DICK'S Sporting Goods, Inc. (DKS) Q4 2011 Earnings Report, Transcript and Summary

Good morning, and welcome to the Dick's Sporting Goods Fourth Quarter and Full Year Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Anne-Marie Megela, Director of Investor Relations. Please go ahead.

Thank you. Good morning, and thank you for joining us to discuss our fourth quarter and full year 2011 financial results. Please note that a rebroadcast of today's call will be archived on the Investor Relations portion of our website located at dickssportinggoods.com for approximately 30 days. In addition, as outlined in our press release, the dial-in replay will be available for approximately 30 days. In order for us to take advantage of the Safe Harbor rules, I would like to remind you that today's discussion includes some forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which includes, but are not limited, to our views and expectations concerning our future results. Such statements relate to future events and expectations and involve known and unknown risk and uncertainty. Our actual results or actions may differ materially from those projected in the forward-looking statements. For a summary of risk factors that could cause the results to differ materially from those expressed in the forward-looking statements, please refer to our periodic reports filed with the SEC including the company's annual report on Form 10-K for the year ended January 29, 2011. We disclaim any obligation and do not intend to update these statements, except as required by the securities law. We've 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 a related reconciliation can be found on the Investor Relations portion of our website at dickssportinggoods.com. Leading our call today will be Ed Stack, Chairman and Chief Executive Officer. Ed will review our fourth quarter and full year financial and operating results, 2012 guidance and discuss our growth strategy. Following this, Joe Schmidt, our President and Chief Operating Officer, will outline our store and e-commerce development programs. After Joe's comments, Tim Kullman, our Executive Vice President of Finance and Administration and Chief Financial Officer, will provide greater detail regarding our financial results. I'll now turn it over to Ed Stack.

Thank you, Anne-Marie, and thanks to all of you for joining us today. In the fourth quarter, we generated a 6.1% increase in sales over the fourth quarter of 2010, expanded our operating margins by 112 basis points and generated record earnings of $0.88 per diluted share, a 16% increase over the non-GAAP earnings per diluted share of $0.76 in the fourth quarter of last year. All of this was accomplished even with an abnormally warm winter season. Additionally in the quarter, we maintained an exceptionally strong balance sheet with our cash balance growing $188 million over last year. We initiated our first ever dividend and we announced the 12-month share repurchase program. The 6.1% increase in sales for the fourth quarter was driven by the growth of our store network by 0.1% increase in consolidated same-store sales on top of a 9.3% increase in the fourth quarter of last year. Same-store sales in the fourth quarter 2011 for Dick's Sporting Goods were down 2.5%. Golf Galaxy same-store sales were up 9% and e-commerce sales were up 52%. The 2.5% same-store sales decline at Dick's was primarily driven by lower sales in cold weather accessories, cold weather apparel and boots due to the unseasonably warm weather. Partially offsetting this decline was continued strength in athletic apparel and footwear. On the inventory front, we ended the year with an increase in inventory per square foot of 6.2%, a little more than 1/2 of this increase was due to the lower-than-anticipated sales of cold weather-related product. Also contribute to the higher inventory level was an increase in baseball inventory due in large part to the anticipated pickup in sales from the recent bat regulation change. We pulled forward spring cleats in an increase in inventory for our e-commerce business as we anticipate growing sales momentum. Importantly, clearance inventory per square foot was down 2.1% at the end of 2012 compared to 2011. We continue to make progress in advancing our 3 growth drivers, which are to expand our store base, strengthen our e-commerce business and continue to develop our margin rate accelerators. As to store expansion, we've opened a new Dick's Sporting Goods stores at the rate of 8.1% in 2011. In 2012, we expect to open approximately 40 Dick's Sporting Goods stores, reflecting a slightly higher growth rate. Looking at the longer term, we believe we have the potential to open more than 400 additional stores over the next several years, giving us approximately 900 total stores in the United States. Turning to our e-commerce business, which represented approximately 4% of total sales in fiscal 2011, we're making remarkable progress. Same-store sales from an e-commerce standpoint increased 52% over the fourth quarter last year where we’re on track to implement new capabilities that will improve the profitability of this business. As I have mentioned in previous calls, we also have an opportunity to generate further margin expansion through multiple avenues, including private brand and private labeled product, which we believe can build growth to approximately 20% of our business over the next number of years, as well as product mix and effective inventory management, both of which were leading contributors to the 68 basis points in merchandise margin improvement in 2011 over 2012 -- I mean, 2010. We expect first quarter 2012 consolidated earnings per diluted share to increase by 20% to 27% to between $0.36 and $0.38 compared with non-GAAP consolidated earnings per diluted share of $0.30 for the same period in 2011. We expect consolidated same-store sales to be 3% to 4%, on top of a 2.1% increase last year. For the full year 2012, we expect consolidated earnings per diluted share to increase by 18% to 19% to between $2.38 to $2.41 a share, which includes approximately $0.03 coming from the 53rd week this year. This compared to non-GAAP earnings per diluted share of 2002 in -- $2.02 in 2011. We anticipate our consolidated same-store sales will increase between 2% and 3%. In summary, we generated record earnings in the fourth quarter of 2011, while investing in future growth, continuing to build on a strong balance sheet and delivering value to our shareholders through the initiation of a dividend and share repurchase program. In 2012, we anticipate generating further profitable growth with continued investments in our business. Before I conclude, I want to express my sincere gratitude to our employees, who deserve the credit for our 2011 accomplishments. In a service-driven business like ours, having dedicated associates, who truly support the corporate mission and are committed to excellent is a distinct advantage, one that we're deeply proud of. I want to thank each member of our team for living the Dick's brand and for their commitment to fueling our progress. I'd now like to turn the call over to Joe.

Thanks, Ed. In the fourth quarter of 2011, we opened 6 new stores, bringing our new store count in 2011 to 36. At the end of the year, we operated 480 Dick's Sporting Goods stores with 26.3 million square feet and 81 Golf Galaxy stores with 1.3 million square feet. Within our stores, we have 131 shared-service footwear decks, 105 Nike Fieldhouse concept shops, 45 Under Armour All-American shops and 3 Under Armour Blue Chip shops. We continue to be pleased with the performance of the new Dick's Sporting Goods stores, posting new store productivity of 94.2% in the fourth quarter. This compares with 111% in the fourth quarter of 2010. The detailed calculation of new store productivity can be found in the Tables section of the press release we issued this morning. Looking to 2012, we will continue to grow and enhance our store base and e-commerce business while investing in our distribution network. We plan to open approximately 40 new stores, of which approximately 1/2 will be in new markets and 1/2 will be in existing markets. We will also relocate 4 stores, which are at the end of their leases to preferred locations that we have secured. We are initiating a comprehensive store redesign project in 2012. Because we plan to develop the redesign store layout this year, we are postponing our store remodeling program in order to focus on the project. We will implement our new store design in new and remodeled stores in 2013. In our e-commerce business, we are building on our momentum as we plan to pilot ship-from-store in the next year and in-store pickup in 2013. Both are intended to provide customers with more and better buying options, as well as leveraging our inventory investment, improving our fulfillment time and our in-stock positions. We are also investing in the functionality of the site to improve the customer experience. To support these advancements and the growth of our e-comm business, we entered 2012 with a meaningfully larger team with recent additions of talent in site merchandising, website development and analytics. We are progressing, as planned, with our fourth distribution center, which is scheduled to be completed in January of 2013. With this new 600,000 square-foot facility, which will be located in Arizona, our combined DC network will be able to support a total of 750 stores. I will now turn the call over to Tim to review our financial performance in greater detail.

Thanks, Joe. Sales for the fourth quarter of 2011 increased by 6.1% to $1.6 billion compared with the same period a year ago. Consolidated same-store sales increased 0.1%. Dick's Sporting Goods same-store sales decreased 2.5%, Golf Galaxy increased 9% and the e-commerce business increased 52%. The decline in the same-store sales in Dick's Sporting Goods stores was driven by a 1.9% increase in sales per transaction, offset by a 4.4% decline in traffic. We believe the decline in traffic was due directly to the unseasonably warm winter. Consolidated gross profit of $512.8 million was 31.82% of sales or 25 basis points higher than the fourth quarter of 2010. This increase was driven primarily by an increase in merchandise margin, up 27 basis points and occupancy leverage of approximately 40 basis points, offset by freight and distribution de-leverage. Merchandise margin increased as a percentage of sales, primarily due to effective inventory management, while freight and distribution costs increased as a percentage of total sales due to the growing e-commerce business. SG&A expenses in the fourth quarter of 2011 were $326.6 million, representing 20.26% of sales compared with 21.88% of sales in last year's fourth quarter. This leverage of 152 basis points was primarily due to the $10.8 million settlement made in the fourth quarter of 2010 for our wage and our class action lawsuit, as well as lower legal fees and employee incentive pay in the fourth quarter of 2011 as compared to the fourth quarter of 2010. Moving to the balance sheet. We ended the fourth quarter of 2011 with $734 million in cash and cash equivalents with no outstanding borrowings under our $500 million revolving credit facility. Last year, we ended the fourth quarter with $546 million in cash and cash equivalent and no outstanding borrowings under our facility. Net capital expenditures were $36 million in the fourth quarter of 2011 or $54 million on a gross basis, compared with the net capital expenditures of $26 million or $42 million on a gross basis in the fourth quarter of last year. On January 12, we announced a 12-month share repurchase plan. By quarter end, which was January 28, we repurchased 30,600 shares of our common stock at an average cost of $40 per share for a total cost of approximately $1.2 million. Now looking at our guidance. For the first quarter of 2012, we anticipate same-store sales to increase approximately 3% to 4% and earnings per share to grow by 20% to 27% in the range of $0.36 to $0.38 per share, from $0.30 per share in the first quarter of last year. Operating margin expansion in the first quarter of 2012, we expect it to be driven by both an increase in the gross profit margin rate and expense leverage. Our gross profit margin rate in the first quarter is expected to increase at about the same level as seen in the fourth quarter of 2011. The gross profit margin expansion is expected to be driven primarily by occupancy leverage with merchandise margin being relatively flat. First quarter merchandise margins are expected to be impacted as a result of anticipated clearance activity as we cleared through some cold weather-related merchandise. We also anticipate seeing more of an influence from inflation with merchandise costs increasing in a low-single digit range. However, we expect to offset these cost increases by judiciously increasing retails. SG&A as a percentage of sales is expected to decline as compared to the first quarter of 2011, primarily through advertising leverage. Diluted shares outstanding are expected to be approximately 126 million compared to 125 million shares in the first quarter of last year. For the full year 2012, we anticipate consolidated same-store sales to increase 2% to 3% and earnings per diluted share to grow by approximately 18% to 19% on the range of $2.38 to $2.41 as compared to non-GAAP earnings per diluted share of $2.02 in 2011. Fiscal 2012 includes the 53rd week, which we believe will add $0.03 to earnings per diluted share and is contemplated in our guidance of $2.38 to $2.41. Operating margin expansion in 2012 is expected to be driven by both an increase in gross profit margin rate and expense leverage. Gross profit margin rate is expected to increase year-over-year, primarily driven by merchandise margins and occupancy leverage. Over the course of the year, merchandise margins are expected to rebound in the second quarter and build momentum in the second half of the year. SG&A as a percentage of sales is expected to decline as compared to 2011, primarily due to lower advertising and in-store expenses relative to sales year-over-year. This decline is expected to be partially offset by planned investments in e-commerce and systems implementations. While the execution of the share repurchase plan -- with the execution of the share repurchase plan, diluted shares outstanding are expected to be approximately 126 million for a full year, similar to the outstanding shares in 2011. As Ed mentioned, the inventory per square foot increased 6.2% at the end of 2011 compared to the end of 2010. A little more than 1/2 of this increase was related to cold weather merchandise. We plan to manage through this inventory in 2012 in the following manner. One, packing up some of the inventory that we believe we can offer in the fall this year; two, returning some inventory to vendors; and three, selling the remaining inventory through promotional pricing. As a result of these actions, we expect inventory levels to grow no more than our growth in total sales over the course of the year. Also, we believe the margin impact from clearance activity will be contained within the first quarter. Now let's review anticipated quarterly financial trends in 2012. We expect that in the first, second and fourth quarters, earnings per diluted share will grow at a pace equal to or greater than the annual expected EPS growth of 18% to 19%. In the third quarter, we believe the EPS growth will be in the high-single digits due to the following considerations. First, preopening expenses are anticipated to be higher in the third quarter of 2012 as compared to the same quarter in 2011 since there are more new store openings planned in the third and fourth quarter of 2012 as compared to 2011. Second, we'll be hosting our annual Dick's Sporting Goods Open in the third quarter this year. Typically, this tournament is a second quarter event. However, due to the flood damage to the En-Joie Golf Club caused from Tropical Storm Lee the Open has been rescheduled to give the course more time to recover. As a result, the related expenses of the Open will shift from the second quarter to the third quarter. And lastly, we will not be anniversary-ing a favorable tax benefit of approximately $0.01 per share, which we enjoyed in the third quarter of last year. One other housekeeping item to consider is the related start-up cost of our new distribution center. We will account for such within gross profit and are expected to have an EPS impact of $0.02 per share in 2012, with most of the expenses being incurred in the fourth quarter. Turning to CapEx. Net capital expenditures for the full year are expected to be approximately $190 million or $241 million on a gross basis. Net capital expenditures for 2011 were $154 million or $202 million on a gross basis. The anticipated increase in capital expenditures from 2011 to 2012 is primarily a result of the new distribution center and to a lesser degree, investments in new stores, vendor shops, system enhancements and e-commerce. All things considered, including unfavorable weather for much of the year, 2011 proved to be another successful growth year for us. Our sales increase, our gross profit and merchandise margin improvements and our SG&A leverage, all contributed to EPS growth of 24%. We also continued to strengthen our balance sheet and fortify a distinct competitive advantage with the increase to our cash balance. When evaluating our outlook for 2012, consider the importance of being able to generate significant earnings growth, while simultaneously making investments in the business, such as e-commerce enhancements, systems development and our new distribution center. We make these investments with the objective to continue to grow profitability and return well into the future. We are well positioned as we enter 2012 and we have consistently demonstrated our ability to provide increasing value to our shareholders year after year. This concludes our prepared remarks. We'd be happy to answer any questions you may have at this time.

[Operator Instructions] And our first question this morning will come from Matthew Fassler of Goldman Sachs.

A couple of questions. First of all, given the outsized increase in e-commerce and I guess, the accelerated increase in importance of this business to you, can you talk about any impact that the economics of e-commerce is having on your margin structure today? And as that business grows, and particularly as the way you do e-commerce business changes, how you would expect that margin impact to evolve.

It's still a relatively small part of the business, Matt, at -- in the fourth quarter, at only 4%. But the margin impact is -- our margin rates on e-commerce are getting -- quickly getting closer to what they are in the traditional stores as we've changed the mix of business. So we don't see the margin rate as a significant issue. And as we go forward, we actually expect to continue to move it up. And it will get to be -- the margin rate we expect will be close to what the stores are relatively soon in the next year, 18 months.

And how has the mix of e-commerce business been changing?

More apparel, more footwear, less of the fitness business. And the mix of product there in apparel and footwear is, as I'm sure you know, is higher than the margin rate on the fitness product.

And as you develop capabilities like ship-to-store and store pickup, I guess, is that what will facilitate the margin improvement? Or is it ongoing mix changes?

It will be a combination of the 2, but we anticipate the mix continuing to change.

Got it. And then my second question is a bit of a look back to the quarter. So you originally guided to a flat to 1 comp and you didn't really miss that original guidance despite the weather. And the inventory ended presumably a little bit higher than you would have thought. So I guess, the question is what kind of comp did you buy to when you entered the quarter? And how should we then think about your positioning for the first quarter related to that?

Well, as we said, a little more than 1/2 of it came with the cold weather merchandise. It didn't sell as well. The other part -- a big part of this is that we moved in spring receipts and a big part of that, around baseball and the bat. So the high school -- everybody from -- that plays high school baseball has to use a BB core bat this year. So other -- California instituted this rule last year, everybody else instituted it this year. So everybody who plays high school baseball, if they did not get a BB core bat last year, they have to get a bat this year. So we brought those receipts in pretty significantly to make sure that we could take full advantage of that business.

And what did that do to your baseball business in California in 2011?

It had a meaningful impact, a positive impact on our baseball business in California. And these bats are high AURs also. So it did -- it really helps drive that business.

From Michael Lasser of UBS.

So the 4.4% traffic decline in the fourth quarter, I think you attributed all of that to the unseasonably warm weather. Were you able to tease out whether some of the e-commerce business also had an impact, where maybe there was some channel shift going on?

Well, I think that there was some channel shift. But again, at 4% of the total business, it's not significant right now, but there's certainly some of that. And our cold weather business online was meaningfully better than our cold weather business in the stores. But we think the vast majority of that traffic issue that we had was driven by the cold weather and not something that we think is fundamental to the business going forward.

Okay. And how do you think about the number of store openings this year and where you can get to over the next couple of years, just on a run-rate basis?

Well, we indicated we can get to -- we anticipate opening approximately 40 Dick's Sporting Goods stores this year. We would anticipate that we would be in that same zone in 2013 also.

Is there any motivation to push it a little higher just given some of the competitive forces that are going on?

Oh, we'd love to get -- we can definitely go faster. It's just the real estate development business has not bounced back as robustly as we would need to take that up higher. If there were more shopping centers being built and other retailers opening stores, then we could certainly move that quicker. There is nothing structural in our business that impedes us from opening up faster. It's just getting the right quality real estate is the issue. And we don't want to open up new stores just to open up new stores. We need to make sure that we open up the right stores.

Okay. Last question on our end. How has the initial response to some of the pricing actions been received by consumers of you? Has the elasticity been in line with what you've expected?

It has. We haven't seen, other than -- I won't give you specifics, but other than a few specific products where prices have moved up in the first quarter, have we seen an issue. But they're very few and far between. We're not seeing any concerns at all right now.

Our next question will come from Michael Baker of Deutsche Bank.

A couple of questions. One, can you just talk to us about the kind of lift that you're seeing in some of these stores, the new stores that you're doing, the Fieldhouse, the Under Armours and even the shared footwear model. And more importantly, what's your expectations for growth for the number of those in 2012 and beyond? And if you could share with us, as well, some of the plans around the North Face stores, the new store?

So we will continue to grow these concepts, the Fieldhouse, the Under Armour concept shops and the North Face. So they’ll continue to grow at a relatively rapid rate. We can give you those approximate numbers here. But what has happened from a sales standpoint for competitive reasons, we're not going to give those specifics. I can tell you that it's been a very helpful driver of our comps and it's been a helpful driver of the margin rate expansion as those categories have been our higher margin rate categories and they've become a bigger part of our mix.

Okay. Yes, that makes sense. And, yes, sure, if you could sort of tell us how many we should expect this year, roughly, maybe I can get that from you offline or later in the call.

That'd be fine. We'll do that. I don't have that number right off the top of my head and I don't want to give you a wrong number. We're making a pretty meaningful investment along with our vendor partners in these projects.

Great. Two other questions, real quick, if I could. One, on the remodels. I'm intrigued as to what your remodel program had been in the past. How many had you been doing. And what you saw there that you either liked or didn't like to cause you to sort of pull back on that and try to reposition it for 2013.

Michael, in the last couple of years, 2 years ago, we remodeled 12 stores. This past year, we remodeled 14 stores. And it's really nothing that we didn't like. It's just so much of what we're working on that has us pretty enthusiastic about wanting to hold on these until we really get those netted out and open all of the remodeled stores next year with this concept. So we didn't want to commit to a lot of capital dollars to a format that we think is going to be greatly improved for 2013.

So then, once you start rolling out in 2013, is this something that you think -- you talked to be significantly a higher number of stores rather than a handful which it sounds like you've done, at least for the last 2 years?

I wouldn't look to -- for it to be anything meaningfully different than it has been over the last couple of years.

Our next question will come from Sean Naughton of Piper Jaffray.

My question has to do with the, kind of the NFL switching over from Reebok to Nike. When should we anticipate that potentially going into your stores? And historically, have you seen any lift from this type of a change and obviously, the Olympics are coming this year. Does that impact your business at all from a top line perspective?

From an NFL standpoint, this doesn't happen very often. But we think that what Nike is doing, we think it will be positive with the new jerseys. And so that will certainly have a positive effect on our business. We anticipate to start to see some of these in the store, certainly around April, end of April, around Draft Day. It will be pretty meaningful as we start -- as they start training camp and then as we kick off the NFL season. We think it will be certainly helpful to our business. As far as the Olympics go, we've never seen the Olympics have a real big impact on our business, whether it be the Summer Olympics or the Winter Olympics. It's just never a real impact to our business. The World Cup really has a more meaningful impact to our business than the Olympics do.

Okay, got it. And then on the -- just on the inventory side, it sounds like you're looking to get that under control a little bit better as we move through the year. How should we think about the inventory-per-store metric? When do you think that will be down in front of the future comp rate here in the next couple of quarters?

Well, as Tim said, some of this products we're going to pack up, we'll just buy less of it next year. Black ski gloves or black ski gloves, hard work wear was brown when I was a kid and it'll be brown when my kids grow up. So there are certain products that we don't need to go liquidate because they're going to be the same as they are last -- next year. So those products, we will keep in our inventory. And they really won't flow through the whole inventory cycle until into the third and fourth quarter of next year. But as we said, our clearance inventory is down 2.1% over last year. We don't feel that we have an inventory issue. There's a big part of that inventory increase that has come from pulling forward spring receipts such as the BB core product that I talked about, some other cleats. Based on what was going to happen with BB core bats and kids coming in to buy those, we moved other baseball receipts up to make sure that we could take full advantage of outfitting those young kids, those high school kids as they get ready to play the high school baseball season.

That's great. And then lastly on the inventory. How would you describe where we are in terms of your inventory management systems? Have we capitalized on most of the low-hanging fruit here? Or is there still a lot of merchandise margin to potentially to be gained here?

I think there's 2 things from -- so I think we're in the early to mid-innings on inventory management. I think that from an inventory management standpoint, we will still see margin rate expansion through inventory management. And as we get -- as we work through and have a more efficient inventory management, it will create some additional capital in the company, too, as we turn the inventory quicker.

And our next question this morning will come from Peter Benedict of Robert W. Baird.

First question, just following up on Mike's question. Can you give us a sense of maybe what the cost benefit is, in the P&L this year, of putting aside that remodel plan for this year? And then I have a couple of follow-ups.

I think the way you need to look at the program is, the remodels give us a slight benefit in year one, and that's future benefit. So in terms of the capital expenditure, without the capital on the new stores, we have less depreciation. But you have to look at the total CapEx budget in terms of -- we're still going to have somewhat higher CapEx than we had last year. So don't look for a meaningful improvement on the depreciation side because we aren't doing the remodels.

Okay, good. That's helpful. And then on the e-commerce business. What growth rate is assumed in that 2% to 3% comp plan you have for the overall business? And then as you think about the capabilities that you have and that you want, I know you're working on a number of things. Any plans or desires or possibilities of using cash to accelerate maybe the acquisition of some of these capabilities? And if so, in what areas do you want to move forward faster on that?

As we take a look at the comp assumptions from a competitive standpoint, we're not going to lay that out. But understand, whatever that comp assumption is at 4% of the business, it's not meaningful to our total comp sales number. So the vast majority of our comp sales are coming out of the Dick's Sporting Goods stores, followed by the Golf Galaxy stores and then trailing from a sales standpoint is the e-commerce business. So as we talked a little bit last year, I wouldn't get terribly excited about our e-commerce business to have a meaningful impact on our business today. We're really enthusiastic about this. We think as a few years go by, this can be a very important part of our business. And it's important on how we're building it and we're building it profitably, but it's not going to have a big impact on our business right now.

Fair enough. And then anything in terms of the capabilities for the business that you could go out and acquire or in order to accelerate the growth? I mean, it's obviously good right now, but just -- what's your thinking on that?

Well, I mean, from time to time, we'll take a look at acquisition possibilities. And if we see something that we are -- that we think will be helpful to the business and if we think it's something that will be accretive to the business in a very short period of time or right off the bat, we'll take a look at that.

Okay, that's helpful. And then lastly, just over to the golf business. Obviously, with the warm weather, good expectations, hopefully, for the spring here. Can you talk about the new products for this season, how we're doing as we cycle some of the successes from last year?

Yes, there's -- some of the new technology that's out this year, whether it be the new R11S Driver, whether it be Taylormade's RocketBallz have been just terrific. The RocketBallz Driver, Fairway Woods hybrids that's really been as good as the R11 was last year. Some other people are out with some very good products, the new Callaway products have done very well. The Adams products have done very well. We're very pleased with what's going on with Nike, with their golf ball right now. So all in all, we're cautiously optimistic about the golf business.

The next question will come from Dan Wewer of Raymond James.

It’s following up on Peter's question. I mean, recognize that the winter months are not that important for the golf category, that’s Galaxy up by 9%, sharp improvements. Does that simply reflect the warmer drier weather improving the ramps play during the fourth quarter? Or have you implemented changes in Golf Galaxy that kicked in during the winter months?

Well, we've certainly implemented some changes. Our store group has done a great job from a conversion standpoint. IPTs, our units per transaction, they've done a terrific job there. And then the weather -- how the weather hurt the winter business certainly helped the golf business. So it's a combination of both of those things. The group, especially in the Golf Galaxy category, which are Golf Galaxy comps, were higher than the Dick's comps from a golf standpoint. But the group just did a great job executing their business and we're really proud of them.

And then one other question. On e-commerce, are you finding any categories that are not as successful? For example, footwear where sizing is critical and there's an inherently higher return rate. Is that a category that may not be as successful in e-commerce as others?

No. Actually, our footwear category has been one of the best categories we've had. It's been great.

And can you remind me how you use your policy on product returns if the customer chooses the wrong size?

There is a free return on any mis-sized product or customer returns. And they are also welcome to -- they can bring them back to the store, too.

Our next question will come from Paul Swinand of Morningstar.

I just wanted to follow up on some of the comments about the store base and the limitations there. When you've announced the higher opportunity for the total store base, you're still seeing the lower rents, and that's obviously showing up in your guidance. But year-over-year, as you're in the marketplace, are the rents and the economics of the stores still good? But it's the structural layout of the other stores around you that are limiting you. Is that -- my understanding correct?

Well, I'm not sure how you phrased it, the structural layout of the other stores. There's not shopping centers -- there's not nearly as many shopping centers being built as there were 3 or 4 years ago. And they are not being built for a couple of reasons, whether it be financing concerns in the amount of equity that developers need to put into projects today. Whether it be that other retailers aren't opening stores, there's enough -- not as many retailers opening stores, therefore, they can't get the centers filled. But right now, there's just not as many shopping centers being built. That's the primary issue as why our growth rate is at 40 stores versus 55 or 60. There's nothing structural inside of our business that would keep us from opening 50 or 60 Dick's Sporting Goods stores on an annual basis. Before everything cratered back in 2008, we were opening up 45 stores a year.

Understood. But obviously, the existing real estate, you're saying is you've kind of exhausted those or that you're using as much as you can of your existing real estate. Even though the economics are good, you're saying, a lot of them just aren't desirable.

Correct. So there's some of those -- there's still a lot of real estate out there, but it's not real estate that we want to be in. Whether it's the wrong size, it's the wrong configuration, whether it's the wrong location, the wrong co-tenants. We've got a very disciplined real estate policy here, and one of the things that we won't compromise on is our real estate selection process.

Understood. But then when you are seeing rents in the 40 going forward for 2012, it is at good or better rates, I mean, just the market is still pretty low. So I guess, could we assume that you're still getting leverage for more than just next year on your occupancy?

Well, we're not going to go forward and provide guidance in -- for 2013, going forward. Real estate prices are still attractive, but they're stabilizing. And it's kind of the law of supply and demand, as some of this real estate gets used up, then prices have stabilized. We still -- they're still below levels that we were seeing in 2007 and 2008, but the panic from a real estate standpoint is over.

Okay, great. And you guys will never be tricked into giving guidance, but I had to give that a try. So a real quick follow-up on the e-commerce, are there some -- are some of the drivers of the categories actually more inventory intensive? So even though we naturally think of their being leveraged to e-commerce because of a centralized inventory, if you think of fishing lures or even the colors and styles available on some footwear, are there some natural inventory increases that go as the category that lend themselves to e-commerce actually grow as a proportion of the business?

I mean, to some extent, yes. You would think that. But there's nothing meaningfully, that from an AUR standpoint is going to drive a significant inventory increase that would have an impact on our inventory turns and our use of working capital.

Our next question will come from Chris Horvers of JPMorgan.

Following up on the new store prototype or the store redesign program. What's the average store size you're thinking about in 2012? And with this new redesign, will it be the foundation for new stores as well? And do you see an opportunity to perhaps get into a smaller box?

Chris, I think you can expect that the new store design will be very similar to the box size that we currently deploy. So 50,000 a ship, if you're thinking about that. As you think of smaller stores or even larger stores, it's really a market issue that drives our store size. If we think the market allows for a larger box, then certainly, we'll take a look at that opportunity. And in some of these smaller markets, where we've had some pretty good success, we'll continue to look at opportunities for some small box sizes as well.

And then there's been some turnover in the past 9 months or so at your larger -- at your largest competitor. Are you seeing anything, any changes from them in the market in terms of the merchandising, or advertising or promotions?

No. We really haven't. I mean, a little bit, they've changed -- they've modified the format of their Sunday insert. But we haven't seen a big difference in kind of fundamentally what they're doing, their stores look the same, their merchandised the same, their pricing strategy is the same. They've been pretty consistent.

And then on the merchandise margin side, did clearance actually impact your margins in the fourth quarter? And Tim, you mentioned that over the year, that margins -- the margin profile accelerates, presumably that's related to the systems investment. So just perhaps you could talk about what systems are being put in and how much of the systems contribute to that 10% margin target in the next few years?

Well, I think, Chris, we certainly had some impact in the fourth quarter, to your thesis upfront on the clearance inventory. As we indicated in the comments that we made, we will continue to have some impact in Q1 but it'll all be constrained to Q1. Going forward, as we implement price optimization, size and pack optimization, space allocation, all those are geared towards better inventory management, as well as gross margin enhancement. So as we go forward, in our 3- to 5-year IT implementation roadmap, we will see consistent increases in merchandise margin based on adding some science to the art of the processes in order for us to continue to see that benefit ongoing.

And then my final question is in terms of the BB core rule, can you talk about perhaps how much baseball is in the mix in the first quarter or -- and if you're maybe not willing to quantify that exactly, where is it in terms of the pecking order from -- in the first quarter from a category perspective?

Well, for competitive reasons, as you can imagine, we're not going to lay out exactly how much our baseball business is. But in that first quarter and into the second quarter, it's a pretty important part of our business. I'm going to say it's going to be in the top 30% of our business. It's an important part of our business. Now don't misquote me and say that it's 30% of our business. It's kind of in that top 1/3 of our business from an importance standpoint.

Our next question will come from Rick Nelson of Stephens.

I'd like to ask you about the building cash position. You've got no debt, how you [indiscernible] of those at this point and how you think about acquisitions. And absent acquisitions, where you'd see the cash balance if you hit your earnings targets for the current year?

Well, I think, as we’ve said in prior discussions, when we've been asked the question on cash, that we always look at the traditional alternatives first, which would be one, reinvest in the business. And as you saw last year and the first quarter this year, we did initiate a dividend to start that return of capital to shareholders. We also implemented this 12-month share repurchase program to also augment our return of capital to shareholders. So right now, that is the plan for the current year. The dividend is ongoing, so as we see other opportunities in the business, whether it's e-commerce-type entities or other specialty entities that might make sense for us and help drive sales and profitability, we would certainly take a look at those potential opportunities.

And similar, where can you see the cash balance, I guess, absent those acquisitions or stock buybacks?

Probably -- well, absent the stock buyback?

Yes.

Above the year-end 2011 levels.

Okay. Also a question on private label. You mentioned your goal is 20% over the next few years. Where do you sit today with private label and proportion of sales?

Just over 15%.

Our next question will come from Sean McGowan of Needham & Company.

First general subject is visibility. You seem to have a higher degree of visibility in the early part of the year, particularly in the first quarter relative to your sales expectations or guidance for the full year. To what extent is that you’re actually seeing something that has visibility early or just being conservative for the full year? Is there anything that you see slowing down and making it tougher in the balance or the second half of the year?

We see kind of what's going on. So the BB core bat is going to help. We're -- we continue to be excited about the golf business. As we get further into the back half of the year, we are so weather -- as we've shown, we are somewhat weather sensitive in that fourth quarter and we just need to be conservative into that fourth quarter. We don't have visibility until we kind of see how the weather plays out.

Okay. So if we get a more normal fourth quarter, maybe we can revisit that later in the year.

Sure.

A question on golf. I’m correct in assuming that there's no plan for new golf stores this year?

We're looking at that. I mean, I would expect -- we're in some negotiations right now and I would expect that we would open up somewhere between 3 and 5 golf stores this year. But we don't have anything finalized yet. We're just in final negotiations.

And that was not counted in your store opening. The store opening that you had in the release was just the Dick's Sporting Goods stores, right?

Correct. We're very confident of those Dick's Sporting Goods stores. The Golf Galaxy ones, as I said, we're looking at several. We would expect to get 3 to 5, but we're not far enough along in the negotiations to kind of commit to it.

Last question on the golf, then. To what extent might you have seen some weather-related pulling of some sales that might otherwise have occurred in the first quarter actually getting pulled into the fourth quarter? Do you think that's a possibility?

I think that's a bit of a possibility, but I don't think that's significant. Our first quarter started in February and we had some nicer weather in February. That certainly helped. But I don't think the fourth quarter had an awful lot to do with it. A lot of what was sold in the fourth quarter were commodity-type businesses and the -- a lot of these new launches didn't start until the first quarter. So Taylormade launching the RocketBallz, they launched them on February 3. We've got the new Nike launches, with the VRS Drivers, with the Callaway, with their new Razor Fit, all of these launches happened in the first quarter.

Our next question will come from Rafe Jadrosich of Bank of America.

This is Rafe Jadrosich on behalf of Robby. Just on the same-store sales guidance sort of 3% to 4% for the first quarter, I was hoping you can just give a little color around the drivers and maybe some specifics of what's really working kind of moving into spring here? You already mentioned baseball, and golf is as strong. And then maybe a little bit of color on the product launch schedule and the pipeline you're seeing from key vendors for 2012. It looks like Nike is going to be launching some interesting products through the back half.

Well, kind of the drivers that are driving the first quarter, we have talked about. So that's a bit of golf, it's the baseball, around the BB core bats. The athletic footwear business was great in the fourth quarter. We expect that to continue with kind of the lightweight minimalistic running shoes. The apparel business, Nike and Under Armour have both done a great job with apparel coming out. So it's pretty well balanced around the store. If I were to say there was one area in the business that we expect is going to continue to be difficult, it's going to be the fitness products. But the balance of it is going to be pretty balanced throughout the store.

Got it. And in terms of -- can I just get a little more color around the regionalization efforts? I mean, you talked in the past about expanding the program 2012. I'm just wondering if you could give an update on the opportunity there, if there's any initiatives coming for this year.

Yes. We continue with this program. It's been very successful. We've seen very positive impacts on our tackle business. Our hunting business this past fourth quarter was pretty good. So we've seen this as continuing to be an important part of our business.

At this time, we're showing no more questions in the queue. I'd like to turn the conference back over to Ed Stack for any closing comments.

Thank you. Again, I'd like to thank everyone for joining us for our Fourth Quarter Earnings Call. And we look forward to seeing everyone after the first quarter. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.