galaxy's real estate strategy to be more Southern based where people are playing golf nine to 12 months out of the year, and tried to have a better balance of North/South real estate strategy.

And we're just -- as we're implementing that, we weren't able to get as many stores in the Southern region as we liked and we took the store count down to ten.

Okay, that's fine.

Good luck on the year.

Thank you.

Your next question comes from the line of Mr.

Hardy Bowen with Arnhold & Bliechroeder.

Please proceed.

Yes, Ed, if it sounds like if the Super Bowl cost you $0.01 that it must have cost you about 0.7% in sales, something on that order?

Hardy I can't give you that, I'd have to -- I'm not sure, but that sounds reasonable.

And probably will cost you the same thing in the first quarter, since some of the sales go into February?

That's where -- the $0.01 that we talked about is in the first quarter.

In the first quarter?

Yes.

Yes, we didn't talk about what impact it had on the fourth quarter, we just talked about that it was $0.01 in the first quarter.

Okay.

So that probably cost you that in the fir -- at least that in the first quarter, I would guess.

And in the area of private brands, I know you want to build brands like ACG into being a brand, but on the other hand, a year ago we were using private label as our price brand, and it's kind of a -- an interesting concept as to what to do, whether you want to keep the gross margins high and build the reputation of the brand or whether you want to use it to promote and drive traffic in the store.

What is your feeling about that?

Well, we're still going to -- we're not advocating those opening price points and there's still some private label brands that are going to be out there that will help drive that opening price point.

But then other opening price points we will -- we'll look to buy out in the marketplace and not take that inventory risk on that opening price point product.

Or maybe use Columbia or something line that can be the opening price point in some areas?

Well, in -- in some categories Columbia can be the opening price point.

Columbia's really done a very good job moving their price points up, so there would be some other brands that we would take a look at for opening price points.

Whether it will be in the athletic apparel area, we'll be using Russell.

Russell really did a great job of coming in and talking to us and putting a program together to capture that market share in that opening price point, with -- which we think are terrific margins in flow of product.

So we're working not only the private-label side but also then the branded side for those opening price points.

You're not going abandon the opening price point?

We are not going to be abandoning price point, no.

We're just going to be trying to move the opening price point to the right -- I mean our average price points to the right, but we're not advocating and walking away from those opening price points.

Okay.

Sounds good.

Your next question comes from the line of Robert Samuel with JPMorgan, please proceed.

Hi, good morning.

Can you just elaborate a little bit more on the footwear performance during the quarter, perhaps maybe highlighting some specific brands that helped to drive performance?

Well, we're not going speak to specific brands, but we were pleased with our footwear business across the board.

The -- the boot business and the casual shoe business did better than the athletic footwear business, but we were -- on balance we were pleased with our footwear business across the board, across athletic footwear, cleats, and then the boot and shoe business.

And then how should we think about the upcoming Under Armour shoe launch in terms of how it could positively impact the business?

Well, we think Under Armour's really done a terrific job of marketing this, the cross trainers.

We think that it's going to be very positive to the business.

We also think that some other people -- there's some other brands out there who are enthusiastically marketing their footwear business.

We've had great success with Nike footwear, we've had great success with Asics, and we think that this marketing that Under Armour's doing, that Nike's doing, will help drive the entire category.

Great.

Thanks.

Sure.

Your next question comes from the line of David Cumberland with Robert Baird.

Please proceed.

Good morning.

In Q4 how were sales versus plan in your fitness equipment business?

Again, we're not going to talk about specific categories on a comp basis.

We'd indicated that we expected the exercise business to get a bit better in the fourth quarter, and it did get a bit better in the fourth quarter.

Some of the products that we put in place performed quite well.

We brought some higher-end products in.

We did some redesigning of some products, added some colors to some products, and the cardio category did extremely well.

The strength category was still a little bit difficult, but the cardio category between treadmills and elliptical machines did quite well.

And then on Chick's, about how about how revenue did Chick's contribute in Q4, and what is the amount of EPS accretion you expect from Chick's in '08?

We expect -- we indicated that we expect it to be marginally accretive in the year.

We weren't -- we didn't guide to what it would be specifically, but we said that it would be marginally accretive, and we were very pleased with Chick's performance in the fourth quarter.

Some of the snow that they got in the mountains certainly helped drive their business, and help drive some higher margin rate product in outerwear, so we're very pleased with the Chick's acquisition to date.

And last question on the third DC at what point should the negative impact from the ramp-up go away?

In '09.

As we said it's going to impact about $0.01 each quarter for the entire year.

Thank you.

Your next question comes from the line of [Jay Soleil] with Morgan Stanley.

Please proceed.

Hi, good morning.

Just wanted to follow up on gross margin.

It looked like gross margin was down about 20 basis points this quarter, and just wanted to know with the increase in private label and supply chain initiatives that maybe we expected to bring gross margin up, what were some of the factors that maybe brought it down this quarter?

Well, from a gross margin basis we lost an extra week in the quarter.

If you recall, we had a 53rd week in 2006 and trying to leverage occupancy costs in that scenario was very difficult for us, so most of the gross margin gains would have been offset by the occupancy cost deleverage.

We did talk in the script that our margin -- our merchandise margin rates were up versus last year, and it was all driven by the lack of the 53rd week this year versus last year.

Okay.

And then just with regard to the store openings, now it seems like the commitments were made to open stores in 2008 and I know you said the plan hasn't changed for 2009, but because the commitments have already been made, does it make it possible that leveraging occupancy costs going forward will be continued -- will be as difficult in 2008 as it was this quarter?

What we'll find is, as we take the whole year in to consideration we'll be able to leverage those cost, but we need the whole year sales base to do that.

Okay, and then one other accounting-type question.

On the cash flow statement it looked like there was a $70 million influx this quarter from a line item in working capital called income taxes payable/receivable, can you just provide some color on what that is and how that's working, because that's kind of un -- something that I don't think we've seen in the last few quarters hit the cash flow statement?

That just is the result of a deferred payment for a quarterly cash payment that fell into the quarter versus being paid previous to that.

So rather than being paid in the quarter, it's an amount that is sitting out there to be payable.

Okay.

In Q1.

Okay.

All right, thanks so much.

And your next question comes from the line of Mitch Kaiser with Piper Jaffray.

Please proceed.

Hi, good morning, this is actually Peter Keith calling in for Mitch.

I know in the past you've talked about the Golf Galaxy acquisition being accretive to -- last year.I think it was about by $0.02, but it was our understanding that the accretion benefits actually might be greater in '08, so was hoping you might care to break that out as it would relate to your guidance in terms of EPS?

I know you -- this seems to be a never-ending story in what we say here, but we are not prepared to provide additional guidance specific for Golf Galaxy.

Primarily for competitive reasons.

Okay, that's fair.

And then just as it relates to the new DC, understand it's going to be a drag here this year, would it overall be a benefit as we think longer term just simply due to decreased transportation costs?

Absolutely.

With the -- not sure if everybody knows but the price of gas keeps going up, and as we look to mitigate that this distribution center in Atlanta will help an awful lot as we're looking to grow our business, both in Texas and in Florida, and as we look forward this will be a big benefit to the business.

Okay.

And that could start as early as 2009?

Yes.

Okay.

Thank you.

And your next question comes from the line of Rick Nelson with Stephens.

Please proceed.

Thank you, and good morning.

I want to follow up on the store expansion plans for this year.

Can you talk about the markets.

You are targeting Texas and Florida, obviously, but maybe a breakdown between existing and new markets and plans for California?

As a percent new markets existing markets, roughly the same as -- same as last year.

California -- don't believe we're going to get anything new opened in California this year.

It'll be -- but Texas and Florida will be two states that we're really focused on, and a bit in Arizona also.

And Ed, you've opened a number of stores in the past year in smaller markets.

Can you speak to the performance of those stores, the returns on capital, and your expansion plans there?

Rick, we -- we won't for competitive reasons speak about those stores specifically, but we see those single-store market stores as very good performers that certainly at least meet our model.

Okay.

Thank you.

Your next question comes from the line of Sam Poser with [Syrinergy].

Please proceed.

Good morning.

Just a follow up on the private-label, private brands -- and I hope you can answer this one -- are you finding that your out-the-door margins on the private brands are surpassing that of what you were getting on the private label?

From a margin-rate standpoint, they are relatively in line with the private label.

The gross margin dollars generated are higher, and that's because the higher average unit retails.

And in general, are you -- are you continuing to work with other brands to -- as you are with Adidas baseball this spring, are you -- are we going to see new -- new concepts for fall 2008 as well within these categories?

That's possible.

We continue to work with brands on -- on new initiatives, whether they be products that we design and source ourselves, similar to the -- the great partnership we had with Nike on ACG or the partnership we have with Adidas on baseball.

We're continue to look at those and -- are continuing to look at those, and we hope that there may be one or two new ones in the fall, although we can't guarantee that.

We continue to work on it.

And then could you also just talk a little bit about with the new distribution center and the existing ones, what are you doing to really improve your speed to market and drive up your turnover?

And are you getting cooperation from most of the brands to support you?

And what percentage of your business is replenishable right now?

I guess all of that is probably together, but --

Well, as we take look at -- we really are focused on trying to increase those inventory turns.

The distribution center in Atlanta will help us do that, as we will get product to the stores quicker than servicing them out of Pittsburgh or Indianapolis.

We have two distribution centers and one in Atlanta will be the third.

We are getting great cooperation from a number of our vendors on this project, and some of the largest vendors we do business with have really stepped to the plate and are working to do this, such as Nike, Under Armour focusing on more replenishable product.

This is something we're really focused on in an effort to increase that inventory turn.

Just -- what -- how much has your replenishable product increased over the last few years, and where is it relative to where you want it to be?

Well it's -- I won't comment specifically, although it has grown -- and again, for competitive reasons we don't want to talk about that -- but it has grown, but it's not where we want it to be yet, so we still feel there's additional growth in replenished product from a number of our vendors.

Could you give us some of idea of where you are, like are you 80% there or 50% where you want to be?

I would say we are north of -- north of 50%, but we're not -- we're not 80% there.

I would say -- if I had to pick a number right now, I would say we're probably 60% to 65% of the way there.

Thank you.

Continued success.

Thanks.

Thank you.

Your next question comes from the line of Jim Duffy with Thomas Weisel.

Please proceed,

Hi, this is actually [Chris Rebusen] for Jim Duffy.

Had a question about the merchandise margin expectations for 2008, wondering if you could give a little bit of color on what your expectations are there?

No.

Specifically, again, for competitive reasons we're not going to lay that out, but we do expect your merchandise margins to increase.

We feel that there will be some pressure on those based on the distribution center and based on the occupancy costs.

All right.

Thanks a lot.

Sure.

At this time, we do not have any more questions in queue, and I would like to turn the come back over to Mr.

Stack for closing remarks.

Please proceed.

I'd like to thank everyone for joining us on our fourth quarter call, and we look forward to speaking with everyone as we report our first quarter results.

Thank you.

Thank you very much for your participation in today's conference.

This concludes the presentation and you may now disconnect.

Good day.