DICK'S Sporting Goods Inc (DKS) 2011 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first-quarter 2011 Dick's Sporting Goods, Inc.

earnings conference call.

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

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

We will be facilitating a question-and-answer session towards the end of this conference.

(Operator Instructions).

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

Anne-Marie Megela.

Please proceed.

Thank you.

And good morning to everyone participating in today's conference call to discuss our first-quarter 2011 financial results.

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

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

In order for us to take advantage of the 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 29, 2011.

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

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

Ed will discuss our first-quarter financial and operating results, items contained in our press release, and our growth strategy.

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 (technical difficulty) our growth drivers.

Tim will then discuss in more detail our financial results.

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

Thank you, Anne-Marie.

I'm pleased to report that in the first quarter, we generated consolidated earnings per diluted share of $0.30, which is a 36% increase from the consolidated earnings per diluted share of $0.22 we reported for the first quarter of 2010.

Our regional expectation, as disclosed in our last quarterly call, was $0.26 to $0.28.

Our net sales for the first quarter of 2011 increased by 6.3% to $1.1 billion, primarily due to a 2.1% increase in consolidated same-store sales and the opening of new stores.

The 2.1% increase consisted of a 1.4% increase at Dick's Sporting Goods; 3.3% at Golf Galaxy; and a 25.2% increase in our e-commerce business.

In the first two-thirds of the quarter, consolidated same-store sales were tracking in line with our first-quarter comp guidance.

However, as the quarter progressed, many high school, junior high school, and community baseball soccer and lacrosse seasons did not start on their scheduled dates due to unplayable field conditions.

Many golf courses in important parts of the country either opened later this year or saw significantly reduced play due to the extremely wet and cold conditions.

The significant rain and related flooding also contributed to unfavorable conditions for other outdoor activities such as fishing, camping, and boating.

In areas of the country where we did not see these weather patterns, our sales met or exceeded our original expectations.

Now that the spring season is in full swing around most of the country, we have seen a return to our expected sales performance.

Even though our comp sales performance was below our guidance due to the delay in the spring sport seasons, we exceeded our earnings estimate of $0.26 to $0.28 by earning $0.30 per share.

We were able to accomplish this by modifying our variable spending, primarily around marketing and payroll, and leveraged our SG&A by 49 basis points.

We also increased our margin rates by 82 basis points.

Our apparel and footwear business did very well, and we continued our tight control over inventory by once again keeping inventory growth significantly below our comp store sales growth.

Inventory per square foot was up 0.6%, while comps were up 2.1%.

The systemic inventory controls we've implemented over the past 18 months has meaningfully reduced our clearance inventory, which means less markdowns and higher margins.

Our team has done a great job in this area.

During the quarter, we increased our cash position by $326 million to $533 million at the end of the first quarter.

Our e-commerce business same-store sales increased 25.2% and margins meaningfully improved year-over-year.

Golf Galaxy same-store sales increased 3.3% in the first quarter.

We saw gross margin expansion due to an increase in merchandise margins and a decline in occupancy as a percent of sales.

The increase in merchandise margin was driven by mix and higher AURs.

This gross profit margin expansion, combined with SG&A leverage, led to a significant year-over-year increase in operating margins.

Looking to the full-year 2011, we are now raising our guidance to $1.91 to $1.93 for the year.

For the year, we continue to expect consolidated same-store sales to increase approximately 3%.

For the second quarter of 2011, we currently expect consolidated earnings per diluted share of $0.47 to $0.49.

For the period of 2010, consolidated earnings per diluted share was $0.43, which included a $0.01 tax benefit.

For the second quarter of 2011, we currently expect consolidated same-store sales to increase approximately 3%.

We remain confident we can continue to drive growth in both our topline sales and earnings by continuing to focus on our three core growth drivers, which are expanding our store network; building our e-commerce business; and increasing margins.

In the first quarter, we have opened three new Dick's Sporting Goods stores and are expecting to open approximately 34 stores this year.

Joe will provide more details on the store development program.

On the e-commerce front, we are very much in the early innings and see significant opportunities to build this business by focusing on three primary objectives.

In order of priority, our first objective is to expand and enhance the current content.

Our second objective is to improve profitability, and our third is to continue to grow the topline.

Our third growth driver is continued margin rate expansion.

We believe we can continue to expand margins through several strategies, including more efficient inventory management; higher private brand sales; continued increased focus on regionalization; and continued partnering with our vendors.

We continue to be pleased with our progress, and believe that these opportunities are long-term in nature, contributing to enhanced margins each quarter and building over time.

We are in the initial stages with many of these strategies.

We continue to be enthusiastic about the long-term prospects of our business.

We're focusing on those things that we can control, and have built an operating structure that affords us the flexibility to continue to deliver profitable growth even as the environment changes.

The backbone of these efforts remains our talented and determined team of associates.

In my opinion, this dedicated group of individuals is the best we've had in our Company's history, and it's their commitment to winning that consistently sets Dick's apart in our industry.

I'd like to thank all of our associates for their many contributions to our progress.

I'd like to now turn the call over to Joe.

Thank you, Ed.

At the end of the first quarter of 2011, we operated 447 Dick's Sporting Goods stores with 24.7 million square feet.

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

We continue to be pleased with the performance of the new Dick's Sporting Goods stores, as the new store productivity was 106% in the first quarter.

This compares to 82% in the first quarter of 2010.

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

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

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

We anticipate opening eight of these stores in the second quarter.

We also plan to remodel 14 stores this year.

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

On the e-commerce front, we are 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 website through 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.

Thanks, Joe.

Net sales for the quarter increased by 6.3% to $1.1 billion.

Consolidated same-store sales increased 2.1%.

Dick's Sporting Goods same-store sales increased 1.4%; Golf Galaxy increased 3.3%; and the e-commerce business increased 25.2%.

The increase at Dick's Sporting Goods stores was driven in part by a 0.8% increase in transactions and a 0.6% increase in sales per transaction.

Consolidated gross profit of $330.4 million was 29.7% of sales, 82 basis points higher than the first quarter of 2010.

This increase was driven primarily by increase in merchandise margin.

Merchandise margin increased as a percentage of sales, primarily due to a change in mix, with relative increases in athletic apparel and footwear at the Dick's Sporting Goods stores, and continued effective inventory management.

SG&A expenses were $263.7 million, representing 23.68% of sales compared to 24.17% of sales in last year's first quarter, primarily due to a decline in advertising as a percent of sales, partially offset by increase in administrative expenses as a percentage of sales.

On the balance sheet, we ended the first quarter of 2011 with $533 million in cash and cash equivalents, and we did not have any outstanding borrowings under our $440 million revolving credit facility.

Last year, we ended the first quarter with $207 million in cash and cash equivalents, and no outstanding borrowings under the facility.

Inventory per square foot increased by 0.6% at the end of the first quarter of 2011 as compared to the end of the first quarter of 2010.

Net capital expenditures were $26 million in the first quarter of 2011 or $32 million on a growth basis, compared to a net capital expense of $23 million, or $24 million on a gross basis, in the first quarter of last year.

For the second 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 higher margin mix of sales.

Occupancy costs as a percentage of sales are anticipated to slightly deleverage.

SG&A is expected to decline as a percentage of sales in the second quarter of 2011 if compared to the second quarter of 2010, through the leverage of store payroll and advertising dollars, partially offset by an increase in administration expenses as a percentage of sales.

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

Diluted shares outstanding are expected to be approximately 126 million compared to 121 million in the second quarter of last year.

Earnings per diluted share are expected to increase [to] $0.47 to $0.49 from $0.43 last year.

For the full-year 2011, we are increasing anticipated earnings per diluted share from $1.89 to $1.91 to $1.91 to $1.93.

Specifically, we anticipate that our gross profit rate will increase year-over-year, primarily as a result of improving merchandise margins, driven by inventory management, private brands, regionalization efforts, store enhancements like our shared service model, and partnering with our vendors.

We anticipate gross profit rate improvement, 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.

We anticipate SG&A expenses to leverage in 2011, primarily as a result of higher sales and lower planned advertising spend as a percentage of sales.

For the full year, diluted shares outstanding are expected to be approximately 126 million compared to 122 million last 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 from 2011 to 2010 is due to an increase in the number of new stores, remodels, and systems investments described by Joe, to support our growth drivers.

We view our cash as a strategic asset, and our primary focus is on executing organic growth opportunities.

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

In the first quarter, we demonstrated our ability to deliver profitable growth, even as wetter and colder conditions affected many of our markets.

Our Dick's Sporting Goods chain, our Golf Galaxy chain, and our e-commerce business are all gaining traction and generating increased sales in earnings year-over-year.

We have a strong balance sheet, healthy inventory position, and several multi-year growth drivers, which combined, put us in a solid position to continue to deliver double-digit earnings growth in 2011.

This concludes our prepared remarks.

At this point, Operator, I would like to open the call to questions and answers.

(Operator Instructions).

Chris Horvers, JPMorgan.

I was curious if you could maybe quantify the difference in the indoor versus outdoor categories?

Or perhaps speak to what comps look like in the awfully rainy month of April?

They were significantly different in April than they were in February and March.

As I said, that they were -- in the first two months of the quarter, we were at or exceeding our expectations.

And then when we had some of these issues around the weather, April got a lot worse.

But we still made our earnings number.

And since the weather has changed and these sport seasons are now in full spring, we've returned to what we had originally anticipated.

Okay.

And then so as you think about that, apparel and footwear is very strong; golf goes up as a percentage of the mix, and there's a lot of innovation on that side.

So as you think about your comparisons easing a few hundred basis points into the second quarter, can you talk about the rationale around putting a 3% comp guidance out versus the original 4% to 5% that you expected in 1Q?

Well, the -- we never provide any guidance for the second quarter from an earnings standpoint nor from a sales standpoint.

A couple of things that are not going to be able to be anniversaried that we did not have in our plan are the playoffs in the World Cup.

And if we take a look at the NHL, NBA playoffs from last year -- which lined up great for us with the Black Hawks winning the Stanley Cup -- and the World Cup and all that went with the World Cup, those two things accounted for approximately $0.04 of earnings that we don't anticipate having this year -- and didn't put in our plan either.

So we think that our second quarter is very realistic and a lot better than it was last year -- a big increase over last year, if you take out the NHL playoffs, which are not lining up really great for us this year, and the World Cup.

And we're still taking our guidance for the year up, after what we did in the first quarter.

Fair enough.

And then final question, on the footwear side, can you talk about how you see the innovation pipeline coming off of the next three to six months?

Thank you.

Sure.

We continue to be enthusiastic about what's going on in the footwear business, as we continue to remain enthusiastic about opportunities in other areas of the business, including apparel; the innovation that's going on in the golf business right now.

But we continue to be very enthusiastic about our businesses.

You should be able to see based on the fact that we took our guidance up for the year.

Sean McGowan, Needham & Company.

Yes, two areas of questions.

First, Tim, the ad spending being lower in the quarter, I think that's a reference to something Ed talked about, variable spending.

Is that spending that we should expect then to come later in the year?

Or is it just not going to be spent?

No, I think that, as we've said, we pull the levers that we can from a variable expense perspective.

And those costs will not be spent during the rest of the year.

Okay.

Was there any other area of variable spending that got reduced in Q1?

Well, we're always mindful of the store payroll side.

It wasn't that it was reduced, but it was used to help mitigate some of the overall expenses.

Okay.

And then just probably a question more for Ed or anybody -- you made a reference to potentially opportunistic maybe acquisitions that might be there.

Any comment on what might be going on in Canada?

Really, no comments.

What Canadian Tire and [Frazoni] are doing may make sense for them, but we don't see that having any impact on us.

Okay.

Great.

Thank you.

Brian Nagel, Oppenheimer.

I want to jump back to, I think, one of the first question was asked regarding the comp guidance for Q2.

So if I just take apart what you had said, you said sales have rebounded to now -- I guess as the weather improved -- to be back in line with what you -- your initial guidance of that 4 to 5.

So is it fair to assume then, as we look here -- or I mean, I know it's early, but as we're here in Q2, you're tracking ahead of that 3% guidance for the quarter right now?

Well, we've said that it had come back to what we had anticipated, but we didn't say that we were guiding the second quarter to those same numbers we did in the first quarter.

So we thought that the second-quarter guidance would be less -- always in our budget -- we had thought the second-quarter guidance would be less than the first quarter.

And a big part of that is around the whole playoff situation, which we did not put into our plan.

So don't discount what happened with the World Cup, which comes every four years.

The NHL and NBA playoffs, and in particular the NHL playoffs, worked out great for us last year, and with the Black Hawks winning.

All of those things contributed $0.04 to the earnings number.

So you can kind of back into what that did from a comp standpoint.

Got it.

And I just jumped on earlier this morning, we were on one of the home improvement retailer conference call and another one yesterday, and obviously a lot of retailers are talking about the weather right now, as you guys have as well.

It makes a lot of sense that weather impacted your business, but just to play devil's advocate, is there any way that the weather could be potentially masking some other weakness in the consumer?

Are you confident the weakness we saw in sales is indeed weather?

Oh, I think we'd all be naƒÂ¯ve to think that some of -- there aren't some other concerns around the consumer, whether it be gas prices -- although that looks like that may mitigate shortly -- but we don't think this is all weather.

But we think that this was a big part of the weather, because in the markets that we did not see these adverse weather conditions, we met or exceeded our sales numbers.

So if these kids aren't out -- if they're not out playing baseball, they're not out playing lacrosse, they're not out -- guys aren't out golfing; the rivers are too high to be fishing; the rivers are too high to be out there kayaking -- they're just not going out to do that.

And there's not anything that we can do about that.

And where we didn't see those issues are, as I said, our sales met or exceeded the expectations that we had guided for the first quarter.

Very helpful.

Thank you..

Robbie Ohmes, Bank of America Merrill Lynch.

Good morning, Ed.

A couple of quick questions.

The first is, can you give us some insight on what is -- you mentioned private label helping gross margin.

What's leading your private label growth?

That would be one of them.

The second question is, can you give us an update on the self-service footwear formats?

You know, remind us the number you're at and how they're performing versus expectation.

And then the third would just be on concepts like the Nike Field House concept -- kind of remind us where you're at there.

And granted, I know weather made your results kind of screwy this quarter, but any kind of update behind that on how those are doing as well.

Thanks.

Sure.

From a product development standpoint, we continue to be really very pleased with our product development.

The products that we brought to the market we think are better this year than they have been in the past.

We've -- getting some more traction with some specific brands, which I don't -- for competitive reasons, don't want to go into; but we're still very pleased with what's going on from a product development standpoint.

From the footwear area, we characterize the footwear area not as a self-serve footwear, but as a shared- service footwear.

Because we still have people in the -- still have the same line of people working the footwear area that we've had in the past.

That transition to the shared-service footwear continues to do very well.

We've just ruled out the next iteration of that in a couple of stores, and have gotten great response from that from not only our customers, but also from our brands.

And we're working with the brands to kind of take the presentation of the shared-service footwear up significantly.

And we're very pleased with the first couple of stores that we've opened up there.

The Nike Field House, we continue to be extremely enthusiastic about.

Today, we've got 38 of the Evo Plus shops, nine of the Pinnacle shops, for a total of 47.

We'll be adding -- we'll have between 90 and 100 of them by the end of the year.

And the performance of these stores have been terrific compared to the balance of the chain.

So we are enthusiastic about this.

And once we get to the number that I've talked about, a little less than 100, we're working with Nike to take a look at how we can continue to expand this program deeper into the chain.

Terrific.

Hey, thanks a lot, Ed.

Matthew Fassler, Goldman Sachs.

Two questions.

The first relates to margin and product mix.

How much of the improvement in margin rate would you say reflected the fact that some of the hard goods categories were probably a bit lighter on the weather softness?

And how much of the merchandise margins strength do you think can be sustained through the course of the year?

We think that it can continue to be sustained.

And we had margin rate expansion across most categories of our business -- hard lines and soft lines.

There was a bit of a mixed benefit that we got because of the reduction in that outdoor category.

But whether it was baseball; whether it's golf; whether it's a number of the hardlines areas, we had margin rate expansion, and expect to be able to continue to do that in the hard lines areas in the soft lines areas, going through the balance of the year.

Got it.

And my second question also relates to margin to some degree.

Cotton mania seems to have abated, at least for Wall Street for the moment, but I guess it's likely that you're seeing and will continue to see some price increases, both list prices and input prices for you from some of your vendors.

Can you talk about how much of that you've seen, what your expectations are over the course of the year, and what consumer acceptance seems to be, as price points come up?

We haven't seen a big resistance yet, but we haven't seen a whole lot of price increase, either.

We'll get a little bit more price increases in the second half of the year, and we expect a bit more than that going into the first half of next year, which is where we think we'll see the kind of -- what everybody is talking about is, where we'll see it next year, is in the first half of 2012.

And did it contribute to comps?

Or do you expect it to contribute to comps as you move through the course of 2011?

We think it will have a minimal impact on comps as we go through '11.

Got it.

Thank you so much.

Kate McShane, Citi Investment Research.

I wonder if you could talk about any differences you saw in your Golf Galaxy business versus the golf business at Dick's during the quarter?

There really wasn't a whole lot of difference between the two.

They pretty much mirrored each other.

Golf Galaxy, we've -- some of the higher end products probably did a little bit better as a percent to the total business than the Dick's business, but both businesses we were pretty pleased with.

The TaylorMade launch of the R11 and the Burner driver was very successful in both chains.

The Penta golf ball was really very good.

The apparel mix in both companies did it very well.

Our apparel business was up in both chains pretty significantly.

Okay, great.

And then my second question is on real estate, we just saw a FA Elite opening in California and two new additional TSA stores opening in California.

So, are you seeing competitors getting more competitive in this market for real estate versus a year ago?

Not really.

We've taken a look at the number of stores that our competitors are opening up and they're not opening up very many.

I think Sports Authority is opening up roughly six; Academy is opening up a few more than that -- but Golfsmith is opening three.

We don't see a big rush for real estate and this getting irrationally competitive by any means.

Okay.

Thank you.

Gary Balter, Credit Suisse.

This is actually Seth.

Just a quick question on the new store productivity.

It's obviously continued to be very strong.

Can you discuss what's driving that?

And maybe any learnings from the new stores that have been opened?

And maybe how you can apply that to some of the older stores?

Thanks.

I think part of the new store productivity has come from opening in markets that have been not as severely hit by the economy, where we had opened Arizona, Southern California, a little bit in Florida, that -- and we talked about this before, that that hurt the new store productivity.

The new stores have been opening in markets that have been less hit around the economy.

And I think we've done a better job -- the regionalization component of our business that we've put in place, has really helped the new store productivity.

So, part of it is geography and part of it is just we're executing our new store openings better than we had in the last year.

And just following up with [Gary].

You mentioned the NHL playoffs won't help you, but if Vancouver wins, does that speed up your move into Canada?

(laughter) Probably not.

I don't think we can get there in time for the playoff to have an impact on sales for the playoffs.

They could repeat.

(laughter)

Michael Lasser, UBS.

Thanks a lot for taking my questions.

Have you reached a point now where you're going to start to see some really nice leverage on your advertising?

You're nearly halfway there on your total penetration of stores, so is that part of what's driving some of that advertising leverage?

We think as we -- we think we can get some advertising leverage, yes.

We're also going back and taking a look at what's going on in the marketplace today, and how we should be advertising to our consumers -- as there is a shift in how customers are getting their information, whether it's a changed reduction in newspapers; whether it's a reduction in some traditional media, moving more to digital, more to our -- talking to our consumer base, which is very large; our scorecard data base, which is very large.

So we're looking at ways to optimize that.

So I think we'll get leverage as we continue to open stores, and we'll also be more efficient in how we do our advertising.

Second question on the real estate development -- what are you hearing from your partners on the outlook over the next several years that would allow you to accelerate your square footage growth?

I know that's been a gating factor in the past.

This is Joe.

I would characterize the market right now as improving slowly.

There are not a lot of new centers being built -- very few, quite frankly.

What we are seeing that has us a little bit optimistic in these centers that were started in 2008 and 2009, we are starting to see Phase 2 and Phase 3 of some of these centers develop.

And as we look at new store growth, the amount of new stores' ground-up construction in 2011 compared to 2010 -- last year, we had approximately 15% of our stores were ground-up construction.

This year, it's somewhere in the neighborhood of 40 to 50.

So looking at these Phase 2, Phase 3 has us a little bit optimistic that we can continue this growth as we move forward into '12 and '13.

Okay.

Last real quick question.

With the cash balance, I think the outlook for acquisitions is going to continue to be a topic that folks are going to focus on.

So what lessons from the past are you going to use to guide how you might look to make acquisitions moving forward?

Will it be to acquire a totally new concept, more from a real estate side?

Get a new product category?

Can you help us understand that?

Thanks.

I think we'll take a look at all of those and it would be a -- it's our responsibility to take a look at all of those alternatives, whether it be a category similar to what we did with Golf Galaxy; whether it's increasing our store count, putting money into real estate; whether it's looking at a acquisition that could be more real estate-based.

All of those things are in play.

And it's our responsibility to sort all of those out with the help of our Board, to determine what direction we should go in.

Okay, good luck.

Rick Nelson, Stephens.

Can you talk about the e-commerce part of your business?

What it accounts for roughly of sales?

And the penetration at Dick's and Golf Galaxy, and profitability comments overall?

Sounds like the margins expanded in e-commerce.

Yes, it did.

So our e-commerce business is roughly 2.5% of our total business.

We think there's significant upside over the next several years on the e-commerce as a percent of our total business.

We did increase the margins pretty significantly this year over last year through not only a mix of products that we're selling online, but also as we continue to work economic deals with our -- better buying through our vendor community also helped that -- those margin rates from an e-commerce standpoint.

But as we talked about in the past, we're in the early innings here.

The earnings attributable to the e-commerce business is insignificant.

And to be honest with you, we could double our e-commerce profitability and you wouldn't even -- if we didn't tell you we doubled it, you wouldn't even see it.

All right, got you.

And the comp guide of 3%, how are you thinking about that as it relates to Dick's, Golf Galaxy, and e-commerce?

We haven't guided specifically.

We've only in the past given consolidated guidance and we'll continue to do that.

Okay.

Thanks a lot.

Mike Baker, Deutsche Bank.

So, first of all, if the Bruins win the Stanley Cup, you'll have plenty of sales in Boston to offset the Penguins, I'm sure.

I'll help with that.

(multiple speakers)

On a somewhat serious note, I guess, though, if the Bulls win the NBA championship, does that sort of offset the concerns around the Black Hawks.

That's one semi-serious question.

And then next question would be on the margins and the impact of inflation.

So just to be clear, you think the merchandise margins will be up despite inflation.

Is that because of what you saw in the first quarter and the second quarter until you see the price increases?

Or I think at one point on this call, you said merchandise margins should be up throughout.

So, in other words, in the third quarter and in the fourth quarter, even with the expected increase of inflation, you'll still be able to pass it through and generate higher merchandise margins on those products.

Yes.

And what we -- so, I'll take your second question first, on the margin one.

We believe we can continue to move the margins up in each of the quarters.

We're not seeing a lot of change in our input costs.

So most of our larger vendors have not -- we've not seen big increases in those input costs from our major vendors.

We'll see more significant impact on input costs going into the beginning of 2012.

But again, merchandise margins up in each quarter is the important thing.

That's what we expect, yes.

Okay.

Thanks.

And as far as the Bulls and the Black Hawks, we're all -- it'd be great if the Bulls win.

That would certainly help offset the Black Hawks.

But based on kind of the -- we've got pretty sophisticated sales forecasting models, as you would expect, on these playoffs.

And if the Bulls win, it will not offset the Black Hawks.

But hockey jerseys are just more expensive than basketball jerseys, I suppose?

Absolutely.

And hockey jerseys sell a lot more as streetwear than sleeveless basketball jerseys.

So, yes, the Black Hawks will not be offset by the Bulls if the Bulls win.

The bottom line is root for the Bruins.

We're -- yes, we're rooting for (multiple speakers) --

These fans.

Yes.

Thank you.

Peter Benedict, Robert W.

Baird.

Just a couple more.

Tim, I don't know -- you may have done this and if I missed it, I apologize -- the 82 basis point increase in gross margin -- can you give us how that broke down between the merch margin and the occupancy?

It was primarily a merch margin.

Occupancy for this quarter was basically flat.

Okay, perfect.

And then on the golf business, obviously doing well, can you remind us how that flexes kind of as a percentage of your business 1Q to 2Q?

I think 2Q is the peak and then it moderates in the back half.

Is that correct?

That's correct.

Okay.

Great.

Thanks, guys.

Chris Rapalje, SunTrust Robinson Humphrey.

My questions were on the e-commerce business.

I realize that's still a small part of the mix, but the rate that -- the 25% growth that you posted for the quarter was impressive and bigger than what I think e-commerce overall grew for the industry.

So, what would you attribute that to?

Are there any particular enhancements that have been made to the website or anything on pricing that seemed to drive the strength there?

It's not really around pricing.

It's around -- a bit around more effective marketing on e-commerce.

It's our in-store associate ordering system that has really helped that -- the e-commerce business.

Those are primarily the big drivers, as the more awareness on our site and the associate ordering in-store has certainly helped that business, too.

Okay.

And then just secondly, are there -- the customer that's going to your site, is that -- are you finding that that's a current store customer and is there any cannibalization going on?

Or do you see gains with customers you haven't seen before?

Well, I think there's a combination of both.

But we really think -- we view ourselves as a multi-channel retailer.

We just want people shopping with us and we don't really care what channel they shop with us in.

So, is it cannibalizing the stores?

There may be some cannibalization with the stores, but we think, with the experience we provide in the stores, the experience that we are providing and we expect to enhance going forward online, it will just drive the entire business.

And we're kind of -- our goal is to be ambivalent as to where someone shops -- whether they shop us online or whether they shop us in the store.

Okay.

And then just finally, it sounds like you're going to have some investments this year, and enhancements, but ultimately, would you expect the online business to be more profitable than the brick-and-mortar business?

Right now, no.

No.

We still think that we're continuing to make enhancements.

We're making some modifications to our e-commerce business, and we would not expect that to be, as a percent of sales, more profitable than the brick-and-mortar business at this time.

But ultimately, when you're done, when the enhancements are where you want them to be?

Well, I think that's several years from now.

By the time we get to that -- to scale all of the things that we need.

So we're not going to say that we can get -- our stores, we've got a great operating model inside our stores right now.

It's very, very profitable, as you know.

And to say that e-commerce is going to get to that level of profitability, I can't say that yet.

But we will continue to improve the profitability of our e-commerce business.

And our intent is to be ambivalent as to whether someone shops online or in the stores.

Okay.

Well, thanks very much.

Joe Feldman, Telsey Advisory Group.

A couple of quick questions for you.

I was just thinking -- if you look at what you sold through the quarter and what continues to sell, within that mix of sales, is there anything to glean about the health of the consumer?

And what I mean is, are you seeing mostly like replenishment type items going out the door?

Or are you seeing what you guys would consider more, I guess, discretionary items, like, I don't know, people stepping up and buying that Pitchback for the kids for the backyard or something?

We haven't seen anything that would make us concerned about the health of the consumer.

Like, a few years ago, when people were talking about price points were trading down -- we haven't seen price points trading down.

And we're not seeing a lot of inflation right now.

So it's not they're buying the same thing for a greater dollar purchase right now.

Some of the things that we've seen in strength in the consumer is some higher-end running shoes, that we've worked really hard to develop that running business; has done very well.

I think a great indication of that is, if you can provide the customer with a perceived value and the ability to do something in their sport that will enhance their ability to play that -- and the TaylorMade R11 driver is the perfect example.

It's a $399 driver.

And if it's not our best-selling driver, it's our second-best-selling driver.

That driver has just been off the charts.

And it's been a long time since we've had one of our best-selling drivers be a $400 driver.

So we think the consumer is willing to step out and buy if they perceive that what they're buying is truly going to help their performance.

That's helpful, thanks.

And then also, can you remind us, the lost sales that you -- during April when sales sold off, and you said it's come back up to normal sales, were those sales just delayed?

Or do those typically go away?

Like if you don't get that team sport item sold right away, it generally doesn't get sold again?

I think that -- there's some of those that were just delayed -- there's some of them that are gone.

So, from a consumable standpoint, if guys were out there playing golf and had lost golf balls, had worn-out golf gloves, et cetera, those sales are gone.

They're not coming back.

But somebody who delayed the purchase of a kayak because they couldn't get on the river because it was dangerous because of the high water, that business isn't lost; that's merely delayed.

So there's a combination of some of the business is lost, and some of it is just delayed.

That's helpful.

Thanks, guys.

Good luck in the quarter.

Jessica Bornn, Sterne, Agee.

It's Sam Poser at Sterne, Agee.

I just have two questions.

Number one, have you seen any -- with all the issues going on with sourcing and so on -- changes in the timing of deliveries?

Having to shift orders around because goods are running late?

Or have you had to shift your cycles at all, given a merchandise flow out of the Far East?

No, we haven't seen any significant issues around deliveries that would make us concerned.

Okay.

And then two other questions, real quick.

On the e-commerce part of things, are you looking at mobile -- are you looking at some mobile apps that -- is that like the next step on how to get closer to the customer?

And then, lastly, on the new stores, is there a difference between the way you staff a brand-new store opening versus a normal store?

I mean, is there any differential that would make those stores more productive from a staffing perspective?

No difference of a staffing perspective on the new stores.

So, no.

And the answer to your first question, yes, we're looking at mobile apps.

We're looking at -- all of the aspects of e-commerce retailing that you would expect us to be looking at, we're looking at.

Thank you very much.

Mark Mandel, ThinkEquity.

I was wondering if you could just give us a little bit more color on the delta and the expense growth in the fourth quarter into the first quarter of last year?

The final quarter expenses were up 16.2% versus 4.2% in the most recent quarter.

Could you give us a little bit more detail on that?

The detail I'm willing to share is from the administrative expense side.

We had a slight amount of deleverage as we've invested, particularly in the fourth quarter of last year and some additional hires, particularly in IT and product development IT, in particular to start driving some of the initiatives that Joe had mentioned earlier.

But the lion's share of the leverage for the first quarter was the advertising spend.

Okay.

Got you.

And the second question, in terms of footwear, could you give us some idea on the increase in average selling price?

And I assume that that's coming from new products?

Or are you actually raising prices on existing units?

When you say raising prices on existing units, I'm not sure what you mean by that.

Well, footwear that's not a model change -- that kind of thing.

There hasn't been a big increase in footwear prices.

Okay.

And the overall average selling price of footwear?

I don't have that off the top of my head, but my sense is it's not a whole lot different.

It might be slightly higher, because we really moved into a different mix, really focusing on -- trying to focus on that core runner.

We've brought in brands over the last couple of years that are higher-priced, higher-quality running shoes.

And our group has done a great job developing that business.

And then, finally, I noticed that you repurchased $3.3 million of your stock.

Is there -- do you have an authorization in place?

Or is this just to offset dilution from options?

How do we read that?

First, there is no share authorization and we didn't buy stock back under an authorization.

That was the restricted shares that the Company settled with each of our executives with restricted shares that were completely vested in this current year.

That is a net share settlement perspective.

Got it.

All right, thanks a lot and good luck.

Chris Svezia, Susquehanna.

Just a couple of questions.

I guess, Ed, for you, when you think about your comp forecasts for the year, and as we go into the back half of the year, I guess, to get to your outlook, it sort of assumes you sustain the sort of 3%, maybe 3.5% comp growth in the back half of the year.

Against some difficult comparisons on a one and two-year stack basis, just maybe give us some more tangible drivers to your confidence as it relates to that comp growth, whether e-commerce becomes a bigger percentage or strength in apparel and footwear cycles continue to unfold, or the outdoor business -- just some thoughts about how you think about that back half [to our] comp.

It's a combination of many of the things that you just laid out.

So we expect, from a consolidated standpoint, the Golf Galaxy business, the e-commerce business; there's aspects of our traditional Dick's business.

The apparel business has been very good, both on the men's side and the women's side.

We feel that the footwear business is continuing to perform very well.

But we're confident that we can hit these numbers of 3% that we laid out for the year.

Okay.

And then just on the margin drivers, just so I have it, when you think about the core business, you have private label continuing to grow as a percentage, and it seems like you're executing better there.

Mix, I guess, continues to be favorable there as well.

And inventory management was the other bucket.

Is there any way to rank those in terms of which one has the directional, the biggest benefit to the margin?

Or are they all pretty equal?

I would say right now the one that has probably the least benefit would be the increase in private label.

That's going -- we've talked about what we want to have that of the next five years; but, as kind of moving the needle, that would be the least of them.

The other two -- the other ones would be relatively equal.

Okay.

And then the last thing -- I think, Tim, did you mention occupancy costs were flat as a percent in the first quarter?

I didn't catch what you said earlier.

Yes, that's what I said.

We're flat.

It was flat?

Then, I guess when you guys think about, if you comp 3% for the year and you're not going to get any occupancy leverage, is that just [depreciation] expenses just accelerate, and therefore, you don't get as much leverage?

I'm just curious why you were flat on a [2%] comp -- it seems a little bit better than (multiple speakers) [that].

Well, on an individual quarter basis, it's going to be different.

On the full-year basis, about a 3% comp will leverage for us.

But in individual quarters, we can have many number of things that affect the overall occupancy, whether it's [cam or] real estate tax differences or co-tenancy issues.

But on an annual basis, consolidated, about a 3% should get us there.

And when we talked about leverage versus deleverage for the whole year, we said very slight deleverage.

But the depreciation issue that we talked about earlier, keep in mind we did about 12 stores last year, so we have that depreciation entering this year.

And we have about 14 remodels this year.

And that depreciation will also be entering into the occupancy line.

Okay.

Fair enough.

Thanks, guys.

Appreciate it.

Paul Swinand, Morningstar.

Thanks for taking my question.

First question is on inventory.

Obviously, you've been holding inventories steady.

It was down during the recession.

Now we're seeing a lot of retailers incrementally investing in inventory a little bit above the sales line.

Over the longer term, do you think you're maybe missing a little sales?

And do you feel that you'll need to invest a little more heavily in inventory?

Or do you think you can hold this run rate and even continue to leverage over the long-term?

We think -- well, I'm not sure how you define the long-term, but certainly, over the balance of this year, we think we can keep the inventory growth below the comp sales growth.

So we think there's still the ability to leverage there from what we're doing right now.

But do you think you're missing a few sales here and there in some categories?

Or is it --?

We don't.

I mean, is there a store or two that you can go in and not find something?

Yes.

But that's not because of these systemic modifications that we've put into our inventory plan.

So, no, we don't -- when we're out in the stores, we're not hearing complaints that we're missing sales.

Okay.

Fair enough.

Thanks for that.

And then if you -- would you care to share some of the metrics on the remodels?

I know you've got the 14.

Can you give us just approximately what that -- how much is going into CapEx per store?

And then is the cycle -- is it a 10-year depreciation?

Or how does that cycle?

Well, first, we don't really give out the information per store, even on an average basis, for the remodels.

But you can assume that the depreciation would be spread over the remaining lease period of the stores.

Okay.

Thank you very much and good luck.

Matthew Fassler, Goldman Sachs.

Actually, I have a couple of follow-ups.

But the first relates to advertising.

Can you talk about the impact that you think pulling back on advertising might have had or could have on your same-store sales?

Clearly, as the weather -- with the weather, you weren't going to get paid, so I understand that decision; but are there any consequences from that decision, based on your experience, as it relates to the top line?

We don't think so, Matt.

We think that where we cut back was really in these categories that were affected by the weather in some of those -- in those areas.

And we really don't think that it's had an impact.

And then the second follow-up question relates to your cash balance.

You spoke about essentially keeping the war chest intact for potential acquisitions.

Would you also contemplate, over time, financial reinvestment in terms of return of capital to shareholders?

Yes, that's one of the things that we've talked about.

So there's a number of things that we can do with that capital.

We can return some of it to shareholders; we can make an acquisition.

There's -- we can invest in our own real estate.

And right now, we've got some cash.

But at the end of the day, we've got $500 million.

We could -- we think that it's okay to build that cash over the next relatively short to medium-term, and see what may come our way, what would be available to us.

But right now, at least through the balance of this year, unless we found some strategic acquisition that was very compelling, I would expect we would continue to build some cash.

Got it.

Thank you so much.

Jon Grassi, Longbow.

Thanks for taking my question.

I apologize if I missed this, but can you talk specifically on which regions performed well and which ones were a drag on the comps?

We've never talked about laying out the country and saying what areas have done well and what areas that haven't.

But if you kind of take a look at the weather patterns where there were tornadoes, floods, and constant rain, it would be pretty safe to say that those are the areas that didn't do as well.

And the areas that didn't have that kind of weather, they did better.

Okay.

So even in the South where there was -- I guess there was tornadoes near the back half of April, would you say that impacted that region significantly?

It impacted that region, for sure.

Okay.

All right.

Thank you.

We have no further audio questions at this time.

I will now turn the call back over to Ed Stack for any closing remarks.

Well, I'd like to thank everyone for joining us on our first-quarter conference call.

We'll look forward to talk to everybody about our second quarter.

Thank you.

Thank you for your participation in today's conference.

This concludes the presentation.

Everyone may now disconnect and have a great day.