Dick's Sporting Goods Reports Third Quarter Results

PITTSBURGH, Nov. 13 /PRNewswire-FirstCall/ -- Dick's Sporting Goods, Inc. today reported sales and earnings results for the third quarter ended October 28, 2006.

Third Quarter Results

Net income for the third quarter ended October 28, 2006 was $7.8 million and earnings per share was $0.14, as compared to prior year proforma net income of $0.9 million, or $0.02 per share (which has been adjusted for $0.06 of stock option expense per share as if the Company expensed stock options). Earnings guidance provided on August 15, 2006 was for earnings per share of approximately $0.03 - 0.04.

On a GAAP basis, net income increased to $7.8 million and earnings per share increased to $0.14, as compared to prior year net income (excluding stock option expense) of $4.2 million, or $0.08 per share.

Net sales for the quarter increased 22% to $708.3 million while comparable store sales increased 8.9%. The former Galyan's stores are included in the third quarter comparable store sales calculation. Comparable store sales guidance provided on August 15, 2006 was for an increase of approximately 3 - 4%.

"I am very pleased with the performance of our team across all functional areas as measured by a variety of metrics. Earnings per share, comp store sales and inventory per square foot were all noteworthy. It is important to note that the weather was very much in our favor as was new product introductions for football and soccer. Certainly, some of the fourth quarter business shifted to the third quarter. That said, we executed well while opening a record 26 stores in the quarter," said Edward W. Stack, Chairman and CEO.

New Stores

In the third quarter, the Company opened 26 single-level stores (23 in existing markets and three in new markets) which completes the new store openings for the year. The stores that opened in the third quarter are listed in a table later in the release under the heading "Store Count and Square Footage."

As of October 28, 2006, the Company operated 294 stores, with approximately 16.7 million square feet, in 34 states.

Year-to-Date Results

Net income for the 39 weeks ended October 28, 2006 increased 48% to $44.9 million and earnings per share increased 46% to $0.82, as compared to prior year proforma net income of $30.3 million, or $0.56 per share (which has been adjusted for $0.19 of stock option expense per share as if the Company expensed stock options, and excludes merger integration and store closing costs and gain on sale of investment).

On a GAAP basis, net income increased to $44.9 million and earnings per share increased to $0.82, as compared to prior year net income of $19.0 million, or $0.35 per share which included $37.8 million pre-tax of merger integration costs and a $1.8 million pre-tax gain on sale of investment.

Net sales increased 18% to $2,088 million while comparable store sales increased 7.7%. The former Galyan's stores are not included in the year-to- date comparable store sales calculation as they were not in the comp store base at the beginning of 2006.

Acquisition of Golf Galaxy, Inc.

Dick's and Golf Galaxy, Inc. have entered into a definitive agreement and plan of merger. Under the terms of the agreement, each outstanding share of Golf Galaxy common stock will be converted into the right to receive $18.82 per share in cash, without interest.

Dick's offer represents a premium of 19% over Golf Galaxy's closing stock price as of November 10, 2006. Based on approximately 11.7 million outstanding Golf Galaxy shares, the transaction would be valued at approximately $225 million. The transaction will be financed using our existing credit facility.

Completion of the transaction is contingent upon various conditions, which are more fully set forth in the merger agreement, and includes, among other things, approval of the transaction by Golf Galaxy's shareholders. The merger transaction is anticipated to be completed not before February 6, 2007, subject to Hart-Scott-Rodino approval under United States antitrust laws and customary closing conditions.

Certain holders of Golf Galaxy's common stock have entered into a voting agreement with Dick's where they have agreed to vote 19.9% of the outstanding common stock in favor of the merger at the special shareholders meeting.

Golf Galaxy currently operates 61 stores in 24 states, ecommerce websites and catalog operations, and generated $250 million in sales during the last 12 months ended August 26, 2006.

Dick's management anticipates that the acquisition will be accretive in fiscal 2007. Earnings guidance will be provided with our year end earnings release in March in connection with our standard practice.

"Golf Galaxy is a rapidly growing, profitable company which we believe is the best in the specialty golf category. The passion with which Dick's Sporting Goods and Golf Galaxy associates serve the enthusiast golfer make this transaction a big win for shareholders and golf enthusiasts alike," said Edward W. Stack, Chairman and CEO.

Peter J. Solomon Securities Company Limited provided financial advisory services to Dick's Sporting Goods in connection with the transaction.

2006 Outlook

The Company's current outlook for 2006 is based on current expectations and includes "forward-looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act as described later in this release. Although the Company believes that comments reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. The earnings outlook does not include the combined results of Dick's and Golf Galaxy and excludes any merger-related expenses that may be incurred pursuant to the merger.

-- Full Year 2006 Comparisons to Fiscal 2005 * We are increasing earnings guidance for the full year as a result of our third quarter performance. Based on an estimated 55 million shares outstanding, the Company is increasing earnings guidance from the previous guidance of approximately $1.84 - 1.88 to the new guidance of approximately $1.95 - 1.98 per share (which includes $0.26 of stock option expense per share). This represents an approximate 30% increase over fiscal 2005 proforma earnings per share of $1.50 (which has been adjusted for $0.25 of stock option expense per share as if the Company expensed stock options, and excludes merger integration and store closing costs and gain on sale of investment). * Comparable store sales are expected to increase approximately 6% on a 52-week to 52-week comparative basis. * The Company opened 39 new stores year-to-date which completes the new store openings for the year. Two stores were relocated in the first quarter of 2006. -- Fourth Quarter 2006 - 14 Week Quarter * Based on an estimated 56 million shares outstanding, the Company is providing earnings guidance of approximately $1.13 - 1.16 per share (which includes $0.06 of stock option expense per share). This represents an approximate 22% increase over fourth quarter 2005 proforma earnings per share of $0.94 (which has been adjusted for $0.06 of stock option expense per share as if the Company expensed stock options). * Comparable store sales are expected to increase approximately 2 - 3% on a 13-week to 13-week comparative basis. Conference Call Info

The Company will be hosting a conference call today at 5:00 pm Eastern Time to discuss the third quarter results. Investors will have the opportunity to listen to the earnings conference call over the internet through the Company's web site located at http://www.dickssportinggoods.com/investors. To listen to the live call, please go to the web site at least fifteen minutes early to register, download and install any necessary audio software.

For those who cannot listen to the live broadcast, the webcast will be archived on the Company's web site for approximately 30 days. In addition, a dial-in replay will be available shortly after the call. To listen, investors should dial [phone] (domestic callers) or [phone] (international callers) and enter confirmation code 25488141. The dial-in replay will be available for 30 days following the live call.

Forward-Looking Statements Involving Known and Unknown Risks and Uncertainties

Except for historical information contained herein, the statements in this release are forward-looking and made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. You can identify these statements by forward-looking words such as "may," "will," "expect," "anticipate," "believe," "guidance," "estimate," "intend," "predict," and "continue" or similar words. Forward-looking statements involve known and unknown risks and uncertainties, which may cause the Company's actual results in future periods to differ materially from forecasted results. Those risks and uncertainties are more fully described in the Company's Annual Report on Form 10-K for the year ended January 28, 2006 as filed with the Securities and Exchange Commission on March 23, 2006 and those references herein to our planned merger with Golf Galaxy. The Company disclaims any obligation and does not intend to update any forward-looking statements except as may be required by the securities laws.

About Dick's Sporting Goods, Inc.

Pittsburgh-based Dick's Sporting Goods, Inc. 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 October 28, 2006, the Company operated 294 stores in 34 states primarily throughout the Eastern half of the U.S.

Dick's Sporting Goods, Inc. news releases are available at http://www.dickssportinggoods.com/ (click on the Investor Relations link at the bottom of the home page).

Contact: Michael F. Hines, EVP - Chief Financial Officer or Dennis Magulick, Director, Investor Relations 724-273-3400 [e-mail]'S SPORTING GOODS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED (In thousands, except per share data) 13 Weeks Ended 39 Weeks Ended ------------------ ---------------------- Oct. 28, Oct. 29, Oct. 28, Oct. 29, 2006 2005 2006 2005 -------- -------- ---------- ---------- Net sales $708,343 $582,665 $2,087,888 $1,775,480 Cost of goods sold, including occupancy and distribution costs 517,008 429,211 1,511,490 1,295,638 -------- -------- ---------- ---------- GROSS PROFIT 191,335 153,454 576,398 479,842 Selling, general and administrative expenses 167,393 136,564 478,868 392,282 Pre-opening expenses 8,333 6,022 14,936 10,259 Merger integration and store closing costs - - - 37,790 -------- -------- ---------- ---------- INCOME FROM OPERATIONS 15,609 10,868 82,594 39,511 Gain on sale of investment - - - (1,844) Interest expense, net 2,617 3,896 7,772 9,771 -------- -------- ---------- ---------- INCOME BEFORE INCOME TAXES 12,992 6,972 74,822 31,584 Provision for income taxes 5,197 2,789 29,929 12,634 -------- -------- ---------- ---------- NET INCOME $7,795 $4,183 $44,893 $18,950 ======== ======== ========== ========== EARNINGS PER COMMON SHARE: Basic $0.15 $0.08 $0.88 $0.38 Diluted $0.14 $0.08 $0.82 $0.35 WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: Basic 51,272 50,120 50,812 49,652 Diluted 55,437 53,947 54,973 53,917 DICK'S SPORTING GOODS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands) October 28, October 29, January 28, 2006 2005 2006 ------------ ----------- ----------- (unaudited) (unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents $35,137 $32,009 $36,564 Accounts receivable, net 62,922 55,366 29,365 Income taxes receivable 16,100 5,637 - Inventories, net 787,103 674,877 535,698 Prepaid expenses and other current assets 19,241 14,236 11,961 Deferred income taxes - 12,411 429 ------------ ----------- ----------- Total current assets 920,503 794,536 614,017 Property and equipment, net 425,970 363,113 370,277 Construction in progress - leased facilities 22,229 5,524 7,338 Goodwill 156,628 157,500 156,628 Other assets 52,455 42,863 39,529 ------------ ----------- ----------- TOTAL ASSETS $1,577,785 $1,363,536 $1,187,789 ============ =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $384,727 $332,446 $253,395 Accrued expenses 190,370 138,744 136,520 Deferred revenue and other liabilities 50,461 39,556 62,792 Income taxes payable - - 18,381 Current portion of other long-term debt and capital leases 141 560 181 ------------ ----------- ----------- Total current liabilities 625,699 511,306 471,269 ------------ ----------- ----------- LONG-TERM LIABILITIES: Senior convertible notes 172,500 172,500 172,500 Revolving credit borrowings 101,823 202,570 - Other long-term debt and capital leases 8,412 8,356 8,520 Non-cash obligations for construction in progress - leased facilities 22,229 5,524 7,338 Deferred revenue and other liabilities 140,793 105,957 113,369 ------------ ----------- ----------- Total long-term liabilities 445,757 494,907 301,727 ------------ ----------- ----------- STOCKHOLDERS' EQUITY: Common stock 380 364 365 Class B common stock 135 138 137 Additional paid-in capital 256,091 206,280 209,526 Retained earnings 247,735 148,812 202,842 Accumulated other comprehensive income 1,988 1,729 1,923 ------------ ----------- ----------- Total stockholders' equity 506,329 357,323 414,793 ------------ ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,577,785 $1,363,536 $1,187,789 ============ =========== =========== DICK'S SPORTING GOODS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED (Dollars in thousands) 39 Weeks Ended ----------------------------- October 28, October 29, 2006 2005 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $44,893 $18,950 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 39,378 36,542 Deferred income taxes (11,109) (13,983) Stock-based compensation 18,719 - Excess tax benefit from stock-based compensation (11,776) - Tax benefit from exercise of stock options 996 14,193 Gain on sale of investment - (1,844) Other non-cash items 1,951 1,841 Changes in assets and liabilities: Accounts receivable 5,947 (17,449) Inventories (251,405) (217,051) Prepaid expenses and other assets (9,546) (4,940) Accounts payable 128,303 96,778 Accrued expenses 32,353 7,348 Income taxes payable (5,663) - Deferred construction allowances 26,554 3,623 Deferred revenue and other liabilities (3,646) 3,608 ----------- ----------- Net cash provided by (used in) operating activities 5,949 (72,384) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (136,175) (93,716) Proceeds from sale-leaseback transactions 14,075 18,070 Increase in recoverable costs from developed properties (14,892) (662) Proceeds from sale of investment - 1,922 ----------- ----------- Net cash used in investing activities (136,992) (74,386) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Revolving credit borrowings, net 101,823 126,476 Payments on other long-term debt and capital leases (148) (345) Proceeds from exercise of stock options 11,038 6,804 Proceeds from sale of common stock under employee stock purchase plan 2,098 2,135 Excess tax benefit from stock-based compensation 11,776 - Increase in bank overdraft 3,029 24,823 ----------- ----------- Net cash provided by financing activities 129,616 159,893 ----------- ----------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (1,427) 13,123 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 36,564 18,886 ----------- ----------- CASH AND CASH EQUIVALENTS, END OF PERIOD $35,137 $32,009 =========== =========== Supplemental disclosure of cash flow information: Construction in progress - leased facilities $14,891 $(9,709) Accrued property and equipment $21,497 $(10,286) Cash paid for interest $6,905 $12,464 Cash paid for income taxes $60,940 $4,304 Store Count and Square Footage The stores that opened during the third quarter are as follows: Store Market Store Market --------------------- ---------- ------------------ ------------ Altoona, PA Altoona Brighton, MI Detroit Alpharetta, GA Atlanta Grand Rapids, MI Grand Rapids Fayetteville, GA Atlanta Maple Grove, MN Minneapolis Newnan, GA Atlanta Franklin, TN Nashville Birmingham, AL Birmingham Madison, TN Nashville Dedham, MA Boston Cherry Hill, NJ Philadelphia Arlington Heights, IL Chicago Pittsfield, MA Pittsfield Deer Park, IL Chicago Topsham, ME Portland Merrillville, IN Chicago Apex, NC Raleigh Tinley Park, IL Chicago Christiansburg, VA Roanoke Strongsville, OH Cleveland Salisbury, MD Salisbury Grove City, OH Columbus Williamsport, PA Wilkes-Barre Longmont, CO Denver Jacksonville, NC Wilmington

The following represents a reconciliation of beginning and ending stores and square footage for the periods indicated:

Fiscal 2006 Fiscal 2005 ----------------------- ------------------------ Q1 Q2 Q3 Total Q1 Q2 Q3 Total ----- ----- ----- ----- ----- ----- ----- ------ Beginning stores 255 263 268 255 234 236 239 234 New 8 5 26 39 7 3 16 26 Closed - - - - (5) - - (5) ----- ----- ----- ----- ----- ----- ----- ------ Ending stores 263 268 294 294 236 239 255 255 ===== ===== ===== ===== ===== ===== ===== ====== Relocated stores 2 - - 2 - 1 3 4 ===== ===== ===== ===== ===== ===== ===== ====== Square Footage: (in millions) Fiscal 2006 Fiscal 2005 % Increase ----------- ----------- ---------- Q1 15.2 13.6 12% Q2 15.5 13.8 12% Q3 16.7 14.7 14% Reconciliation of Non-GAAP Financial Measures

The Company has provided non-GAAP financial information in this earnings release which includes net income and earnings per share adjusted for merger integration and store closing costs, gain on sale of investment and stock option expense had the Company applied SFAS 123, "Accounting for Stock-Based Compensation" in fiscal 2005. The proforma financial information is considered non-GAAP and is not preferable to GAAP financial information; however, the Company believes this information provides additional measures of performance that the Company's management and investors can use to compare core, operating results between reporting periods. A reconciliation of these non-GAAP measures to the applicable GAAP measures are provided below and on the Company's website at http://www.dickssportinggoods.com/ (click on the Investor Relations link at the bottom of the home page).

Proforma Net Income, Earnings Per Share and EBITDA Reconciliations Proforma Net Income and Proforma Earnings Per Share Reconciliation (dollars in thousands, except per share data): 13 Weeks Ended 39 Weeks Ended October 29, 2005 October 29, 2005 ----------------------------------- Per Per Amounts Share Amounts Share --------- ------- --------- ------- Net income and earnings per share (GAAP) $4,183 $0.08 $18,950 $0.35 Less: Stock option expense, after tax (3,277) (0.06) (10,202) (0.19) Add: Merger integration and store closing costs (Galyan's), after tax - - 22,674 0.42 Less: Gain on sale of investment, after tax - - (1,106) (0.02) --------- ------- --------- ------- Proforma net income and earnings per share $906 $0.02 $30,316 $0.56 ========= ======= ========= ======= 13 Weeks Ended 52 Weeks Ended January 28, 2006 January 28, 2006 ----------------------------------- Per Per Amounts Share Amounts Share --------- ------- --------- ------- Net income and earnings per share (GAAP) $54,030 $1.00 $72,980 $1.35 Less: Stock option expense, after tax (3,282) (0.06) (13,484) (0.25) Add: Merger integration and store closing costs (Galyan's), after tax - - 22,674 0.42 Less: Gain on sale of investment, after tax - - (1,106) (0.02) --------- ------- --------- ------- Proforma net income and earnings per share $50,748 $0.94 $81,064 $1.50 ========= ======= ========= ======= EBITDA

EBITDA should not be considered as an alternative to net income or any other generally accepted accounting principles measure of performance or liquidity. EBITDA, as the Company has calculated it, may not be comparable to similarly titled measures reported by other companies. EBITDA is a key metric used by the Company that provides a measurement of profitability that eliminates the effect of changes resulting from financing decisions, tax regulations, and capital investments.

Q3 ----------------------------------------- EBITDA 2006 2005 (GAAP) 2005 (Proforma)/1 ----------------------------- --------- ----------- ----------------- (dollars in thousands) Net income $7,795 $4,183 $4,183 Provision for income taxes 5,197 2,789 2,789 Interest expense, net 2,617 3,896 3,896 Depreciation and amortization 13,132 12,218 12,218 Less: Stock option expense (fiscal 2005) - - (5,462) --------- ----------- ----------------- EBITDA $28,741 $23,086 $17,624 ========= =========== ================= GAAP EBITDA % increase over GAAP Prior Year 24% GAAP EBITDA % increase over Proforma Prior Year 63% YTD ----------------------------------------- EBITDA 2006 2005 (GAAP) 2005 (Proforma)/1 ----------------------------- --------- ----------- ----------------- (dollars in thousands) Net income $44,893 $18,950 $18,950 Provision for income taxes 29,929 12,634 12,634 Interest expense, net 7,772 9,771 9,771 Depreciation and amortization 39,378 36,542 36,542 Less: Depreciation and amortization (merger integration) - - (869) Add: Merger integration and store closing costs - - 37,790 Less: Gain on sale of investment - - (1,844) Less: Stock option expense (fiscal 2005) - - (17,003) --------- ----------- ----------------- EBITDA $121,972 $77,897 $95,971 ========= =========== ================= GAAP EBITDA % increase over GAAP Prior Year 57% GAAP EBITDA % increase over Proforma Prior Year 27% /1 Proforma adjusts for merger integration and store closing costs related to the Galyan's acquisition in 2004, gain on sale of investment and the effect of expensing stock options as if we had applied SFAS 123, "Accounting for Stock-Based Compensation", in fiscal 2005.