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(Registrant’s Telephone Number, including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name
of Each Exchange on which Registered
iCommon Stock, $0.01 par value
iDKS
iThe
New York Stock Exchange
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.
iYesþ No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
iYesþ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,”“accelerated filer,”“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
iLarge
accelerated filer☑ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company i☐Emerging growth company i☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes i☐ No
☑
As of November 18, 2022, DICK’S Sporting Goods, Inc. had i59,840,863 shares of common stock, par value $0.01 per share, and i23,570,633
shares of Class B common stock, par value $0.01 per share, outstanding.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. iDescription of Business and Basis of Presentation
DICK’S Sporting Goods, Inc. (together with its subsidiaries,
referred to as “the Company”, “we”, “us” and “our” unless specified otherwise) is a leading omni-channel sporting goods retailer offering an extensive assortment of authentic, high-quality sports equipment, apparel, footwear and accessories through a blend of dedicated teammates, in-store services and unique specialty shop-in-shops. In addition to DICK’S Sporting Goods stores, the Company also owns and operates Golf Galaxy, Field & Stream, Public Lands and Going Going Gone! specialty concept stores, and offers its products both online and through its mobile apps. The Company also owns and operates DICK’S House of Sport and Golf Galaxy Performance Center, as well as GameChanger, a
youth sports mobile app for scheduling, communications, live scorekeeping, and video streaming. When used in this Quarterly Report on Form 10-Q, unless the context otherwise requires or otherwise specifies, any reference to “year” is to the Company’s fiscal year.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the requirements for Quarterly Reports on 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 (“U.S. GAAP”). The interim consolidated financial statements are unaudited and have been prepared on the same basis as the annual audited consolidated
financial statements. In the opinion of management, such unaudited consolidated financial statements include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the interim financial information.
The unaudited interim financial information should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended January 29, 2022 as filed with the Securities and Exchange Commission on March 23, 2022. Operating results for the 13 and 39 weeks ended October 29, 2022 are not necessarily indicative of the results that may be expected for the fiscal
year ending January 28, 2023 or any other period.
i
Recently Adopted Accounting Pronouncement
Convertible Instruments
In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06, “Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging
- Contracts in Entity’s Own Equity (Subtopic 815-40),” which removes the separation models for convertible debt with cash conversion or beneficial conversion features. ASU 2020-06 also requires the application of the if-converted method for calculating earnings per diluted share, under which the Company must assume that any conversion of its convertible senior notes due 2025 (the “Convertible Senior Notes”) will be satisfied entirely in common stock.
i
The
Company adopted ASU 2020-06 on the first day of fiscal 2022 using the modified retrospective approach, which resulted in the following adjustments to the Consolidated Balance Sheet (in millions):
DICK’S SPORTING GOODS, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Following the adoption of ASU 2020-06, the embedded conversion feature of the Convertible Senior Notes is no longer separately presented within stockholders’ equity, eliminating the non-cash debt discount. Accordingly, the Company’s effective interest rate on the Convertible Senior Notes decreased
from i11.6% to i3.9% upon adoption, resulting in a $i20.1 million
reduction in non-cash interest expense for the 39 weeks ended October 29, 2022 as compared to the same prior year period. The Company anticipates that fiscal 2022 earnings will not include $i27.4 million of pre-tax non-cash interest expense that was incurred in fiscal 2021 as a result of the adoption of ASU 2020-06.
Despite the
Company’s intention to settle the principal amount of the Convertible Senior Notes in cash, the application of the if-converted method requires earnings per diluted share to reflect that the Convertible Senior Notes will be settled entirely in shares upon conversion. As of October 29, 2022, approximately i4.8 million shares underlie the Convertible Senior Notes, which provides the basis for earnings per diluted share. The
Company used the treasury stock method prior to adoption of ASU 2020-06, which allowed the Company to assume that the principal amount of the Convertible Senior Notes would be paid in cash. The impact of adoption was not material to earnings per diluted share.
Recently Issued Accounting Pronouncements
Reference Rate Reform
In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The update provides optional guidance for a limited period of time to ease potential accounting impacts associated with transitioning away from reference rates that are expected to be discontinued, such as the London Interbank Offered
Rate (“LIBOR”). The amendments in this ASU can be applied anytime between the first quarter of fiscal 2020 and the fourth quarter of fiscal 2022 and apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued. The Company’s primary association with LIBOR was through interest rates applicable to loans under its former revolving credit facility, which was terminated in January 2022 and replaced with a new revolving credit facility that uses an adjusted secured overnight financing rate (“SOFR”). Accordingly, the impact of ASU 2020-04 on the Company's financial statements and related disclosures is not expected
to be significant.
Supplier Finance Programs
In September 2022, the FASB issued ASU 2022-04, “Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations,” which requires that a buyer in a supplier finance program disclose sufficient information about the program to allow a user of financial statements to understand the program's nature, activity during the period, changes from period to period, and potential magnitude. The amendments in this ASU are effective for the first quarter of 2023, except for the amendment on roll-forward information, which is effective for the first quarter of 2024, with early adoption permitted. The Company is currently evaluating the impact that the adoption
of this accounting standard will have on its financial disclosures.
2. iEarnings Per Common Share
Basic earnings per common share is computed based on the weighted average number of shares of common stock outstanding during the period. Diluted earnings per common share is computed based on the weighted average number of shares of common stock outstanding,
plus the effect of dilutive potential common shares, which include shares the Company could be obligated to issue from its Convertible Senior Notes and warrants, and stock-based awards, such as stock options and restricted stock. Dilutive potential common shares are excluded from the computation of earnings per share if their effect is anti-dilutive.
For all periods presented, dilutive potential common shares for the Company’s stock-based awards and warrants were determined using the treasury stock method. For the 13 and 39 weeks ended October 30, 2021, the dilutive effect of the Convertible Senior Notes was calculated using the treasury stock method; however, upon the adoption of ASU 2020-06, the
Company was required to calculate diluted earnings per common share using the if-converted method, which was applied to the 13 and 39 weeks ended October 29, 2022. See Note 1 – Description of Business and Basis of Presentation for further discussion.
Numerator
for basic earnings per common share - Net income
$
i228,456
$
i316,513
$
i807,517
$
i1,173,778
Effect
of dilutive securities
Interest expense associated with Convertible Senior Notes, net of tax
i8,472
i—
i24,673
i—
Numerator
for diluted earnings per common share - Net income after the effect of dilutive securities
$
i236,928
$
i316,513
$
i832,190
$
i1,173,778
Denominator:
Weighted
average common shares outstanding - basic
i77,789
i83,537
i76,527
i84,266
Dilutive
effect of stock-based awards
i5,120
i6,791
i5,357
i6,498
Dilutive
effect of warrants
i4,947
i10,542
i6,754
i7,988
Dilutive
effect of Convertible Senior Notes
i8,825
i12,794
i13,262
i10,896
Weighted
average common shares outstanding - diluted
i96,681
i113,664
i101,900
i109,648
Earnings
per common share:
Basic
$
i2.94
$
i3.79
$
i10.55
$
i13.93
Diluted
$
i2.45
$
i2.78
$
i8.17
$
i10.70
Stock-based
awards excluded from diluted shares
i—
i1
i185
i55
/
The
dilutive effect of the Convertible Senior Notes included i6.2 million and i12.8 million
shares for the 13 weeks ended October 29, 2022 and October 30, 2021, respectively, and i8.9 million and i10.9 million
shares for the 39 weeks ended October 29, 2022 and October 30, 2021, respectively, that are designed to be offset at settlement by shares delivered from the bond hedge purchased by the Company. The shares provided by the bond hedge are anti-dilutive; accordingly, they are not treated as a reduction to diluted weighted average shares outstanding for any periods presented. In addition, the dilutive effect of the Convertible Senior Notes for the 13 and 39 weeks ended October 29, 2022 included approximately i2.6 million
and i4.4 million shares, respectively, related to the principal amount of the Convertible Senior Notes, which the Company intends to settle in cash.
3. iFair
Value Measurements
Accounting Standard Codification (“ASC”) 820, “Fair Value Measurement and Disclosures,” outlines a valuation framework and creates a fair value hierarchy for assets and liabilities as follows:
Level 1: Observable inputs such as quoted prices in active markets;
Level 2: Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and
Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop
its own assumptions.
Recurring
The
Company measures its deferred compensation plan assets held in trust at fair value on a recurring basis using Level 1 inputs. Such assets consist of investments in various mutual funds made by eligible individuals as part of the Company’s deferred compensation plans. As of October 29, 2022, January 29, 2022 and October 30, 2021, the fair value of the Company’s deferred compensation plans was $i128.8
million, $i150.8 million, and $i150.7
million, respectively, as determined by quoted prices in active markets.
DICK’S SPORTING GOODS, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS - (Continued)
i
The Company discloses the fair value of its senior notes due 2032 and 2052 and Convertible Senior Notes using Level 2 inputs, which are based on quoted prices for similar or identical instruments in inactive markets, as follows (in millions):
Prior
to the adoption of ASU 2020-06, the carrying value of the Convertible Senior Notes excluded amounts classified within additional paid-in capital and any unamortized discounts as of January 29, 2022 and October 30, 2021. See Note 1 – Description of Business and Basis of Presentation for further information.
Due to their short-term nature, the fair value of cash and cash equivalents, accounts receivable, accounts payable and certain other liabilities approximated their carrying values at October 29, 2022, January 29, 2022, and October 30, 2021.
Nonrecurring
Assets and liabilities recognized or disclosed
at fair value on a nonrecurring basis may include property and equipment, operating lease assets, goodwill and other intangible assets, equity and other assets. These assets are required to be assessed for impairment when events or circumstances indicate that the carrying value may not be recoverable, and at least annually, for goodwill and indefinite-lived intangible assets. In the event that an impairment is required, the asset is adjusted to fair value, using Level 3 inputs.
4. iLeases
The
Company leases substantially all of its stores, ithree of its distribution centers and certain equipment under non-cancellable operating leases that expire at various dates through 2034. The Company’s stores generally have initial lease terms of i10
to i15 years and contain multiple ifive-year renewal options and rent escalation provisions. The lease agreements are primarily for the payment of minimum annual rentals, costs of utilities, property taxes, maintenance, common areas and insurance.
iSupplemental
cash flow information related to operating leases for the 39 weeks ended October 29, 2022 and October 30, 2021 were as follows (in millions):
Cash paid for amounts included in the measurement of operating lease liabilities
$
i499.2
$
i511.8
Non-cash
operating lease assets obtained in exchange for operating lease liabilities
$
i325.3
$
i273.6
/
5. iConvertible
Senior Notes
Overview
In April 2020, the Company issued an aggregate $i575.0 million of i3.25%
Convertible Senior Notes due 2025, which included the full exercise of a $i75.0 million over-allotment option, receiving proceeds of $i557.6 million,
net of $i17.4 million of transaction fees and other third-party offering expenses. The Convertible Senior Notes are scheduled to mature on iApril 15, 2025 and accrue interest at a rate of
i3.25% per annum, payable semi-annually in arrears on April 15 and October 15.
As of October 29, 2022, the conversion rate for the Convertible Senior Notes was i30.9636,
which represents a conversion price of $i32.30 per share. The difference between the initial conversion rate and the conversion rate as of October 29, 2022 is due to dividends that have been declared and paid on shares of the Company’s common stock following the issuance of the Convertible Senior Notes.
Upon conversion, the
Company may settle the Convertible Senior Notes for cash, shares of the Company’s common stock, or a combination thereof, at the Company’s option. The Company currently intends to settle the principal amount of the Convertible Senior Notes in cash and any conversion premium in shares of its common stock.
DICK’S SPORTING GOODS, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Convertible Senior Notes Exchanges
During fiscal 2022, the Company entered into agreements with certain holders of the Convertible Senior Notes to exchange $i420.6 million
in aggregate principal amount of the Convertible Senior Notes for a combination of cash and shares of the Company’s common stock in ifive separate transactions. The payments included all accrued and unpaid interest on the amounts exchanged. Concurrently with each of the exchange transactions during fiscal 2022, the Company entered into agreements with
certain counterparties to terminate a proportionate amount of the convertible bond hedge and warrant agreements that were entered into by the Company in April 2020 in connection with the issuance of the Convertible Senior Notes, (collectively, the “Notes Exchanges”).
In connection with the Notes Exchanges, the Company recognized pre-tax non-cash inducement charges of approximately $i8.8 million
and $i21.1 million during the 13 and 39 weeks ended October 29, 2022, respectively, which were recorded within interest expense on the Consolidated Statement of Income, paid a total of $i420.6 million
to noteholders to redeem the principal amount of the Convertible Senior Notes with a carrying value of $i413.1 million, and issued approximately i7.8 million
shares of the Company's common stock. Following the Notes Exchanges, $i154.4 million aggregate principal amount of the Convertible Senior Notes remain outstanding at October 29, 2022. Approximately i4.8 million
shares underlie the Convertible Senior Notes, the convertible bond hedge and the warrants at October 29, 2022.
Financial Statement Impacts
i
As discussed in Note 1 – Description of Business and Basis of Presentation, following the adoption of ASU 2020-06, the Convertible Senior Notes are recorded entirely as a liability. A summary of the composition of the net carrying value of the Convertible Senior Notes is as follows:
During the 13 and 39 weeks ended October 29, 2022, the Company recognized $i11.4 million
and $i33.3 million of interest expense related to the Convertible Senior Notes, or $i8.5 million
and $i24.7 million, net of tax, respectively. Interest expense related to the Convertible Senior Notes included the aforementioned inducement charges and $i0.4 million
and $i1.9 million of non-cash amortization of issuance fees during the 13 and 39 weeks ended October 29, 2022, respectively. During the 13 and 39 weeks ended October 30, 2021, the Company recognized $i12.4 million
and $i36.7 million of interest expense related to the Convertible Senior Notes, of which $i7.7 million and $i22.7 million,
respectively, was attributed to non-cash amortization of the debt discount and issuance fees.
At October 29, 2022, the stock price conditions under which the Convertible Senior Notes could be convertible at the holders’ option were met. The Company has not received any material conversion requests through the filing date of this Form 10-Q. Because the closing price of the Company’s common stock of $i116.23
at the end of the current quarter exceeded the conversion price of $i32.30, the if-converted value exceeded the principal amount outstanding of the Convertible Senior Notes by approximately $i401.4 million
at October 29, 2022.
6. iSubsequent Event
On November 21, 2022, the Company's Board of Directors authorized and declared a quarterly cash dividend in the amount of $ii0.4875/
per share on the Company's common stock and Class B common stock. The dividend is payable on December 30, 2022 to stockholders of record as of the close of business on December 9, 2022.
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. 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, our belief that many consumers have made lasting lifestyle changes with an increased focus on health and fitness, sports, and outdoor activities, leading to structurally higher sales; current macroeconomic conditions, including the uncertain
impact of inflation and the economic slowdown; supply chain disruptions and labor market challenges, which are resulting in rising container and transportation costs; the normalization of sales in certain categories, including fitness and outdoor equipment; the adequacy of our cash flow; our ability to control expenses; 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 and our plans to add new retail concepts and experiential stores; our intention to repay the principal outstanding amounts of the Convertible Senior Notes using excess cash, free cash flow or borrowings on our unsecured $1.6 billion revolving credit facility (the “Credit Facility”); our belief that the Inflation Reduction Act will not impact our financial results, including our annual estimated effective tax rate and liquidity; projections of
our future profitability; projected range of capital expenditures and our plans to make improvements within our existing stores and new store development and to continue investing in technology to enhance our store fulfillment and in-store pickup capabilities; anticipated store openings and relocations; plans to return capital to stockholders through dividends and in 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 2022 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:
▪Challenging macroeconomic conditions,
including inflationary pressures, an economic slowdown, elevated fuel prices and supply chain constraints, due to COVID-19, the conflict in Ukraine or otherwise; decreases in consumer demand for our products; and the effectiveness of measures to mitigate such impact on our 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;
▪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, associated costs and constraints, or foreign political instability;
▪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;
▪Negative reactions from our customers, shareholders or vendors regarding changes to our policies or positions related to social and political issues;
▪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 impact of an increase to corporate tax rates or imposition of an excise tax with respect to share repurchase activity;
•Our ability to optimize our store lease portfolio and our distribution and fulfillment network;
▪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; privacy; and environmental, social, and governance issues;
▪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;
▪The impact of wage increases on our financial results, including those related to supply chain disruptions and labor challenges;
▪Disruptions at our supply chain facilities or customer support center;
▪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 major sporting events or organized youth and adult sports programs;
▪Weather-related disruptions, unusual seasonal weather patterns and the overall 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 senior notes due 2032 (the “2032 Notes”) and senior notes due 2052 (the “2052 Notes” and together with the 2032 Notes, the “Senior Notes”), 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 29, 2022, filed on March 23, 2022 (our “2021 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.
OVERVIEW
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 to DICK’S Sporting Goods stores, we own and operate Golf Galaxy, Field & Stream, Public Lands and Going Going Gone! specialty concept stores
and offer our products both online and through our mobile apps. We also own and operate DICK’S House of Sport and Golf Galaxy Performance Center, as well as GameChanger, a youth sports mobile app for scheduling, communications, live scorekeeping and video streaming. 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.
Over
the past five years, we have transformed our business to drive sustainable growth in sales and profitability. During this time, we meaningfully improved our merchandise assortment through our strong relationships with our key brand partners, which provided access to highly differentiated product, and from our vertical brands. We also enhanced our store selling culture and service model and incorporated additional experiential elements and technology into our stores to engage our athletes. Finally, we invested in technology and data science to improve our pricing strategy, digital marketing and personalization capabilities. Consumers have also made lasting lifestyle changes in recent years, increasing their focus on health and fitness, sports and outdoor activities. As a result of our core strategies, foundational improvements and favorable consumer trends, net sales increased 40.5% in fiscal 2021 compared to fiscal 2019, while merchandise margins increased 626 basis
points as a percentage of net sales in the same period-to-period comparison.
Our profitability is primarily influenced by growth in comparable store sales, the strength of merchandise margins derived from our omni-channel platform and our ability to manage operating expenses. With our structurally higher sales, expanded merchandise margins, and operating expense leverage, our pre-tax income as a percentage of net sales grew from 4.7% in fiscal 2019 to 16.2% in fiscal 2021.
Macroeconomic Outlook
The macroeconomic environment in which we operate remains uncertain as a result of numerous factors, including inflationary pressures and economic slowdown. In addition, the continued disruption of supply chains, including factory closures and port congestion, has resulted in apparel overages from
late arriving inventory and elevated container and transportation costs which began moderating during the current quarter. Although we have successfully managed these issues thus far, the continued effect of these challenges may impact longer-term consumer discretionary spending behavior and the promotional landscape in which we operate, including the Company’s actions to manage its apparel overage. Our current year outlook contemplates this uncertainty.
On August 16, 2022, the U.S. government enacted the Inflation Reduction Act of 2022 that includes, among other provisions, changes to the U.S. corporate income tax system, including implementing a 15% minimum tax on adjusted financial statement income for certain large corporations, a 1% excise tax on net stock repurchases after December
31, 2022, and tax incentives to promote alternative sources of energy. We do not expect the Inflation Reduction Act to have a material impact on our financial results, including on our annual estimated effective tax rate or on our liquidity.
How We Evaluate Our Operations
Senior management focuses on certain key indicators to monitor our performance, including:
▪Comparable store sales performance – Our management considers comparable store sales, which includes online sales, to be an important indicator of our current performance. Comparable store sales results are important to leverage our costs, which include occupancy costs, store payroll and other store expenses. Comparable store sales also have a direct impact on our total net sales, net income, cash and working capital. A store is included in the
comparable store sales calculation during the same fiscal period that it commences its 14th full month of operations. Relocated stores are included in the comparable store sales calculation from the open date of the original location. Stores that were permanently closed during the applicable period have been excluded from comparable store sales results. See further discussion of our comparable store sales in the “Results of Operations and Other Selected Data” section herein.
▪Earnings before taxes and the related operating margin – Our management views operating margin and earnings before taxes as key indicators of our performance. The key drivers of earnings before taxes are comparable 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, which include investments in new and existing stores and our eCommerce channel, distribution and administrative facilities, continuous improvements to 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. We typically experience lower operating cash flows in our third fiscal quarter due to increased inventory purchases in advance of the holiday selling season, which typically normalizes in our fourth fiscal quarter. See further discussion of our cash flows in the “Liquidity and Capital Resources” section herein.
▪Quality of merchandise offerings – To measure effectiveness 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 manage inventory levels to reduce working capital requirements and deliver optimal gross margins by improving merchandise flow 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 2021 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.
RESULTS OF OPERATIONS AND OTHER SELECTED DATA
Executive Summary
•Net sales increased 7.7% to $2.96 billion in the current quarter from $2.75 billion during the third quarter of 2021, which included an increase in comparable store sales of 6.5% following a 12.8% increase in the same period last year. When compared to the third quarter of 2019, net sales increased 50.8%.
•In the current quarter, we reported net income of $228.5 million, or $2.45 per diluted share, compared to $316.5 million, or $2.78 per diluted share, during the third quarter
of 2021.
•Earnings per diluted share for the current quarter excluded $8.5 million of interest expense, net of tax, and included 8.8 million diluted shares related to the Convertible Senior Notes, which together, decreased earnings per diluted share by $0.15. In fiscal 2022, earnings per diluted share reflects the adoption of ASU 2020-06, which requires the assumption that our Convertible Senior Notes will be settled in shares of our common stock. Due to our intent to settle the principal of the Convertible Senior Notes in cash and the shares we expect to receive from our convertible bond hedge, which is designed to offset dilution, we do not expect the Convertible Senior Notes will have a dilutive effect upon conversion.
•Net income in the third quarter of 2021 included $5.7 million of non-cash interest expense, net of tax, and earnings
per diluted share included 12.8 million shares related to the Convertible Senior Notes that are designed to be offset at conversion by our bond hedge, which together decreased earnings per diluted share by $0.41 in the prior year quarter.
•During the third quarter of 2022, we:
•Exchanged $220.6 million aggregate principal amount of our 3.25% Convertible Senior Notes and unwound the corresponding portion of the convertible bond hedge and warrants for $220.6 million of cash and 4.3 million shares of our common stock; and
•Declared and paid a quarterly cash dividend in the amount of $0.4875 per share of our common stock and Class B common stock.
•The following table summarizes store openings and permanent store closures for the periods indicated:
Fiscal
2022
Fiscal 2021
DICK’S Sporting
Goods (1)
Specialty Concept Stores (2)
Total (3)
DICK’S Sporting Goods
Specialty Concept Stores (2)
Total
(3)
Beginning stores
730
131
861
728
126
854
Q1 New stores
—
1
1
2
—
2
Q2
New stores
1
1
2
1
1
2
Q3 New stores
3
6
9
3
6
9
Closed
stores
2
3
5
—
1
1
Ending stores
732
136
868
734
132
866
Relocated
stores
3
1
4
9
—
9
(1)As of October 29, 2022, includes three DICK'S House of Sport stores.
(2)Includes our Golf Galaxy, Field & Stream, Public Lands and Going Going Gone! stores.
In some markets, we operate DICK’S Sporting Goods stores adjacent to our specialty concept stores on the same property with a pass-through for our athletes. We refer to this format as a “combo store” and include combo store openings within both the DICK’S Sporting Goods and specialty concept store reconciliations, as applicable. As of October 29, 2022, the Company operated 25 combo stores.
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 2021 period, 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.
Basis
Point Change in Percentage of Net Sales from Prior Year 2021-2022 (A)
Cost
of goods sold, including occupancy and distribution costs(2)
64.45
61.39
306
Gross profit
35.55
38.61
(306)
Selling,
general and administrative expenses (3)
22.26
21.03
123
Pre-opening expenses(4)
0.16
0.14
2
Income
from operations
13.14
17.44
(430)
Interest
expense
0.88
0.46
42
Other expense (income)
0.13
(0.18)
31
Income before income taxes
12.12
17.16
(504)
Provision
for income taxes
2.92
4.03
(111)
Net income
9.21
%
13.13
%
(392)
Other
Data:
Comparable store sales (decrease) increase (5)
(2.6
%)
37.5
%
Number
of stores at end of period(6)
868
866
Total square feet at end of period(6)
42,741,036
42,672,070
(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)Beginning
in fiscal 2022, we revised our method for determining comparable store sales calculations to include relocated store locations. Prior year information is revised to reflect this change for comparability purposes. See additional details as furnished in Exhibit 99.2 of the Current Report on Form 8-K, filed with the Securities and Exchange Commission on March 8, 2022.
(6)Includes our DICK’S Sporting Goods, Golf Galaxy, Field & Stream, Public Lands and Going Going Gone! stores. Excludes temporary Warehouse Sale store locations.
Net sales increased approximately 7.7% to $2,958.9 million in the current quarter from $2,747.6 million in the quarter ended October 30, 2021, due primarily to a $173.1 million, or 6.5%, increase in comparable store sales. The remaining $38.2 million increase in net sales was primarily attributable to new temporary Warehouse Sale stores. The increase in comparable store sales included a 3.7% increase in transactions and a 2.8% increase in sales per transaction, and reflects
growth in footwear, apparel, and team sports, offset by anticipated sales normalization in certain categories, including fitness and outdoor equipment.
Income from Operations
Income from operations decreased to $325.5 million in the current quarter compared to $419.9 million for the quarter ended October 30, 2021.
Gross profit decreased to $1,012.4 million in the current quarter from $1,056.6 million for the quarter ended October 30, 2021 and decreased as a percentage of net sales by 423 basis points. Merchandise margins decreased 438 basis points, as a result of our actions to reduce targeted apparel inventory overages, and higher inventory shrink due to increased theft. Our occupancy costs
leveraged by 25 basis points while increasing $12.5 million compared to the prior year 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.
Selling, general and administrative expenses increased to $679.7 million in the current quarter from $631.9 million during the third quarter of 2021, primarily due to investments in hourly wage rates, talent and technology to support our growth strategies, but decreased as a percentage of net sales by 3 basis points due to the increase in net sales.
Interest Expense
Interest expense increased to $26.1 million in the current quarter from $13.8 million in the prior year quarter. The increase was primarily due to $13.8 million of interest
expense related to the aggregate $1.5 billion Senior Notes issued during the fourth quarter of 2021. Current quarter interest expense also included $8.8 million of inducement charges related to the exchange of $220.6 million aggregate principal amount of the Convertible Senior Notes, which were primarily offset by a reduction in interest expense related to our Convertible Senior Notes, due to exchange transactions and our adoption of ASU 2020-06; see Part I. Item 1. Financial Statements, Note 1 – Description of Business and Basis of Presentation for additional details.
Other Income
Other income totaled $4.8 million in the current quarter compared to $1.7 million in the prior year quarter. The increase in other income was primarily driven by an $8.6 million increase in interest income as a result of higher average interest rates on cash and cash equivalents, partially offset by $5.4
million in changes related to 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.
Income Taxes
Our effective tax rate increased to 24.9% in the current quarter from 22.4% in the quarter ended October 30, 2021. The current quarter effective tax rate was unfavorably impacted by eliminated tax deductions from our bond hedge following our Convertible Senior Notes exchange transactions, which impacted our income tax expense by $9.4 million, partially offset by the favorable rate impact of the vesting of employee equity awards on lower pre-tax income.
Net sales were $8,771.5 million in the current period, a 1.9% decrease from net sales of $8,941.2 million reported for the prior year period, due primarily to a $230.1 million, or 2.6%, decrease in comparable store sales, partially offset by a $60.4 million increase in net sales primarily attributable to new temporary Warehouse Sale stores. The decrease in comparable store sales included a 3.7% decrease in transactions offset by a 1.1% increase in sales per transaction, and reflects an anticipated sales normalization in certain categories, including fitness and outdoor equipment, along with last year’s favorable sales impact following government stimulus payments, partially offset by growth in footwear
and team sports.
Income from operations decreased to $1,152.2 million in the current period, compared to $1,559.2 million in the prior year period.
Gross profit decreased to $3,118.5 million for the current period from $3,452.3
million for the prior year period and decreased as a percentage of net sales by 306 basis points. Merchandise margins decreased 167 basis points as a result of our actions to reduce targeted apparel inventory overages, and higher inventory shrink due to increased theft. The remaining decrease in gross profit as a percentage of net sales was primarily driven by a 60 basis point increase in supply chain related costs, primarily due to continuing global disruptions, and occupancy deleverage of 48 basis points, as occupancy costs increased $28.0 million compared to the prior year period.
Selling, general and administrative expenses increased to $1,952.4 million in the current period from $1,880.5 million for the prior year period, and increased as a percentage of net sales by 123 basis points. The $71.9 million increase was driven by investments in hourly wage rates, talent and technology to support our growth strategies and higher
brand-building marketing expenses, offset by lower incentive compensation expense and a $40.2 million net cost reduction compared to the prior year period related to changes in the investment values of our deferred compensation plans, for which the corresponding investment change was recognized in Other Expense. In addition, selling, general and administrative expense included approximately $15.0 million of COVID-related costs in the prior year period.
Interest Expense
Interest expense increased to $77.3 million in the current period from $41.0 million in the prior year period. The increase was primarily due to $41.4 million of interest expense related to the aggregate $1.5 billion Senior Notes issued during the fourth quarter of 2021. Current period interest expense also included $21.1 million of inducement charges related to the exchange of $420.6 million aggregate principal amount
of the Convertible Senior Notes, which were primarily offset by a reduction in interest expense related to our Convertible Senior Notes, due to exchange transactions and our adoption of ASU 2020-06; see Part I. Item 1. Financial Statements, Note 1 – Description of Business and Basis of Presentation for additional details.
Other Expense
Other expense totaled $11.6 million in the current period compared to other income of $15.9 million for the period ended October 30, 2021. Approximately $40.2 million of the change 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. These changes were offset by a $12.9 million increase in interest income as a result of higher
average interest rates on cash and cash equivalents during the current period.
Income Taxes
Our effective tax rate increased to 24.1% for the current period from 23.5% for the same period last year. The current year effective tax rate was unfavorably impacted by eliminated tax deductions from our bond hedge following our Convertible Senior Notes exchange transactions, which impacted our income tax expense by $12.6 million, partially offset by the favorable rate impact of the vesting of employee equity awards on lower pre-tax income.
LIQUIDITY AND CAPITAL RESOURCES
Our cash on hand at October 29,
2022 was $1.44 billion. 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 unsecured $1.6 billion Credit Facility, if necessary. We may require additional funding should we pursue strategic acquisitions, settle all or a portion of the Convertible Senior Notes, undertake share repurchases, pursue other investments or engage in store expansion rates in excess of historical levels.
The following sections describe the potential short and long-term impacts to our liquidity and capital requirements.
Leases
We lease substantially all of our stores, three of our distribution centers and certain equipment under non-cancellable operating leases that expire at various
dates through 2034. Approximately three-quarters of our DICK’S Sporting Goods stores will be up for lease renewal at our option over the next five years, and we plan to leverage the significant flexibility within our existing real estate portfolio to capitalize on future real estate opportunities.
We
have available to us a $1.6 billion Credit Facility, which includes a maximum amount of $75 million to be issued in the form of letters of credit. Loans under the Credit Facility bear interest at an alternate base rate or an adjusted secured overnight financing rate plus, in each case, an applicable margin percentage. As of October 29, 2022, there were no borrowings outstanding under the Credit Facility, and we have total remaining borrowing capacity, after adjusting for $16.1 million of standby letters of credit, of $1.58 billion. We were in compliance with all covenants under the Credit Facility agreement at October 29, 2022.
Senior Notes
As of October 29, 2022, we have $750 million principal amount of 2032 Notes and $750 million
of 2052 Notes. Cash interest accrues at a rate of 3.15% per year on the 2032 Notes and 4.10% per year on the 2052 Notes, each of which are payable semi-annually in arrears on January 15 and July 15.
As of October 29, 2022, our Senior Notes have long-term credit ratings by Moody’s and Standard & Poor’s rating agencies of Baa3 and BBB, respectively.
Convertible Senior Notes
Following our exchanges totaling $420.6 million principal amount in cash during the 39 weeks ended October 29, 2022, we have an aggregate remaining principal amount of $154.4 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 remaining 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 or 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 in April 2025 or upon early conversion, as applicable.
As of October 29, 2022, 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
Our 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. Capital expenditures for the 39 weeks ended October 29, 2022 totaled $274.3 million on a gross basis and $238.2 million on a net basis, which includes tenant allowances provided by landlords.
We anticipate that fiscal 2022 gross capital expenditures will be in a range of $400 to $425 million, and $340 to $365 million on a net basis, which includes tenant allowances provided by landlords. We expect our capital expenditures to be concentrated on improvements within our existing stores and
new store development, as well as continued investments in technology to enhance our store fulfillment, in-store pickup and other foundational capabilities.
Share Repurchases
From time-to-time, we may opportunistically repurchase shares of our common stock. During the 39 weeks ended October 29, 2022, we repurchased approximately 4.4 million shares of our common stock at a cost of $361.1 million. The Company also paid $31.7 million during fiscal 2022 for shares repurchased during fiscal 2021. We currently operate under a $2.0 billion share repurchase program that was authorized by the Board of Directors on December 16, 2021. As of October 29,
2022, the available amount remaining under the December 2021 authorization was $1.5 billion.
Any future share repurchase programs are subject to authorization by our Board of Directors and will be dependent upon future earnings, cash flows, financial requirements and other factors.
During the 39 weeks ended October 29, 2022, we have paid $123.8 million of dividends to our stockholders. On November 21, 2022, our Board of Directors authorized and declared a quarterly cash dividend in the amount of $0.4875 per share of common stock and Class B common stock, payable on December 30, 2022 to stockholders of record as of the close of business on December 9, 2022. During the prior year period, we declared and paid $567.2 million in dividends, which included quarterly dividends and a special dividend in the amount of $5.50 per share, on our common stock and Class B common stock.
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 $56.1 million and $76.0
million as of October 29, 2022 and January 29, 2022, respectively.
Cash Flows
Changes in cash and cash equivalents are as follows:
Effect
of exchange rate changes on cash and cash equivalents
(0.3)
—
Net decrease in cash and cash equivalents
$
(1,205.2)
$
(285.2)
Operating Activities
Cash from operating activities decreased $971.0 million for the 39 weeks ended October 29, 2022 compared to the same period in the prior year. The decrease was primarily due to a $542.0 million increase
in cash payments for inventory and accounts payable to replenish inventory levels after a 28.3% sales increase in fiscal 2021 and supply chain disruptions following the start of COVID-19, which resulted in inventory growth relatively in line with sales growth compared to fiscal 2019. The remaining decrease in cash from operating activities was primarily driven by a $366.3 million decrease in earnings during the current period as compared to the same period last year, and an $80.3 million decrease in accrued expenses as a result of year-over-year changes in incentive compensation accruals and corresponding payments, and the timing of marketing and deferred compensation plan payments.
Investing Activities
Cash used in investing activities increased $52.4 million for the 39 weeks ended October 29, 2022 compared to the same period last
year. Gross capital expenditures for the current period include investments in our stores and technology, offset by last year’s investments in merchandise presentation, space optimization and investments to enhance the fitting and lesson experience in our golf business.
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, or other financing sources. Cash used in financing activities decreased $103.7 million for the 39 weeks ended October 29, 2022 compared to the prior year period, primarily driven by the payment of last year’s special dividend and higher share repurchases during the prior year period, offset by the exchange of $420.6 million
aggregate principal amount of our Convertible Senior Notes during the current year period.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There
have been no material changes in the Company's market risk exposures from those reported in the Company's 2021 Annual Report.
ITEM 4. CONTROLS AND PROCEDURES
During the third quarter of fiscal 2022, there were no changes in the Company’s internal controls over financial reporting that materially affected, or are reasonably likely to materially affect, the Company’s internal
controls over financial reporting.
During the quarter, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended. Based upon that evaluation, the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, concluded that the Company’s
disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q, October 29, 2022.
There are inherent limitations in the effectiveness of any control system, including the potential for human error and the circumvention or overriding of the controls and procedures. Additionally, judgments in decision making can be faulty and breakdowns can occur because of simple errors or mistakes. An effective control system can provide only reasonable, not absolute, assurance that the control objectives of the system are adequately met. Accordingly, our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our control system can prevent or detect all errors or fraud. Finally, projections of any evaluation or assessment of effectiveness of a control system to future periods are subject
to the risks that, over time, controls may become inadequate because of changes in an entity’s operating environment or deterioration in the degree of compliance with policies and procedures.
The Company is involved in various proceedings that are incidental to the normal course of its business. As of the date of this Quarterly Report on Form 10-Q, the Company does not expect that any of such proceedings will have a material adverse effect on the Company’s financial position or results of operations.
ITEM
1A. RISK FACTORS
There have been no material changes to the risk factors affecting the Company from those disclosed in Part I, Item 1A. “Risk Factors” of the Company’s 2021 Annual Report.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
As previously disclosed by the Company in a Current Report on Form 8-K dated August 29, 2022, the
Company entered into Exchange Agreements (the “August Exchange Agreements”) with certain holders of the Company’s Convertible Senior Notes due 2025 pursuant to which such holders exchanged, in the aggregate, $100 million aggregate principal amount of Convertible Senior Notes for shares of the Company’s common stock plus cash based upon the volume-weighted average price per share of the Company’s common stock during an averaging period that commenced on August 30, 2022. As a result of that valuation, the Company delivered to the exchanging holders an aggregate amount
of 2,192,632 shares of its common stock plus an aggregate of $100 million in cash in exchange for an aggregate principal amount of $100 million of Convertible Senior Notes. These exchange transactions closed on September 8 and 9, 2022. The shares of common stock were delivered in reliance on an exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933 in a transaction by an issuer not involving a public offering.
As previously disclosed by the Company in a Current Report on Form 8-K dated September 26, 2022, the Company entered into Exchange Agreements (the “September Exchange Agreements”) with certain holders of the Convertible Senior Notes pursuant to which such holders
exchanged, in the aggregate, $120.6 million aggregate principal amount of Convertible Senior Notes for shares of the Company’s common stock plus cash based upon the volume-weighted average price per share of the Company’s common stock during an averaging period that commenced on September 27, 2022. As a result of that valuation, the Company delivered to the exchanging holders an aggregate amount of 2,682,842 shares of its common stock plus an aggregate of $120.6 million in cash in exchange for an aggregate principal amount of $120.6 million of the Convertible Senior Notes. These exchange transactions closed on October
5, 2022. The shares of common stock were delivered in reliance on an exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933 in a transaction by an issuer not involving a public offering.
The shares of common stock and cash delivered pursuant to the exchanges described above were obtained by the Company from financial institutions (each, a “Hedge Counterparty”) as part of the partial early unwinds of a portion of the convertible note hedge transactions and related warrant transactions (collectively, the “Hedge Transactions”) pursuant to early unwind agreements between the Company and each Hedge Counterparty (collectively, the “Hedge Early Termination Agreements”) relating to a portion of the Hedge
Transactions corresponding to the amount of Convertible Senior Notes exchanged by holders thereof pursuant to the August Exchange Agreements and the September Exchange Agreements, respectively. In connection with the Hedge Early Termination Agreements, the Company received 262,477 shares and 300,575 shares as part of the August and September exchange transactions, respectively.
The foregoing description does not purport to be complete and is qualified in its entirety by reference to the full text of the forms thereof, copies of which were filed with the Company’s Current Report on Form 8-K dated August 29, 2022 as Exhibits 10.1, 10.2, and 10.3 (corresponding to the August exchange transactions) and with
the Company’s Current Report on Form 8-K dated September 26, 2022 as Exhibits 10.1, 10.2, and 10.3 (corresponding to the September exchange transactions), respectively, each of which is incorporated herein by reference.
During the quarter ended October 29, 2022, the Company also issued 39 shares of its unregistered common stock to holders of the Convertible Senior Notes upon conversion of an immaterial aggregate principal amount of such notes. This share amount represents the conversion value of the Convertible Senior Notes in excess of the principal amount converted. These shares of our common stock were
issued in reliance on the exemption from registration provided by Section 3(a)(9) of the Securities Act, and were offset by the receipt of 31 shares of common stock pursuant to the exercise of certain convertible bond hedge transactions.
(a)Includes
shares withheld from employees to satisfy minimum tax withholding obligations associated with the vesting of restricted stock during the period.
(b)Shares repurchased under our five-year $2.0 billion share repurchase program, which was authorized by the Board of Directors on December 16, 2021.
Form of Note Hedge Partial Early Termination Agreement, dated as of August 29, 2022, by and between DICK’S Sporting Goods, Inc. and the applicable call option counterparty.
Form of Warrant Partial Early Termination Agreement, dated as of August 29, 2022, by and between DICK’S Sporting Goods, Inc. and the applicable warrant counterparty.
Form of Note Hedge Partial Early Termination Agreement, dated as of September 26, 2022, by and between DICK’S Sporting Goods, Inc. and the applicable call option counterparty.
Form of Warrant Partial Early Termination Agreement, dated as of September 26, 2022, by and between DICK’S Sporting Goods, Inc. and the applicable warrant counterparty.
Certification
of Lauren R. Hobart, President and Chief Executive Officer, dated as of November 23, 2022 and made pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification
of Navdeep Gupta, Executive Vice President - Chief Financial Officer, dated as of November 23, 2022 and made pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification
of Lauren R. Hobart, President and Chief Executive Officer, dated as of November 23, 2022 and made pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Certification
of Navdeep Gupta, Executive Vice President - Chief Financial Officer, dated as of November 23, 2022 and made pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Furnished herewith
101.INS
XBRL Instance Document - The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within
the Inline XBRL document.
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Quarterly Report on Form 10-Q to be signed on November 23, 2022 on its behalf by the undersigned, thereunto duly authorized.
