DICK'S SPORTING GOODS, INC.
FORWARD-LOOKING STATEMENTS
We caution that any forward-looking statements (as such term is defined in the
Private Securities Litigation Reform Act of 1995) contained in this Quarterly
Report on Form 10-Q or made by our management involve risks and uncertainties
and are subject to change based on various important factors, many of which may
be beyond our control. Accordingly, our future performance and financial results
may differ materially from those expressed or implied in any such
forward-looking statements. Investors should not place undue reliance on
forward-looking statements as a prediction of actual results. These statements
can be identified as those that may predict, forecast, indicate or imply future
results, performance or advancements and by forward-looking words such as
"believe", "anticipate", "expect", "estimate", "predict", "intend", "plan",
"project", "goal", "will", "will be", "will continue", "will result", "could",
"may", "might" or any variations of such words or other words with similar
meanings. Forward-looking statements address, among other things, the impact to
consumer demand and our supply chain due to the pandemic caused by the
coronavirus and its variants ("COVID-19"), including inflationary impacts,
changes to consumer demand and store traffic and supply chain disruptions;
investments to enhance the athlete experience, to improve our eCommerce
fulfillment capabilities, and to implement technology solutions supporting the
athlete experience and our teammates' productivity; the continued improvements
to the functionality and performance of our own eCommerce platform; plans to
invest in our vertical brands with improved space in-store, increased marketing,
and expansion into additional product categories; anticipated COVID-19 safety
costs for the year; plans to leverage our real estate portfolio to capitalize on
future opportunities in the near and intermediate term as our existing leases
come up for renewal; the impact of the issuance of the Convertible Senior Notes,
entering into the bond hedge and warrant transactions, and our intention to
repay the principal outstanding amounts of the Convertible Senior Notes using
excess cash, free cash flow and borrowings on our Credit Facility; projections
of our future profitability; projected capital expenditures; anticipated store
openings, relocations, and closings; plans to return capital to stockholders
through dividends and share repurchases; and our future results of operations
and financial condition.
The following factors, among others, in some cases have affected, and in the
future, could affect our financial performance and actual results, and could
cause actual results for fiscal 2021 and beyond to differ materially from those
expressed or implied in any forward-looking statements included in this
Quarterly Report on Form 10-Q or otherwise made by our management:
?The impact of the duration and scope of the COVID-19 pandemic on our business,
operations and financial results, including the potential impact due to
disruptions in our or our vendors' supply chains and due to restrictions imposed
by federal, state, and local governments in response to increases in the number
of COVID-19 cases in areas in which we operate;
?The impact an economic downturn, inflationary pressures, and supply chain
constraints resulting from the COVID-19 pandemic might have on our business and
consumer demand for our products, and the effectiveness of stimulus payments and
other measures to mitigate the impact of the COVID-19 pandemic might have on
business and consumer spending;
?The dependence of our business on consumer discretionary spending, the impact
of a decrease in discretionary spending due to inflation or otherwise on our
business, and our ability to predict or effectively react to changes in consumer
demand or shopping patterns, including the short-term and long-term impact due
to the COVID-19 pandemic;
?Intense competition in the sporting goods industry and in retail, including
competition for talent and the level of competitive promotional activity;
?Increasing product costs, which could be caused by numerous reasons including
foreign trade issues, currency exchange rate fluctuations, increasing prices for
materials due to inflation or other reasons, supply chain delays and
constraints, or foreign political instability;
?Store closures due to the COVID-19 pandemic or civil disturbances;
?Lawsuits or other claims arising from our response to the COVID-19 pandemic;
?Disruptions to our eCommerce platform, including interruptions, delays or
downtime caused by high volumes of users or transactions; deficiencies in design
or implementation; or platform enhancements;
?Vendors continuing to sell or increasingly selling their products directly to
customers or through broadened or alternative distribution channels;
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?Negative reactions from our customers or vendors regarding changes to our
policies or advocacy efforts related to the sale of firearms and accessories;
?That our strategic plans and initiatives may initially result in a negative
impact on our financial results, or that such plans and initiatives may not
achieve the desired results within the anticipated time frame or at all;
•The potential impact of an increase to corporate tax rates;
•Lack of available retail store sites on terms acceptable to us, our ability to
leverage the flexibility within our existing real estate portfolio to capitalize
on future real estate opportunities over the near and intermediate term as our
leases come up for renewal, and other costs and risks relating to a brick and
mortar retail store model;
?Unauthorized disclosure of sensitive or confidential customer information;
?Risks associated with our vertical brand offerings, including product liability
and product recalls, specialty concept stores, and GameChanger;
?Disruptions or other problems with our information systems;
?Risks and costs relating to changing laws and regulations affecting our
business, including consumer products, firearms and ammunition, tax, foreign
trade, labor, data protection and privacy;
?Litigation risks for which we may not have sufficient insurance or other
coverage;
?Our ability to secure and protect our trademarks and other intellectual
property and defend claims of intellectual property infringement;
?Our ability to protect the reputation of our Company and our brands;
?Our ability to attract, train, engage and retain qualified leaders and
associates due to current labor challenges or otherwise or the loss of Edward
Stack or Lauren Hobart as executive officers;
?Wage increases, which could adversely affect our financial results;
?Disruption at our supply chain facilities or customer support center;
?Disruption or cancellation of organized youth and adult sports programs as a
result of the COVID-19 pandemic;
?Poor performance of professional sports teams, professional team lockouts or
strikes, retirement, serious injury or scandal involving key athletes, and
disruptions to or cancellations of sports leagues and major sporting events due
to the COVID-19 pandemic or otherwise;
?Weather-related disruptions and the seasonality of our business, as well as the
current geographic concentration of DICK'S Sporting Goods stores;
?Our pursuit of strategic investments or acquisitions, including the timing and
costs of such investments and acquisitions;
?We are controlled by our Executive Chairman and his relatives, whose interests
may differ from those of our other stockholders;
?Risks related to our indebtedness, including the Convertible Senior Notes and
the related bond hedge and warrant transactions;
?Our current anti-takeover provisions, which could prevent or delay a change in
control of the Company; and
?The issuance of special or quarterly cash dividends and our repurchase
activity, if any, pursuant to our share repurchase programs.
The foregoing and additional risk factors are described in more detail in Item
1A. "Risk Factors" of this Quarterly Report and other reports or filings filed
or furnished by us with the Securities and Exchange Commission , including our
Annual Report on Form 10-K for the year ended January 30, 2021 , filed on
March 24, 2021 (our "2020 Annual Report"). In addition, we operate in a highly
competitive and rapidly changing environment; therefore, new risk factors can
arise, and it is not possible for management to predict all such risk factors,
nor to assess the impact of all such risk factors on our business or the extent
to which any individual risk factor, or combination of risk factors, may cause
results to differ materially from those contained in any forward-looking
statement. The forward-looking statements included in this Quarterly Report on
Form 10-Q are made as of the date hereof. We do not assume any obligation and do
not intend to update or revise any forward-looking statements whether as a
result of new information, future developments or otherwise except as may be
required by securities laws.
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Table of ContentsOVERVIEW
We are a leading omni-channel sporting goods retailer offering an extensive assortment of authentic, high-quality sports equipment, apparel, footwear and accessories. In addition toDICK'S Sporting Goods stores, we own and operate Golf Galaxy,Field & Stream and Public Lands specialty stores, as well as GameChanger, a youth sports mobile app for video streaming, scorekeeping, scheduling and communications. We also offer our products through an eCommerce platform that is integrated with our store network, providing our customers, referred to as our athletes, with the expertise and convenience of a 24-hour storefront. When used in this Quarterly Report on Form 10-Q, unless the context otherwise requires or specifies, any reference to "year" is to our fiscal year. Our profitability is primarily influenced by growth in consolidated same store sales, the strength of our gross margins derived from our omni-channel platform and our ability to control expenses. We have grown from 676DICK'S Sporting Goods stores as ofOctober 29, 2016 to 734DICK'S Sporting Goods stores as ofOctober 30, 2021 . Our current real estate strategy has resulted in a reduction to the rate at which we open newDICK'S Sporting Goods stores in recent years. We intend to continue this strategy over the next few years, which will allow us to continue to leverage the significant flexibility within our existing real estate portfolio to capitalize on future real estate opportunities as leases come up for renewal. Our future real estate strategy will also include growth in new retail concepts and experiential store prototypes, including Public Lands and ourHouse of Sport prototype. We deploy an in-house eCommerce platform, which allows for continued innovation and enhancements to our eCommerce websites and applications, new releases of our mobile and tablet apps, and the development of omni-channel capabilities that further integrate our online presence with our brick and mortar stores to increase athlete engagement, including ship-from-store; buy-online, pick-up in store and multi-channel marketing campaigns. We also implemented curbside pickup and returns in fiscal 2020 as additional alternatives for our athletes in response to the COVID-19 pandemic, which we have retained in fiscal 2021. Our eCommerce sales penetration to total net sales increased from approximately 10% in fiscal 2015 to approximately 16% in fiscal 2019. Our eCommerce sales growth further accelerated during the COVID-19 pandemic. Compared to the 39 weeks endedNovember 2, 2019 , eCommerce sales increased 115%, and eCommerce penetration has grown from 13% of total net sales in the 2019 year to date period to 19% for the 2021 year to date period. Approximately 70% of online sales during fiscal 2021 were fulfilled directly by our stores, which serve as localized points of distribution, and our stores enabled over 90% of our current quarter sales through online fulfillment and in-person sales. COVID-19 Update Following temporary store closures in March, April and May of 2020 due to the COVID-19 pandemic, our differentiated product assortment, supply chain, technological capabilities and omni-channel platform enabled us to capitalize on strong consumer demand across golf, outdoor activities, home fitness and active lifestyle categories, which resulted in a consolidated same store sales increase of 9.9% in fiscal 2020 as compared to fiscal 2019. These positive trends have continued into fiscal 2021, which, coupled with a resurgence in our team sports and licensed businesses due to the return of many youth and professional sports leagues across the country and economic stimulus measures, have resulted in a 45.6% increase in year to date net sales compared to the fiscal 2019 period, or a consolidated same store sales increase of 36.6% compared to the prior year period, during which our stores were temporarily closed. In response to the COVID-19 pandemic, we closed our corporate headquarters, referred to as our customer support center, and performed our corporate support functions under remote work arrangements, which continue in a hybrid form today. We also implemented additional safety and cleaning protocols at our stores, distribution centers and corporate offices, and provided a 15% pay premium to our store and distribution center teammates through the end of fiscal 2020. We have incurred pre-tax COVID-related costs of$15 million thus far in fiscal 2021, compared to$124 million of similar costs in the year to date period endedOctober 31, 2020 . Following the conclusion of our temporary 15% pay premium program, in fiscal 2021 we transitioned store and distribution center teammates to compensation programs with a longer-term focus, including an accelerated annual merit increase and higher wages. COVID-related costs decreased significantly beginning in the second quarter of 2021 compared to prior periods in consideration of guidance from theCenters for Disease Control and Prevention . The effect that the COVID-19 pandemic may have on our future business remains uncertain, including the long-term economic outlook, inflation and its impact on consumer discretionary spending behavior when the pandemic ends. Additionally, COVID-19 has disrupted global supply chains, including factory closures and port congestion that have resulted in longer transit times and rising container and transportation costs, which we expect will remain elevated through at least the end of fiscal 2021. Although we have successfully managed these challenges thus far, our ability to continue to replenish our inventory to meet current levels of consumer demand could be impacted by further delays or disruptions to the flow of products from our key vendor partners and our vertical brand sources. Our current year outlook contemplates this uncertainty, and we plan to continue to actively manage any impacts of COVID-19 on our business. 15 -------------------------------------------------------------------------------- Table of Contents How We Evaluate Our Operations Senior management focuses on certain key indicators to monitor our performance, including: ?Consolidated same store sales performance - Our management considers same store sales, which consists of both brick and mortar and eCommerce sales, to be an important indicator of our current performance. Same store sales results are important to leverage our costs, which include occupancy costs, store payroll and other store expenses. Same store sales also have a direct impact on our total net sales, net income, cash and working capital. A store is included in the same store sales calculation during the same fiscal period that it commences its 14th full month of operations. Stores that were permanently closed or relocated during the applicable period have been excluded from same store sales results. Each relocated store is returned to the same store sales base during the fiscal period that it commences its 14th full month of operations at the new location. See further discussion of our consolidated same store sales in the "Results of Operations and Other Selected Data" section herein. ?Earnings before taxes and the related operating margin - Our management views earnings before taxes and operating margin as key indicators of our performance. The key drivers of earnings before taxes are same store sales, gross profit, and our ability to control selling, general and administrative expenses. ?Cash flows from operating activities - Cash flow generation supports our general liquidity needs and funds capital expenditures for our omni-channel platform, including investments in new and existing stores and in our eCommerce business, distribution and administrative facilities, costs associated with continued improvement of information technology tools, potential strategic acquisitions or investments that may arise from time-to-time and stockholder return initiatives, including cash dividends and share repurchases. See further discussion of our cash flows in the "Liquidity and Capital Resources" section herein. ?Quality of merchandise offerings - To measure acceptance of our merchandise offerings, we monitor sell-throughs, inventory turns, gross margins and markdown rates at the department and style level. This analysis helps us to manage inventory levels to reduce working capital requirements and deliver optimal gross margins by improving merchandise flow, ensuring our in-stock positions are strong for key high demand items, and establishing appropriate price points to minimize markdowns. ?Store productivity - To assess store-level performance, we monitor various indicators, including new store productivity, sales per square foot, store operating contribution margin and store cash flow. CRITICAL ACCOUNTING POLICIES As discussed in Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" of the Company's 2020 Annual Report, we consider our policies on inventory valuation, business development allowances, goodwill and intangible assets, impairment of long-lived assets, self-insurance reserves and stock-based compensation to be the most critical in understanding the judgments that are involved in preparing our consolidated financial statements. 16 -------------------------------------------------------------------------------- Table of Contents RESULTS OF OPERATIONS AND OTHER SELECTED DATA Due to temporary store closures and other actions taken in fiscal 2020 in response to the emergence of the COVID-19 pandemic, our fiscal 2021 operating plan was based on our 2019 results. Accordingly, we have also included comparative results from fiscal 2019 in our discussion of quarterly and year to date results of operations for fiscal 2021. Executive Summary •Net sales increased 13.9% to$2.75 billion in the current quarter from$2.41 billion during the third quarter of 2020 and increased 40.0% from$1.96 billion during the third quarter of 2019. •Consolidated same store sales increased 12.2% from the third quarter of 2020, which was on top of a 23.2% year-over-year consolidated same store sales increase in last year's quarter. Third quarter 2019 consolidated same store sales increased 6.0% compared to the 2018 quarter. •eCommerce sales increased 97% in the current quarter compared to the third quarter of 2019 and 1% compared to the third quarter of 2020. •In the current quarter, we reported net income of$316.5 million , or$2.78 per diluted share, compared to$177.2 million , or$1.84 per diluted share, during the third quarter of 2020. Net income was$57.6 million , or$0.66 per diluted share, in the third quarter of 2019. •The current quarter included$5.7 million of non-cash interest expense, net of tax, and earnings per diluted share included 12.8 million shares related to our Convertible Senior Notes that are designed to be offset at their conversion by our bond hedge. Together, these items decreased current quarter earnings per diluted share by$0.41 . •Third quarter 2020 included$4.9 million of non-cash interest expense, net of tax, and earnings per diluted share included 6.0 million shares related to our Convertible Senior Notes that are designed to be offset at their conversion by our bond hedge. Together, these items decreased earnings per diluted share by$0.17 in the prior year quarter. •Third quarter 2020 results included approximately$48 million of pre-tax teammate compensation and safety costs related to COVID-19, or$0.37 per diluted share, net of tax. •During the third quarter of 2021, we: •Declared and paid$503 million in dividends, including a quarterly dividend and a special dividend in the amount of$5.50 per share, on our common stock and Class B common stock. The quarterly dividend in the amount of$0.4375 per share represented a 21% increase over our previous quarterly dividend per share; •Repurchased 2.17 million shares of common stock under our current repurchase program for a total of$273.4 million ; and •Launched Public Lands, a new specialty omni-channel retail concept focusing on the active outdoor category. 17 -------------------------------------------------------------------------------- Table of Contents
•The following table summarizes store openings and permanent store closures for the periods indicated:
Fiscal 2021 Fiscal 2020
DICK'S Sporting Specialty Concept Specialty Concept
Goods (1) Stores (2) Total DICK'S Sporting Goods Stores (2) Total
Beginning stores 728 126 854 726 124 850
Q1 New stores 2 - 2 1 2 3
Q2 New stores 1 1 2 - 3 3
Q3 New stores 3 6 9 6 5 11
Closed stores - 1 1 1 5 6
Ending stores 734 132 866 732 129 861
Relocated stores 9 - 9 12 3 15
(1)Includes two new DICK'S House of Sport store prototypes which were
relocations of former DICK'S Sporting Goods stores.
(2)Includes our Golf Galaxy, Field & Stream and Public Lands stores, as well as
our outlet stores, excluding temporary locations. In some markets we operate
DICK'S Sporting Goods stores adjacent to specialty concept stores on the same
property with a pass-through for athletes. We refer to this format as a "combo
store" and includes combo store openings within both the DICK'S Sporting Goods
and specialty concept store reconciliations, as applicable.
The following tables present selected information from the unaudited
consolidated statements of income as a percentage of net sales and the changes
in the percentage of net sales from the comparable 2020 and 2019 periods, and
other data, and are provided to facilitate a further understanding of our
business. These tables should be read in conjunction with Item 2. "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the accompanying unaudited Consolidated Financial Statements and related notes
thereto.
13 Weeks Ended Basis Point Change Basis Point Change
in Percentage of in Percentage of
Net Sales from Net Sales from Two
October 30, October 31, 2020 November 2, Prior Year Years Ago
2021 (A) 2019 (A) 2020-2021 (A) 2019-2021 (A)
Net sales (1) 100.00 % 100.00 % 100.00 % N/A N/A
Cost of goods sold, including occupancy
and distribution costs (2) 61.55 65.09 70.41 (354) (886)
Gross profit 38.45 34.91 29.59 354 886
Selling, general and administrative
expenses (3) 23.00 24.51 27.10 (151) (410)
Pre-opening expenses (4) 0.17 0.21 0.17 (4) -
Income from operations 15.28 10.20 2.33 508 1,295
(Gain) loss on sale of subsidiaries (5) - - (1.72) - 172
Interest expense 0.50 0.53 0.22 (3) 28
Other (income) expense (0.06) (0.16) (0.10) 10 4
Income before income taxes 14.84 9.83 3.93 501 1,091
Provision for income taxes 3.32 2.48 1.00 84 232
Net income 11.52 % 7.35 % 2.93 % 417 859
Other Data:
Consolidated same store sales change (6) 12.2 % 23.2 % 6.0 %
Number of stores at end of period (7) 866 861 858
Total square feet at end of period (7) 42,672,070 42,353,087 42,226,630
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39 Weeks Ended Basis Point Change Basis Point Change
in Percentage of in Percentage of
Net Sales from Net Sales from Two
October 30, October 31, November 2, Prior Year Years Ago
2021 2020 2019 (A) 2020-2021 2019-2021 (A)
Net sales (1) 100.00 % 100.00 % 100.00 % N/A N/A
Cost of goods sold, including occupancy
and distribution costs (2) 61.39 69.06 70.34 (767) (895)
Gross profit 38.61 30.94 29.66 767 895
Selling, general and administrative
expenses (3) 21.03 23.80 25.07 (277) (404)
Pre-opening expenses (4) 0.14 0.15 0.08 (1) 6
Income from operations 17.44 6.99 4.50 1,045 1,294
(Gain) loss on sale of subsidiaries (5) - - (0.55) - 55
Interest expense 0.46 0.55 0.21 (9) 25
Other (income) expense (0.18) (0.07) (0.17) (11) (1)
Income before income taxes 17.16 6.51 5.01 1,065 1,215
Provision for income taxes 4.03 1.70 1.31 233 272 Net income 13.13 % 4.81 % 3.71 % 832 942 Other Data: Consolidated same store sales change (6) 36.6 % 5.8 % 3.1 % Number of stores at end of period (7) 866 861 858 Total square feet at end of period (7) 42,672,070 42,353,087 42,226,630 (A) Column does not add due to rounding. (1)Revenue from retail sales is recognized at the point of sale, net of sales tax. Revenue from eCommerce sales, including vendor-direct sales arrangements, is recognized upon shipment of merchandise. A provision for anticipated merchandise returns is provided through a reduction of sales and cost of goods sold in the period that the related sales are recorded. Revenue from gift cards and returned merchandise credits (collectively the "cards") is deferred and recognized upon the redemption of the cards. The cards have no expiration date. (2)Cost of goods sold includes: the cost of merchandise (inclusive of vendor allowances, inventory shrinkage and inventory write-downs for the lower of cost or net realizable value); freight; distribution; shipping; and store occupancy costs. We define merchandise margin as net sales less the cost of merchandise sold. Store occupancy costs include rent, common area maintenance charges, real estate and other asset-based taxes, general maintenance, utilities, depreciation and certain insurance expenses. (3)Selling, general and administrative expenses include store and field support payroll and fringe benefits, advertising, bank card charges, operating costs associated with our internal eCommerce platform, information systems, marketing, legal, accounting, other store expenses and all expenses associated with operating our customer support center. (4)Pre-opening expenses, which consist primarily of rent, marketing, payroll and recruiting costs, are expensed as incurred. Rent is recognized within pre-opening expense from the date we take possession of a site through the date the store opens. (5)Represents the gain recorded in connection with the sale of two technology subsidiaries, Blue Sombrero andAffinity Sports , in the third quarter of 2019. (6)Consolidated same store sales include stores that were temporarily closed during fiscal 2020 as a result of the COVID-19 pandemic. The method of calculating consolidated same store sales varies across the retail industry, including as to the treatment of temporary store closures as a result of the COVID-19 pandemic. Accordingly, our method of calculating this metric may not be the same as other retailers' methods. (7)Includes ourDICK'S Sporting Goods , Golf Galaxy,Field & Stream , Public Lands and outlet stores. Excludes temporary locations. 19 -------------------------------------------------------------------------------- Table of Contents
13 Weeks Ended
Net Sales Net sales increased approximately 13.9% to$2,747.6 million in the current quarter from$2,412.1 million in the quarter endedOctober 31, 2020 , due primarily to a$282.2 million , or 12.2%, increase in consolidated same store sales. The remaining$53.3 million increase in net sales was primarily attributable to new and relocated stores. The increase in consolidated same store sales was broad-based across hardlines, apparel and footwear, and included an 8.5% increase in transactions and a 3.7% increase in sales per transaction. Additionally, our consolidated same store sales increase included an increase in brick and mortar sales of approximately 15%, while eCommerce sales increased approximately 1% compared to the prior year quarter, which was on top of a 95% increase in the third quarter of 2020 compared to the 2019 quarter. Compared to the quarter endedNovember 2, 2019 , net sales in the current quarter increased approximately 40.0%. This included a 31% increase in brick and mortar sales and a 97% increase in eCommerce sales. eCommerce sales penetration as a percentage of net sales increased to approximately 19% during the current quarter compared to approximately 13% during the third quarter of 2019. eCommerce sales penetration decreased in the current quarter from 21% of net sales in the 2020 quarter. Income from Operations Income from operations increased to$419.9 million in the current quarter compared to$246.1 million for the quarter endedOctober 31, 2020 and$45.6 million for the quarter endedNovember 2, 2019 . Gross profit increased to$1,056.6 million in the current quarter from$842.2 million for the quarter endedOctober 31, 2020 and increased as a percentage of net sales by approximately 354 basis points, due primarily to higher merchandise margin and occupancy leverage. Merchandise margin increased 301 basis points, which was primarily driven by fewer promotions and a favorable sales mix. In addition, merchandise cost increases resulting from higher supply chain and input costs were partially offset by selective price increases in the current quarter. Occupancy costs, which after the cost of merchandise represents the largest item within our cost of goods sold, are generally fixed on a per store basis and fluctuate based on the number of stores that we operate. Our occupancy costs increased$5.1 million compared to the prior year quarter, but increased gross profit as a percentage of net sales by approximately 111 basis points due to the increase in net sales. These improvements in gross profit were partially offset by increased freight expenses due to continuing global supply chain disruptions following the start of the COVID-19 pandemic. In addition, gross profit in the 2020 quarter included approximately$4 million of COVID-related compensation and safety costs. Compared to the quarter endedNovember 2, 2019 , gross profit increased 886 basis points as a percentage of net sales, driven by merchandise margin expansion of 578 basis points due primarily to fewer promotions and occupancy leverage of 370 basis points. These improvements were partially offset by higher freight costs due to the aforementioned global supply chain disruptions. Selling, general and administrative expenses increased 6.9% to$631.9 million in the current quarter from$591.1 million for the 2020 quarter, but decreased as a percentage of net sales by 151 basis points due to the increase in net sales. The$40.8 million increase was due primarily to current year cost increases to support the growth in net sales. In the prior year quarter, selling, general and administrative expenses included approximately$43 million of COVID-related costs, which included a temporary 15% pay premium program. In the current year, we transitioned store teammates to compensation programs with a longer-term focus, including increasing and accelerating annual merit increases and higher wage minimums, partially offsetting last year's COVID-related costs. Compared to the 2019 quarter, selling, general and administrative expenses decreased as a percentage of net sales by 410 basis points due primarily to the increase in net sales, but increased 18.9% from$531.7 million for the 2019 quarter. The increase in selling, general and administrative expenses in the 2021 quarter was due primarily to higher store payroll and operating expenses incurred to support the increase in net sales and hourly wage rate investments. The 2019 quarter included hunt restructuring charges to exit eightField & Stream stores and a non-cash asset impairment. Interest Expense Interest expense increased to$13.8 million in the current quarter from$12.8 million in the prior year quarter. Interest expense included non-cash debt discount amortization related to our Convertible Senior Notes of$7.7 million in the current quarter and$6.7 million in the third quarter of 2020. Other Income Other income totaled$1.7 million in the current quarter compared to$3.7 million in the prior year quarter. Substantially all of the decrease was due to changes in our deferred compensation plan investment values, which we account for by recognizing investment income or expense and recording an offsetting charge or reduction to selling, general and administrative costs. 20 -------------------------------------------------------------------------------- Table of Contents Income Taxes Our effective tax rate was 22.4% in the current quarter and 25.2% in the quarter endedOctober 31, 2020 . The current quarter effective tax rate was favorably impacted by the vesting of employee equity awards at a higher share price than awards that vested in the prior year quarter. 39 Weeks EndedOctober 30, 2021 Compared to the 39 Weeks EndedOctober 31, 2020 Net Sales Net sales were$8,941.2 million in the current period, a 38.4% increase from net sales of$6,458.7 million reported for the prior year period, due primarily to a consolidated same store sales increase of$2,267.3 million , or 36.6%, after giving effect to last year's temporary store closures resulting from the COVID-19 pandemic. The remaining$215.2 million increase in net sales was primarily attributable to new and relocated stores. The increase in consolidated same store sales was broad-based across hardlines, apparel and footwear, and included a 27.1% increase in transactions and a 9.5% increase in sales per transaction. Additionally, our consolidated same store sales increase included an increase in brick and mortar sales of over 55%, while eCommerce sales decreased approximately 8% compared to the prior year period, as both channels were impacted by last year's temporary store closures in March, April and May. Compared to the 2019 period, net sales increased approximately 45.6%. This included a 35.7% increase in brick and mortar sales and a 115% increase in eCommerce sales. eCommerce sales penetration as a percentage of net sales increased to approximately 19% during the current year to date period compared to approximately 13% during the 2019 period. As expected, eCommerce sales penetration decreased in the current period from 28% of net sales in the 2020 period. Income from Operations Income from operations increased to$1,559.2 million in the current year to date period, compared to$451.3 million in the prior year period and$276.7 million in the 2019 period. Gross profit increased to$3,452.3 million for the current period from$1,998.4 million for the prior year period, an increase as a percentage of net sales of 767 basis points due primarily to higher merchandise margin and occupancy leverage. Merchandise margin increased 378 basis points, primarily driven by fewer promotions and a favorable sales mix. In addition, merchandise cost increases resulting from higher supply chain and input costs were partially offset by selective price increases in the current period. Our occupancy costs increased$9.0 million compared to the prior year period, but increased gross profit as a percentage of net sales by approximately 318 basis points due to the increase in net sales. The remaining increase in gross profit as a percentage of net sales was driven by lower eCommerce shipping expense due primarily to a lower penetration of eCommerce sales compared to the prior year period. In addition, gross profit included approximately$19 million of COVID-related compensation and safety costs in the prior year period. Compared to the year to date period endedNovember 2, 2019 , gross profit increased approximately 895 basis points as a percentage of net sales, driven primarily by merchandise margin expansion of 512 basis points due primarily to fewer promotions and occupancy leverage of 403 basis points. Selling, general and administrative expenses increased 22.3% to$1,880.5 million in the current year to date period from$1,537.4 million for the prior year period, but decreased as a percentage of net sales by 277 basis points due primarily to leverage from the increase in sales. The$343.1 million net increase was due primarily to current year cost increases to support the growth in net sales and last year's operating expense reductions following our temporary store closures, as well as higher incentive compensation expense. Selling, general and administrative expense included approximately$15 million and$105 million of COVID-related costs in the current year and prior year periods, respectively. Prior year COVID-related costs were net of a$16.9 million benefit from employee retention tax credits provided by the CARES Act and included a temporary 15% pay premium program. In the current year, we transitioned store teammates to compensation programs with a longer-term focus, including increasing and accelerating annual merit increases and higher wage minimums, partially offsetting last year's COVID-related costs. Compared to the 2019 period, selling, general and administrative expenses decreased as a percentage of net sales by 404 basis points due primarily to leverage from the increase in net sales, while increasing 22.1% from$1,539.9 million for the 2019 period. The$340.6 million increase in selling, general and administrative expenses was due primarily to higher store payroll and operating expenses incurred to support the increase in net sales, hourly wage rate investments and higher incentive compensation expense. The 2019 period included hunt restructuring charges to exit eightField & Stream stores, a non-cash asset impairment and the favorable settlement of a litigation contingency. 21 -------------------------------------------------------------------------------- Table of Contents Interest Expense Interest expense increased to$41.0 million in the current period from$35.5 million in the prior year period, due primarily to a full year to date period of interest expense on our Convertible Senior Notes, which were issued inApril 2020 . Interest expense included non-cash debt discount amortization related to our Convertible Senior Notes of$22.7 million in the current year to date period and$14.3 million in the prior year period. Other Income Other income totaled$15.9 million in the current period compared to$4.7 million for the period endedOctober 31, 2020 . Substantially all of the increase was due to changes in our deferred compensation plan investment values, which we account for by recognizing investment income or expense and recording a corresponding charge or reduction to selling, general and administrative costs. Income Taxes Our effective tax rate decreased to 23.5% for the current period from 26.1% for the same period last year. The current period effective tax rate was favorably impacted by the vesting of employee equity awards at a higher share price than awards that vested in the prior year period. LIQUIDITY AND CAPITAL RESOURCES Our liquidity and capital needs have generally been met by net cash provided by operating activities, supplemented by borrowings under our senior secured revolving credit facility (the "Credit Facility") as necessary. We generally utilize our Credit Facility for working capital needs based primarily on the seasonal nature of our operating cash flows, as well as to fund share buybacks, dividends and capital expenditures. Historically, our peak borrowing level has occurred early in the fourth quarter as we increase inventory in advance of the holiday selling season. We believe that we have sufficient cash flows from operations and cash on hand to operate our business for at least the next twelve months, supplemented by funds available under our Credit Facility, if necessary. We may require additional funding should we pursue strategic acquisitions or undertake share repurchases, other investments or store expansion rates in excess of historical levels. Credit Facility Our Credit Facility has a limit of$1.855 billion , which includes a maximum amount of$150 million to be issued in the form of letters of credit. We amended the Credit Facility during the third quarter to, among other things, reduce the pricing terms on borrowings and allow us to request an increase of up to$500 million in additional borrowing availability under certain conditions. Interest on outstanding borrowings is payable on a monthly basis and accrues, at our option, at a rate equal to a variable base rate or an adjusted LIBOR rate plus, in each case, an applicable margin percentage. As ofOctober 30, 2021 , we have total remaining borrowing capacity, after adjusting for letters of credit, of$1.84 billion . Credit Facility information for the year to date periods ended: October 30, October 31, (in millions) 2021 2020 Funds drawn on Credit Facility $
-
- 97 days
Maximum daily amount outstanding under Credit Facility $
-
Liquidity information as of the following dates:
October 30 ,October 31 , (in millions) 2021
2020
Outstanding borrowings under Credit Facility $ - $
-
Cash and cash equivalents$ 1,372.9 $
1,060.0
Remaining borrowing capacity under Credit Facility
1,839.2
Outstanding letters of credit under Credit Facility
16.1
22
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Convertible Senior Notes due 2025
We have an aggregate principal amount of $575 million of Convertible Senior
Notes outstanding. Cash interest accrues at a rate of 3.25% per annum, payable
semi-annually in arrears on April 15 and October 15 . We currently anticipate
that we will repay the principal amount of the Convertible Senior Notes in cash,
whether in connection with an early conversion of such notes or repayment at
maturity, using excess cash, free cash flow and borrowings on our Credit
Facility to minimize share dilution. However, we may need to pursue additional
sources of liquidity to repay the Convertible Senior Notes in cash at their
maturity date or upon early conversion, as applicable. As of October 30, 2021 ,
the stock price conditions under which the Convertible Senior Notes could be
convertible at the holders' option were met. However, we have not received any
material conversion requests through the filing date of this Form 10-Q.
There can be no assurance that any capital required to repay our Convertible
Senior Notes will be available on terms that are favorable to us, or at all.
Capital Expenditures
Capital expenditures are primarily allocated toward the development of our
omni-channel platform, including investments in new and existing stores and
eCommerce technology, while we have also invested in our supply chain and
corporate technology capabilities.
We anticipate that fiscal 2021 capital expenditures will be in a range of $300
to $325 million , net of construction allowances provided by landlords. Our
investments in fiscal 2021 have focused on enhancing the athlete experience in
our stores, including merchandise presentation, improving the golf club fitting
and lesson experience in our golf business and store remodel and facility
investments. Additionally, we will continue to invest in technology that
supports the athlete experience and teammate productivity, as well as new store
development, including new store prototypes and concepts. Year to date, capital
expenditures totaled $231.1 million on a gross basis, and tenant allowances
provided by landlords were $27.7 million .
Share Repurchases
From time-to-time, we may opportunistically repurchase shares of our common
stock under favorable market conditions. On March 16, 2016 , our Board of
Directors authorized a five-year share repurchase program of up to $1.0 billion
of our common stock. On June 12, 2019 , our Board of Directors authorized an
additional five-year share repurchase program of up to $1.0 billion of our
common stock. In fiscal 2021, we have repurchased approximately 4.0 million
shares of our common stock for $426.1 million through October 30, 2021 ,
exhausting the remaining 2016 authorization. As of October 30, 2021 , the amount
remaining under the 2019 authorization was $605.1 million .
Any future share repurchase programs are subject to the authorization by our
Board of Directors and will be dependent upon future earnings, cash flows,
financial requirements and other factors.
Dividends
Through October 30, 2021 , we have paid $567.2 million of dividends to our
stockholders in fiscal 2021, which included a special dividend in the amount of
$5.50 per share. For the 39 weeks ended October 31, 2020 , we paid $80.9 million
of dividends to our stockholders.
The declaration of future dividends and the establishment of the per share
amount, record dates and payment dates for any such future dividends are subject
to authorization by our Board of Directors and are dependent upon multiple
factors including future earnings, cash flows, financial requirements and other
considerations.
Supply Chain Financing
We have entered into supply chain financing arrangements with several financial
institutions, whereby suppliers have the opportunity to settle outstanding
payment obligations early at a discount. In turn, we settle invoices with the
financial institutions in accordance with the original supplier payment terms.
Our rights and obligations to our suppliers, including amounts due and scheduled
payment terms, are not impacted. Our liability associated with the funded
participation in the arrangements, which is presented within accounts payable on
the Consolidated Balance Sheet, was $74.4 million and $67.5 million as of
October 30, 2021 and January 30, 2021 , respectively.
23
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Cash Flows
Changes in cash and cash equivalents are as follows:
39 Weeks Ended
October 30, October 31,
(in millions) 2021 2020
Net cash provided by operating activities $ 1,006.6 $ 917.5
Net cash used in investing activities (240.5) (156.5)
Net cash (used in) provided by financing activities (1,051.3) 229.7
Effect of exchange rate changes on cash and cash equivalents - -
Net (decrease) increase in cash and cash equivalents $
(285.2)
Operating Activities Cash flows from operating activities increased$89.1 million for the 39 weeks endedOctober 30, 2021 compared to the same period in the prior year. The increase was primarily due to higher earnings, partially offset by higher cash payments for inventory and accounts payable to replenish inventory following an 11.3% inventory decrease in fiscal 2020, which included precautionary reductions in inventory receipts in response to the COVID-19 pandemic, supply chain constraints and a 9.5% sales increase in fiscal 2020. The remaining year-over-year decrease in operating cash flows was primarily due to our fiscal 2020 deferrals of rent payments in response to the COVID-19 pandemic that we paid in fiscal 2021 and qualified payroll tax payments as permitted by the CARES Act. Investing Activities Cash used in investing activities increased$84.0 million for the 39 weeks endedOctober 30, 2021 compared to the prior year period, which included a reduction in planned capital expenditures in response to the COVID-19 pandemic. The increase in gross capital expenditures was primarily driven by investments to enhance the athlete experience in our existing stores, including merchandise presentation, improving the fitting and lesson experience in our golf business and store remodel and facility investments. Financing Activities Financing activities have historically consisted of capital return initiatives, including share repurchases and cash dividend payments, cash flows generated from stock option exercises and cash activity associated with our Credit Facility. Cash flows from financing activities decreased$1,281.0 million for the 39 weeks endedOctober 30, 2021 compared to the prior year period. The decrease was primarily driven by the payment of a special dividend of$5.50 per share and share repurchases in the current year, coupled with the precautionary measures we took in response to the COVID-19 pandemic during the prior year period, which included activities related to the issuance of the Convertible Senior Notes and the temporary suspension of share repurchases. Off-Balance Sheet Arrangements Our off-balance sheet arrangements as ofOctober 30, 2021 primarily relate to purchase obligations for marketing commitments, including naming rights, licenses for trademarks, minimum requirements with our third-party eCommerce fulfillment provider and technology-related and other ordinary course commitments. We have excluded these items from the unaudited Consolidated Balance Sheets in accordance withU.S. GAAP. We do not believe that any of these arrangements have, or are reasonably likely to have, a material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or resources. Contractual Obligations and Other Commercial Commitments We are party to many contractual obligations that involve commitments to make payments to third parties in the ordinary course of business. For a description of our contractual obligations and other commercial commitments as ofJanuary 30, 2021 , see our 2020 Annual Report. During the current quarter, there were no material changes with respect to these contractual obligations and other commercial commitments outside the ordinary course of business. 24 -------------------------------------------------------------------------------- Table of Contents
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