DICK'S Sporting Goods Inc (DKS) 2010 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first quarter 2010 Dick's Sporting Goods Incorporated earnings conference call.

My name is Katelyn, and I'll be your operator for today.

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

Later, we will conduct a Question-and-Answer session.

(Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

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

Anne-Marie Megela, Director of Investor Relations.

Please proceed.

Thank you, Katelyn, and good morning to everyone participating in today's conference call to discuss our first quarter 2010 financial results.

Please note that a rebroadcast of today's call will be archived on the Investor Relations portion of our website located at www.DicksSportingGoods.com for approximately 30 days.

In addition, as detailed in our press release, a dial-in replay will also be available for approximately 30 days.

In order for us to take advantage of Safe Harbor rules, I would like to remind you that we have included in today's discussion some forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including but not limited to our views and expectations concerning our future results.

Such statements relate to future events and expectations and involve known and unknown risks and uncertainties.

Our actual results or actions may differ materially from those projected in the forward-looking statements.

For a summary of risk factors that could cause results to differ materially from those expressed in the forward-looking statements, please refer to our periodic reports filed with the SEC including the Company's Annual Report on Form 10-K for the year-ended January 30, 2010.

We disclaim any obligations and do not intend to update these statements.

We have also included some non-GAAP financial measures in our discussion today.

Our presentation of the most directly comparable GAAP financial measures, calculated in accordance with Generally Accepted Accounting Principles and our related reconciliation, can be found on the Investor Relations portion of our website at www.DicksSportingGoods.com.

Leading our call today will be Ed Stack, Chairman and CEO.

Ed will discuss our first quarter financial and operating results and review the guidance contained in our press release.

Also joining us this morning are Joe Schmidt, President and Chief Operating Officer and Tim Kullman, Executive Vice President, Finance, Administration and Chief Financial Officer.

Joe will review our store development program.

Tim will then discuss in more detail our financial results.

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

Thank you, Anne-Marie.

We had a particularly strong first quarter as we generated net income of $26.2 million or $0.22 per diluted share as compared to non-GAAP earnings of $0.11 in the first quarter of 2009, when compared to our guidance of $0.12 to $0.13.

Net sales for the first quarter of 2010 increased by 9.2% to just over $1 billion, primarily due to an increase of 8.2% in consolidated comp store sales in the opening of new stores.

The 8.2% comp sales gain consisted primarily of a 7.6% increase at Dick's Sporting Goods, a 12.4% increase at Golf Galaxy, and a 15.2% increase in our eCommerce business.

Our inventory declined 0.8% per square foot at the end of the first quarter of 2010 as compared to the first quarter of 2009 and our cash position increased by $161 million.

Our Golf Galaxy business continues to improve.

In addition to the same-store sales increase of 12.4%, gross profit margin improved year-over-year due to a reduction in promotional activity.

In the Dick's Sporting Goods stores, improving same-store sales were broad based with hardlines, apparel and footwear, all comping positively.

Golf within our Dick's Sporting Goods stores was also positive although not to the same degree we saw at Golf Galaxy.

For the full year, we're raising our guidance and are now expecting to generate earnings growth of 18% to 20% or $1.41 to $1.44 per diluted share for 2010.

In 2010, we're expecting consolidated comp store sales to increase approximately 3% to 4% versus a decline of 1.4% in 2009.

In the second quarter of this year we're anticipating reporting consolidated earnings per diluted share of approximately $0.37 to $0.39 and the second quarter of 2009 we reported earnings per diluted share of $0.36 excluding merger and integration costs.

We're anticipating a consolidated comp store sales increase of approximately 4% to 5% in the second quarter versus a decline of 4.1% in the second quarter of last year.

The comp store sales calculation for the first quarter and full year 2010 include Dick's Sporting Goods, Golf Galaxy and the eCommerce business.

The comparable store sales calculation for the first quarter and full year 2009 include Dick's and Golf Galaxy only.

The Chick€™s Sporting Goods stores will be included in the comp sales comparison 13 months after the conversion to Dick's Sporting Goods stores.

In summary, the first quarter we generated higher sales, improved gross margins, and operating margins, continued to invest in the growth drivers of our business all while effectively managing inventory levels and further strengthening our balance sheet.

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

Thank you, Ed.

In the first quarter, we opened five new Dick's Sporting Goods stores.

At the end of the first quarter, we operated 424 Dick's Sporting Goods stores with 23.6 million square feet and 91 Golf Galaxy stores with 1.5 million square feet.

New store productivity for the quarter was 82% and includes Dick's Sporting Goods stores only.

In the first quarter of 2009, new store productivity was 76%.

In 2010, we expect to add at least 24 new Dick's Sporting Goods stores and approximately five Golf Galaxy stores.

The new Dick's Sporting Goods stores are expected to range in size from approximately 35,000 square feet to 65,000 square feet depending on market opportunity as well as size and attractiveness of the available real estate.

We expect to open one new Dick's Sporting Goods store in the second quarter with a majority of the remaining 2010 new stores opening in the third quarter.

Approximately 60% of the new stores are expected to open in existing markets and 40% in new markets.

Additionally, we will consider increasing new store growth if appealing real estate opportunities develop within the year.

We also expect to remodel approximately 11 stores in 2010 including some of the Dick's Sporting Goods stores in Southern California that have been converted from Chick€™s Sporting Goods.

Looking at the future growth opportunity, we have identified a potential of at least 800 Dick's Sporting Goods stores domestically.

At our current size, that means we are only slightly more than halfway there with substantial unit growth potential ahead of us.

I'll now turn the call over to Tim to go through our financial performance and expectations in more detail.

Thank you, Joe.

Sales for the quarter increased by 9.2% to $1 billion.

Consolidated same-store sales increased 8.2%.

Dick's Sporting Goods store comps increased 7.6%, Golf Galaxy increased 12.4%, and eCommerce increased 15.2%.

The increase at Dick's Sporting Goods stores was driven in part by a 6.4% increase in transactions and a 1.2% increase in sales per transaction.

We estimate that cannibalization impact to comps by less than 1%.

Consolidated gross profit of $302 million was 28.85 percent of sales or 276 basis points higher than the first quarter of 2009.

This increase was driven primarily by an increase in merchandise margin of 194 basis points.

The rest of the margin improvement was driven by occupancy and freight and distribution leverage.

Merchandise margin increased as a percent of sales primarily due to the reduction in clearance activity at our Golf Galaxy stores in the first quarter of 2010 as compared to the first quarter of 2009, a reduction in promotional activity at our Dick's Sporting Goods stores year-over-year, and the Chick's Sporting Goods liquidation event which occurred in the first quarter of 2009 as we completed the conversion of the Chick's Sporting Goods stores to Dick's sporting good stores.

SG&A expenses of $253 million were 24.17 percent of sales compared to 23.56 percent of sales in last year's first quarter.

This increase is due primarily to the anticipated additional recurring expenses we have discussed in previous calls.

As expected, the P&L impact of the expense associated with all these programs was approximately $8 million or $0.04 per share in the first quarter.

Also as a favorable business trends developed in the quarter, we decided to make additional investments in marketing initiatives geared towards driving market share gains.

The additional spend included programs to promote our private brand, Maxfli as well as Runners' Month.

Without this additional marketing spend, we would have leveraged SG&A.

Should business trends continue to be as robust, we plan to continue to make similar future investments in 2010.

On the balance sheet, we ended the first quarter of 2010 with $207 million in cash and cash equivalents and we did not have any outstanding borrowings under the $440 million credit agreement.

Last year we ended the quarter with $46 million in cash and cash equivalents and $116 million in outstanding borrowings on our credit line.

Inventory per square foot was 0.8% less at the end of the first quarter of 2010 as compared to last year.

Net capital expenditures were $23 million in the first quarter of 2010 or $24 million on a gross basis compared to a net capital spend of $7 million or $29 million on a gross basis in the first quarter of last year.

For the second quarter of 2010 we are anticipating our gross margin rate to increase year-over-year, primarily as a result of merchandise margin improvements and fixed cost leverage.

Merchandise margin expansion is expected primarily from our Dick's Sporting Goods stores and as a result of the Golf Galaxy clearance activity that occurred in the second quarter of last year but which is not expected this year.

SG&A is expected to increase as a percentage of sales in the second quarter of 2010 as compared to the second quarter 2009 due to the incremental expenses that we have previously discussed.

For the year, we are anticipating our gross margin rate to increase year-over-year primarily as a result of improving merchandise margins and we are expecting SG&A, as a percent of sales, to slightly deleverage in 2010.

The full year gross margin improvement and the SG&A dynamics are expected to net to an increase in operating margins in 2010 compared to 2009, resulting in approximately 18% to 20% growth in earnings.

Regarding our balance sheet, we expect to have limited seasonal borrowings in 2010.

Net capital expenditures for the full year are expected to be approximately $145 million or $175 million on a gross basis.

Net capital expenditures for 2009 were $93 million or $140 million on a gross basis.

In summary, we continue to profitably grow the business today while investing in tomorrow, generating double digit earnings growth, executing our store growth potential, and effectively managing our inventory.

This concludes our prepared remarks.

At this time, operator, I'd like to open it up for questions and answers.

Ladies and Gentlemen (Operator Instructions) Your first question comes from the line of Matthew Fassler of Goldman Sachs.

Please proceed.

Thanks a lot and good morning to you.

Two questions, I'll ask them one at a time.

The first relates to your sales guidance.

As we look at your actual revenue growth for the first quarter on the 4% to 5% guidance for the second quarter, the implied second half comp store sales growth looks like it would be about flat, which granted, you have tougher comparisons but would seem a bit conservative.

So if you could spell out for us what assumptions are driving that projection?

And then I have a quick follow-up.

Well, Matt, we did have a really good first quarter and as we take a look at some of the things in the second quarter and as we get into further into the third quarter and fourth quarter, at the present time with everything that's going on, we don't have as much visibility into that back half of the year.

And if you remember we did talk about that in the fourth quarter of this past year, we were able to take full advantage of that cold weather that we had.

And we're just not sure that's, we're not sure what the weather pattern will be, and so we've provided this guidance and that's what the implied guidance is in the back but we're just not taking up the guidance in the back half of the year right now based on what happened in the first quarter because there's not necessarily a direct correlation between the two.

Got it and then my second question relates to the promotional cadence.

Obviously the weather was helpful to driving strong flow through of seasonal goods but if you could think about the competitive environment?

And what you anticipate promotionally for the rest of the year as we think about the gross margin outlook?

That would be very helpful.

Well, I think it may get to be a bit more competitive from a pricing standpoint.

We have started to make some additional marketing initiatives which we talked about in this call as business was better in the first quarter and if that continues, we may make incremental marketing investments in our business as we see appropriate in the balance of the year.

And then just one final one.

You spoke about front-loading some marketing investments.

If you look at the $30 million to $35 million of incremental SG&A that you first discussed last August, was any of that expense front-loaded or did that basically come into the quarter as expected?

We discussed that that would be evenly spread throughout the quarters.

Okay, so that was as expected?

Yes, it was.

Pretty much, yes.

Thanks so much.

Your next question comes from the line of Robbie Ohms of Banc of America Merrill Lynch.

Oh, thanks.

Good morning, everybody.

A couple of just quick questions.

Actually three quick questions.

First, Ed, I was wondering if you would give us, maybe characterize the relative momentum in comps for footwear versus apparel versus hardlines?

Did they all move up together in the Dick's Sporting Goods stores or did a category stand out?

And then maybe related to that, can you comment a little bit on the guns and ammo category and how you feel about that business?

I know it's against I think some tough comparisons and what the outlook is there?

And then finally, as we move towards back-to-school, are there any merchandising initiatives in footwear and/or apparel or maybe in private label apparel that are interesting that you may want to call out for us to look for?

Thanks.

Robbie, as far as laying out the comps by those categories we don't want to do that specifically for competitive reasons but they were all pretty good.

And the footwear, I'll give you a couple of drivers.

The footwear business was a big driver of that because of the toning product from Reebok.

It was very helpful to the quarter and it would be one of the things that really helped lead the comp sales overall for the footwear business.

The guns and ammo business continues to be rather difficult with double digit comp declines between guns and ammo in the quarter.

And we expect that to continue through the second quarter and maybe even into parts of the third quarter until we come around that cycle again, but that continues to be difficult and we expect it to be difficult.

On the positive side though that does help the profit mix.

Those are categories that carry margins meaningfully lower than the Company average so that is helping the merchandise margin mix.

As far as back-to-school goes, I can't say that there's anything new on the horizon that we think is going to be spectacular for back-to-school.

We think that the toning product, the athletic footwear product, will continue to be strong and we'll continue to focus on that high school athlete that we've talked about in the past.

Terrific.

Thanks very much.

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

Please proceed.

Thanks.

My question has to do with sales and looking at the spread between comps and total sales.

So first of all as it relates to this quarter total sales were up 9.2%, comps are up 8.2% and I think your square footage was up 4%.

You gave a new store productivity number but the way we calculate it doesn't quite work out like that.

I have a feeling it has something to do with the eCommerce, so if you could just help us breakdown the difference between the comp and the total sales number?

And I guess more importantly, going forward, do you give total sales guidance relative to your comp guidance?

Because again I think there is some confusion and probably it has to do with eCommerce, so whatever color you could provide there would be helpful, thank you.

Michael, what I will share with you is in the sales number, obviously, is the eCommerce business this year in the sales growth as it was last year but also now in the comp sales base, so as we do the calculation for the new store productivity, we exclude the eCommerce sales.

You have no visibility to that so our calculation is the standard calculation on new store productivity.

So how eCommerce is roughly about 2% of sales, I think you've said in the past.

Is that still about right?

Slightly over.

Okay, and then so I guess that same calculation will continue through the four quarters of this year.

So should we think about the same relative spread between comps and total sales throughout the year?

Well, it's difficult for us to project what that spread is going to be going for the rest of the year but at this point that's what I would assume.

Okay, thank you very much.

Your next question comes from the line of Chris Horvers of JPMorgan.

Please proceed.

Thanks, and good morning.

Within the golf category, can you maybe talk about what's driving it?

And how you think about just broadly consumer behavior in some of your big ticket purchasing?

Do you think it's pent-up demand?

Do you think it's innovation, do you think people just feeling better?

How do you look at it?

Actually, I think it's all of those three.

I think there's some pent-up demand from the last 18 months to 24 months in the golf category.

I think the consumer is feeling a bit better than they were before.

And I think innovation is helping drive some of that with the new TaylorMade product with the SuperFast and SuperTri driver, the new Callaway product out there the Diablo, which Callaway put a big marketing effort around the Diablo product has done very well.

And some of the new Nike product, from an innovation standpoint, has been helpful, so I think innovation is part of that.

I think there's also an issue going on right now, from an iron standpoint, on the change in the rule on the grooves that there's a number of people who want to be able to buy the clubs that have the square grooves or the non-conforming grooves which can be used for amateur play through 2014 , I think it is.

So I think all of those things are helpful, so the consumer feels better.

There's innovation, there's also trying to get out ahead of the groove change and the consumer, as I said, feeling

Got to get that back spin with those grooves, and thinking about Q2, your mix in golf, does that materially increase versus the first quarter?

I'm not sure if it's material but it is greater in the second quarter than the first quarter.

And then finally, on the expense side, the investment $30 million to $35 million.

Curious why you wouldn't look to accelerate some of that given that comps are performing so much higher than you expected?

Chris, remember what are the basis of some of those expenses.

A good portion of that is the new building lease.

Another portion of that is the significant investment we made in IT equipment in the fourth quarter of last year which is depreciation expense.

And then some of that additional expense is related to some of the regional relevance projects that we have in place and the hiring of that has been taking place, and also investments in our eCommerce business.

So they aren't as easy to spread out, really you can't upfront-load those costs especially the first two that I mentioned because they are pretty ratably spread throughout the quarters for the year.

Got you.

Thank you very much.

Your next question comes from the line of Peter Benedict of Robert W.

Baird.

Please proceed.

Hi guys.

Thanks for taking the question.

First, just following up on that last question, the $8 million of investment spend in the first quarter.

Can you help us, how did the breakdown between SG&A and the interest expense line?

Approximately $3 million is in interest expense and the rest in SG&A.

Excellent, thanks and then a question on the competitive front.

Sports Authority has been indicating some plans to ramp up their growth going forward, actually even focusing on some of the markets that you guys are strongest in.

To the degree that you're willing to do this, can you talk about how you compete with them?

How that's changed maybe over time?

And if you're not willing to speak to that specifically just maybe a comment on the general competitive environment as the demand trends seem to be coming back?

Thanks.

Well, I think we compete very effectively with Sports Authority and have for obviously a number of years.

Whether we're going into a market that Sports Authority is already established in or if Sports Authority comes into a market that we're established in.

We've been able to compete very effectively and make the appropriate returns in our business.

So we'll be keeping a very close eye on what Sports Authority is doing and some of the changes that they are putting in place and taking a look at what their real estate strategy is.

But we're confident we'll continue to compete very effectively with them.

On the overall competitive front, we think it is go to be a bit more competitive out there.

That's why we're taking a look at where we're going to make strategic and marketing investments going forward as long as business continues to do as well as we are.

So we think it's going to get, it may get a bit more competitive than less competitive in the next year or two.

All right, terrific.

Thank you.

Your next question comes from the line of Kate McShane of Citi Investment Research.

Please proceed.

Thanks, good morning.

There was a press release put out by Sports Authority, just following up on the last question, about them opening smaller doors.

Could this be viewed positively if TSA is not going after the same type of real estate doors as you guys are?

I think it could be.

We'll have to wait and see exactly what this concept looks like, so we'll reserve judgment until we get out and see it open.

Okay, thank you.

And you mentioned toning as a significant driver of the footwear category this quarter.

Are you anticipating other new launches or other new brands getting into the toning category that should continue to drive growth of the category for the rest of the year?

We expect other people to enter this category.

We do feel that Reebok has such a meaningful lead in this category that they will continue to be the primary vendor for us.

Okay, thank you.

Your next question comes from the line of Eric Tracy of FBR Capital Markets.

Please proceed.

Good morning, thanks.

My question centers around unit growth.

If you could speak to the cadence for the balance of the year, I'm not sure if it was planned to have it down in Q2 in terms of the one door and then loaded in Q3 just the real estate that you're looking at there, and then the flow?

And then secondly, just in terms of potential opportunities similar to Joe's last year that you all might be seeing in terms of recycling of real estate?

As far as planning it to be down in one quarter or another quarter, we really can't be that specific.

It's got a lot to do with right to build, how fast centers get built and we can't pinpoint quarter-by-quarter basis when the store is going to open.

And as far as other real estate opportunities, like Joe's, we don't see anything like that right now although we are out there looking at an awful lot of real estate and covering the country.

Our groups are out there every single week and as we said we'll be at a minimum of 25 stores and as we continue to look at real estate if we can find appropriate real estate we may be able to go higher than the 25 stores.

Okay and then if you could just speak to, again, the investments made last year independent SoCal to take share out of the gate.

Can you speak to if that share has continued if it potentially picked up based on those investments?

Well, I won't comment specifically on that but we're very pleased with the results that we've had in Southern California.

We're pleased with the investment that we made and to use a golf analogy, if we had a Mulligan, we would do it all over again.

Fair enough.

Thanks guys.

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

Please proceed.

Thanks.

Ed, in the second quarter of last year and to a certain extent the third quarter of last year, you had a number of promotions from TaylorMade and Callaway, including buying a driver get a Hybrid or a Fairway Wood for free.

I know that the manufacturers financed that promotion for you, but as you began to cycle around that.

Do you think that's going to present a headwind in the growth of your golf category?

I think it will definitely, if you look at just that aspect of the golf business.

Yes, that would create a headwind, but there's -- what's happening right now to alleviate that headwind is what's going on in the iron business right now and the iron business and the wedge business.

With people looking to buy those clubs that still have the boxed grooves in them because as of now, any new clubs coming out can't be manufactured with those.

Well, your Cleveland business must be very strong, I guess?

We've got a number of businesses like that that is strong.

And then the pick-up in Galaxy relative to Dick's and the golf category as a change and the pattern that we've seen, does that reflect the fact that you've got the repositioning and merchandising complete at Galaxy that's no longer the disruption that it was, say a year ago?

That's correct.

So our group has done a great job at Golf Galaxy.

That repositioning is complete and also if you take a look at the comps at Golf Galaxy last year versus the comps at Dick's, Golf Galaxy was behind running behind the Dick's business.

And now when you take a look at the two year average between the two, they've somewhat normalized.

And then the last question I had either for Tim or Joe, trying to make the adjustments in the new store productivity that you told Mike earlier.

After making those adjustments, it doesn't really change the new store productivity the way investors calculate that.

Can you just give us a bit more clarity or walk us through how you're getting to this 82% productivity measure?

Well, Dan, the standard calculation is taking the sales increase less the comp store sales increase and dividing by the square footage.

That's the way the calculation is done exclusive of the commerce business.

So if eCommerce is about 2.5% of revenue this year and roughly 2% a year ago and you back that out, you subtract out the 7.6% increase in your Dick's comps, you're still getting something materially lower than 82%.

Was there something doing with the timing of the store openings perhaps that could have influenced that?

Were stores opening later during the period?

No, they haven't.

We can talk off line about the calculation but that's the standard calculation of 82% for the quarter.

Okay, thank you.

Your next question comes from the line of Michael Lasser of Barclays Capital.

Please proceed.

Thanks a lot for taking my question.

Can you provide a little more detail on some of the opportunistic marketing investments that you made during the quarter?

And how should we think about the return on those investments, if we just take last year's SG&A was in the first quarter and apply it to this quarter, I would suggest that there's an incremental $10 million or so?

Was all that related to the incremental opportunistic investments?

If you take a look at what we had in the first quarter this year, we had about $5 million give or take of additional incremental investment that we spoke about.

Other than that with the sales increase that we've had in total SG&A, of course payroll was up, even though we leverage payroll those dollars were up as well as on the advertising side the dollars were up as well.

Okay, how should we think about our return on all these investments?

Is it going to allow you to achieve operating margin over the long term that should be, that will be in excess of your historical peak?

What will happen over type is next year these expenses will be anniversaried.

And as we move forward, there's nothing in our infrastructure nor any other problems for us over time to get back to some of those historical margin improvements in those levels.

Okay, thanks a lot.

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

Please proceed.

Thank you.

I got dropped on the call briefly so I apologize if some questions have been asked already.

Regarding toning, are you seeing, I think in earlier calls you said you haven't seen these sales come at the expense of any other categories of footwear.

Could it actually be helping other Reebok sales or could you comment on the potential for a benefit or cannibalization?

Well, I think it will definitely help other Reebok business.

I think it's lifting the entire brand and I think the group at Reebok has made some really great decisions.

They've done a great job marketing it.

The product is right and I think it will absolutely help the entire Reebok brand.

And you aren't seeing sales come at the expense of other categories of footwear yet?

We haven't.

We really see this category as primarily incremental.

Okay, that's good.

So I'm just carrying on in your comment earlier regarding golf.

Do I take it then you expect the Golf Galaxy stores to out pace the Dick's stores for the balance of the year?

That would probably be a safe assumption.

And then finally Tim, when do the merger and integration costs run out so that we're not making that adjustment?

We are showing no M&I costs this year at all, only in last year's quarters.

Okay, so what then would be the adjustment, so there's no adjustment to reported numbers, GAAP versus non-GAAP this year?

There will not be.

I forgot one other question.

Are you expecting any weird calendar issues this year with sales tax holidays or how the calendar breaks out that would have a significant impact on how sales go?

We haven't seen that yet.

The only meaningful shift we're looking at right now is theres a shift of Labor Day -- I'm sorry, Memorial Day by a week but that's all within the quarter.

Okay, thanks a lot.

Sure.

Your next question comes from the line of John Zolidis of Buckingham Research.

Please proceed.

Hi guys.

Thanks for taking my question.

I'm going to try again following up on something two analysts already asked about and try to phrase this question slightly differently.

If we look at the fourth quarter total sales growth compared to the comp growth, it was 8 percentage points higher.

In the third quarter last year, total sales growth exceeded comp growth by 5 percentage points.

And in the first quarter of this year, you've only got a 1 percentage point increase in total sales relative to comps.

So that's just confusing, to I guess, basically everybody's model, so could you talk a little bit about what's different in the first quarter compared to the back half of last year?

Sure.

If you recall in the first quarter of last year we had a significant liquidation event at Chick's Sporting Goods so we had a sizeable sales there as well as the fact that this year in the first quarter we are not producing any of that liquidation event at all.

So the gap gets narrower based on the year-over-year comparison.

Great, so basically there was some one-time sales benefit in Q1 that was not included in the comp?

That's correct.

Okay, thank you.

Your next question comes from the line of Sam Poser of Sterne Agee.

Please proceed.

Good morning and thanks for taking my question.

Can you break out what the gross margin, give us some idea of more specifics as to what the gross margin impact of the change in the firearms business is is my first question?

You mean what the differential is between the Company average in the firearms business?

Well, since the firearms are down this year and they were more impactful last year, they dragged the margins down last year and was less of a business are helping them with that business being a smaller percentage of your total or helping you this year.

Can you give us some idea of the percentage impact of that?

Sam, I don't have that right here but that business is, there's a meaningful difference between the firearms gross margin rates and the Company as a whole.

And I would tell you that the firearms margin rate on the merchandise margin rate versus the Company as a whole is in excess of 2000 basis points difference.

So by having that as a smaller percentage that was quite helpful to besides running a good comp, that was quite helpful with it being a smaller percentage to your very much improved gross margins.

It was helpful.

I don't know I'm not sure how I would define quite helpful, but it was not even close to being the majority of the reason why our margin rates went up.

That's what I was trying to get to.

Okay.

It helped but it wouldn't be anything that moved the needle significantly.

Got you, and then with your remodels the stores you opened out in Oregon and stuff, are your remodels going to that a look?

Is Nike getting involved with their Fieldhouse concept in your remodels and so on with you?

Can you talk a little bit about that and then I have one other thing?

Sure.

The Nike Fieldhouse concept that we're doing in a number of stores we think is going to be terrific.

We've got the prototype open in Washington Square in Portland and we're really enthusiastic about it.

We've got several more of these that will open for by back-to-school.

In some of the remodeled stores that may be going in but it's not necessarily part of the first wave.

But the remodels are going very well and what you saw us do in Oregon is what the remodels will look like as we remodel stores in other parts of the country and in particular Southern California.

And then lastly, Nike apparently is opening a big Nike store in Roosevelt Field which happens to be a big store for you guys as well in August.

How do you view that impacting you and are you aware of that?

We just saw the store wrap the other day there and they are opening a Nike Experience store in about 13,000 square feet in probably what I assume is a pretty good mall for you.

Yes, and we're very much aware of that.

I can't say we're enthusiastic about it.

The store is actually bigger than 13,000 square feet that they are opening.

We think it may have an impact on us.

Our Roosevelt Field store will be slated for a complete remodel next year and will have a meaningful Nike Fieldhouse in that store.

Well thank you very much.

Good luck.

Thanks.

Your next question comes from the line of David Magee of SunTrust Robinson.

Please proceed.

Yes, hi, thank you, good morning.

Just a couple of questions.

One, on the new stores, I know you have a lot of new stores in Texas.

And I'm assuming that since you're happy with your productivity number that, that would be a proxy for those stores, you're happy with those stores as well.

Is that fair that market is doing better for you?

It's doing much better.

We've made significant investments in Texas around content, around marketing, and we're very pleased with what's going on in Texas right now.

Are the gross margins any different in those stores versus your chain average?

Slightly different and the reason for that is to come back to the firearms component.

That's a bigger part of our business in Texas.

The firearms component and the balance of the chain.

Okay, thank you, and then secondly, is there anything happening with the container cost, freight cost, or even possible product inflation cost as you see the year go on that might be different than your earlier expectations?

Well, I'm not sure they are different than our earlier expectations but we do continue to see pricing pressure especially in the back half of the year coming out of Asia.

There is a container shortage right now which the information I have I think will be mitigated toward the back half of the year but there definitely is a container shortage and some products are a week or two late coming across the ocean.

Would you be inclined to try to take stuff in earlier, to get ready for the holidays if you can?

If we need to we would do that.

What we've been able to do is place orders out further in advance to make sure that we've got -- we're ahead of price increases and some of the labor shortage, although the labor shortage is starting to ease in Southern China.

So, we're reasonably confident that we've got this covered on our product development side, our own private business, and we hope that the vendors have it covered on their side.

I'm sorry, lastly to the extent the vendors try to pass on price increases to you all.

Do you think the market is strong enough to absorb price increases by Dick's to pass that on?

In certain categories of business I think that it would be and other areas I think there would be some resistance and we will attempt to hold prices from our suppliers and pass that savings on to the consumer the best we can.

Thanks a lot.

Good luck.

Thank you.

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

Please proceed.

Thanks, good morning and nice quarter.

A couple of questions starting with the store openings.

Joe or Ed I guess, at this juncture as you look out to 2011, do you see the opportunity to accelerate store growth and do you think you can return to a double digit square footage growth rate or is site availability too much of a gating factor on that?

Jim, as we look out into 2011, we are seeing a little bit more availability with real estate so we anticipate we should see a little stronger performance out of new stores from a number for next year.

Okay, great.

That's good to hear and then Tim, can I ask you to speak in more detail about the components of CapEx?

In your guidance how much is maintenance CapEx?

ow much is the data center?

How much is the support center?

Some of those things that may not repeat in future years?

Well, we really don't breakdown the classifications of our CapEx to that amount of detail but for--

How about a maintenance number, Tim?

We haven't broken out that number either in the past.

Okay, and then maybe I can get at it this way.

How about an update on your new store model and the CapEx per unit?

The new store model hasn't changed since our last presentation and the total CapEx for those new stores is still just under $1 million.

Okay, that's helpful.

Thanks.

Your next question comes from the line of Kristine Koerber of JMP Securities.

Please proceed.

Yes, hi.

A couple of questions.

First, now with the repositioning of Golf Galaxy complete, what is your outlook for long term unit growth for that concept?

We are looking as mentioned in the prepared notes, we're looking to open approximately five stores for this year and probably will hold pretty close to that for the next couple of years as we get our hands totally around this business.

Okay, so just plan on handful of stores over the next several years then?

I think you can look for that.

Over this year and next year for sure, yes.

Okay, and then you commented on the competitive environment, you expect it to be more competitive going forward.

Is that driven by any particular players?

Well, I think it's driven by a number of players, the Academy continues to open stores, Sports Authority has talked about opening stores.

So I think that it's going to continue to be and they are going to open them at a slightly faster rate so it's going to be a bit more competitive going forward in the next year or two than it was in the past couple of years as people were slowing down their growth rates.

Okay, thank you.

Your next question comes from the line of Chris Svezia.

Please proceed.

Good morning, everyone.

I guess, Ed, for you, just on the footwear space, you talked a lot about toning.

I guess can you talk about what else either in the quarter as you foresee it as you look out for the balance of this year that is probably driving the business?

Where they are running the marquee basketball business, just any thoughts about the elements of driving footwear business, if you could?

I mean, it's primarily the running silhouette and it's the toning category are the two major components driving this business.

More on the women's side than the men's side, again driven by the toning category.

Okay, and then just a follow-up question on the competitive environment.

I guess twofold.

One, you mentioned Academy, people have talked about Sports Authority.

We've heard about that.

I guess any reference to category specific where you see maybe more of a competitive environment as it pertains to a particular category?

And secondfold, I guess more for Joe, for you.

As you think about real estate and expansion you've referenced in fiscal year 2011 and you see more opportunity for real estate?

How do you think about that relative to the competitive environment, some of the competitors trying to open up stores more?

Is it backfilling existing markets, is it new markets?

How do you think about the size of the box?

Things of that nature.

To answer your first question that you asked of me, from a competitive standpoint, there's not any particular category that we're looking at that's more competitive.

There's going to be more stores out there, some people accelerating growth is the way that we're trying to accelerate growth and I wouldn't necessarily look at that as a bad thing.

I would look at that as people are feeling better about business.

You can take a look at our comps that we're up as significantly as they were, that we're feeling better about what's going on out there in the marketplace.

And we're going to go and fight for that marke share.

The fact that there's more, that it's going to be a bit more competitive, we look at as a positive.

We're going to go out and accelerate our book and we're go out after that market share and be very aggressive from a marketing standpoint.

We're very aggressive on how we look at our content and we look at this as all positive.

We don't look that it's going to be a bit more competitive as a negative aspect.

When we rewind the film 24 months ago, it was going to be less competitive because people were closing stores.

But we all thought the world was coming to an end also, so we look at this as really more of a positive as opposed to a negative.

And from the store growth point of view as Ed mentioned earlier our teams are out on a weekly basis looking around the country.

Obviously, we've made a push into the West Coast last year with our entry into Southern California as well as Portland in the Northwest, with the Joe's opportunity.

And we continue to look pretty heavily in those parts of the country.

We think there is some tremendous opportunities in the Northwest where we're satisfied with performance and again we continue to look at every opportunity available to us.

Okay, thank you.

Best of luck.

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

Please proceed.

Thanks, guys, good morning.

I was hoping you could talk a little bit about the merchandise margin as it relates to the competitive environment.

Certainly very strong performance in Q1, more than offset the declines last year and I recognize guns probably played into that.

But just how should we be thinking about merchandise margins?

And then if you could also just clarify what you're seeing from a competitive standpoint as well on that?

Thanks.

We think that we can continue to have margin rate expansion through the balance of the year, through a combination of less promotional activity, cleaning up some inventory that we did last year at both Golf Galaxy and at Dick's.

So we think the margin rate can accelerate.

And the competitive environment I think we've talked about.

We think it's going to be a bit more competitive and again we don't look at that necessarily as negative.

I know you guys probably do but we don't necessarily look at it as negative.

We look at it as things are turning around and we're all a bit more confident about our business based on the results we've posted over the last couple quarters.

This is actually the third quarter in a row that we've had comp store gains, so we're fairly enthusiastic about growing our business.

Okay, so it's just more a function of people feeling better about the sporting goods category and nothing specific in the competitive environment that you're seeing?

Well we don't see anything specific in a particular category of the business.

We just feel a little bit better and based on the results that we posted.

We're relatively excited, as excited as we get about our business going forward.

Okay, sounds good guys.

Thanks, good luck.

Your next question comes from the line of Joe Feldman of Telsey Advisory Group.

Hi guys.

A couple questions.

One was on the store sizes I know that you've been opening some of the slightly smaller, more in the 35,000 square foot range.

And I was just wondering if you could talk about how those have performed relative to your expectations and relative to some of the larger size stores or the average store?

I think we, in calls past, we've talked a little bit about some of the stores that we opened last year, particularly in Bend, Oregon which was approximately 35,000 square feet and in Hot Springs, Arkansas at about 40,000 square feet.

We're very pleased with the performance of those stores and we think there's a tremendous opportunity in markets of that size and we continue to look at all of those market opportunities, whether it be 35,000 square feet, 40,000 square feet, 42000 square feet so we think there's a tremendous opportunity to continue to add to our store growth with some of these smaller town opportunities.

Thanks, and then with the merchandise margins were so strong and I apologize if I missed it earlier.

But how much of that was being driven by the private label sales or the way you guys come to market with what I call private label, I guess?

Well, we didn't give that guidance but we were, we won't quantify what it was, but our private branded business was up slightly.

And we had margin rate expansion in that category also.

A big part of that was driven by the margin rate expansion was driven by a reduction in promotional activity this year versus last year also.

Got it.

That's helpful and then one last one.

Do you -- a few other retailers that have been reporting lately have mentioned pulling forward sales into the first quarter from the second quarter.

What's your take on that?

Did you guys see any of that or do you feel like that,that happened at your business?

Maybe a little bit.

We can't quantify that as strongly as we could with the winter business in the third quarter and fourth quarter but we had a good Spring so did that help the golf business and maybe move some business from the second quarter to the first quarter for the people getting outside and the running business, the athletic apparel business?

Did it move a little bit of that?

It may have but we can't quantify it.

Got it.

We'll wait and see.

Okay, thanks for the responses.

Good luck guys.

Thanks.

Your next question comes from the line of Jonathan Grassi of Longbow Research.

Please proceed.

Hi, good morning.

I was hoping you guys could give us an idea of how accretive you expect Golf Galaxy to be in the second quarter?

I know you have done it in previous years, I was hoping you could tell us what you expect for the second quarter?

We actually haven't talked much about specifics.

We say that it is accretive, if it is and it will be in the second quarter for us.

So last year it was $0.04 accretive and you guys posted a negative 11% comp at Golf Galaxy so we should expect it to be probably better than the $0.04?

Yes.

Thank you, and then of the new store openings that you guys have planned for the year, can you tell us how many of these are retrofits and how many are going into new construction?

I think you can count on the majority of these stores being retrofit with a couple of stores being new construction.

There's just not much new construction going on out there right now.

Right.

Okay, thank you.

Your next question comes from the line of Reed Anderson of D.A.

Davidson.

Please proceed.

Good morning.

In visiting a lot of the stores in the last few weeks or months, it looks like you're making a big push to sell extended warranties on a whole variety of products.

I'm just curious, could you comment a little bit about that?

Where are you in this initiative and also just how meaningful should we think of this in terms of margins or sales going forward?

Thank you.

Yes, we've been selling warranties in our store now for a number of years and we don't expect to see anything material this year versus years past to move the numbers.

So but it feels like it's gotten more aggressive or else maybe the selling has gotten more aggressive at the registers?

Is that the case or some training or something like that?

Well we actually have a prompt at the register which is relatively new that we did not have previous so there is probably more activity going on at the registers that you didn't see in the past.

Good, all right, thank you.

This concludes the question and answer section of the call.

I would now like to turn the call over to Mr.

Edward Stack for closing remarks.

I'd like to thank everyone for joining us on our first quarter call and I'll look forward to seeing everybody for the second quarter.

Thank you very much.

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

This concludes the presentation.

You may now disconnect.

Have a great day.