DICK'S Sporting Goods Inc (DKS) 2016 Q3 法說會逐字稿

Good morning and welcome to the Dick's Sporting Goods third-quarter earnings conference call.

(Operator Instructions)

I would now like to turn the conference over to Nate Gilch, Director of Investor Relations.

Please go ahead, Sir.

Thank you.

Good morning and thank you for joining us to discuss our third-quarter 2016 financial results.

On today's call will be Ed Stack, our Chairman and Chief Executive Officer; Andre Hawaux, our Chief Operating Officer; and Lee Belitsky, our Chief Financial Officer.

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

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

During this call we will be making forward-looking statements which are predictions, projections or other statements about future events.

These statements are based on current expectations and assumptions that are subject to risks and uncertainties.

Actual results could materially differ because of factors discussed in today's earnings press release in the comments made during this conference call and in the risk factor section of our form 10-K, form 10-Q and other reports and filings with the Securities and Exchange Commission.

We do not undertake any duty to update any forward-looking statements.

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

Our presentation of the most directly comparable 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 Dicks.com.

I will now turn the call over to Ed Stack.

Thanks, Nate.

I'd like to thank all of you for joining us today.

But before I begin, I'd like to take a moment to introduce Lee Belitsky, our new Chief Financial Officer.

Lee's appointment comes following an already distinguished career at Dick's Sporting Goods that spans nearly 20 years.

In that time he's held a number of leadership positions such as VP Controller and Treasurer, Senior Vice President of Strategic Planning and Treasury Services, Senior Vice President of Store Operations and Supply Chain and, most recently, the Executive Vice President of Product Development, Merchandise Planning Allocation and Replenishment.

Lee's strong financial acumen and extensive leadership experience will be instrumental to the continued growth and success of Dick's Sporting Goods.

Thank you, Ed, and thanks for the kind words.

It's great to be here this morning and I am looking forward to working with all of you.

Thanks, Lee.

We had a strong third quarter and delivered non-GAAP earnings per diluted share of $0.48 with consolidated comp store sales of 5.2%, both exceeding the high end of our guidance range.

Our e-commerce sales increased 33% and grew to 9.6% of sales compared to 8% in the same quarter last year.

During the quarter we've realized meaningful market share gains and saw growth across each of our three primary categories: hardlines, apparel and footwear.

Both our outdoor and golf businesses comped positively.

Footwear was strong and we remain encouraged with the results of our premium full-service footwear decks.

Growth in apparel was driven by license, which benefited from the favorable teams in the Major League Baseball playoffs.

This growth was partially offset by declines in some cold weather categories.

We continue to drive differentiation through our strong private brand portfolio and we are very pleased with the performance of key brands such as CALIA and Field & Stream.

Looking ahead, we expect to private brand annual sales to reach over $1 billion in the next few years and have multiple new launches planned and 2017.

Now let me provide a few updates on how we remain focused on driving profitable growth and capturing market share.

On the marketing front, our recent Olympic campaign and contenders program was a great success, garnering over 600 million media impressions and generating significant brand awareness.

Building on this momentum, we announced the extension of our Team USA partnership and in-store employment program through the 2018 Winter Games in South Korea.

Additionally, we are making progress on the recently acquired TSA customer information and will be directly marketing to these customers during this holiday season.

In early November we completed the purchase of Golfsmith's strongest assets, including intellectual property and leased designation rights.

This marks a terrific opportunity for us as we continue to build our position as America's number one golf retailer and focus on capturing a significant amount of market share as the industry consolidates.

Looking to next year, we expect this acquisition to be accretive to our earnings.

Digital is a big priority and this business continues to accelerate.

We have made significant investments in our e-commerce business and remain on track to relaunch Dicks.com on our own web platform in the first quarter of next year.

Our e-commerce sales will be just under $1 billion this year and we believe there is meaningful opportunity for future growth.

We're also pleased to share an update on Dick's Team Sports HQ platform, which we launched this past January.

Team Sports HQ is a suite of digital tools that provide youth sports leagues and their affiliates with access to free online registration, team websites, custom uniforms and fan wear as well as the mobile app through which teams can schedule and communicate with each other.

Our aspiration is to become the hub of youth sports for kids, parents, coaches and league officials, making this platform the authentic resource for all the needs in team sports.

As part of this strategy, I'm excited to announce that we now have an agreement in principle to become the official league technology provider for Little League Baseball and its affiliated organizations.

This partnership, Little League's over 2.1 million athletes, coaches and administrators will have access to Dick's Team Sports HQ services.

Looking onto the fourth quarter, we are confident that our assortment in marketing will help us to continue to capture this displaced market share this holiday season.

In closing, I'd like to thank our associates across the Company for the hard working commitment they've showed to deliver these significant third quarter results and for the upcoming efforts in this important holiday season.

I'd now like to turn the call over to Andre

Thank you, Ed.

During the third quarter we continued to execute on our growth drivers and expand our powerful omni-channel platform.

We opened 27 new Dick's Sporting Goods stores and relocated 4 Dick's stores.

We also opened seven new Field & Stream stores and two new Golf Galaxy stores and closed one Field & Stream store.

16 of the Dick's stores open in new markets including Houston, the fourth largest city in the country, where we've historically had no Dick's stores.

The Houston grand opening was the largest in the Company's history.

We opened 10 stores on the same day, including 2 locations that featured Dick's, Field & Stream and Golf Galaxy stores, all housed under the same roof.

These unique shopping destinations are the first of their kind and provide the Houston community with unmatched selection and service for all their sporting goods, outdoor and golf needs.

Last quarter we purchased TSA's intellectual property and the right to acquire 31 store leases.

After a thorough reverse process, we have retained 22 of these leases, primarily located in California and South Florida.

Next week, the first three of these former TSA stores will reopen as DICK'S stores and the majority of remaining stores are expected to reopen during the first quarter of 2017.

As we've discussed, one of the ways we are driving store productivity is through our premium full-service footwear decks, which encompass a best-in-class merchandising presentation, elevated service levels and a broader assortment.

At the end of the quarter we had 182 premium full-service footwear decks and will convert the final two stores in time for the holiday season.

The sales results are encouraging and we plan to incorporate these decks in the majority of our new stores next year.

Lastly, as Ed mentioned, we recently purchased Golfsmith's intellectual property and the rights to acquire store leases along with inventory for 30 stores.

The purchase price was approximately $43 million, of which $32 million is related to inventory.

The intellectual property includes the name Golfsmith as well as domain names, owned private brand and, importantly, customer information.

The deal was structured with maximum flexibility where we have the right to retain or reject any or all of the leases.

In total, we plan to evaluate approximately 40 leases.

These include 30 of Golfsmith's most profitable locations where we acquired the store inventory.

We're currently operating these locations and we plan to convert them to the Golf Galaxy brand by the end of the fourth quarter.

I'll now turn the call over to Lee to review our financial performance in greater detail.

Thank you, Andre.

Good morning, everyone.

Beginning with our third quarter financial results, consolidated sales increased 10.2% to approximately $1.8 billion.

Consolidated same-store sales, which includes all banners both online and in-store, increased 5.2%, which was above the high end of our guidance.

Within this, Dick's Sporting Goods omni-channel same store sales increased 5.5% driven by a 1.3% increase in ticket and a 4.2% increase in traffic.

Golf Galaxy omni-channel's same-store sales decreased 3.3%.

We continue to see strong growth in our e-commerce business, which increased 33%.

Gross profit for the third quarter was $553 million or 30.54% of sales, up 81 basis points over last year.

Within this increase, merchandise margins expanded and we leveraged occupancy expenses, partially offset by shipping costs associated with growth of our e-commerce business.

Non-GAAP SG&A expenses were $453 million for the quarter or 25.04% of sales, an increase of 147 basis points from the same period last year.

The deleverage was primarily driven by three items.

First, we increased administrative headcounts to support our growth initiatives such as our e-commerce platform.

Next, we invested in our Olympic marketing campaign.

And lastly, we continued to invest in payroll to enhance the shopping experience within our stores, including premium full-service footwear.

We also received the multi-year $2.9 million sale tax refund that favorably impacted other income in the quarter.

In total, led by our strong comp store sales performance, we delivered non-GAAP earnings per diluted share of $0.48, which exceeded the high-end of our earnings guidance of $0.42.

During the quarter we incurred approximately $7.6 million of cost pretax or $0.04 per diluted share to begin converting former TSA stores to Dick's stores.

These costs include occupancy expenses and professional fees related to the transition.

During the same period last year, we recorded a litigation settlement charges of $7.9 million pretax or $0.04 per diluted share.

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

Now looking to our balance sheet, we ended the third quarter with approximately $85 million of cash and cash equivalents and $261 million in borrowings outstanding on our $1 billion revolving credit facility.

Total inventory increased 4.8%, which is well below our 10.2% sales growth in the quarter.

We are very comfortable with our inventory levels and the quality of our merchandise as we transition into the holiday selling season.

Turning to our third quarter capital allocation, net capital expenditures were $53 million or $99 million on a gross basis.

Additionally, during the quarter we paid $16.8 million in dividends and repurchased $9 million of stock at an average price of $51.53.

Our year-to-date share repurchases totaled $116 million and we have approximately $1.1 billion remaining in our authorizations.

Now, let me wrap up with their outlook for the remainder of the year.

As Ed indicated, we believe we have merchandising and marketing plans in place to drive sales during this important holiday season.

For the fourth quarter, we anticipate non-GAAP earnings per diluted share in the range of $1.19 to $1.31 with an increase in consolidated same-store sales between 3% and 6%.

Fourth quarter operating margin is expected to increase slightly at the higher end of our comp guidance range and declined toward the lower end of our range.

Within this, we expect gross margins to increase in SG&A expenses to deleverage.

Looking at the full year, we are raising our guidance and now expect non-GAAP earnings per diluted share of between $2.99 and $3.11.

This compares to our prior guidance of between $2.90 and $3.05.

We now expect consolidated same-store sales to increase between 3% and 4%.

To remind everyone, we are investing in three key initiatives in 2016, impacting EBT by approximately $50 million to $55 million: first to transition and grow our e-commerce business; second, to build our brand by partnering with US Olympic Committee and Team USA; and third, to support the rollout of our full-service footwear decks.

As a result, higher SG&A expenses with some partial relief from gross profit improvement will cause operating margins to decline year-over-year.

Net capital expenditures for the full year of 2016 are expected to be approximately $275 million or about $450 million on a gross basis.

Please note that our fourth quarter and full-year non-GAAP earnings per diluted share guidance does not include certain costs, which I previously described, to convert former TSA and Golfsmith stores.

We will continue to separately report these costs to you in future periods.

This will conclude our prepared comments.

We appreciate your interest in Dick's Sporting Goods.

Operator, please open the line for questions.

(Operator Instructions)

Seth Sigman, Credit Suisse.

Please go ahead.

Thanks a lot.

Good morning and really nice quarter, guys.

I wanted to dig into the guidance a little bit for the fourth quarter and kind of the thought process behind comps up 3% to 6%.

You have a pretty easy comparison.

And I'm sure there's naturally some conservatism just given how big the fourth quarter is but any considerations maybe weather or something else that we should be watching?

Yes, Seth, it's primarily around weather.

And we've had similar weather patterns than we had last year.

And we're weather sensitive in the fourth quarter.

So we've got a lot of outerwear both ski outerwear, cold weather outerwear, hunting outerwear and we're weather sensitive in the fourth quarter.

And we're just concerned about what's going to happen from a weather standpoint.

And then to follow-up, as you think about what's embedded for the fourth quarter in terms of margins, is there an assumption that maybe there's a little bit more discounting or promotional activity to work through -- any sort of cold weather inventory that maybe out there?

Not really.

We're concerned about what will happen from a cold weather standpoint.

But we don't have anything baked in from a more promotional environment.

As you saw, our inventory increased at half the rate that our sales increased.

So we're really we're confident in the inventory levels that we have and the quality of the inventory.

So we're not terribly concerned there.

Got it.

Okay.

And then on just gross margin in the third quarter, anyway to quantify how much of the leverage was occupancy leverage versus merchandise margin improvement?

The majority of it is in the merchandise margin improvement.

Okay.

Great.

Thanks.

Michael Lasser, UBS.

Please go ahead.

Good morning.

Thanks a lot for taking my question.

If you look at the stores that were not in areas that directly surrounded a competitor closing, how did those stores comp during the quarter?

We don't provide that level of granularity.

So we're not going to give you the specifics but our stores where we have market share opportunities where Sports Authority closed, we're starting to see a little bit of that.

Where Golfsmith his closing or closed, those stores, as you would expect, performed better than the stores that had no change in the competitive environment.

Was there 2x, 3x or just more marginally better.

We're not going to provide that level of granularity.

Okay.

And heading into this year, you expected the strategic investments between building up e-comm, the Olympic marketing campaign and labor investments to cost you $50 million to [$55 million], if you back that out from your SG&A run rate and what's implied in the fourth quarter, you're still going to do deleverage SG&A considerably.

So are you just reinvesting a significant amount of the market share back into other parts of the business and this is how philosophically you want to see the business unfold over the next 12 to 18 months?

Well I think that investment will slow as we go into next year.

But we made a number of investments, as we said, from an e-commerce standpoint from what we're doing with the full-service decks from the Olympic campaign growing our brand in general.

But that growth will slow going into next year.

Do you expect the flow through to be much better next year than it is this year?

Well we've talked about just with the fact of what will do from an e-commerce standpoint that we expect the operating margins to increase approximately 30 basis points from what we're doing from and e-commerce standpoint.

And we're not going to provide our guidance for 2017 now.

But you can expect that those operating margins will increase next year.

Okay.

Thank you so much.

Sure.

Robbie Holmes, Bank of America Merrill Lynch.

Please go ahead.

Hi.

Good morning.

This is Rafe Jadrosich on behalf of Robbie.

Can you just discuss the trends you're seeing in apparel kind of excluding the license business?

Do you think the softness you're seeing there is entirely based on the warmer weather?

Well we think that weather has impacted this.

We're pretty pleased with what's gone on with our apparel business overall.

On the athletic side, the cold weather merchandise has not been what we had hoped it would be.

We were hoping for a little different weather pattern.

But with that being said, we've been very -- our team has done a great job from an inventory standpoint.

Our brands have worked great with us on inventory.

And even if the weather doesn't get cold like we hope it would be, we don't really see that we have anything meaningful from an inventory issue.

So excluding licensed apparel still grew?

We're pleased with it -- yes it did.

Okay.

And then what was the traffic in ticket during the quarter?

Let us get back to on that.

Got you.

And then just one final question.

On the 22 TSA stores your converting to Dick's stores, just in the context of maybe next year store growth should we think about those as replacing Dick's openings or would those be incremental?

Well they'll be a little bit -- it will be a little bit of both.

So it's going to be some incremental because when we bought these we had already had a real estate plan in place.

So it's going to be slightly incremental but all of them opening up -- it won't be all incremental.

We slowed a little bit in the back half of the year and moved some of them to 2018.

And the ticket was up 1.3% and the traffic up 4.2%.

Great.

Thanks so much.

Michael Baker, Deutsche Bank.

Please go ahead.

Thanks.

What happens if the weather gets cold?

How quickly can you get more merchandise into your stores because your inventory per foot is down quite a bit?

So how does that work with your vendors?

Yes we've got what we characterize as partnership orders with the vendors that there's product that if it gets colder and we need it or we see certain styles selling that we will release that inventory and it will be into our system.

So if it gets cold, we will be fine from an inventory standpoint.

If it doesn't get cold, we will still be fine from an inventory standpoint.

We've got these partnership orders and the brands have been terrific to work with.

And so a follow-up on that, with the competitive situation having evolved as it has, are you seeing more access to partner inventory?

Or are those conversations sort of improving in your favor, not just for the partner inventory but just in general with your vendors?

Let's put it this way, they've gotten better.

We've gone about this in a true partnership with the brands.

They've talked to us about what opportunities they think that we can pick up from TSA.

We're starting to have conversations with the golf vendors about what opportunities we might have to be able to pick up with Golfsmith that we may not have been fully aware of.

So the partnership and the communication and the collaboration with the brands has been very helpful.

Okay that's great.

Thanks.

One more quick follow-up if I could slide it in.

You've extended the Olympic deal.

So any way to quantify what that will cost from your $50 million to $55 million for this year we were able to sort of estimate the impact of 2016.

I thought it would be a zero next year, now that it's extended what should we assume in our model?

Not significant.

It's all built into our total marketing budget.

Okay.

Appreciate that.

Thank you.

Stephen Tanal, Goldman Sachs.

Please go ahead.

Good morning, guys.

Thanks for taking the question.

Just wanted to talk for a minute about some of the puts and takes in the comp.

Ed, you had mentioned that there may have been sort of an overhang from the TSA sales heading into back-to-school and cleats and that sort of thing.

Do you feel like that actually happened?

And do you have any different expectations for share gains from TSA and 4Q versus 3Q as a result?

Well did some of that happen?

Yes, it did.

It wasn't to the extent that we had anticipated.

So it was better than we had anticipated.

Going forward, we think that there is still meaningful market share gains to get over the next couple of quarters.

And our fourth quarter is really -- a lot of it is driven by weather.

But we think that from TSA and Golfsmith closing as this industry consolidates, we're clearly the -- one of the big winners in this consolidation.

And we expect that market share -- those market share gains to continue.

Okay.

That's helpful.

And just on license as we try to think about what the World Series may have done there in that business overall, is there anything you can share?

Obviously best would be an estimate of what you think license did to the comp.

But if not, then maybe just size up license as a percent of total just to help us think about order magnitude there.

Well we won't give it to you as granular as you probably want it.

But it was really important to that quarter.

And our team did a terrific job all through the pennant races and then leading up to the World Series.

The team really did a great job.

We reopened stores when the Cubs and the Indians clenched the pennant and both cities responded, both cities were really excited about their teams being in the playoffs.

And it was helpful to our business for sure.

Awesome.

And then just last from me, I'd just love to understand kind of your initial expectations around the TSA conversions and the Golfsmith stores as well just as we've model those then.

Are the TSA sites -- the ones that reopened under Dick's likely to look like a Dick's from the sales and profitability perspective?

Or should there be some sort of a ramp?

And same question for the Golfsmith, which obviously you are operating today so you probably have a better feel for that versus Galaxy.

So, Steve, this is Andre.

I'll take the first part of that relative to the TSA's that we are going to be opening.

Many of those are going in to very much underpenetrated markets for us.

So we see actually them performing very, very well -- very similar to the kind of returns we see in a Dick's store.

They're slightly smaller, not a whole lot smaller, but they'll do very well in those markets.

We also expect to see a significant market share pick up from what is happening in the golf space today between what Golf Galaxy will pick up in the market share will pick up as a result of picking up the most attractive leases we see in the Golfsmith portfolio as we go forward.

Got it.

Okay.

Thanks a lot.

Simeon Gutman, Morgan Stanley.

Please go ahead.

Hi, guys.

This is actually Ben Zimmerman for Simeon.

Just a quick question around -- I think you expressed come conservatism about Q3 with respect to inventory in the marketplace.

What went better in the quarter?

Was it the consumer behaved stronger or there was just last overlap?

I know you called out 1 million pairs of cleats in terms of inventory.

Did you see impacted at all this quarter?

We -- as I said, we thought the impact was less than we had anticipated.

Okay.

Thanks and then just one more.

On a two year basis, gross margins were up 93 basis point this quarter.

I know you didn't give explicit gross margin guidance but, playing with assumptions, it doesn't appear to be much GM growth despite relatively easy comparisons.

Can you help us understand why?

I'm not sure I understand the question.

On the tier basis, GM was up 93 basis points.

And I know you didn't give explicit guidance, but given the significant -- significantly easy comparisons last year, I would've thought there would have been a bigger lift.

Was there anything noteworthy impacting that line this quarter?

Hi, Ed.

It's Simeon.

I just jumped on as well.

I think we're meaning specifically for the fourth quarter.

As we look into it, again, you didn't tell us the breakdown between GM and SG&A.

But it looks like it's set up in a rolling basis to do better and GM and that's what we're trying to understand -- if there's any color around it.

You talking about the third quarter -- the question was the third quarter?

The third quarter the run rate was good and were asking about the fourth quarter.

Okay.

Nothing there.

We just -- we are so sensitive from a weather standpoint.

The cold weather merchandise is a high-margin product.

And we're not sure -- we were hoping it would have gotten colder earlier than it has already.

Yes and just to reiterate, on the Q3 operating performance of gross margin, we feel very good.

Our merch margin was very strong.

And we leveraged occupancy, offset by a little bit of an increased shipping expense as a result of the strong growth we had in our e-commerce business.

So we feel very good about what we saw in our Q3 gross margin performance.

Okay.

And then I just want to lump on one more.

I apologize if this was asked.

Just in terms of the SG&A, I think you read an order a couple of headwinds at least in the third quarter.

You mentioned administrative expense, Olympic and then store payroll.

I guess the Olympic one is fairly clear as far as rolling off.

But those other two items, does that let's say stay in the base?

Does that elevate in the base?

I guess payroll was to take advantage of some of the dislocation out there but how should we think about that going forward?

Well the payroll primarily around -- premium full service footwear deck is a big part of it.

And then the administration piece is really the investments that we are making from an e-commerce standpoint.

And we indicated that -- before you jumped on the call we indicated that, to remind everyone, that we talked about going into next year when we relaunch the dot com business on our own platform that you can expect a 30 basis point improvement in operating margins.

Got it.

Okay.

Thanks, guys.

Good luck in the fourth quarter

Thanks.

Camilo Lyon, Canaccord Genuity.

Please go ahead.

Thanks.

Good morning, guys.

Ed, you mentioned a couple of times that you had meaningful market share growth.

Could you care to quantify what that is, what you mean by meaningful relative to your expectations before the TSA stores closed?

And then more broadly, how do you view that market share capture unfolding the fourth quarter next year?

In other words, do you expect your market share gains to accelerate?

Well we're not going to give you exactly what we thought it was.

But we had a plan of what we thought those market share gains would be and we were real close right on that plan.

I think that the fourth quarter will continue to get market share -- pick up market share gains.

I think we will be able to do that again in the first quarter.

We indicated we thought this would last for three or four quarters as this displaced market share needs to go someplace and were really confident in our ability to pick that up.

We've been executing it right on our plan and we're pretty excited about it.

Would you say that that rate of recapture is consistent in your expectations going forward?

Or is that something that builds over time as more of the TSA customers are flocking to your stores?

Well I think it will be relatively consistent.

Each quarter will have a different pure dollar amount depending on what categories are looking for a home, if you will.

But I would say that it will be pretty consistent.

Got it.

And then just going back to your guidance.

Outside of your weather expectations, is there anything that you're seeing in the business that would cause your guidance to effectively have a pretty meaningful 360 basis point two year deceleration?

Now, again, we're just concerned about what is going on with the weather.

We would have thought that -- we would of hope that it would have gotten colder earlier this year versus what it did in the past, but not really.

And so that guidance then implies that there is no change in the weather pattern from what you're seeing as of today.

Is that how to interpret that?

I would say toward the low end of the guidance.

No change in weather pattern versus how it's going today would get us toward the lower end of guidance.

And if we return to more seasonable weather for December and January, you get toward the higher end of the guidance.

Okay.

Great.

And then just lastly on the license benefit, was there any extension of that benefit into the fourth quarter post the Cubs winning the World Series?

Yes a little bit because they won it in the fourth quarter.

Great.

The final game was in the fourth quarter.

Thank you.

Sure.

Scot Ciccarelli of RBC Capital Markets.

Please go ahead.

Good morning, guys -- two questions.

First, just to clarify something on that last question, the low-end of your 4Q comp guidance assumes weather patterns basically similar to last year then because that kind of went through the full quarter?

Yes, relatively similar to that.

Relatively similar.

Okay.

Thank you.

And then second, have you guys accelerated the planned rollout of your footwear decks?

Because I guess I didn't think the prior plan was to roll out to most of the chain.

And I think that's what you said in your prepared remarks.

And then related to that, is there any color on magnitude or even anecdotes at this point that you can provide to us regarding the list you're seeing in these new decks?

Because obviously you continue to roll it out so you must be happy with what you're seeing.

We are happy with what we're seeing.

We didn't say it was going out to most of the chain.

We said it's going out to most of the new stores that we're opening.

Got it.

But we are very happy with the lift we've gotten.

It's meaningfully different than the stores that did not get this left.

And will continue to assess this and see where we want to go this.

But new stores -- most of the new stores will have the new footwear deck.

Got it.

And then by the end of next year, then how many footwear decks would we actually have within the base or what percentage?

However you guys want to think of it.

I'm going to say by the end of next year we will have 200 -- over 220.

Got it.

All right, thank you, gentlemen.

Sure.

Steven Forbes, Guggenheim Securities.

Please go ahead.

Good morning.

As it relates to near-term revenue transfer associated with the competitive closures, how has that transfer played out by sales channel relative to you original expectations?

And how do you -- maybe it's too early but have you seen repeat orders for new customers in both channels that have converted to the brand?

Or is it too early to measure that?

Well it's a little too early to measure it but we're seeing share gains both throughout the entire omni-channel experience of both in-store and online.

And I guess relative to your expectations, has the channel -- maybe don't look at it that way -- but has the channel mix played out as expected?

Yes we do look at it that way and, yes, it's been pretty much as expected.

And adjust as a follow, again, it might be to early to comment here but what is the experience thus far regarding the competitive environment in Houston?

And or maybe just comment right on the competitive environment in general right in markets where there's a greater level of competition post the TSA closures given the magnitude that those displace share.

Houston obviously stands out, as you mentioned within the prepared remarks too, with the new format and such and the efforts you put there.

So any commentary would be helpful.

Sure.

Houston we opened 10 boxes.

So we opened six Dick's stores, 2 Field & Stream, 2 Golf Galaxy stores.

Two of the units have a Dick's, Field & Stream and Golf Galaxy all under one roof, which is a terrific shopping experience.

We are very pleased with what -- the Houston opening.

We've talked about it.

It was the biggest grand opening in our Company's history.

Both -- not only from the number of stores but just the total sales line we did.

So we've been very happy with Houston.

The Houston market has embraced us.

I think we've provided a different shopping experiences than what is down there in a competitive standpoint today.

So we're really happy about that.

We have not seen any irrational behavior throughout the rest of the country from a competitive standpoint.

It's relatively rational out there and I think it will stay that way through the fourth quarter.

Thank you.

Sure.

Adrienne Yih, Wolfe Research.

Please go ahead.

Good morning.

Let me add my congratulations.

A couple questions -- I guess the first is on the TSA IP -- the customer information list.

How many on that list are new names to you?

And then secondarily, can you give any color on the quarterly progression in quarter-to-date comp trends right now?

And then for CALIA, we saw the TV advertising -- what type of bounce do you do get from that and how large can that business be in the future?

Thank you very much.

Okay.

So as we talk about the progression in the quarter, we don't give -- we don't provide guidance or discussion about that or where we are right now.

We've never done that.

But we're pleased with the way things have been going.

As far as CALIA, that's one of the brands we're going to continue to invest in.

We are very pleased with that.

We're actually going to be expanding the square footage in a number of stores to test a broader assortment of CALIA.

And we continue to be extremely enthusiastic about CALIA.

And what was the -- you had one other part of your question.

It was the customer information list, how many of those are new names to you?

Yes we haven't -- we're still de-duping all of that but there's an awful lot of new names.

Okay.

Great.

Thank you very much and best of luck.

Thank you.

Rick Nelson of Stephens.

Please go ahead.

Hi.

Good morning.

You called out earlier in the year $50 million to $55 million for the brand for the Olympics and e-comm and the full-service footwear in-store.

How much of those expenses carryover into 2017?

So the footwear deck -- they won't accelerate.

So the footwear information or sale of expenses will continue because we've got to operate those.

The Olympic expense will not go forward.

And the expenses associated in the investment associated with e-commerce will slow considerably.

And we've indicated that once we make this change to our own platform the first quarter of next year, we expect to see a 30 basis point improvement in our operating margins.

Okay.

Thanks for that.

I think you called out earlier at [$6 million] related to e-comm?

Roughly -- going into next year.

Right.

Okay.

And then zero or close to it for the Olympics and zero for the full service in-store?

Well the full service won't accelerate anymore but that expense will stay in the base.

We've got the amortization associated with the capital that we put into space and then we have the payroll to operated it.

(Inaudible) called out whether this $17 million for this year?

We never gave that for the total year.

We didn't break it out.

Okay.

Curious your thoughts about Field & Stream stores how they're performing side-by-side with the Dick's stores versus the freestanding.

Well we love -- there's a bit of a difference in the payroll associated.

So we think they're doing better.

We're pleased with that.

We can leverage management expense.

We can leverage construction expense associated with them.

We leveraged a bit of the marketing expense.

These triple plays and combo stores we like a lot.

Great.

Thanks and good luck.

Thanks, Rick.

Sam Poser of Susquehanna International Group.

Please go ahead.

Good morning.

Thank you for taking my question.

I was just wondering -- it may have been asked but when we think about next year and store openings and white space created by TSA, I particularly think of California and Florida, how should we think about your long-term store size for Dick's as well as near closer term store growth?

So, Sam, I think as we talked about earlier, for next year I think you'll see a slight uptick versus what we did this year.

Largely as a result of the integration in bringing on in the first quarter 19 of those 22 TSAs as we are launching 3 of them in the fourth quarter.

From a size standpoint, I think we like our 50,000 but that doesn't mean that in some markets we won't be slightly smaller than that based on our small-market.

And in some markets we won't go after the market within 80,000 from a size standpoint.

We continue to have a very rigorous real estate approach and policy -- very financially driven.

And that was, again, accentuated in the fact that we rejected several of those -- about nine of those leases that we acquired from TSA because they did not meet our hurdle rates and they were not the right real estate.

So you can expect us to continue to be very focused on how we look at the metrics on a real estate standpoint as we go forward.

If I could just follow up on that though, you've got California and Florida that lost just a ton of stores.

I'm not saying going into where the locations where Sports Authority was.

But all of a sudden where there wasn't -- if it was TSA or Sports Chalet in California or just TSA in Florida -- I mean all of a sudden there's areas that all of a sudden that you aren't there, they were there, and all the sudden you have customers that are being underserved.

That wasn't true two years ago.

So I mean it just sounds like it creates a huge opportunity.

I would even say more in California because of Sport Chalet.

And you're right.

So if you were to ask us the areas that we're most focused on from real estate standpoint, I would say it would be Florida, California and the Pac Northwest.

Those are areas that we think that there's a lot of opportunity.

California -- you're right.

TSA and Sport Chalet exiting that market -- there's a big opportunity there.

In the stores that we took from Sports Authority, understand we took their very best -- some of their very best stores that weren't competing directly with Dick's Sporting Goods stores.

So we think these stores are going to be really terrific stores for us.

On top of that, we know there's a lot of white space.

And from a real estate standpoint, that's where we're focused on is where Sports Authority has exited it and there is nobody there.

There's nobody in Southern California.

There's nobody in -- really in Florida in any meaningful way.

We think there is an opportunity for us.

Is that a 2017 or an 2018 story?

Just thinking about it --

It's a 2017 and 2018 story because you just can't turn on the pipeline.

And we've got some real estate that we're looking at there that is going to be ground-up.

We're going to build new stores.

We've got some other things that we're looking at that are going to be taking over existing stores.

But it takes time to -- and in Florida and in California, which a lot of people won't not think of this, but from a permitting standpoint, they are slow from a permitting standpoint and difficult from a permitting standpoint.

So there's just some lead time to get these stores open.

And we're working as fast as we can.

Thank you very much and the best of luck.

Sure.

Thank you.

John Kernan, Cowen.

Please go ahead.

Good morning, Ed, Andre and Lee.

Congrats on a nice quarter.

Thanks.

Can you just talk about the philosophy around golf -- the 30 new Golfsmith stores increases your exposure fairly significantly combined with the 70-plus Golf Galaxy stores.

Can you just remind us where the profitability margins for this category lay in general both in the golf stores and the Dick's Sporting Goods stores?

We can't remind you because we never told you.

But what we have said is that golf is still -- although it wasn't -- has not been a growing business, it's still a very important business to us and a very profitable business to us.

And with these Golfsmith stores, we took their 30 very best stores.

We've got lease designation rights on all of them so we can talk to the landlords and see if we can get the right real estate deal on some other ones.

But these are very, very profitable stores.

They're their very best assets and we feel that golf will be more accretive to earnings than they have been in the past.

And we think this is a great -- this has been a great transaction force.

I understand -- when we talked about this, we understood the street may not really like it because there's not a lot of appetite for golf.

But we needed to do the right thing for the business and this is a great opportunity for us to increase our profitability in golf, which is already a very profitable business for us, it not a growing business.

So now for this next year, golf will be a growing business for us because of the market share for the stores that were -- the Golfsmith stores we are opening up that were their best stores.

But also there's a lot of market share opportunity with Golfsmith going away that is going to be picked up by Golf Galaxy stores and by Dick's Sporting Goods stores.

There's a number -- there's an awful lot of Golf Galaxy stores and Dick's stores that are within a very short drive of Golfsmith.

And we are already starting to see some of that market share get picked up.

Okay.

Sounds like the returns on that -- I'm sorry go ahead.

Sorry.

The other things that were doing a little differently with the Golfsmith stores is were not putting a significant investment into those stores.

So we're going to put in our POS terminals and change the signs from Golfsmith to Golf Galaxy, work on improving our real estate deals there and then go forward with them.

So we're really just buying the inventory in the stores and going forward with profitable stores with very modest investment.

Okay.

It sounds like it will be accretive for next year for sure.

It absolutely will be accretive.

Okay.

And then my final question just centers around some topics that were talked about during elections.

One, minimum wages.

There were several states that approved higher minimum wages good for next year and into 2020.

And then also on potential lower corporate tax rates -- I think you guys pay one of the highest corporate tax rates in our sector right now.

So just wondering how higher minimum wages and higher labor rates are going to impact your number, your SG&A for next year.

And then if you can just talk about the potential for lower taxes long-term that also would be helpful.

Thanks.

Well just on the labor rates, we've got that factored into our Q4 outlook because many of those rates went into effect.

And as we talk about our outlook for FY17, on the fourth quarter, we will let you know.

It's not material.

As we've looked at this already and looked out at it forward, it's not going to be material.

It won't change our long-term outlook.

And with respect to tax rates, if we can get lower tax rates that would be great.

I think everybody would love at lower corporate tax rate.

So we're all in favor of that.

Okay.

Thanks.

Best of luck.

Matt McClintock, Barclays.

Please go ahead.

Hi, yes.

Earlier you mentioned that it seemed like the competitive environment is rational.

I was also wondering, as you look across the broader competitive landscape into both footwear and apparel, are you seeing a return to more full price selling across their competitive tiers, especially now that their vendors seemed to have cleaned up some of the inventory in the channel?

I don't know if it's more really full price selling but it hasn't gotten any more competitive.

No more -- there's nothing irrational about what's going on.

With that being said, we do expect our merchandise margins to have some more room to run.

It'll be a combination of what we're doing from our private brands such as CALIA, Field & Stream.

The fact that our inventory is in great shape -- you saw our inventory grew at half the rate of our sales, which our inventories in great shape.

We think that that will mitigate some markdown exposure on the back end.

So we're enthusiastic about what could happen from a margin rate standpoint.

Thank you very much.

Sure.

Mitch Kummetz, B. Riley.

Please go ahead.

Yes, thanks for taking my question.

So the fourth quarter earnings guidance -- the range $1.19, $1.31 -- that was basically the default guidance previously given where the full year was, what you were saying for Q3.

So it does sound like you're being a little bit more cautious on the weather side.

I'm wondering if that caution was already baked into the prior default Q4 guidance.

Or if it wasn't, did something improved kind of offset your being more conservative on the weather side?

I don't know if that question makes sense.

I know what you're trying to say.

We are concerned about what is happening with the weather.

When we had talked about the fourth quarter guidance, we really weren't sure what was going to be the implied fourth quarter guidance.

Right.

What we gave at the end of our second quarter -- so we really didn't know what was going to happen with the displaced market share with TSA.

We had a sense of what would do.

We were able to do very well and be right on our plan for what we thought we would be able to capture.

But we're sensitive to the weather in the fourth quarter.

And we have not gotten any cold weather to speak of.

Where it has gotten cold here in there, a little bit in the Northeast a couple weeks ago -- a couple weekends ago, business was terrific.

It was great.

But we're not sure how sustainable that is going to be.

So is it fair to say then that you're maybe being a little more cautious on the weather than you were previously but, to offset that, maybe you are being a little bit more aggressive on the market share gains side so that net net kind of ended up the same way in terms of that range?

I don't want to get involved and pulled into semantics here.

But we're concerned about what is going to happen with the weather.

Got it.

Fair enough.

And then in terms of -- you guys mentioned from a category standpoint all three major buckets were up in the quarter in terms of comp.

I know you don't want to get into too much in terms of what the recapture was in the quarter but from a category standpoint, are you seeing any better results from a recapture perspective in certain categories versus others?

Well so the answer is yes.

And then if I leave it just at that, your next question will be well can you tell me what categories.

So I will just answer that for you.

And I'm not going to get into a lot of detail there, but we've captured it around the areas that we had anticipated.

So we knew that the team sports area would be a big opportunity for us.

There's just less competition out there for that area.

Athletic foot were was really very good.

Apparel was good.

So those areas were -- you would think Sports Authority was strong when you walked into a Sports Authority store and that business is gone.

That's where we picked up a lot of market share.

The team sports area was one that we thought would be terrific for us and it has [been].

Okay.

And then lastly I don't think you guys have gotten a Field & Stream question yet so I'll ask one.

There's some store in the comp base there now so I don't know if you can talk about the performance of those stores.

And I would imagine those stores kind of -- I think you said outdoor in general comps positively but I would guess those stores maybe skew a little bit more towards weather.

And so I'm just kind of curious how you're thinking about those stores in the fourth quarter as well.

Well we're pleased with the performance of those stores.

And from a profitability standpoint, better than last year.

We're pleased with those stores.

But they're also a bit weather sensitive because of the men and women and kids who are going hunting.

If they're hunting -- if they need boots and they need base layer product and they need jackets and gloves, that's better for us than if they don't.

Last year they didn't.

We hope they will this year.

But, again, it's a bit of the weather story associated with the apparel and boot categories in Field & Stream also.

But bottom line is we're pleased with what's going on with Field & Stream.

Got it.

Thanks.

Good luck.

Thank you.

Joseph Feldman, Telsey.

Please go ahead.

Hi, guys.

Thanks for taking the question.

Want go back to the stores question for a moment.

Can we talk about organic growth?

And I know without wanting to give too much guidance for 2017 but how should we think about organic growth considering the 22 TSA stores, the 30 Golfsmith stores that you have acquired?

How will that factor into how the growth plans will look next year or beyond?

Well we actually look at the TSA stores that we're taking over as organic growth.

Organic growth is operating a Dick's Sporting Goods store right from the ground up.

These stores are closed.

It's not like we're buying an ongoing business and trying to then integrate it into Dick's.

We're basically -- the TSA deal for us and the Golfsmith deal is really a real estate play for us.

The Golfsmith -- the TSA stores other than a couple that we're just opening up quickly are going to get renovated and look pretty similar to a Dick's Sporting Goods store.

So we really think it's all organic growth, even the TSA or Golfsmith stores that we're taking over.

It really is, just as I said, a real estate play.

That makes sense.

Okay.

So we should think about then total growth rate for stores or square footage similar to prior guidance that you've given then -- incorporating those TSA stores.

That makes sense.

In 2017 it might be a bit higher than what it has been because we're opportunistic about these stores.

We had a development plan in place for 2017 and had started on one for 2018.

We tried to modify it to smooth it out a little bit.

But you could expect that our square footage growth in 2017 will be greater than it has been.

But then it will get back down to a more normal level in 2018.

Thanks.

And then two other questions.

One, golf and outdoor I know were positive and while one quarter or one short period doesn't make a trend, do you feel like that has turned the corner and we should see more likely positive or at least flat to positive results going forward for the next year?

I feel -- I would say probably.

I would think that to be honest with you, I think the golf business -- I'm going to go out on a limb here -- our general counsel will probably kick me under the table -- I think that will probably comp positive because of the market share gains.

We've got 100 and some Dick's stores that are within 10 miles of a Golfsmith store that are closing.

That's -- and the TSA stores did some golf business too.

So when you think about that, we've got 126 Dick's stores and 26 Galaxy stores that are within 10 miles of the 79 Golfsmith stores that are closing.

And then we've got 50 Dick's stores and 11 Golf Galaxy stores that are within 10 miles of the Golfsmith store that we're currently operating.

And some of those may result in a Golf Galaxy store closing in favor of the Golfsmith store location.

So I think they're actually going to actually comp positive going forward.

That's very helpful.

Thanks.

And then the last just brief question -- with the election, had you guys seen any impact of pressure on sales to start November?

We've heard other retailers talk a little bit of a distraction given the election, especially at the beginning of the month.

So just curious if you can comment on that.

It was such a short period of time.

And depending on what happened with the weather and baseball playoffs in this and that, so I couldn't tell you.

We don't really think it had any impact.

Got it.

Thanks.

Good luck with this quarter, guys.

Thank you.

Thank you.

Patrick McKeever of MKM Partners.

Please go ahead.

Thanks.

Good morning, everyone.

Just a big picture question, thinking beyond the Sports Authority and Sport Chalet and Golfsmith, how do you view the health of some of the smaller sporting goods players that are still out there, some of the regionals, some of the independents?

And how do you think about your current market share and the opportunity across the industry as a whole?

Well I love the position that we're in right now.

We've got some smaller guys out there and they run their businesses differently.

Some are doing very well, I suspect, and others might be having a bit of a difficult time.

But we love the position that we're in right now.

As this industry consolidates, we think that we are best positioned to pick up the lions portion of the market share.

I think as the industry consolidates, we're the ones that are in position to go back and fill back in to some of those markets where TSA or Sports Chalet has vacated -- similar to Sam's question when we said we're really focused on Florida and California from a real estate standpoint.

And I think we're the ones that we've got the balance sheet to be able to take advantage of those opportunities.

We can move quickly.

And I really like the position that we're in right now.

Okay.

Got it.

And then on the comment about the focus next year being the hub of youth sports or planning to be the hub of youth sports, I saw that with my sons travel soccer team.

I think you're hosting -- or not hosting but supporting the website through Blue Sombrero I think.

So the question is where do you feel you are market share wise within the youth sports business and what kind of an opportunity do you see there?

Just even thinking just bigger picture.

So it depends on how you look at market share for youth sports.

So if you look at from the standpoint do people come and shop our stores for youth sports, I think we're pretty good shape there.

A lot of these teams, though, are going to buy their product, whether it be online or someplace else, we think we've got a big market share opportunity there.

As we take a look at the market share across the social aspect, if you will, of team sports being able to have a technology solution to schedule practices, where the games, directions to the games, all of that stuff, I think we're in the very early innings here and we think we have got a big opportunity.

The amount of names were amassing through Blue Sombrero or Affinity that we brought or how we're growing those names and how we think we can market to these young men, women, their parents, coaches, administrator, we think that there's a big opportunity here that we are in a great position to unlock.

And one of the reasons that -- there's other competitors in this space but we think we are going to do -- have already done very well and are going to continue to do very well and be the largest market share recipient here because we can provide these services for free where others have a difficult time doing that because we can monetize this through the sale of product.

And how we can market them to come into our stores, others can't.

So we think there is a very big opportunity here that nobody has tapped and there's nobody in our industry that can tap this potential the way that we can.

Great.

Thanks, Ed.

Thanks.

Jim Chartier of Monness, Crespi and Hardt.

Please go ahead.

Good morning.

Thanks for taking my questions.

Just curious, were you able to leverage the customer lists and email database at Sports Authority to impact your back-to-school or third quarter marketing plans in general?

And is there a greater opportunity given you've had longer time to look at the data to impact the fourth quarter business with that information?

So actually the third quarter, we weren't.

It was -- things were baked and we were still going -- so the answer is no in the third quarter, very little impact if anything.

It will have a much bigger impact in the fourth quarter and going into the first quarter and second quarter of next year.

Does that have an opportunity for incremental (inaudible) gains versus what you are able to achieve in third quarter?

We hope the.

Great.

And then you mentioned earlier I think multiple new private brand launches planned for next year.

How do the Sports Authority and Golfsmith private brands play into that and which parts of the assortment do you see the most opportunity?

One from Sports Authority that we think we'll have an opportunity to launch around alpine sports -- the cold weather category.

The other one, or a couple things that we're doing organically that we're not ready to discuss it.

But we think we're pretty excited about them and think we'll have a big impact a couple of years down the road.

And what we're able to do with CALIA in a short period of time making that now the number three women's athletic brand in roughly a two-year timeframe gives us a lot of confidence that we can move market share when we want to.

Sounds great.

Thanks and best of luck.

Thank you.

Chris Svezia of Wedbush.

Please go ahead.

Thank you very much for taking my questions.

I guess the first one, Ed, just for you just on the inventory as it relates to outerwear and cold weather merchandise -- whether you want to talk to Dick's specifically or just in the channel.

I know coming in this fall there was a lot of inventory supposedly in the channel off price -- just your thoughts and context relative to the weather and the inventory that's out there and how we should think about it in context of Dick's underperformance in that category.

Well our inventory is in great shape so we're right on plan.

We've got some flexibility on how we manage our inventory going forward.

So whether it's cold or whether it's warm, we will be in pretty good shape from an inventory standpoint we suspect.

I mean obviously it would be better if it's cold than it's warm but we don't think we've got any significant exposure that -- our team has done a great job planning for that, having contingencies associated with the weather pattern.

And you don't think there's any exposure, off-price channels, other retailers in the category that would negatively impact you guys?

What might happen later in the quarter, I'm not sure, but right now we don't see anything.

Okay.

With regard to the fourth quarter and just sort of the SG&A, I just had a question around that.

It looks like in the third quarter sort of the non-GAAP SG&A dollar increased year-over-year roughly $66 million or thereabouts.

And kind of factoring into your guidance for the fourth quarter from an earnings perspective, it looks like the SG&A dollar increased should be about the same give or take.

I'm just curious given the kind of roll off of the Olympics, what other increases are there potentially in that fourth quarter that maybe we're not thinking about previously, whether it's Golfsmith and that's now a part of the cost or incentive comp or things like that?

Is there anything else that's going on in that number we should be thinking about?

Yes so we've got a couple things, one the quarter is just bigger and we've got comps built in it up between 3% and 6%.

The other piece would be incentive comp year-over-year movement's going to be also a factor.

And we continue to have investments in premium full-service footwear.

And we have investments as we come to the end of our e-commerce road map into getting ready to launch the site.

That was even over all four quarters so you'll see some of that.

What's really tailed off in the fourth quarter would be the Olympics spend, which was predominantly in the third quarter.

Okay.

Thanks, Andre.

And then just finally, just optically when you step back and think about the market share gains that you're getting, is it costing you any more than you maybe initially thought to get those market share gains in Sports Authority or Sports Chalet?

Or is it actually maybe more accretive than you thought?

I guess the question is is it just costing you more to get those share gains you expected or no?

No it's not.

It's basically right on plan.

We're right where we anticipated we'd be.

Okay.

Good to hear.

All the best around the holidays.

Thank you.

Thank you.

You too.

Peter Benedict, Robert Baird.

Please go ahead.

Hi, guys, thanks for sneaking it in.

Three quick ones -- first, just on the Golfsmith stores, are they more profitable than your Golf Galaxy stores and, if so, why?

Well the stores that we bought I would say are probably going to be more profitable than the Golf Galaxy stores on average because we bought the best stores.

So if you took a look at our best stores, their best stores, not sure there will be a whole lot of different.

But on average, these will be accretive because we've got their best stores.

Okay.

Understood.

That makes sense.

And then secondly, you talk about CALIA and some of the footwear decks.

Any other brands or categories that are going to be seeing some square footage allocation changes in the core Dick's stores?

I'm thinking particularly about the holiday and then maybe plans for next year?

Yes.

Around holiday not an awful lot different than what we're doing with CALIA, a little bit of Field & Stream.

But you won't see a huge difference this fourth quarter.

And into next spring, we're still working through some of those issues.

You'll see some changes.

You'll see Adidas get more space next year than they have this year.

And actually in the fourth quarter they might get a little bit of space in some stores in the fourth quarter.

But next year we expect to see the biggest change in square footage would be around Adidas.

Okay.

Perfect.

Thanks.

And then lastly just on the outdoor category, the positive comps, can you give us a little bit more color of what the drivers were there?

Was it kind of across the category or was it driven by one or few items?

Was it firearms or camping, et cetera?

Well that outdoor, camp, water sports, paddle area where it has been very good for us.

And that's where the biggest growth would have come from.

Okay.

Great.

Thank you.

Ladies and gentlemen, this will conclude our question-and-answer session.

I would like to hand the conference back over to Ed Stack for his closing remarks.

I'd like to thank everyone for joining us for our third quarter call.

And we look forward to talking to everyone after the holidays seasons.

Best of luck to everyone.

Thank you.

Thank you.

Ladies and gentlemen, the conference has now concluded.

Thank you for attending today's presentation.

You may now disconnect your lines.