DICK'S Sporting Goods Inc (DKS) 2010 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q4 2010 Dick's Sporting Goods Incorporated earnings conference call.

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

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

We will be facilitating question-and-answer session towards the end of today's conference.

(Operator instructions).

As a reminder, this conference is being recorded for replay purposes.

I will now turn the presentation over to your host for today's conference, Ms.

Anne-Marie Megela, Investor Relations.

You may proceed.

Thank you, Michael, and good morning to everyone participating in today's conference call to discuss our fourth quarter and full-year 2010 financial results.

Please note that a rebroadcast of today's call will be archived on the investor relations portion of our web site 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 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 expectation 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 obligation and do not intend to update these statements.

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

Our presentation to 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 web site at dickssportinggoods.com.

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

Ed will discuss our fourth quarter financial and operating results, the guidance contained in our press release and our growth drivers.

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

Joe will review our store development program and investments we are making to support our growth drivers.

Tim will then discuss in more detail our financial results.

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

I am pleased to report that in the fourth quarter we generated consolidated non-GAAP earnings per diluted share of $0.76, which is the highest EPS we have reported in any fourth quarter and a 36% increase from the consolidated EPS of $0.56 we reported in the fourth quarter of 2009.

Our original expectation as disclosed on our last quarterly call was $0.69 to $0.71.

Our net sales for the fourth quarter of 2010 increased by 13.6% to $1.5 billion from the fourth quarter of 2009, primarily due to a 9.4% increase in consolidated same-store sales and the opening of new stores.

The 9.4% consolidated same-store sales increase consisted of an 8.6% increase at Dick's Sporting Goods, a 2.2% increase at Golf Galaxy and a 36.3% increase in our e-commerce business.

Our inventory declined 4.1% per square foot at the end of the fourth quarter compared to the end of the fourth quarter of 2009.

Our cash position increased by $320 million to $546 million at the end of the fourth quarter, up $226 million from the end of the fourth quarter of 2009.

At Dick's Sporting Goods stores, same-store sales of 8.6% were driven primarily by apparel and footwear.

Specifically, we saw meaningful growth in both athletic apparel and outerwear as well as athletic footwear and boots.

In our e-commerce business all but a few categories contributed to the 36% increase in same-store sales.

Within our Golf Galaxy business, same-store sales increased 2.2% in the fourth quarter, and as expected we saw improving profitability driven by occupancy leverage, due primarily to the closure of the 12 underperforming stores in the third quarter.

Looking to full-year 2011, we expect to generate earnings growth of 16% to 17% or consolidated earnings per diluted share of $1.89 to $1.91.

For the year, we're expecting consolidated same-store sales to increase approximately 3%.

In the first quarter of 2011 we are anticipating reporting consolidated earnings per diluted share of $0.26 to $0.28.

For the same period of 2010 we reported EPS of $0.22.

For the first quarter we are anticipating consolidated same-store sales to increase approximately 4% to 5%.

We are confident that we can continue to drive growth in both our top-line sales and our earnings by focusing on three core growth drivers, which are expanding our store network, building our e-commerce business and continuing to increase our margins.

On the store front, we are continuing to open new stores and remodel key stores.

During the past year we actively leveraged the difficult economic conditions to both find prime locations for new stores and to secure more favorable lease terms and conditions.

These strategies are reflected in our new store productivity metric for our Dick's Sporting Goods stores, which rose to 111% in the fourth quarter.

In 2011, we plan to open approximately 34 new Dick's Sporting Goods stores.

We also expect to drive growth over the next several years by developing our e-commerce business.

This business grew by 38% in 2010; and, while this rate is certainly tight to starting at a low base, we see significant opportunities to build our e-commerce business by focusing on three primary objectives.

Our first objective is to expand and enhance the current content, our second objective is to improve profitability, and our third objective is to continue to grow our top line.

Specifically, we are evaluating ways to leverage our potential by using our e-commerce site for more than just another distribution channel.

We believe we can create significant long-term value by building our e-commerce presence in a holistic way that enables our site visitors to enjoy an online shopping experience that complements the one our customers have in our brick-and-mortar stores.

This means going beyond offering the best products, exclusive promotions and great prices.

It means also providing site visitors with a trusted resource for accurate and in-depth information on our products.

In addition to enriching the content of functionality on our site, we will build out a concentrated effort to integrate our online presence with our store network while capturing opportunities to enable more efficient fulfillment and improve profitability.

To this end we plan to build on our in-store associate ordering system by developing an in-store pickup and ship-from-store capabilities.

Further, we see opportunities to shift the mix of online sales toward higher margins, such as apparel, footwear and accessories.

Our third growth driver is to continue margin rate expansion.

We have worked to increase our margins through several strategies, including more efficient inventory management, higher private brand sales and an increased focus on regionalization, making select store enhancements and partnering with our vendors.

As I have said before, we have made several improvements to our inventory management system over the past two years, including introducing improved allocation and markdown processes.

These improvements have enabled us to mitigate end-of-season markdowns and reduce our volume of clearance inventory, which declined by 30% at the end of 2010 compared to 2009.

Our merchandise margin rates also reflect these efforts, rising 140 basis points by the end of 2010.

We also expect to realize margin expansion as we grow our private brand to approximately 20% of our business over the next five years.

We're also driving margin expansion by making select store enhancements.

As we discussed last quarter, we have developed a shared service footwear model.

To date, we continue to be very pleased with both the sales results and consumer feedback.

We have also gained insight on ways to refine the footwear area that have led us to add more seating, improved sight lines and adjust our merchandise layout as we continue to refine this concept.

In the coming year, we plan to convert approximately 20 additional stores to this new concept and will continue to open all new stores with the shared service model.

Finally, we will drive our margin growth by working with our vendor partners to formulate better terms and sales conditions and develop more exclusive products and in-store promotions.

The most recent example of this success is the Nike Field House concept, which continues to perform extremely well.

In summary, with the hard work and dedication of our associates, we continued to manage the challenges in our marketplace and deliver industry-leading results.

As we move ahead, we are confident we can continue to deliver this level of performance.

We have clear strategies in place that will enable us to drive both sales and earnings, including expanding our store network by adding productive, profitable stores, building and developing our e-commerce business and taking measures to continue to increase margin rates.

I would now like to now turn the call over to Joe Schmidt.

At the end of 2010, we operated 444 Dick's Sporting Goods stores with 24.6 million square feet.

As we have said before, we have identified our total Dick's Sporting Goods store opportunity to be at least 900 in the US, and therefore are less than halfway to our expected domestic base.

We are pleased with the performance of the new Dick's Sporting Goods stores we have added in the last year, as new store productivity was 111% in the fourth quarter.

This compares to 84% in the fourth quarter of 2009.

The detailed calculation of new store productivity can be found in the tables section of the press release we issued this morning.

Approximately 60% of the new stores in 2010 were open in existing markets, and 40% in new markets.

In 2011, we continue to expect to open approximately 34 new stores.

This pace would result in unit growth rate of approximately 8% for our Dick's Sporting Goods chain in 2011 compared to a 6% growth rate in 2010.

We anticipate opening three of these stores in the first quarter.

We also plan to remodel 13 stores in 2011.

For Golf Galaxy, we operated 81 stores with 1.3 million square feet at the end of the fourth quarter, and we plan to open approximately three new stores in 2011.

On the e-commerce front, we're making technology investments to support meaningful growth through in-store pickup and ship-from-store capabilities which are expected to be rolled out in 2012 and 2013, respectively.

We are also continuing to invest in content, functionality and productivity of our websites with various design and systems upgrades.

Finally, we are supporting future margin enhancement opportunities through implementation of systems like price optimization, merchandise sizing and packaging optimization tools, supply chain intelligence and inventory management.

These implementations are multi-year projects for which we expect to see benefits primarily beginning next year.

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

Thank you, Joe.

Net sales for the quarter increased by 13.6% to $1.5 billion.

Consolidated same-store sales increased 9.4%.

Dick's Sporting Goods stores' same-store sales increased 8.6%, Golf Galaxy increased 2.2%, and e-commerce business increased 36.3%.

The increase of the Dick's Sporting Goods stores was driven in part by an 8% increase in transactions and a 0.6% increase in sales per transaction.

Consolidated gross profit of $480 million was 31.57% of sales, 241 basis points higher than the fourth quarter of 2009.

This increase was driven primarily by an increase in merchandise margin of 107 basis points and occupancy leverage of 109 basis points.

Merchandise margin increased as a percentage of sales, primarily due to a change in mix at our Dick's Sporting Goods stores and continued effective inventory management.

Excluding litigation settlement costs, SG&A expenses were $321.5 million, representing 21.17% of sales compared to 20.7% of sales in last year's fourth quarter.

The increase is due to the recurring expenses that we have discussed in previous calls related to infrastructure, regionalization and e-commerce costs, plus increases in incentive pay, store closing costs and advertising spend.

The expenses related to the litigation settlement impacted the P&L by $0.05.

These expenses consist of charges related to the previously disclosed settlement of wage and hour class-action lawsuits, total approximately $10.8 million pre-tax and were approved in the fourth quarter.

For additional details, you can refer to the GAAP to non-GAAP reconciliation in the tables section of the press release issued this morning.

On the balance sheet we ended the fourth quarter of 2010 with $546 million in cash and cash equivalents and we have not had any outstanding borrowings under our $440 million revolving credit facility.

Last year, we ended the fourth quarter with $226 million in cash and cash equivalents and no outstanding borrowings under the facility.

Inventory per square foot decreased 4.1% at the end of the fourth quarter of 2010 as compared to the end of the fourth quarter of last year.

Net capital expenditures were $26 million in the fourth quarter of 2010 or $42 million on a gross basis compared to a net capital spend of $44 million or $52 million on a gross basis in the fourth quarter of last year.

For the first quarter of 2011, we anticipate our gross profit rate to increase year-over-year, primarily as a result of merchandise margin improvements.

Merchandise margin expansion is expected to be driven primarily from effective inventory management and a higher-margin mix of sales.

Occupancy costs as a percentage of sales are anticipated to remain relatively flat.

SG&A is expected to decline as a percentage of sales in the first quarter of 2011 as compared to the first quarter of 2010, as we will have anniversaried the incremental spend that we started in 2010.

As a result of gross profit rate expansion and expense leverage, operating margins are anticipated to increase in the first quarter of 2011 over the first quarter of 2010.

Diluted shares outstanding are expected to be approximately 124 million shares compared to 120 million shares in the first quarter of last year, and earnings per diluted share are expected to be $0.26 to $0.28 compared to $0.22 last year, representing growth of 18% to 27%.

For the full year 2011, we anticipate that our gross profit rate will increase year-over-year, primarily as a result of improving merchandise margins slightly offset by occupancy deleverage.

We anticipate gross profit rate improvements even with the consideration for increasing sourcing costs in the second half of the year.

Occupancy costs as a percentage of sales are expected to be slightly higher in 2011 compared to 2010, as a result of additional depreciation expense due to remodels.

With higher sales volumes and the anniversary of the recurring additional spending that began in 2010, we anticipate SG&A expenses to leverage in 2011.

As a result of gross profit rate expansion and expense leverage, operating margins are anticipated to increase in 2011 over 2010.

Diluted shares outstanding are expected to be approximately 125 million shares compared to 122 million shares last year, and earnings per share are expected to be $1.89 to $1.91, from non-GAAP earnings per diluted share of $1.63 in 2010.

This represents growth of 16% to 17% year-over-year.

Net capital expenditures for the full year are expected to be approximately $197 million or $252 million on a gross basis.

Net capital expenditures for 2010 were $128 million or $159 million on a gross basis.

The increase in capital expenditures in 2011 from 2010 is due to an increase in number of new stores, remodels and systems investments described by Joe to support our growth drivers.

As we have said in the past, our primary focus is on executing on organic growth opportunity.

However, should attractive strategic investment opportunities present themselves, we would consider them.

Before concluding, I have one housekeeping item to mention.

Beginning in the first quarter of 2011, we will be changing the way we calculate our consolidated same-store sales.

Prior to fiscal 2011 store locations were excluded from the full-year or the quarterly same-store sales calculation until the beginning of the fiscal year or the quarterly period, as applicable, subsequent to the location commencing its 14th full month of operations following its grand opening or relocation.

Beginning in 2011 a store location will be included in the same-store sales calculation in the same fiscal period that commences its 14th full month of operation.

We believe this change will better conform our calculations of same-store sales to the retail industry practice.

In an 8-K filed today we will provide a table we will provide a table that presents quarterly and full-year same-store sales results for fiscal 2010 calculated in the same manner as the same-store sales will be calculated beginning in fiscal 2011.

The table will also be available on the investor relations section of our website.

To summarize, we had a terrific performance in 2010.

Our balance sheet is solid.

Our inventory is well managed and very clean, and we are well positioned for continued long-term profitable growth in the years ahead.

This concludes our prepared remarks.

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

(Operator instructions) Robbie Ohmes, Banc of America/Merrill Lynch.

Good morning, guys; terrific quarter, how are you?

Thanks, Robbie, good.

Ed, my question is the first quarter, the same-store sales guidance of plus 4% to 5%, it's against a tougher comparison.

I look at your inventory levels at the end of the quarter.

You said clearance was down 30%.

So it would seem like you wouldn't have -- February wouldn't be a great month for you to clear a lot of stuff.

And the outerwear business is sort of moving behind you as you move into spring here.

And I was hoping you could maybe give some color on what the drivers are to still maintaining a mid-single-digit comp against a tougher comparison and maybe some insights on some specifics on where you are most excited on what is working as you move into spring.

Sure.

Robbie, you're right; our inventory is down, the clearance level is down, all of which is great news if you are a retailer.

And that's one of the things that's driving the meaningful increase in cash that we have.

What we did -- as we saw this, and we tested this a bit last year -- we decided at the end of January to start investing in some of marketings that we did at the end of the fourth quarter to help drive first-quarter sales, so a few things we are pretty excited about.

We are pretty excited about the golf business with the launch of the TaylorMade R11 Driver and the new Burner Driver, which are the White drivers, which have really -- have captured the golfers.

And these are doing great for us.

So we got out ahead of that, marketing that toward the end of the fourth quarter, putting commercials together.

And that has been great; that is helping drive our anticipated first-quarter sales.

We also, on the footwear side, have seen the athletic footwear business continue to do very well.

We are very excited about the running business and put together a marketing campaign primarily through direct mail at the end of the fourth quarter to help drive those first-quarter sales of running product.

And as we focus on our baseball and lacrosse business, we have made some investments in baseball and lacrosse toward the end of the first quarter -- at the end of the fourth quarter to help drive the first quarter.

And as we are about halfway through this quarter, we are pretty enthusiastic with the results and are confident that we will drive that 4% to 5% comp that we guided to.

Terrific, and one quick follow-up question -- on the golf business, sorry if I missed it, did you give the golf comp for the Dick's stores?

We know the Golf Galaxy was plus 2.2, but can you give us the comp inside the Dick's stores?

Yes, we can.

It was up about a negative 2, a little more than negative 2, on the Dick's side in the fourth quarter.

So, where the weather kind of hurt the Dick's business in golf, it helped other aspects of our business.

So we were -- we're pretty enthusiastic about what's going on in the golf business right now with the Taylor-made launch.

Terrific, hey, thanks a lot.

Chris Horvers, JP Morgan.

Thanks and good morning.

First question, just curious, as a follow-on.

Did January have much of an impact to your sales, given the tough weather trends out there?

Well, we don't comment.

But it wasn't -- and January is such a small month compared to November and December because of not only the holiday business, but also the hunting business in November.

So January is not a big deal to us.

Got you, and then follow-up on the use of cash -- you now have more than $500 million there.

How are you thinking about working capital?

Do you think you need to chase some inventory at these levels?

And at what point would you actually consider perhaps buying back stock?

Granted, we've got $500 million in cash right now and we are very -- we have got great free cash flow.

But right now, we think that the appropriate course of action is to continue to look at what -- how we might use that cash, whether it be for a number of different alternatives.

But we have not come to any conclusion, nor do we anticipate to come to any conclusion over the next 12 to 18 months.

We'll -- if we continue to build a little cash, we continue to build a little cash.

You, too, mentioned considering attractive acquisition opportunities.

Are there certain capabilities that you think that you would need to have to bolt on that you couldn't develop internally?

No, you're talking -- Tim talked to acquisitions, and you are talking bolt-on.

I'm assuming you are talking about systemic -- system bolt-ons, so which were you?

I'm thinking more, are there certain -- acquiring Golf Galaxy put you -- made you the big guy in the golf business.

So are there certain -- are there other -- what areas of your business do you think would need an acquisition that you couldn't just develop that momentum internally?

Well, I don't think there's any area of our business that needs an acquisition.

As we take a look at different aspects of our business and the strategies that we employ, if we see something that's interesting and strategic and additive, we would look at it.

But right now, I wouldn't characterize any part of our business needing an acquisition.

And then one final one.

Could you comment maybe on Texas and Florida, how the performance was during the quarter on those markets?

They were fine.

Thank you.

Kate McShane, Citi Investment Research.

Thank you, good morning.

I was wondering if you could elaborate a little bit more about your comments regarding inflation for the second half.

Can you talk to us about where you expect prices to go in the second half of the year, or have you begun to raise prices on any of your products in the first half of the year?

There has been little increase in product pricing in the first half of the year, although I do think our AURs are going to go up.

And that's because we've got some products that are out there that are very -- that the consumers have been reacting very favorably to, in particular, the R11 Driver, which is a $399 driver.

We've never had one of our best-selling drivers be a $400 driver in a long time.

So we're getting some AUR increase in certain categories of the business.

In the back half, there has been a lot of talk about what's going on in the back half of the year from a pricing standpoint, and we do see some of that pricing increase affecting some of our private-brand products, some of our vendors.

But there's a number of our important vendors that have had very little increases in price in the back half of 2011.

But I get a little bit concerned that we're going to see that hit us in 2012.

Okay, thank you.

And with all the technology investments you highlighted today, is this becoming a bigger percentage of your CapEx spend for 2011 versus prior years?

This Tim; it's slightly higher in 2011 than in previous years.

Recall that, when we talked about the infrastructure spend in 2010, there was some of that increased spend in the 2010 cost.

But as an overall percentage, yes, there's a slight increase over prior years.

Okay, thank you.

Matthew Fassler, Goldman Sachs.

Thanks a lot, and good morning to you.

First of all, on SG&A, Tim, if you could break out the drivers of the SG&A dollar increase, just given the magnitude of the pop that you saw; talk about, perhaps, how much related to incentive compensation and how much related to some of the discretionary marketing that it sounds like you pursued late in Q4.

Matt, I'll give them to you in a rank order without a dollar magnitude.

The larger contributor was the advertising spend, then the store closing costs and then the increase in incentive pay.

Got it.

And if you think about advertising, would you say that the big swing in advertising above trends came late in the quarter, once you realized the gross profit dollars you had at your disposal?

Or was it your strategy, really, throughout?

It was at the end, Matt, to try to drive -- kind of adding onto Robbie's question earlier -- to drive sales into the first quarter.

And much of this expense that you kind of see, this SG&A, is variable than we could pull back at any time.

So the incentive compensation was based on how well the business did.

The marketing spend was based on how well the business did.

So don't confuse this expense in SG&A as fixed costs that we can't modify when necessary.

We can; we thought that the marketing side was -- this was a great time to really focus on this golf business with TaylorMade, and TaylorMade helped fund some of that.

So we have -- if you have been watching the Golf Channel or ESPN, we are out there very aggressively with this, and it has paid big dividends.

The same with footwear and baseball, and that's why we are able to guide to 4% to 5% comps in the first quarter (multiple speakers) -- against pretty good comps last year in the first quarter.

And as we look to the fourth quarter of next year, just to fast forward a bit, we should obviously, then, think about your cost structures as having a lot of give in it, just given, really, the last two years investment that you have made in SG&A.

Is that a fair way to think about it?

It is, Matt.

There's a fair amount of variability there that we can change very quickly, if we need to, depending on the business conditions.

And then my second question -- as we think about the trajectory for the e-commerce business, obviously you had a very, very strong third quarter and a pretty big fourth quarter, too, though not quite at the same pace.

How should we think about the e-commerce contribution to your business within the context of the comp guidance you gave for the year or relative to the numbers that you have been putting up of late?

It sounds like there's a lot strategically still on the come there.

So is this going to be another year of the kinds of numbers that we've seen, most likely?

I think the numbers will be close to kind of the annual numbers, maybe a little less, a little more.

We are really focusing on what we can use our site to do, to drive traffic to our stores by giving, as Joe indicated, more robust content and information on the products that we sell.

We need to make sure that this is a profitable business, and we are not just going to go chase sales in an effort to chase sales -- which, to be honest with you, is a little bit with what happened in the third quarter and why things tailed off a little bit in the fourth quarter.

We got a little too aggressive in some of our promotions online, some of the things that we were providing from a freight subsidy standpoint.

We got too aggressive, artificially drove some sales higher that were not very profitable.

So content and profitability are our two biggest drivers of what we are planning on from an e-commerce standpoint right now, and sales are third.

We need to make sure that this drives customers to our stores and gives them the appropriate information and research capabilities of products that they may want to buy, and we need to make this profitable.

So in the grand scheme of things, I would not look at our e-commerce business for the next couple of years of producing any type of meaningful profit expansion to our overall business.

And just the last follow-up to that line of questioning -- I know in the third quarter you talked about the TOS element of the e-commerce business, the in-store e-commerce transactions contributing to the sales growth rate.

Did that continue in Q4?

It did, but at a slower rate.

There were a number of things that were happening with our AOS, or the Associate Ordering System, that were artificially driving sales that were not very profitable.

And as soon as we found those, as we recapped what was going on, we quickly modified it.

And that's really the cause of the change in sales in the third quarter to the fourth quarter.

Got it, thank you so much.

Mike Baker, Deutsche Bank.

Thanks, guys, so a couple questions, mostly on store growth.

So what are you seeing in terms of commercial real estate?

How many of the 34 stores are already on the board and you have sites?

And even looking, without giving a number, into 2012, how does the commercial real estate look?

And then, I guess, related to store growth, our work -- we've seen Sports Authority close about a dozen stores over the past nine months; they have opened, I think, two of the SA Elites.

What are you seeing out of them or other competitors?

We still see the current market as a bit unsettled, but it's starting to come back slowly.

There are not any new shopping centers being built out there today.

But what we are seeing is phase two and phase three of these centers that primarily stopped in 2008 and 2009, when everything came to a halt.

That's where we are seeing the development being done.

So, as we look at new construction for 2011, about 40% to 50% of our new stores will be new construction versus about 15% in 2010.

We continue to look at space vacated by some of these liquidated retailers, such as Borders and Ultimate Electronics, and we are finding some opportunities there.

In general, rents continue to be depressed and we continue to negotiate these rents and leases that are up for renewal.

As far as competition goes, you mentioned TSA closing some stores and opening a few.

We have seen that pretty consistent for the last couple of years.

We don't have a lot of visibility into what they're doing heading into 2011, but we don't anticipate a significant trend change in 2011 with TSA.

As far as looking out into 2012, I think you can anticipate that 2012 will be a lot like 2011.

We don't anticipate seeing a lot of new construction as far as new centers are concerned.

We will continue to look at the available real estate appropriately throughout the country.

Thank you, that's a very helpful and detailed question.

Just one more, maybe a housekeeping type thing.

You said you're going to open or develop 20 shared service footwear models in existing stores and you talked about the Nike Field House.

Can you tell us how many of those you have currently?

How many of which, the (multiple speakers) --?

Both -- the shared service for the footwear model, and then how many Nike Field Houses, just for our model?

Sure.

We have about 79 of the shared footwear models in stores today.

All totaled, looking at 2011, between new stores and remodels, we will add another 50 to 55, so somewhere in that 130 to 140 range by the end of 2011.

And taking a look at Nike shops, we have eight of the Pinnacle stores and about 28 of the stores have the Evolution Plus.

And I think you can look for an additional 50-ish shops being added in 2011.

Okay, thank you, very helpful.

Sean McGowan, Needham & Co.

Thank you, a couple of questions here as well -- Tim, the gross margin in the quarter was, I think the highest in the history of the Company for a fourth quarter.

Could you rank what the drivers were?

I think Ed mentioned mix.

Can you drill down a little bit more specifically on that, what kind of things were driving that mix higher?

Well, I think Ed outlined in the call where we were getting the sizable portion from apparel and footwear.

We probably won't go into much more detail than that, but the merch margin itself was 107 basis points.

But keep in mind, 109 basis points of improvement came from the leverage of occupancy costs based on the comp.

Okay, thanks.

Did you comment -- I may have missed it -- on the expectations for tax rate and what drove it a little bit lower in the fourth quarter?

In the third quarter call, we indicated it would be about 39.4%.

We ended up about 39.1%, so it's a little less than $0.005.

But also, the outstanding share number we indicated in Q3 would be about 122 million; it ended up being about 124 million.

So between the two, it's about even.

And what about tax rate expectations for 2011?

Approximately 39.4%.

39.4%, okay.

And was there anything that you would characterize in the quarter as unusually helpful or hurtful weather patterns that we might have to worry about a year from now?

I'd say it was helpful.

We had a relatively cold winter.

We had some snow, but there was very few times that the snow was so significant that cities and towns got shut down.

So it was a perfect winter for us, and our merchandising store operations, marketing teams, the whole group took full advantage of the weather mother nature provided us.

Thank you very much.

Camilo Lyon, Wedbush Securities.

Thanks and good morning.

I was hoping to get an update on the regionalization initiatives that you have ongoing, how the stores are performing and how you expect to expand that program in 2011.

We won't get to specific numbers, but we are very pleased at how this has been going.

The content that we have in the product has been much better.

The stores are much happier with the product that we are getting into them, much happier from a timing of when that product shows up.

And we've done a much better job of marketing into these regions than we have in the past.

So we are really very pleased with what's happening from this regionalization standpoint.

We expect to continue to refine that program this year, and if we don't expand it this year we will certainly be looking to expand it in 2012.

So this year will be another year of harvesting the data and understanding, really, the benefits of the initiatives in that regard?

Yes, so we will be coming around our second year, making sure that everything we did was right.

We will be a bit more aggressive, but we wouldn't see a big increase in this until the beginning of 2012, probably.

Got it, thank you, good luck.

Sam Poser, Sterne Agee.

I just have a few.

Your new-store productivity was quite impressive.

Can you give us some reasons for that differential there?

Well, I think what I would offer to you, Sam, is that the markets that we put our stores in, in 2010, plus you can see how the general business also performed in 2010, all contributed to that 111% increase in new-store productivity.

I would also add to that, that we've talked about in the last couple of calls about opening the right sized stores in the right sized markets.

And we took some pretty significant steps and had some success in 2010, and we will look to move forward with that in 2011.

[News so far], you are also looking to -- here in New York, you are redoing a couple of -- you are starting to remodel now.

Are you finding that there's newer looks like -- such as the store in Washington Square, in Portland and so on, just drives so much more activity to those stores than the older sets?

And does that make you want to facilitate the remodels or speed up to remodel process?

We are pretty aggressive in the remodel process this year, and we are in the process now down in New York -- we're going to be starting to remodel a couple of the former Galyan's stores and see how they perform.

But so far, the remodels have been, really, very good.

It gives us the ability to get the shared footwear model in there, it gives us the ability to enhance the apparel presentation.

And so, I think it is driving more traffic in there.

But also, when people get in there, it's a better shopping experience when we get in there.

And then, just to follow up on the shared footwear model, with the stores that have it already, are you putting anything behind the wall in those models, or is everything going to be out front?

And what kind of lift or what kind of change in business in those stores have you seen both from a top line and also from an inventory shortage issue?

Sam, we have minimal back stock behind the wall, and that's one of the things that the shared service footwear has allowed us to do is push that wall back into the stock room and give us more sales space onto the floor.

So we have very minimal back stock in our stock rooms.

And we are not going to comment on sale specifically, about the shared service footwear model, but we are happy enough with the results to continue to roll this model out.

(multiple speakers) The feedback from the consumer has been terrific.

Great.

And then lastly, with pricing -- looking ahead, you have benefited from the shift of mix to drive your margins.

When you're looking at your own private label in apparel and outerwear and so on and so forth and your exclusive brands and the pricing issues maybe for back half of the year, perhaps into 2012, as you mentioned, what are you doing to prepare for that?

How much do you think your customer accepts through pass through?

Are you tweaking up the products?

Are you de-speccing it?

I guess, just in a general thought, how are you looking at all the different levers to address the pending, I'll call it, inflation?

I mean, that's what it is.

We're looking at a number of ways to help mitigate this, most of which you hit it.

So we're looking at ways that we can value engineer the product so that we don't meaningfully down-spec the product.

But how can we value engineer the product?

We're also looking at it going and moving further down the supply chain, if you will, and purchasing raw materials ourselves, which has been helpful, and then also getting further out ahead of the production cycle and giving our commitments earlier.

And we're also taking a look at and have done some manufacturing in off time or slow time with the factory, and that means we may own the inventory a little bit earlier.

but manufacturing it at an off time of the year to help mitigate those cost increases.

Thank you very much, good luck.

Mark Mandel, ThinkEquity.

Given the success you have already had in the investments you're making, how should we think of inventory growth going forward on a per-store or a per-square-foot basis?

I think the inventory would remind flat or increase slightly below what our comps may increase, but we would not expect inventory to grow faster than our comps in the foreseeable future.

Okay, does that take into account the comment you just made about the off-time manufacturing, possibly owning the inventory a little bit earlier?

Yes.

Right now, as we've said, our private brand products are in that 15% range.

The amount of products that we would be making off-season are pretty small compared to that.

It's just one of the ways we are looking to help mitigate this so, in the grand scheme of things, it's a [net].

Okay, great.

And how would you describe the promotional cadence that you've seen in the marketplace, both through the fourth quarter and currently?

We see it as rational.

So no major changes year-over-year?

No.

And then my final question on the gross margin side -- you had mentioned occupancy levering 109 basis points.

Was any of the Golf Galaxy store closings -- I think you mentioned that during your opening remarks -- incorporated in that?

Well, without those closed stores in the fourth quarter numbers, with the sales impact and the occupancy in relation as a percent of sales for those stores, it certainly helped on the Golf Galaxy side.

But also, remember, we had a 9.4% consolidated comp, which helped to drive that across the Dick's business as well.

Got you, thanks a lot.

Mitch Kaiser, Piper Jaffray.

Thanks, guys, good morning.

Could you talk a little bit about what you saw from a hunting and the fitness categories in the fourth quarter?

The hunting business was soft, and we had indicated that it would be soft, primarily driven by the gun and ammunition business.

And we expect it to continue to be relatively difficult.

And in the fitness business, we haven't really gotten -- we don't comment to that level of detail, but the fitness business was okay, not great.

And then, just on the capital allocations side, Tim and Ed, as you think about the cash balance, almost net $4 per share at this point, is there a certain level that you want to keep on the balance sheet?

Because it looks like you are going to be free cash flow positive again in 2011.

Just how should we be thinking about that, what the capital structure of the Company should be in your view?

I think Ed pretty much answered that question earlier, Mitch.

Right now, we are satisfied with carrying a cash balance as -- even though it increases, because we still have some thoughts about some uncertainty in the economic situation today.

As time goes on, and Ed mentioned 12 to 18 months, we will be making the appropriate decisions on the capital structure and the whole capital allocation scenario.

And we will be discussing those issues with our Board as we deem appropriate.

Okay, thanks guys, good luck.

Rick Nelson, Stephens Inc.

I'd like to ask about the e-commerce, what that accounts for as a percent of sales, and maybe what the comp would have looked like ex-e-commerce.

E-commerce mix up between 2% to 3% of our business, and for the year, if you look at the numbers the way we outlined them by entity, it accounted for about 100 basis points of comp.

Okay, got you.

And the penetration in the Dick's stores and Golf Galaxy of e-commerce?

I don't think we would break -- you mean in terms of the sales being driven to the stores by our by our dot-com business?

Yes.

We won't comment on that.

And then, as we look at the comp guide of 3%, how are you thinking about Dick's, Golf Galaxy and e-commerce?

We have, in the past, never guided to what those are.

We will tell you what they are at the end, but we have never guided to what they are.

But Dick's is still going to be -- Dick's is still the engine that drives the train, by a long shot.

Got you, thank you for that, good luck.

Chris Svezia, Susquehanna Financial Group.

My first question is just any regional differences as it pertains to the comp performance during the fourth quarter, if you can elaborate.

Or if you already did, I apologize if I missed it.

But any thoughts there?

No.

As a matter of fact, we have pretty broadly spaced across all markets very, very impressive comps.

So I can't call out an individual market that we would be unimpressed with in the fourth quarter.

And the Southern Cal market, year-over-year, even without the support from markdown cadence and marketing, performed better than you expected?

Or any thoughts about that?

It was more profitable than last year, for sure.

Okay, and just on store productivity, as these store start to go into -- as these new store start to go into the comp base, any thoughts about how they might comp or maybe how they are starting to comp relative to historical trends as your stores start to enter that comp base?

Any color around that?

Well, we are going to have to reserve comment until they actually enter the comp base as we get into 2011.

So once they do, we will have a better idea how we can approach the answer to that question.

But at this point, I'm not going to be able to answer that specifically for you.

Sure, I mean, but how have stores -- the stores that have entered the comp base that have started to, how have they performed relative to your historical metrics and things of that nature, thus far?

If those have shown nice improvement, I can only imagine the newer ones, if they start to enter in, which are obviously very productive, could be incrementally that much better.

Is that a fair observation?

I think that's a fair observation.

Okay, and last thing I have -- Ed, you mentioned some comments just about what you are doing on the running -- the strength in the running side on footwear.

Any other elements in the footwear business?

I mean toning, we are kind of lapping that; that has sort of come and gone.

Any thoughts on basketball or training or anything else that's going on there?

Well, we are enthusiastic about the basketball business.

We continue to be enthusiastic about the running business.

Our footwear business as a whole has been really very good.

The whole lightweight piece of running, whether it be the Nike Free, the Lunar [ID Zero], Reebok Zig -- all of those technologies are doing quite well.

So we are pretty enthusiastic -- continue to be enthusiastic on the footwear business.

Okay, well best of luck, gentlemen; thank you.

Paul Swinand, Morningstar Inc.

Good morning, thanks for taking my question.

I just wanted to follow up on Matt Fassler's question about the SG&A.

You said some of it was due to accrual for compensation.

How much of that is non-cash due to the options?

Because I know you had a pretty big non-cash add-back in the options expense.

On the options side, the options are only slightly above last year.

Most of that accrual is what will be paid out this current year on the incentive side.

Okay, so longer-term, if I go back and look at your SG&A, it has probably ticked up 200-plus basis points.

Do you think that will start to leverage over the long-term in the future, or is that sort of ongoing with you tweaking marketing and compensation and some other things?

I think what we have said is, not only in the first quarter, but we do expect to leverage SG&A in 2011.

Okay, thank you.

And then just a quick question on your kids business.

In a lot of our coverage, we were noticing that kids was down.

If you look at younger age groups, sales were lower during the recession.

Now that seems to be coming back stronger.

Have you done any analysis or do you feel that products targeted at younger age groups are now comping up stronger?

Well, we're not going to comment on what the comps are in that particular age group.

But you will start to see us being more aggressive in our store layout for the youth business.

And we think, in youth athletic apparel, youth athletic footwear, there's an opportunity sitting on the table for us that we expect to go and be much more aggressive in 2011 and 2012.

Okay, thank you for that.

And then just a final question on the ability of different stores that are maybe more urban or maybe you don't have to drive as far to -- have you done any analysis where stores that are more urban and maybe draw from a smaller geographic area seem to be doing better, perhaps, because of the gas price situation?

We haven't looked at it that way.

All right, thanks a lot, good luck, guys.

Sam Poser, Sterne Agee.

Thank you; just real quick, on the -- I apologize; I wasn't expecting to get back on.

I guess it's not going to be as quick as you thought.

On your store open -- on the broader store opening issues, your 900-store plans over the next few years, can you give us some sort of a game plan on how long you expected to get there?

And you've answered this question in the past saying you thought it could be purely organic.

But you've got some big players in big markets where it's not as easy to step in and battle, as you learned out in Southern California last Christmas time, where you spent a lot of money.

How much -- is there really white space around the country where you wouldn't have to acquire somebody else to make the room to get to that number?

Yes, I think so, for sure.

There are places that we can go, and it will be competitive.

But we went into Southern California and, for a variety of reasons, wanted to be very aggressive in Southern California during that difficult economic time, in order to gain market share.

And we are pleased with what's going on there.

We can go in, and the toughest competitor we had has been Academy, and we have now gone into the heartland of Academy in Dallas, in Texas, and we are very pleased with what we have done from a performance standpoint.

And the 900 stores we have talked about does not anticipate any acquisitions, and we are very comfortable that we can get there.

The length of time -- so the first part of your question, the length of time to get there, will depend on what happens in the real estate cycle.

There's not shopping centers being built, as Joe indicated.

We've got -- our real estate group has done a great job.

It's pick and shovel work, if you will, trying to find the right spots and be able to assemble enough space.

So it's much more difficult today than it was three or four years ago, when shopping centers were being built.

So a lot of this -- the length of time depends on the real estate cycle.

But we think we can continue with this percent of unit growth into the future until the real estate cycle comes back a bit.

So a short answer to your question is yes, we are very confident we can get to the 900 stores.

It's going to take us a while, but we'll get there.

And would you rule out acquisitions?

As Tim indicated, we would not rule out acquisitions.

If there was something that we thought was strategic to us that we thought was a good investment at the right valuation, we would certainly take a look at it, yes.

Thanks very much, good luck again.

There are no further questions.

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

Ed Stack for closing remarks.

I would like to thank everyone for joining us on our fourth-quarter earnings call and look forward to talking to everyone for the first quarter call.

Thank you very much.

Thank you for your participation in today's conference.

This concludes the presentation.

You may now disconnect.

Have a good day.