Dick's Sporting Goods
Analysis of 2003 FY Performance

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By Mawchek
April 2, 2004

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I continue being impressed with the financial performance of Dick's Sporting Goods. Here are a few points why:

Gross margins continue to expand in year over year comparisons. 2003 ended with a gross margin of 27.7%, continuing an upward trend from 26.5%, 24.5% and 23.4% in the three preceding years. Per management, gross margin has grown through the combination of lower inventory shrinkage and additional sales of higher-margined private label goods (PLG). At 1-31-04, PLG reached 13.5% of sales against 9.8% in the comp quarter a year ago. For the year, PLG comprised 10.5% of sales versus only 6.1% in 2002. Dick's aspires to a 15% rate.

The net profit margin has likewise improved to 3.6% in 2003 from 3%, 2.2% and 1.8%. Dicks has now increased its net profit on every dollar of sales by 100% over the past 3 years.

The doubling of net margin since FY 2000, despite the steady growth of SG&A expenses from 19.0% to 21.4% in that time, is impressive. This growth in SG&A would normally be worrisome were it not for its rationale (expressed during company conference calls) in building the company's technology and HR infrastructure for future growth. Management says future 2% comparable SSS increases will allow for leverage of SG&A expense going forward. Notably, 4Q03 was the first quarter since Dick's went public wherein SG&A as a percentage of sales has declined (20.2% to 20.1%) from the anniversary quarter. Leverage of SG&A may be at hand, all the better for the net margin.

Speaking of SSS, the full fiscal year ended 1-31-04 showed a comp sales increase of 2.1% versus increases of 5.1%, 3.6% and 3.0% in the 3 previous fiscal years. The most recent quarterly SSS comp was 4.6%. Complaints of direct competitors and other less successful retailers about the "poor economy", "joblessness" and "careful consumers" seem empty in light of Dick's growth year over year. FYI, management is projecting a SSS increase of 3% for 2004, something to watch.

Other significant data (from company website):

2003 Inventory turnover 3.69X versus Sporting Goods Retailers Mean of 2.59X

2003 ROIC 11.8% versus Sporting Goods Retailers Mean of 10.5%

6-year Compound Annual Growth Rate of store base: 17.8%

6-year CAGR of Sales: 18.4%

6-year CAGR of Net Income from continuing operations: 85.4%

163 stores in 27 states (predominantly east of the Mississippi, few in major East Coast markets, none in FL, TX or CA) at YE 2003


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