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FORM 10-Q

DICK’S SPORTING GOODS, INC.

(412) 809-0100
(Registrant’s telephone number, including area code)

     Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes      X        No            

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes                No     X     

     The number of shares of common stock and Class B common stock outstanding at August 26, 2003 was 15,936,244 and 7,164,683, respectively.

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INDEX TO FORM 10-Q

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

See accompanying notes to unaudited condensed consolidated financial statements.

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See accompanying notes to unaudited condensed consolidated financial statements.

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See accompanying notes to unaudited condensed consolidated financial statements.

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See accompanying notes to unaudited condensed consolidated financial statements.

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See accompanying notes to unaudited condensed consolidated financial statements.

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1. Basis of Presentation

     The accompanying unaudited condensed consolidated financial statements have been prepared by us, in accordance with the requirements for Form 10-Q and do not include all the disclosures normally required in annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America. Unless otherwise specified, any reference to year is to our fiscal year and when used in this Form 10-Q and unless the context otherwise requires, the terms “Dick’s,” “we,” “us,” “the Company” and “our” refer to Dick’s Sporting Goods, Inc. and its subsidiary.

2. Unaudited Interim Financial Data

     The interim financial information as of August 2, 2003 and for the 13 and 26 weeks ended August 2, 2003 and August 3, 2002 is unaudited and has been prepared on the same basis as the audited financial statements. In the opinion of management, such unaudited information includes all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the interim financial information. This financial information should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended February 1, 2003 dated April 29, 2003, as filed with the Securities and Exchange Commission. Operating results for the 13 and 26 weeks ended August 2, 2003 are not necessarily indicative of the results that may be expected for the year ending January 31, 2004 or any other period.

3. Earnings Per Share

     Basic earnings per share are based upon the weighted average number of shares outstanding. Diluted earnings per share are based upon the weighted average number of shares outstanding plus the incremental shares that would be outstanding assuming exercise of dilutive stock options and warrants, calculated by applying the treasury stock method.

     We are reporting earnings per share in accordance with accounting principles generally accepted in the United States of America and are disclosing earnings per share on a pro-forma basis. We effected an initial public offering on October 16, 2002. The pro-forma amounts assume that the initial public offering took place at the beginning of the 13 and 26 weeks ended August 3, 2002, and excludes interest expense, net of tax, of $131 and $262 for the 13 and 26 weeks ended August 3, 2002, respectively, on the portion of our revolving credit facility that would have been paid down with the proceeds to us from the initial public offering. The pro-forma results also include an increase in shares for basic and diluted earnings per share purposes as if the initial public offering was executed prior to the beginning of the 13 and 26 weeks ended August 3, 2002. The Company’s management believes the use of pro-forma results for the 13 and 26 weeks ended August 3, 2002 provides a more meaningful comparison to the 13 and 26 weeks ended August 2, 2003 results due to the significant increase in share count since October 15, 2002 when the Company completed its initial public offering, and the related reduction in interest expense due to the application of the net proceeds thereof.

     The computations for basic and diluted earnings per share are as follows:

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4. Stock-Based Compensation

     The Company accounts for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion (“APB”) No. 25, “Accounting for Stock Issued to Employees” and related Interpretations. Accordingly, no compensation expense has been recognized where the exercise price of the option was equal to or greater than the market value of the underlying common stock on the date of grant. The pro-forma net income and earnings per share in the following table illustrates the effect on net income and earnings per share as if the Company had applied the fair value recognition provisions of SFAS No. 123, “Accounting for Stock-Based Compensation,” to stock-based employee compensation.

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5. Newly Issued Accounting Pronouncements

     In November 2002, the FASB issued Emerging Issues Task Force Issue No. 02-16 (“Issue 02-16”), “Accounting by a Reseller for Cash Consideration Received from a Vendor.” Issue 02-16 addresses the issue of how a reseller of a vendor’s product should account for cash consideration received from a vendor. The adoption of Issue 02-16, effective with agreements entered into after November 21, 2002, did not have a material impact on the Company’s consolidated financial position or results of operations.

6. Construction In Progress – Leased Facilities

     In accordance with Emerging Issues Task Force No. 97-10 (“Issue 97-10”), “The Effect of Lessee Involvement in Asset Construction,” the Company is considered to be the owner of certain buildings, for accounting purposes only, for various building leases during the construction period. As such, the Company has recognized a non-cash asset and related non-cash obligation of $7.1 million as of August 2, 2003. At the conclusion of the construction period, the asset and related liability will be removed from the balance sheet in a manner similar to a sale-leaseback transaction if certain conditions are met. The application of Issue 97-10 has no impact to cash balances, net cash flow, the statement of operations or cash obligations.

7. Reclassifications

     Certain reclassifications have been made to prior year amounts to conform with current year presentation.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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. Accordingly, investors should not place undue reliance on forward-looking statements as a prediction of actual results. You can identify these statements 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,” “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, our expectations, our growth strategies, including our plans to open new stores, our efforts to increase profit margins and return on invested capital, plans to grow our private label business, projections of our future profitability, results of operations, capital expenditures or our financial condition or other “forward-looking” information and includes statements about revenues, earnings, spending, margins, liquidity, store openings and operations, inventory, exclusive branded products, our actions, plans or strategies.

     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 2003 and beyond to differ materially from those expressed or implied in any forward-looking statements included in this report or otherwise made by our management: the intense competition in the sporting goods industry and actions by our competitors; our inability to manage our growth, open new stores on a timely basis and expand successfully in new and existing markets; the availability of retail store sites on terms acceptable to us; the cost of real estate and other items related to our stores; our ability to access adequate capital; changes in consumer demand; risks relating to product liability claims and the availability of sufficient insurance coverage relating to those claims; our relationships with our suppliers, distributors or manufacturers and their ability to provide us with sufficient quantities of products; any serious disruption at our distribution or return facility; the seasonality of our business; the potential impact of natural disasters or national and international security concerns on us or the retail environment; risks relating to the regulation of the products we sell, such as hunting rifles; risks associated with relying on foreign sources of production; risks relating to implementation of new management information systems; risks relating to operational and financial restrictions imposed by our credit facility; factors associated with our pursuit of strategic acquisitions; the loss of our key executives, especially Edward W. Stack, our Chairman and Chief Executive Officer; our ability to meet our labor needs; changes in general economic and business conditions and in the specialty retail or sporting goods industry in particular; changes in our business strategies and other factors discussed in other reports or filings filed by us with the Securities and Exchange Commission.

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     The Company’s business is subject to seasonal fluctuations. Significant portions of the Company’s net sales and profits are realized during the fourth quarter of the Company’s fiscal year, which is due, in part, to the holiday selling season and, in part, to our sales of cold weather sporting goods and apparel. Any decrease in fiscal fourth quarter sales, whether because of a slow holiday selling season, unseasonable weather conditions, or otherwise, could have a material adverse effect on our business, financial condition and operating results for the entire fiscal year.

     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 factors, may cause results to differ materially from those contained in any forward-looking statement. We do not assume any obligation and do not intend to update any forward-looking statements.

OVERVIEW

     The Company is an authentic full-line sporting goods retailer offering a broad assortment of brand-name sporting goods equipment, apparel and footwear in a specialty store environment. As of August 2, 2003, the Company operated 151 stores in 27 states throughout the Eastern half of the United States.

RESULTS OF OPERATIONS

     The following table presents for the periods indicated the Company’s Condensed Consolidated Statements of Income data as a percentage of the Company’s net sales:

     Cost of goods sold includes the cost of merchandise, inventory shrinkage, freight, distribution and store occupancy costs. Store occupancy costs include rent, common area maintenance charges, real estate and other asset based taxes, store maintenance, utilities, depreciation, fixture lease expenses and certain insurance expenses.

     Selling, general and administrative expenses include store and field support payroll and fringe benefits, advertising, bank card charges, information systems, marketing, legal, accounting, other store expenses and all expenses associated with operating the Company’s corporate headquarters.

     Pre-opening expenses consist primarily of marketing, payroll and recruiting costs incurred prior to a new store opening.

     Interest expense results primarily from interest on our revolving credit facility.

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13 WEEKS ENDED AUGUST 2, 2003 COMPARED TO THE 13 WEEKS ENDED AUGUST 3, 2002

Net Sales

     Net sales increased by $43.4 million, or 14%, to $353.5 million for the 13 weeks ended August 2, 2003, from $310.1 million for the 13 weeks ended August 3, 2002. This increase resulted from a comparable store sales increase of $4.4 million, or 1.5%, and an increase of $39.0 million in non-comparable store sales. The increase in comparable store sales is attributable to sales increases in water sports, women’s apparel, team sports and exercise. These increases were partially offset by lower sales of in-line skates, bikes and fishing tackle.

Gross Profit

     Gross profit increased by $16.1 million, or 20%, to $96.5 million for the 13 weeks ended August 2, 2003, from $80.4 million for the 13 weeks ended August 3, 2002. As a percentage of net sales, gross profit increased to 27.3% for the 13 weeks ended August 2, 2003, from 25.9% for the 13 weeks ended August 3, 2002. The gross profit percentage was favorably impacted by improved merchandise margin, lower shrink expense and improved productivity at the Company’s distribution center.

Selling, General and Administrative Expenses

     Selling, general and administrative expenses increased by $11.3 million to $70.3 million for the 13 weeks ended August 2, 2003, from $59.0 million for the 13 weeks ended August 3, 2002. As a percentage of net sales, selling, general and administrative expenses increased from 19.0% for the 13 weeks ended August 3, 2002 to 19.9% for the 13 weeks ended August 2, 2003. The percentage increase was due primarily to increased net advertising expense, expenses relating to additional employer payroll taxes required as a result of stock option exercises and additional professional and insurance expenses associated with being a public company for the 13 weeks ended August 2, 2003 as compared to being a private company for the 13 weeks ended August 3, 2002.

Pre-Opening Expenses

     Pre-opening expenses increased by $0.2 million to $1.2 million for the 13 weeks ended August 2, 2003, from $1.0 million for the 13 weeks ended August 3, 2002. Pre-opening expenses were for the addition of two new stores for the 13 weeks ended August 2, 2003, compared to three new stores for the 13 weeks ended August 3, 2002.

Income from Operations

     Income from operations increased by $4.7 million, or 23%, to $25.1 million for the 13 weeks ended August 2, 2003, from $20.4 million for the 13 weeks ended August 3, 2002. The increase in income from operations is primarily attributable to a higher gross margin percentage combined with operating income from non-comparable stores.

Gain on Sale of Investment

     Gain on sale of investment of $1.2 million for the 13 weeks ended August 2, 2003 resulted from the sale of a portion of the Company’s non-cash investment in its third-party internet commerce provider.

Interest Expense, Net