Dick's Sporting Goods, Inc.
10-K on 03/20/2020   Download
SEC Document
SEC Filing
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended February 1, 2020

or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission File No. 001-31463
DICK'S SPORTING GOODS, INC.
(Exact name of registrant as specified in its charter)
Delaware16-1241537
 (State or other jurisdiction of incorporation or organization)
 
 (I.R.S. Employer Identification No.)
345 Court Street, Coraopolis, PA 15108
(Address of Principal Executive Offices)
 
(724) 273-3400
(Address of principal executive offices, zip code, telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of Each Exchange on which Registered
Common Stock, $0.01 par valueDKSThe New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☑    No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐  No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑    No ☐
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). Yes ☑    No ☐ 
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.
Large accelerated filer Accelerated filer Non-accelerated filer Smaller reporting company Emerging growth company

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 Act). Yes  No
The aggregate market value of the voting common equity held by non-affiliates of the registrant was $2,104,495,467 as of August 2, 2019 based upon the closing price of the registrant's common stock on the New York Stock Exchange reported for August 2, 2019.
As of March 16, 2020, DICK’S Sporting Goods, Inc. had 62,647,471 shares of common stock, par value $0.01 per share, and 24,291,123 shares of Class B common stock, par value $0.01 per share, outstanding.
Documents Incorporated by Reference: Part III of this Annual Report on Form 10-K incorporates certain information from the registrant's definitive proxy statement for its Annual Meeting of Stockholders to be held on June 10, 2020 (the “2020 Proxy Statement”).


TABLE OF CONTENTS
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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 Annual Report on Form 10-K 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, the anticipated impact to consumer demand and our supply chain due to the spread of the coronavirus (COVID-19); investments to enhance our store experience, to improve our eCommerce fulfillment capabilities, and to implement technology solutions that improve the athlete experience and our teammates’ productivity; the continued improvements to the functionality and performance of our own eCommerce platform, including faster and more reliable delivery, faster and more convenient checkout, improved page responsiveness, new content development, and localized website experiences; plans to invest in the growth and marketing of our private brand business; plans to eliminate non-essential expenses to fund strategic investments; plans to reduce our store growth rate and leverage our real estate portfolio to capitalize on future opportunities in the near and intermediate term as our existing leases come up for renewal; plans to remove hunt merchandise from approximately 440 additional DICK’S Sporting Goods stores and replace with merchandise that is more relevant to the local market; the potential impact of the continuation of the promotional environment in retail, broadened distribution channels of key vendors, and weak customer demand for firearms and other hunting merchandise across the industry; attracting and retaining knowledgeable and skilled teammates; projections of our future profitability; the effect of new or changes in existing tariffs; capital expenditures; anticipated store openings and relocations; plans to return capital to stockholders through dividends or share repurchases; and our future results of operation and financial condition.
Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties, which may cause actual results to differ materially from those expressed or implied in the forward-looking statements. A detailed discussion of risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included in the section titled “Risk Factors” (Item 1A of this Form 10-K). 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 Annual Report on Form 10-K are made as of this date. 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 the securities laws.

PART I

ITEM 1.  BUSINESS

General
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 its dedicated teammates, in-store services and unique specialty shop-in-shops. We also own and operate Golf Galaxy and Field & Stream stores, as well as GameChanger, a youth sports mobile app for scheduling, communications and live scorekeeping. In addition, we offer our products through a content-rich eCommerce platform that is integrated with our store network and provides customers with the convenience and expertise of a 24-hour storefront.
We were founded in 1948 when Richard “Dick” Stack, the father of Edward W. Stack, our Chairman and Chief Executive Officer, opened his original bait and tackle store in Binghamton, New York. Edward W. Stack joined his father's business full-time in 1977 and in 1984 became President and Chief Executive Officer of the then two-store chain. Our vision is to be the best sports company in the world; our mission is to create an environment where passionate and skilled teammates thrive, to create and build leading brands that serve and inspire athletes, to make a lasting impression on communities through sport and to deliver shareholder value through growth and relentless improvement. Our common purpose is to create confidence and excitement by personally equipping all athletes to achieve their dreams.
3

We were incorporated in 1948 in New York under the name Dick’s Clothing and Sporting Goods, Inc. In November 1997, we reincorporated as a Delaware corporation and in April 1999 we changed our name to DICK’S Sporting Goods, Inc. Our executive office is located at 345 Court Street, Coraopolis, Pennsylvania 15108 and our phone number is (724) 273-3400. Our website is located at dicks.com. The information on our website does not constitute a part of this Annual Report on Form 10-K. We include on our website, free of charge, copies of our Annual and Quarterly Reports on Forms 10-K and 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
When used in this Annual Report on Form 10-K, unless the context otherwise requires or unless otherwise specified, any reference to “year” is to the Company’s fiscal year.
Business Strategy
The key elements of our business strategy are:
Focus on Our Athletes
Our first priority is to put our customers, whom we refer to as athletes, at the center of everything that we do. We believe that our mindset and our culture must ensure that every decision we make, whether in our stores or at our corporate headquarters, which we refer to as our Customer Support Center (“CSC”), improves the athlete’s experience. We will continue to make investments related to merchandise presentation, space optimization and technology solutions designed to enhance the in-store and eCommerce experience for our athletes as well as teammate productivity.
Our marketing program is designed to build loyalty for the DICK’S Sporting Goods brand while promoting our broad assortment of brand name sporting goods equipment, apparel and footwear in a specialty store environment. Our historical marketing strategy consisted largely of newspaper advertising supplemented by direct mail and seasonal use of local and national television and radio. While we continue to market through these traditional channels, we have more recently developed brand-building marketing campaigns focused on building passion and loyalty to the DICK’S Sporting Goods brand and have shifted our advertising focus toward digital marketing and personalization. We continue to leverage our extensive and expanding customer relationship marketing database from our ScoreCard Rewards program and to grow our community presence through the sponsorship of thousands of teams and leagues at the local level.
We continue to offer our Best Price Guarantee as a promise to our athletes that if they find a lower price than ours, we will match it. We also continue to enhance our ScoreCard loyalty program to make it more rewarding to our athletes. At the end of fiscal 2017, we discontinued our practice of expiring accrued ScoreCard points at year-end and moved to a rolling 12-month expiration policy. Additionally, in October 2019 we launched ScoreCard Gold, an enhancement to our loyalty program targeting our top-tier athletes. The benefits of ScoreCard Gold include more ways to earn ScoreCard points and member-only benefits, including early access to sales and product launches. We believe that our ongoing changes and enhancements to our ScoreCard loyalty program will reduce frustration among our athletes, provide us an opportunity to drive athletes back to us after they earn points by shopping with us and drive deeper levels of engagement with our most loyal athletes.
Authentic Sporting Goods Retailer
Our history as a retailer of high-quality authentic athletic equipment, apparel and footwear provides our core foundation, which is intended to enhance our athletes’ performance and enjoyment of athletic pursuits, rather than focusing our merchandise selection on the latest fashion trend or style. We believe our athletes seek genuine, deep product offerings, and that ultimately this merchandising approach positions us with advantages in the market, which we believe will continue to benefit from new product offerings with enhanced technological features.
Our objective is not only to carry leading brands, but also to carry a full range of products within each category, including premium items for the sports enthusiast. We believe that the breadth of our product selections in each category of sporting goods offers our athletes a wide range of good, better and best price points and enables us to address the needs of sporting goods consumers, from the beginner to the sports enthusiast, which distinguishes us from other large format sporting goods stores. We also believe that the range of merchandise and extensive in-store support services that we offer allows us to differentiate and compete effectively against all of our competitors, from traditional independent sporting goods stores and specialty shops to other large format sporting goods stores and mass merchant discount and internet-based retailers.
Drive Omni-channel Growth
Our stores remain at the core of our omni-channel business. We believe that when our athletes connect with the DICK’S Sporting Goods brand, they expect a seamless shopping experience, regardless of the manner in which they choose to shop with us. We continue to see growth in the number of athletes who shop with us both online and in our stores, which we believe represents the future of retail.
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We continually improve the functionality and performance of our eCommerce site, which includes building a faster and more convenient checkout, improved page responsiveness, new content development through our Pro Tips platform and delivering localized website experiences. In addition, we have improved our eCommerce fulfillment capabilities by opening two new eCommerce fulfillment centers in New York and California during the third quarter of fiscal 2019, which along with our new delivery partnership with FedEx helped reduce the in-transit time for the majority of our online orders to two business days by the end of fiscal 2019. Like our athletes, we view retail as an omni-channel experience, where the distinctions between stores and online are becoming increasingly irrelevant.
We believe our store base gives us a competitive advantage over our online-only competitors, as our physical presence allows us to better serve our athletes by creating strong engagement through experiential elements, offering the convenience of accepting in-store returns or exchanges and expediting fulfillment of eCommerce orders, the ability to place online orders in our stores if we are out of stock in the retail store, buy online pick up in store capabilities, and giving direct, live access to well-trained and knowledgeable teammates. We believe that offering support services for the products we sell enhances the credibility of our teammates and specialty store concepts with our customers and further differentiates our stores from our competitors.
Differentiating DICK’S Sporting Goods
Our key partners invest in our stores to showcase their brands. We carry a wide variety of well-known brands, including adidas, Asics, Brooks, Callaway Golf, Columbia, Easton, Nike, Patagonia, TaylorMade, The North Face, Titleist, Under Armour and Yeti. We seek to leverage our partnerships to offer authenticity and credibility to our customers, while differentiating ourselves from our competitors. Our brand partnerships also provide us with access to exclusive products and allow us to differentiate our athletes’ shopping experience through initiatives such as our brand shops, which provide our athletes with a wider and deeper selection of products from key brands.
To provide differentiation in assortment of products, we also offer a wide variety of private brand products that are not available from other retailers. Our exclusive private brand offerings include brands that we own such as Alpine Design, CALIA, DSG, ETHOS, Field & Stream, Fitness Gear, Lady Hagen, MAXFLI, Nishiki, Quest, Second Skin, Tommy Armour, Top-Flite and Walter Hagen, as well as brands that we license from third parties including adidas (baseball and football), Slazenger (golf) and Prince (tennis). Our private brands offer exceptional value and quality to our athletes, while also providing us with higher gross margins as compared to sales of similar third-party branded products. We consider our private brand strategy to be a key area of opportunity to increase productivity in our stores and online, and we have invested in a research, development and procurement staff to support our private brand business. During fiscal 2019, we launched DSG, a new high-quality value-oriented performance brand across men’s, women’s and children’s athletic apparel. Looking forward, we intend to grow the DSG brand and elevate the CALIA women’s athletic apparel brand. Collectively, our private brands comprise our second largest brand in terms of sales, representing approximately 14% of our consolidated net sales during each of fiscal 2019 and 2018.
Investing in Youth Sports
We are actively involved in local communities, sponsoring thousands of teams in various sports and supporting the philanthropic efforts of our private corporate foundation, The DICK’S Sporting Goods Foundation. In partnership with The DICK’S Sporting Goods Foundation, in 2014, we launched our Sports Matter initiative, a philanthropic effort singularly focused on supporting youth sports. Through Sports Matter, we remain committed to raising awareness of the importance of playing sports, while also providing financial support to keep our kids playing the sports they love. Since the establishment of the Sports Matter initiative, the Company and The DICK’S Sporting Goods Foundation have committed over $100 million to keep kids playing sports, helping save thousands of youth sports teams and giving more than one million young athletes across all 50 states the chance to play.
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Merchandising
The following table sets forth the approximate percentage of our sales attributable to the following categories for the fiscal years presented:
 Fiscal Year
Category
201920182017
Hardlines (1)
42 %43 %45 %
Apparel
35 %35 %34 %
Footwear
21 %20 %20 %
Other (2)
%%%
Total
100 %100 %100 %
1.Includes items such as sporting goods equipment, fitness equipment, golf equipment and hunting and fishing gear.
2.Includes our non-merchandise sales categories, including in-store services, shipping revenues and credit card processing revenues.
Segment information is further described within Note 1 of Part IV. Item 15. Exhibits and Financial Statement Schedules of this Annual Report on Form 10-K.
Selling Channels
We offer products to our athletes through our retail stores and online, and although we sell through both of these channels, we believe that sales in one channel are not independent of the other. Regardless of the sales channel, we seek to provide our athletes with a seamless omni-channel shopping experience.
Retail Stores:
Store Format. Our DICK’S Sporting Goods, Golf Galaxy and Field & Stream stores are designed to create an exciting and interactive shopping environment for the sporting enthusiast that highlights our extensive product assortments and value-added services. Each of our DICK’S Sporting Goods stores unites several sports specialty stores under one roof and typically contains the following specialty shops: Team Sports, Athletic Apparel, Golf, Outdoor Lodge, Fitness and Footwear. We believe our “store-within-a-store” concept creates a unique shopping environment by combining the convenience, broad assortment and competitive prices of large format stores with the brand names, deep product selection and customer service of a specialty store. We monitor and evaluate store performance on an ongoing basis and reallocate space in our stores to categories and products that we believe can drive sales growth. For example, we removed the hunt department from approximately 135 DICK’S Sporting Goods stores through the end of fiscal 2019 and plan to remove the hunt department from approximately 440 additional DICK’S Sporting Goods stores in fiscal 2020.
We seek to expand our presence through the opening of new stores and believe that growing our store network and eCommerce business simultaneously will enable us to profitably grow the business by delivering an omni-channel shopping experience for our athletes. We plan to continue a reduced rate of store growth compared to historical levels as we monitor the competitive retail landscape and expect to focus our store growth in under-served and under-penetrated markets. In fiscal 2020, we expect to open approximately nine new DICK’S Sporting Goods stores and six new Golf Galaxy stores. Additionally, we plan to relocate 14 DICK’S Sporting Goods stores and three Golf Galaxy stores. We do not plan to open any new Field & Stream stores in 2020. Approximately two-thirds 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 over the near and intermediate terms as these leases come up for renewal.
eCommerce:
Through our websites, we seek to provide our athletes with in-depth product information and the ability to shop with us at any time. As the lines between in-store and online are becoming increasingly seamless, in recent years, we have continued to innovate our eCommerce sites and applications with customer experience enhancements, new releases of our mobile and tablet apps, and the development of omni-channel capabilities that integrate our online presence with our brick and mortar stores to provide our athletes with an omni-channel shopping experience. Currently, we have return-to-store capabilities for online orders, the ability to place online orders in our stores if we are out of stock in the retail store and buy online pick up in store capabilities. Our websites also give us the ability to ship online orders from our retail locations, which reduces delivery times for online orders and improves inventory productivity. In fiscal 2019, eCommerce accounted for approximately 16% of our total net sales. In addition, we saw significant growth in our buy online pick up in store business, as it grew at twice the rate of our online business during the year.
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Purchasing, Distribution and Customer Fulfillment
During fiscal 2019, we purchased merchandise from approximately 1,200 vendors. Nike, our largest vendor, represented approximately 21% of our merchandise purchases. No other vendor represented 10% or more of our fiscal 2019 merchandise purchases. We do not have long-term purchase contracts with any of our vendors; all of our purchases from vendors are made on a short-term purchase order basis.
We currently operate five regional distribution centers which enable us to supply stores with merchandise. Vendors ship floor-ready merchandise to our distribution centers, where it is processed and allocated directly to our stores or stored temporarily. Our distribution centers are responsible for consolidating damaged or defective merchandise from our stores that is being returned to vendors. We have contracted with common carriers to deliver merchandise from all of our distribution centers to our stores. During fiscal 2019, our stores received approximately 92% of merchandise through our distribution network with the remaining merchandise being shipped directly to the stores from our vendors. We believe this flow of merchandise facilitates prompt and efficient distribution to our stores in order to enhance in-stocks, minimize freight costs and improve inventory turnover.
We leverage our store and distribution center network, three eCommerce fulfillment centers (one owned and two operated by a third-party) and direct shipping capabilities from our vendors to ensure merchandise delivery speed to our athletes and to minimize shipping costs.
Competition
The market for sporting goods retailers is highly fragmented and intensely competitive. We compete with many retailing formats, including large format sporting goods stores, traditional sporting goods stores, specialty and vendor stores, mass merchants and department stores, internet and catalog-based retailers, and vendors selling directly to consumers. We seek to attract athletes by offering a wide range of products utilizing distinctive marketing in stores to create a unique shopping environment and superior service through an omni-channel experience.
Employees
As of February 1, 2020, we employed approximately 15,300 full-time and 26,300 part-time teammates. Due to the seasonal nature of our business, total employment figures fluctuate throughout the year and typically peak during the fourth quarter. None of our teammates are covered by a collective bargaining agreement. We believe that we have a good relationship with our teammates.
Seasonality
Seasonality of our business is discussed in further detail within Item 1A. “Risk Factors”.
Proprietary Rights
We have a number of service marks and trademarks registered with the United States Patent and Trademark Office, including various versions of the following: “Alpine Design”, “CALIA”, “DICK’S”, “DICK’S Sporting Goods”, “DSG”, “ETHOS”, “Field & Stream”, “Fitness Gear”, “Golf Galaxy”, “Golfsmith”, “Lady Hagen”, “MAXFLI”, “Nishiki”, “Primed”, “Quest”, “ScoreCard”, “ScoreCard Rewards”, “Tommy Armour”, “Top-Flite”, “The Sports Authority” and “Walter Hagen”. We also have a number of registered domain names, including “dickssportinggoods.com”, “dicks.com”, “golfgalaxy.com”, “fieldandstreamshop.com”, “calia.com” and “gamechanger.com”. Our service marks, trademarks and other intellectual property are subject to risks and uncertainties that are discussed within Item 1A. “Risk Factors”.
We have also entered into licensing agreements for names that we do not own, which provide for exclusive rights to use names such as “adidas” (baseball and football), “Prince” (tennis), and “Slazenger” (golf) for specified product categories and, in some cases, specified sales channels. Most of these licenses contemplate long-term business relationships, with substantial initial terms and the opportunity for multi-year extensions. These licenses contain customary termination provisions at the option of the licensor including, in some cases, termination upon our failure to purchase or sell a minimum volume of products and may include early termination fees. Our licenses are also subject to general risks and uncertainties common to licensing arrangements that are described within Item 1A. “Risk Factors”.
Governmental Regulations
We must comply with various federal, state and local regulations, including regulations relating to consumer products and consumer protection, advertising and marketing, labor and employment, data protection and privacy, intellectual property, the environment and tax. In addition, in connection with the sale of firearms in our stores, we must comply with a number of federal and state laws and regulations related to the sale of firearms and ammunition, including the federal Brady Handgun Violence Prevention Act. Ensuring our compliance with these various laws and regulations, and keeping abreast of changes to the legal and regulatory landscape present in our industry, requires us to expend considerable resources.
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Information About Our Executive Officers
The following table and accompanying narrative sets forth the name, age and business experience of our current Executive Officers:
NameAgePosition
Edward W. Stack65  Chairman and Chief Executive Officer
Lauren R. Hobart51  President
Lee J. Belitsky59  Executive Vice President - Chief Financial Officer
Donald J. Germano56  Executive Vice President - Stores
Navdeep Gupta47  Senior Vice President - Finance and Chief Accounting Officer
John E. Hayes III57  Senior Vice President - General Counsel and Secretary

Edward W. Stack has served as our Chairman and Chief Executive Officer since 1984 when his father and our founder, Richard “Dick” Stack, retired from our then two-store chain. Mr. Stack has served us full-time since 1977 in a variety of positions, including President, Store Manager and Merchandise Manager.
Lauren R. Hobart has served as our President since May 2017 and was appointed to the Company’s Board of Directors in January 2018. Ms. Hobart joined DICK’S Sporting Goods in February 2011 as our Senior Vice President and Chief Marketing Officer. In September 2015, Ms. Hobart was promoted to Executive Vice President and Chief Marketing Officer and in April 2017 to Executive Vice President - Chief Customer & Digital Officer. Prior to joining DICK’S Sporting Goods, Ms. Hobart spent 14 years with PepsiCo, Inc., most recently serving as Chief Marketing Officer for its carbonated soft drink portfolio in the United States. During her career at PepsiCo, Ms. Hobart held several other significant marketing roles and also spent several years in strategic planning and finance. Prior to joining PepsiCo, Ms. Hobart worked in commercial banking for JP Morgan Chase and Wells Fargo Bank. Ms. Hobart formerly served as a member of the Board of Directors of Sonic Corp. (Nasdaq: SONC) from 2014 - 2018.
Lee J. Belitsky became our Executive Vice President - Chief Financial Officer in September 2016. Mr. Belitsky joined DICK’S Sporting Goods in 1997 as Vice President - Controller and has held a number of roles at DICK’S Sporting Goods. From September 2014 to September 2016, Mr. Belitsky served as Executive Vice President - Product Development and Planning, Allocations and Replenishment; from July 2013 to September 2014, Mr. Belitsky served as Senior Vice President - Product Development; from September 2011 to July 2013, he served as Senior Vice President - Chief Risk and Compliance Officer; from January 2010 to September 2011, he served as Senior Vice President - Strategic Planning and Analysis and Treasury Services; from February 2009 to January 2010, he served as Senior Vice President - Store Operations and Distribution / Transportation; from April 2006 to February 2009, he served as Senior Vice President - Distribution and Transportation; from December 2005 to April 2006, he served as Vice President - Treasurer; and from December 1997 to December 2005, he served as Vice President - Controller. Prior to joining DICK’S Sporting Goods, Mr. Belitsky was the Chief Financial Officer of Domain, Inc., a Boston-based home furnishings retailer. He also served as Vice President - Controller and Treasurer with Morse Shoe, Inc. and as an Audit Manager with KPMG LLP.
Donald J. Germano became our Executive Vice President - Stores in June 2019. Mr. Germano served as our Senior Vice President - Operations from May 2017 to June 2019. Mr. Germano rejoined our organization in May 2017 after previously leading our stores as Senior Vice President - Operations from 2010 - 2013. Prior to rejoining the Company, Mr. Germano served as President of the Follett Higher Education Group from 2013 to 2016. Prior to his time at DICK’S Sporting Goods, he held a number of leadership positions at Sears Holdings, Kmart Corporation, Kozmo.com, Nabisco, and UPS.
Navdeep Gupta became our Senior Vice President - Finance and Chief Accounting Officer in November 2017. Prior to joining the Company, Mr. Gupta most recently served as the Senior Vice President of Finance at Advance Auto Parts, Inc. Mr. Gupta held numerous leadership roles during his tenure with Advance Auto Parts, Inc. from 2006 to 2017, including Chief Audit Executive, Vice President of Finance and Treasurer, and Director of Finance. Previously, Mr. Gupta held management roles at Sprint Nextel Corporation (now known as Sprint Corporation).
John E. Hayes III became our Senior Vice President - General Counsel and Secretary in January 2015. Prior to joining DICK’S Sporting Goods, Mr. Hayes served as Senior Vice President and General Counsel of Coldwater Creek Inc. from February 2009 to September 2014. During his tenure with Coldwater Creek, Mr. Hayes also served as the Company’s interim Chief Financial Officer from November 2009 to April 2010 and as Senior Vice President, Human Resources from April 2010 to May 2013. Prior to joining Coldwater Creek, Mr. Hayes was engaged for seventeen years in private law practice, most recently as a partner with Hogan & Hartson, LLP, from March 2003 to February 2009. Prior to his legal career, Mr. Hayes practiced as an accountant with KPMG LLP.
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ITEM 1A. RISK FACTORS

Risks and Uncertainties

Our business is dependent on consumer discretionary spending and reductions in consumer spending might adversely affect the Company’s business, operations, liquidity, financial results and stock price.

Our business depends on consumer discretionary spending, and as a result, our results are highly dependent on U.S. consumer confidence and the health of the U.S. economy. Consumer spending may be affected by many factors outside of the Company’s control, including general economic conditions; consumer disposable income; consumer confidence; wage and unemployment levels; the availability, cost and level of consumer debt and inflationary pressures; the costs of basic necessities and other goods; effects of weather and natural disasters, whether caused by climate change or otherwise; and epidemics, contagious disease outbreaks, and other public health concerns (for example, the recent outbreak of the novel coronavirus COVID-19). See the Industry Challenges within Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations for a discussion of the potential impact of COVID-19. A decrease in consumer discretionary spending may result in a decrease in customer traffic, same store sales, and average value per transaction and might cause us to increase promotional activities, which will have a negative impact on our gross margins, and all of which could negatively affect the Company’s business, operations, liquidity, financial results and/or stock price, particularly if consumer spending levels are depressed for a prolonged period of time.

Intense competition in the sporting goods industry and in retail could limit our growth and reduce our profitability.

The market for sporting goods retailers is highly fragmented and intensely competitive. Our current and prospective competitors include many large companies, some of which have greater market presence (both brick and mortar and online), name recognition and financial, marketing and other resources than we do. Further, the ability of consumers to compare prices in real-time through the use of smartphones and digital technology puts additional pressure on us to maintain competitive pricing. We compete with retailers from multiple categories and in multiple channels, including large formats; traditional and specialty formats; mass merchants; department stores and catalog; internet-based and direct-sell retailers; and vendors that sell directly to customers. An inability to respond to competitive pressures could have a material effect on our results of operations or reputation. Our responses to competitive pressures could also have a material effect on our results or reputation, including as it relates to pricing, quality, assortment, advertising, service, locations, and online and in-store shopping experiences.

If we are unable to predict or effectively react to changes in consumer demand or shopping patterns, we may lose customers and our sales may decline.

Our success depends in part on our ability to anticipate and respond in a timely manner to changing consumer demand, preferences, and shopping patterns, which cannot be predicted with certainty and are subject to continual change and evolution. Our business has become increasingly omni-channel as we strive to deliver a seamless shopping experience to our customers through both online and in-store shopping experiences. For example, we must meet customers’ expectations with respect to, among other things, creating appealing and consistent online experiences; offering differentiated and premium products and regionally relevant products; delivering elevated customer service; and providing desirable in-store experiences, fast and reliable delivery, and convenient return options. We must also develop and execute merchandising initiatives with marketing programs that appeal to a broad range of consumers and markets throughout the country. Our customers have expectations about how they shop in stores or through eCommerce or more generally engage with businesses across different channels or media (through online and other digital or mobile channels or particular forms of social media), which may vary across demographics and may evolve rapidly.
We often make commitments to purchase products from our vendors several months in advance of the proposed delivery, which may make it more difficult for us to adapt to changes in consumer preferences. Our sales may decline significantly if we misjudge the market for our new merchandise, which may result in significant merchandise markdowns and lower margins, missed opportunities for other products, or inventory write-downs, and could have a negative impact on our reputation and profitability. Changes in consumer shopping habits, including decreases in traffic at retail locations and traditional shopping centers, financial difficulties of other retail tenants and other shopping center vacancy issues, could lead to a decline in our financial condition.

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Omni-channel growth in our business is complex and there are risks associated with operating our own eCommerce platform.

We have developed an internal eCommerce platform that allows us to improve the functionality and performance of our website and to have more control over the customer experience with less reliance on third parties. Maintaining and continuing to improve our eCommerce platform involves substantial investment of capital and resources, integrating a number of information and management systems from different vendors, increasing supply chain and distribution capabilities, attracting, developing and retaining qualified personnel with relevant subject matter expertise, and effectively managing and improving the customer experience. This involves substantial risk, including risk of cost overruns, website downtime and other technology disruptions, supply and distribution delays, and other issues that can affect the successful operation of our eCommerce platform. Technological disruptions can result from a number of sources, including interruptions, delays, or downtime caused by high volumes of users or transactions, deficiencies in design or implementation, platform enhancements, power outages, computer and telecommunications failures, computer viruses, worms, ransomware or other malicious computer programs, denial-of-service attacks, security breaches through cyber-attacks from cyber-attackers or sophisticated organizations, catastrophic events such as fires, tornadoes, earthquakes and hurricanes, and usage errors by our associates. If we are not able to successfully operate and continually improve our eCommerce platform and customer experience, our reputation, operations, financial results, and future growth could be materially adversely affected.

Our private brand offerings and new specialty concept stores expose us to increased costs and certain additional risks.

We offer our customers private brand products that are not available from other retailers. We expect to continue to grow our exclusive private brand offerings through a combination of brands that we own and brands that we exclusively license from third parties. From time-to-time, we also evaluate, roll-out, and operate new specialty concept stores, including, for example, our Field & Stream stores. We invest considerable research, development and procurement resources and marketing efforts relating to these private brand offerings and new specialty concept stores. There is no assurance that our private brand products or any new specialty concept store will be successful. Consequently, we might curtail or abandon any of our private brands or specialty concept stores at any time which could result in asset impairments and inventory write-downs. For example, see the Overview within Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations for a discussion of the results of the strategic review of our hunting business, including Field & Stream.
Factors that could cause us to curtail or abandon one of our private brands or specialty concept stores include unexpected or increased costs or delays in development of the brand, excessive demands on management resources, legal or regulatory constraints, changes in consumer demands, preferences and shopping patterns regarding sporting goods, or a determination that consumer demand no longer supports the brand or retail concept. Additional risks relating to our private brand offerings include product liability and product recalls; increasing costs for labor or raw materials used to manufacture products; our ability to successfully protect our proprietary rights (e.g., defending against counterfeit or otherwise unauthorized goods); our ability to successfully navigate and avoid claims related to the proprietary rights of third parties; and our ability to successfully administer and comply with obligations under license agreements that we have with third-party licensors of certain brands.

Harm to our reputation could adversely impact our ability to attract and retain customers and employees.

Negative publicity or perceptions involving the Company or our brands, products, vendors, spokespersons, or marketing and other partners may negatively impact our reputation and adversely impact our ability to attract and retain customers and employees. Failure to detect, prevent, or mitigate issues that might give rise to reputational risk or failure to adequately address negative publicity or perceptions could adversely impact our reputation, business, results of operations, and financial condition. Issues that might pose a reputational risk include an inability to provide an omni-channel experience that meets the expectations of consumers; failure of our cyber-security measures to protect against data breaches; product liability, product recalls, and product boycotts; our social media activity; failure to comply with applicable laws and regulations; our policies related to the sale of firearms and accessories; public stances on controversial social or political issues; product sponsorship relationships, including those with celebrity spokespersons, influencers or group affiliations; and any of the other risks enumerated in these risk factors. Furthermore, the prevalence of social media may accelerate and increase the potential scope of any negative publicity we might receive and could increase the negative impact of these issues on our reputation, business, results of operations, and financial condition.

10

Our strategic plans and initiatives may initially result in a negative impact on our financial results and such plans and initiatives may not achieve the desired results within the anticipated time frame or at all.

Our ability to successfully implement and execute our strategic plans and initiatives is dependent on many factors, some of which are out of our control. To respond to challenging conditions in the retail market as a whole, we may increase promotional activities to drive market share to our stores and online. However, increased promotional activities may not achieve the desired results and will have a negative impact on our gross profit margin. We are also focused on certain long-term strategic investments, including investments in our digital capabilities, our eCommerce platform, improvements to the customer experience in our stores and online, our supply chain, enhancements to our Scorecard loyalty program, the continued development of our private brands, and improving associate productivity. These longer-term strategies may require significant capital investment and management attention at the expense of other business initiatives and may take longer than anticipated to achieve the desired return. Additionally, any new initiative is subject to certain risks, including customer acceptance, competition, product differentiation, and the ability to attract and retain qualified personnel to support the initiative.
For example, we have removed hunt category merchandise from approximately 135 DICK’S Sporting Goods stores through the end of fiscal 2019 and reallocated the space in these stores to a localized assortment of categories and products in an effort to drive growth. In fiscal 2020, we plan to remove the hunt department from approximately 440 additional DICK’S Sporting Goods stores, which would leave the hunt department in 12% of our remaining stores. If we are not able to successfully execute our strategic plans and initiatives to achieve the intended results in the anticipated time frame or at all, our results of operation and financial condition may be adversely affected. Failure to meet stockholder expectations, particularly with respect to earnings, sales, and operating margins, could also result in volatility in the market value of our stock.

An inability to execute our real estate strategy could affect our financial results.

Our financial performance depends on our ability to optimize our store lease portfolio, including opening new stores and relocating existing stores in desirable locations, renewing leases for existing stores, restructuring leases for existing stores to obtain more favorable renewal terms, refreshing and remodeling existing stores, and, if necessary, closing underperforming stores.
There is no assurance that we will be able to locate desirable real estate for new stores or relocations of existing stores, or that an existing store will continue to be profitable in its current location. Additionally, our ability to negotiate favorable lease terms on a new store location or a relocation of an existing store, or in connection with an expiring lease, remodel, consolidation, or closing depends on conditions in the real estate market, competition for desirable properties, our relationships with current and prospective landlords, and other factors that are not within our control. We may incur lease costs that are excessive and cause operating margins to be below acceptable levels if we are unable to negotiate appropriate terms for new leases, relocations or extensions. We may also make term commitments that are too long or too short, without the option to exit early or extend. 
If an existing store is not profitable, we might be required to record an impairment charge and we may not be able to terminate the lease associated with the underperforming store. Our leases generally do not allow for termination prior to the end of the lease term without economic consequences. As a result, if we decide to close a store, we are generally required to continue to perform all obligations under the applicable lease, including the payment of rent, for the balance of the lease term and might also incur termination charges. Even if we are able to assign or sublease the closed locations where our lease cannot be terminated, we may remain liable for certain lease obligations if the assignee or sublessee does not perform.
Furthermore, the success of our stores depends on a number of factors including the sustained success of the shopping center where the store is located, consumer demographics, and consumer shopping patterns. Changes in consumer shopping habits, financial difficulties of anchor tenants, and shopping center vacancies could impact the profitability of our stores. These factors cannot be predicted with complete accuracy and may change over time. There is no assurance that we will be able to reverse any decline in customer traffic or that increases in online sales will offset any decline in store traffic. We may need to respond to declines in customer traffic or conversion rates by increasing markdowns or promotions to attract customers, which could adversely impact our financial results.
Failure to secure desirable new store locations and relocation sites, successfully renew or modify existing leases, or effectively manage the profitability of our existing stores could have a material adverse effect on our operations and financial results.

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We may pursue strategic alliances, acquisitions or investments and the failure of an alliance, acquisition or investment to produce the anticipated results or the inability to fully integrate the acquired companies could have an adverse impact on our business.

From time-to-time, we may enter into strategic alliances or acquire or invest in complementary companies or businesses. The success of strategic alliances, acquisitions, and investments is based on our ability to make accurate assumptions regarding the valuation, operations, growth potential, integration and other factors relating to such businesses. There can be no assurance that our strategic alliances, acquisitions, or investments will produce the anticipated results within the expected time frame or at all. Strategic alliances, acquisitions, and investments may also result in the diversion of capital and our management's attention from other business issues and opportunities. Furthermore, acquisitions may result in dilutive issuances of our equity securities, the incurrence of debt, contingent liabilities, amortization expenses or write-offs of goodwill or other intangibles, any of which could harm our financial condition. We also may not be able to successfully integrate operations that we acquire, including their personnel, financial systems, supply chain and other operations, which could adversely affect our business.

Our business relies on our distribution and fulfillment network and our customer support center. An inability to optimize this network or a disruption to the network, including delays or failures by independent third-party transportation providers, could cause us to lose merchandise, be unable to effectively deliver merchandise to our stores and customers, and could adversely affect our financial condition and results of operations.

We own a distribution center and eCommerce fulfillment center in Conklin, New York and a distribution center in Goodyear, Arizona. We lease distribution centers near Atlanta, Georgia; Plainfield, Indiana; and Smithton, Pennsylvania, and we utilize third-party logistics fulfillment centers near Rialto, California and Louisville, Kentucky. We also own a customer support center in Coraopolis, Pennsylvania that serves as our corporate headquarters. The ability to optimize our distribution and fulfillment network depends on general economic and real estate conditions which are beyond our control.
We may not be able to maintain our existing distribution and fulfillment centers if the cost of the facilities increase or the location of a facility is no longer desirable. In those cases, we may not be able to locate suitable alternative sites or modify or enter into new leases on acceptable terms. Furthermore, we may need to locate new sites for additional eCommerce fulfillment centers to satisfy omni-channel demand. If we cannot locate suitable locations for these fulfillment centers on acceptable terms, we will need to rely on our store network, third-party logistic fulfillment centers, our distribution centers, and vendors to help meet our fulfillment needs.
An inability to optimize our distribution and fulfillment network, including the expiration of a lease or an unexpected lease termination at one of our facilities (without timely replacement of the applicable facility) or serious disruptions (including natural disasters) at any of these facilities might impair our ability to adequately stock our stores, process returns of products to vendors and fulfill eCommerce orders at the speed expected by customers, increase costs associated with shipping and delivery, damage a material portion of our inventory, and otherwise negatively affect our operations, sales, profitability, and reputation.
In addition, we rely on independent third-party transportation providers for substantially all of our merchandise shipments, including shipments to our stores and directly to customers through our eCommerce platform. Our use of third-party delivery services for shipments subjects us to risks, including increased fuel prices, which would increase our shipping costs, and labor issues and inclement weather, which could impact a shipper’s ability to provide delivery services that adequately meet our shipping needs. If we change shipping companies, we could face logistical difficulties that could adversely impact deliveries and we would incur costs and expend resources in connection with such change. Moreover, we may not be able to obtain terms as favorable as those received from the independent third-party transportation providers we currently use, which could have a material adverse impact on our business, operational results, financial position and cash flows.

12

We depend on our suppliers, distributors and manufacturers to provide us with sufficient quantities of quality products in a timely fashion.

In fiscal 2019, we purchased merchandise from approximately 1,200 vendors. Purchases from Nike represented approximately 21% of our total merchandise purchases. Although in fiscal 2019 purchases from no other vendor represented 10% or more of our total purchases, our dependence on suppliers involves risk. We might be unable to obtain merchandise that consumers demand in a timely manner if there are disruptions in our relationships with key suppliers, which could cause our revenue to materially decline. We generally do not have long-term written contracts with our suppliers that would require them to continue supplying us with merchandise. Key vendors may fail to deliver on their commitments or fail to supply us with sufficient products that comply with our safety and quality standards, whether as a result of supply chain disruptions (for example, the recent outbreak of the novel coronavirus COVID-19) or other causes, or fail to continue to develop new products that create consumer demand. Furthermore, vendors increasingly sell their products directly to customers or through broadened or alternative distribution channels, such as department stores, family footwear stores, or eCommerce companies. Many of our suppliers also provide us with incentives, such as return privileges, volume purchasing allowances and cooperative advertising, which are not guaranteed. A decline or discontinuation of these incentives could reduce or eliminate our profit margins.

If our product costs are adversely affected by foreign trade issues, currency exchange rate fluctuations, increasing prices for raw materials, political instability or other reasons, our sales and profitability may suffer.

A significant portion of the products that we purchase, including those purchased from domestic suppliers, as well as most of our private brand merchandise, is manufactured abroad. Foreign imports subject us to risk relating to changes in import duties quotas, the introduction of U.S. taxes on imported goods or the extension of U.S. income taxes on our foreign suppliers' sales of imported goods through the adoption of destination-based income tax jurisdiction, loss of “most favored nation” status with the U.S., freight cost increases and economic and political uncertainties. We may also experience shipment delays and shipping port constraints, labor strikes, work stoppages or other disruptions, including those caused by extreme weather, natural disasters, and pandemics and other public health concerns. Specifically, the impact of the recent outbreak of the novel coronavirus COVID-19 in China may cause delays in the manufacturing of products and raw materials to and from China. To the extent the impact of COVID-19 continues or worsens, our vendors and suppliers may have difficulty obtaining the materials necessary for the production and packaging of the products we sell, factories which produce the products we sell may remain closed for sustained periods of time, and industry-wide shipment of products may be negatively impacted, which could result in significant inventory delays or product shortages in our stores and online.
Furthermore, we could face significantly higher U.S. income and similar taxes with respect to sales of products purchased from foreign suppliers if the U.S. were to adopt a system of taxation under which the cost of imported products was not deductible in determining such products' tax base. If such a tax system were adopted, we could also face higher prices for products manufactured or produced abroad that we purchase from our domestic suppliers if they were subject to such a tax. In addition, the U.S. government periodically considers other restrictions on the importation of products obtained by our vendors and us.
If any of these or other factors were to cause a disruption of trade from the countries in which our vendors' supplies or our private brand products' manufacturers are located, our inventory levels may be reduced or the cost of our products may increase. We may need to seek alternative suppliers or vendors, raise prices, or make changes to our operations, any of which could have a material adverse effect on our sales and profitability, results of operations and financial condition. Additionally, we could be impacted by negative publicity or, in some cases, face potential liability to the extent that any foreign manufacturers from whom we directly or indirectly purchase products utilize labor, environmental, workplace safety and other practices that vary from those commonly accepted in the U.S. Also, the prices charged by foreign manufacturers may be affected by the fluctuation of their local currency against the U.S. dollar and the price of raw materials, which could cause the cost of our products to increase and negatively impact our sales or profitability.

Trade tensions between the U.S. and China, including the possible imposition of new and increased tariffs on goods imported from China, could have a negative impact on our sales and profitability.

Trade tensions between the U.S. and China have resulted in both countries imposing tariffs on billions of dollars of each other’s goods. Although we have taken steps to mitigate the current tariffs, we may need to take additional action, including seeking alternative suppliers or vendors, raising prices, or making changes to our operations if these events continue or further action is taken to limit trade between the two countries. Taking additional action to address the impact of current or future tariffs could have a material adverse effect on our results of operations, including sales and profitability.

13

Unauthorized disclosure of sensitive or confidential customer information could harm the Company’s business and standing with our customers.

The protection of our customer, associate and Company data is critical. The Company receives confidential customer data, including payment card and personally identifiable information, in the normal course of customer transactions. While we have taken significant steps to protect customer and confidential information, the intentional or negligent actions of third parties, business associates or employees may undermine our existing security measures and allow unauthorized parties to obtain access to our data systems and misappropriate confidential data. There can be no assurance that advances in computer capabilities, new discoveries in the field of cryptography or other developments will prevent a future compromise of our customer transaction processing capabilities and personal data. Because the techniques used to obtain unauthorized access to, disable, degrade, or sabotage systems change frequently and often are not recognized until they are launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. While we have no knowledge of any material data security breaches to date, any compromise of our data security could result in a violation of applicable privacy and other laws or standards, significant legal and financial exposure beyond the scope or limits of our insurance coverage, interruption of our operations, increased operating costs associated with remediation, equipment acquisitions or disposal, added personnel, and a loss of confidence in our security measures, which could harm our business or investor confidence. Any security breach involving the misappropriation, loss or other unauthorized disclosure of sensitive or confidential information could attract a substantial amount of media attention, damage our reputation, expose us to risk of litigation and material liability, disrupt our operations and harm our business.

Our ability to operate and expand our business and to respond to changing business and economic conditions is dependent upon the availability of adequate capital. In addition to the terms of our senior secured revolving credit facility imposing certain restrictions that may impair our ability to access sufficient capital, weakness in the capital markets could negatively impact our access to capital.

The operation and growth of our business, including opening new stores, expanding our eCommerce business, implementing long-term initiatives, pursuing strategic acquisitions or investments, and our ability to respond to changing business and economic conditions depend on the availability of adequate capital, which in turn depends on cash flow generated by our business and, if necessary, the availability of equity or debt capital. Our current senior secured revolving credit facility contains provisions that limit our ability to incur additional indebtedness or make substantial asset sales, which might otherwise be used to finance our operations. In the event of our insolvency, liquidation, dissolution or reorganization, the lenders under our senior secured revolving credit facility would be entitled to payment in full from our assets before distributions, if any, were made to our stockholders.
If we are unable to generate sufficient cash flows from operations in the future, and if availability under our current senior secured revolving credit facility is not sufficient to meet our capital needs, we may have to obtain additional financing. Any future constriction of the credit and public capital markets, including debt markets, or deterioration of our financial condition due to internal or external factors, could restrict or limit our ability to access capital and could increase the cost of financing sources. We may not be able to obtain such refinancing or additional financing on favorable terms or at all. Our liquidity or access to capital could also be adversely affected by unforeseen changes in the financial markets and global economy.

We are subject to costs and risks associated with a complex regulatory, compliance and legal environment, including increased or changing laws and regulations affecting our business, particularly those relating to the sale of consumer products and firearms and ammunition, and those relating to data protection and privacy.

We operate in a complex regulatory and legal environment that exposes us to compliance and litigation risks that could materially affect our operations and financial results. New laws that have been recently enacted may require considerable resources to ensure timely and ongoing compliance. For example, the California Consumer Privacy Act of 2018 that came into effect in January of 2020 gives new data privacy rights to California residents and requires expenditure of considerable resources to establish the necessary internal infrastructure to allow for the monitoring and other compliance requirements.
In addition, laws at the federal, state or local level may change, sometimes significantly and unexpectedly, as a result of political, economic or social events. Some of the federal, state or local laws and regulations that affect us include those relating to consumer products, product liability and consumer protection; eCommerce, data protection and privacy, including data protection laws passed by many states regarding notification to data subjects and/or regulators when there is a security breach of personal data; advertisement and marketing; labor and employment; taxes, including changes to tax rates and new taxes, tariffs, and surcharges; firearms, ammunition, knives, food items or other regulated products; accounting, corporate governance and securities; custom or import; and intellectual property.
In addition to potential damage to our reputation and brand, failure to comply with applicable federal, state and local laws and regulations such as those outlined above may result in our being subject to claims, lawsuits, fines and adverse publicity that could have a material adverse effect on our business, results of operations and financial condition.
14

We may be subject to various types of litigation and other claims, and our insurance may not be sufficient to cover damages related to those claims.

From time-to-time the Company or its subsidiaries may be involved in lawsuits or other claims arising in the ordinary course of business, including those related to federal or state wage and hour laws, product liability, consumer protection, advertising, employment, intellectual property, tort, privacy and data protection, and other matters.
We sell firearms and ammunition. These products are associated with an increased risk of injury and related lawsuits with respect to our compliance with Bureau of Alcohol, Tobacco, Firearms and Explosives (“ATF”) and state laws and regulations. Any improper or illegal use by our customers of ammunition or firearms sold by us could have a negative impact on our reputation and business. We may incur losses due to lawsuits, including potential class actions, relating to our performance of background checks on firearms purchases and compliance with other sales laws as mandated by state and federal law and related to our policies on the sale of firearms and ammunition. We may also incur losses from lawsuits relating to the improper use of firearms or ammunition sold by us, including lawsuits by municipalities or other organizations attempting to recover costs from manufacturers and retailers of firearms and ammunition.

We may incur losses relating to claims filed against us, including costs associated with defending against such claims, and there is risk that any such claims or liabilities will exceed our insurance coverage, or affect our ability to retain adequate liability insurance in the future. Even if a claim is unsuccessful or is not fully pursued, the negative publicity surrounding any such assertions could adversely affect our reputation. Due to the inherent uncertainties of litigation and other claims, we cannot accurately predict the ultimate outcome of any such matters.

Our inability or failure to protect our intellectual property rights or any third parties claiming that we have infringed on their intellectual property rights could have a negative impact on our operating results.

Our trademarks, service marks, copyrights, patents, trade secrets, domain names and other intellectual property, including exclusive licensing rights, are valuable assets that are critical to our success. Effective trademark and other intellectual property protection may not be available in every country in which our products are manufactured or may be made available. The unauthorized reproduction or other misappropriation of our intellectual property could diminish the value of our brands or goodwill and cause a decline in our revenue. In addition, any infringement or other intellectual property claim made against us could be time-consuming to address, result in costly litigation, cause product delays, require us to enter into royalty or licensing agreements or result in our loss of ownership or use of the intellectual property.

Problems with our information systems could disrupt our operations and negatively impact our financial results and materially adversely affect our business operations.

We utilize a number of third-party information systems for core system needs of our business. These systems, if not functioning properly, could disrupt our operations, including our ability to track, record and analyze the merchandise that we sell, process shipments of goods, process financial information or credit card transactions, deliver products or engage in similar normal business activities. Our information systems, including our back-up systems, are subject to damage or interruption from power outages; computer and telecommunications failures; computer viruses, worms, ransomware, and other malicious computer programs; denial-of-service attacks; security breaches (through cyber-attacks from cyber-attackers or sophisticated organizations); catastrophic events such as fires, tornadoes, earthquakes and hurricanes; and usage errors by our associates. If our information systems and our back-up systems are damaged, breached or cease to function properly, we may have to make a significant investment to repair or replace them, and we may suffer loss of critical data and interruptions or delays in our business operations. Any material disruption, malfunction or other similar problems in or with our core information systems could negatively impact our financial results and materially adversely affect our business operations.













15

We may be unable to attract, train, engage and retain executive officers and key personnel and associates, or implement effective succession planning strategies. Furthermore, the loss of Edward W. Stack as our key executive could have a material adverse effect on our business.

Our long-term success and ability to implement our strategic and business planning processes depends in large part on our ability to continue to attract, retain, train and develop executive management, key personnel and qualified employees in all areas of the organization. In addition, stores depend significantly on our ability to hire and retain quality associates, including store managers and sales associates. The market for non-entry level personnel, particularly for associates with retail expertise, is highly competitive. We are also dependent on the associates who staff our distribution centers.
All employees, including members of our executive management and key personnel, are at-will employees, and we generally do not maintain key-person life insurance policies on our employees. The loss of any one or more of our executive management and key personnel could seriously harm our business. Further, effective succession planning for executive management and key personnel is vital to our long-term continued success. Failure to ensure effective transfer of knowledge, maintenance of our culture, setting of strategic direction, and smooth transitions involving executive management and key personnel could hinder our long-term strategies and success.
Furthermore, our success depends on continued service from Edward W. Stack, our Chairman and Chief Executive Officer, who has been operating the Company since 1984. Mr. Stack possesses detailed and in-depth knowledge of the issues, opportunities and challenges facing the Company and the industry. If Mr. Stack no longer served a role in the Company, our business could be materially adversely affected.
Changing regulations impacting wage levels and changes to tax laws and regulations could adversely affect our financial results or condition.

Recently, various legislative movements have sought to increase the federal minimum wage in the United States and the minimum wage in a number of individual states, some of which have been successful at the state level. As federal or state minimum wage rates increase, we may need to increase not only the wage rates of our minimum wage employees, but also the wages paid to our other hourly employees. Further, should we fail to increase our wages competitively in response to increasing wage rates, the quality of our workforce could decline, causing our customer service to suffer. Any increase in the cost of our labor could have an adverse effect on our operating costs, financial condition and results of operations.

We are subject to income and other taxes both in and outside the U.S. Our effective income tax rates could be unfavorably impacted by a number of factors, including changes in the valuation of deferred tax assets and liabilities; changes in applicable tax laws, regulations, treaties, interpretations, and other guidance; changes in transfer pricing rules; and the outcome of income tax audits in various jurisdiction. Current economic and political considerations make tax rules in the United States and other applicable jurisdictions subject to significant change. Changes in applicable tax laws and regulations, or their interpretation and application, including the possibility of retroactive effect, could affect our income tax expense and profitability.

Poor performance of professional sports teams within our core regions of operation, as well as league-wide lockouts or strikes, retirement of or serious injury to key athletes or scandals involving such athletes could adversely affect our financial results.

We sell a significant amount of professional sports team merchandise, the success of which may be subject to fluctuations based on the success or failure of such teams or their key players. Poor performance by the professional sports teams within our core regions of operations, as well as league-wide lockouts or strikes, could cause our financial results to fluctuate year over year. In addition, to the extent we use individual athletes to market our products and advertise our stores or we sell merchandise branded by one or more athletes, the retirement or injury of such athletes or scandals in which they might be implicated could negatively impact our financial results.

16

The relative seasonality of our operations, along with the current geographic concentrations of our DICK’S stores, exposes us to certain risks.

Our business is largely seasonal based on sports seasons and the holiday selling season. Furthermore, a majority of our DICK’S Sporting Goods stores are located in the eastern half of the United States, which exposes us to various regional risks, including those relating to weather conditions. Many of our stores are located in geographic areas that experience seasonally cold weather, and we sell a significant amount of cold weather sporting goods and apparel. Our highest sales and operating income results historically occur during our fourth fiscal quarter, which is due, in part, to the holiday selling season and, in part, to our strong sales of cold weather sporting goods and apparel. Poor performance during our fourth quarter because of a slow holiday selling season, unseasonable weather conditions whether due to climate change or otherwise, economic conditions or other factors, could have a material adverse effect on our business, financial condition and operating results for the entire fiscal year. Abnormally wet or cold weather in the spring or summer months could reduce our sales of golf, team sports or other merchandise and cause a decrease in our profitability.

We are controlled by our Chairman and Chief Executive Officer and his relatives, whose interests may differ from other stockholders.

Mr. Edward W. Stack, our Chairman and Chief Executive Officer, and his relatives control a majority of the combined voting power of our common stock and Class B common stock and would control the outcome of a vote on any corporate transaction or other matter submitted to our stockholders for approval. The interests of Mr. Stack and his relatives may differ from the interests of our other stockholders and they may take actions with which our other stockholders disagree.

Our anti-takeover provisions could prevent or delay a change in control of our Company, even if such change in control would be beneficial to our stockholders.

Provisions of our Amended and Restated Certificate of Incorporation, as amended, and our Amended and Restated Bylaws as well as provisions of Delaware law could discourage, delay or prevent a merger, acquisition or other change in control of our Company, even if such change in control would be beneficial to our stockholders. These provisions include: authorizing the issuance of Class B common stock; classifying the Board of Directors such that approximately one-third of directors are elected each year; authorizing the issuance of “blank check” preferred stock that could be issued by our Board of Directors to increase the number of outstanding shares and thwart a takeover attempt; prohibiting the use of cumulative voting for the election of directors; prohibiting stockholder action by partial written consent and requiring all stockholder actions to be taken at a meeting of our stockholders or by unanimous written consent if our Class B common stock is no longer outstanding; and establishing advance notice requirements for nominations for election to the Board of Directors or for proposing matters to be acted upon by stockholders at stockholder meetings.
In addition, the Delaware General Corporation Law, to which we are subject, prohibits us, except under specified circumstances, from engaging in any mergers, significant sales of stock or assets or business combinations with any stockholder or group of stockholders who owns 15% or more of our common stock.

We cannot provide any guaranty of future dividend payments or that we will continue to repurchase our common stock pursuant to our stock repurchase program.

Although our Board of Directors has indicated an intention to pay future quarterly cash dividends on our common stock, any determination to pay cash dividends on our common stock in the future will be based upon our financial condition, results of operations, business requirements, and the continuing determination from our Board of Directors that the declaration of dividends is in the best interests of our stockholders and is in compliance with all laws and agreements applicable to the dividend. Furthermore, although our Board of Directors has authorized a five-year $1.0 billion share repurchase program, we are not obligated to make any purchases under the program and we may discontinue it at any time.

ITEM 1B.  UNRESOLVED STAFF COMMENTS
None.

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ITEM 2.  PROPERTIES
We lease all of our stores, which generally have initial lease terms of 10 to 15 years and contain multiple five-year renewal options and rent escalation provisions. We believe that our leases, when entered into, are at market rate rents. We generally select a new store site nine to 18 months before its opening. Our stores are primarily located in shopping centers in regional shopping areas, as well as in freestanding locations and malls.


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As of February 1, 2020, we operated 850 stores in 47 states. The following table sets forth the number of stores by state:
StateDick's Sporting Goods
Specialty Concept Stores (*)
Total
Alabama14   17  
Arizona  11  
Arkansas —   
California58   66  
Colorado15   17  
Connecticut12   14  
Delaware   
District of Columbia —   
Florida47   54  
Georgia23   24  
Idaho   
Illinois30   35  
Indiana19   20  
Iowa  10  
Kansas10   11  
Kentucky12   14  
Louisiana   
Maine —   
Maryland16   17  
Massachusetts19   21  
Michigan23   28  
Minnesota10   14  
Mississippi —   
Missouri14   16  
Nebraska   
Nevada   
New Hampshire —   
New Jersey19   22  
New Mexico —   
New York43   47  
North Carolina33   41  
North Dakota —   
Ohio38  10  48  
Oklahoma  10  
Oregon10   12  
Pennsylvania40   48  
Rhode Island —   
South Carolina12   15  
South Dakota —   
Tennessee18   20  
Texas41  14  55  
Utah   
Vermont —   
Virginia28   33  
Washington17  —  17  
West Virginia   
Wisconsin13   17  
Wyoming —   
Total726  124  850  

(*) Includes our Golf Galaxy, Field & Stream and three re-opened DICK’S Sporting Goods stores that are being operated as clearance stores. As of February 1, 2020, we operated 94 Golf Galaxy stores in 32 states and 27 Field & Stream stores in 16 states. 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 customers. 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 February 1, 2020, we operated 25 combo stores.
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The following is a list of significant locations including the approximate square footage and whether the location is leased or owned:
Facility LocationType Square FootageOwnership
Conklin, New YorkDistribution 917,000  Owned
Atlanta, GeorgiaDistribution914,000  Leased
Plainfield, IndianaDistribution725,000  Leased
Goodyear, ArizonaDistribution624,000  Owned
Smithton, PennsylvaniaDistribution601,000  Leased
Coraopolis, PennsylvaniaCustomer Support Center670,000  Owned

The land on which our CSC is built is subject to an underlying ground lease with Allegheny County Airport Authority (“ACAA”), which expires in 2038. We hold a second ground lease with ACAA for 89 acres adjacent to our CSC, which will terminate on August 31, 2020.

ITEM 3.  LEGAL PROCEEDINGS

We and our subsidiaries are involved in various proceedings that are incidental to the normal course of our businesses. As of the date of this Annual Report on Form 10-K, we do not expect that any of such proceedings will have a material adverse effect on our financial position or results of operations.

ITEM 4.  MINE SAFETY DISCLOSURES

Not applicable.

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PART II

ITEM 5.  MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information and Dividend Policy

Shares of DICK’S Sporting Goods, Inc. common stock are listed and traded on the New York Stock Exchange (“NYSE”) under the symbol “DKS”. We also have shares of Class B common stock outstanding, which are not listed or traded on any stock exchange or other market. Shares of our Class B common stock can be converted on a one-for-one basis to shares of our common stock at any time at the holder’s option and are automatically converted upon the occurrence of certain events.
The Company paid a quarterly cash dividend per share of common stock and Class B common stock in each of the last two fiscal years, as follows:
Fiscal 2019
Payment DateStockholder Record DateDividend
December 31, 2019December 13, 2019$0.275  
September 27, 2019September 13, 2019$0.275  
June 28, 2019June 14, 2019$0.275  
March 29, 2019March 15, 2019$0.275  
Fiscal 2018  
Payment DateStockholder Record DateDividend
December 28, 2018December 14, 2018$0.225  
September 28, 2018September 14, 2018$0.225  
June 29, 2018June 8, 2018$0.225  
March 30, 2018March 9, 2018$0.225  

As of March 16, 2020, there were 258 and 19 registered shareholders of our common stock and Class B common stock, respectively.

The declaration of future dividends and the establishment of the per share amount, record dates and payment dates for any such future dividends will be subject to the final determination of our Board of Directors, and will be dependent upon multiple factors, including future earnings, cash flows, financial requirements and other considerations.

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Comparison of 5 Year Cumulative Total Return

The following graph compares the performance of our common stock with that of the Standard & Poor’s 500 Composite Stock Price Index (the “S&P 500”) and the S&P Specialty Retail Index for the periods indicated below. The graph assumes that $100 was invested on January 30, 2015 in our common stock, the S&P 500 and the S&P Specialty Retail Index and that all dividends were reinvested.
dks-20200201_g1.jpg1

Issuer Purchases of Equity Securities

The following table sets forth information with respect to common stock repurchases made during the three months ended February 1, 2020:
Period
Total Number of Shares Purchased (a)
Average Price Paid Per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (b)
Dollar Value of Shares That May Yet be Purchased Under the Plans or Programs
November 3, 2019 to November 30, 201977,387  $39.59  —  $1,067,300,614  
December 1, 2019 to January 4, 2020419,979  $47.26  418,100  $1,047,541,018  
January 5, 2020 to February 1, 2020341,336  $47.85  341,336  $1,031,207,525  
   Total
838,702  $46.79  759,436   

(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 as part of our previously announced five-year $1.0 billion share repurchase program authorized by the Board of Directors on March 16, 2016. On June 12, 2019, our Board of Directors authorized an additional five-year share repurchase program of up to $1.0 billion of our common stock. The 2016 program will remain available for purchases until it is exhausted or expires, after which time we may continue to repurchase shares under the 2019 program.

The information set forth under Part III, Item 12. “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” is incorporated herein.

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ITEM 6.  SELECTED FINANCIAL DATA

The selected consolidated financial data for fiscal years 2019, 2018, 2017, 2016 and 2015 presented below under the captions “Statement of Income Data”, “Per Common Share Data”, “Other Data” and “Balance Sheet Data” have been derived from our Consolidated Financial Statements for those periods. The selected consolidated financial data for fiscal years 2019, 2018, 2017, 2016 and 2015 presented below under the caption “Store Data” have been derived from internal records of our operations.

Our fiscal year consists of 52 or 53 weeks, ends on the Saturday nearest to the last day in January and is referenced by the calendar year ending closest to that date. All fiscal years presented include 52 weeks of operations except fiscal 2017, which included 53 weeks.

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The information set forth below should be read in conjunction with other sections of this Annual Report on Form 10-K including Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our Consolidated Financial Statements and related notes appearing elsewhere in this Annual Report on Form 10-K.
 Fiscal Year
 20192018201720162015
 (in thousands, except per share data)
Statement of Income Data:
     
Net sales
$8,750,743  $8,436,570  $8,590,472  $7,921,981  $7,270,965  
Cost of goods sold (1)
6,196,185  5,998,788  6,101,412  5,556,198  5,088,078  
Gross profit
2,554,558  2,437,782  2,489,060  2,365,783  2,182,887  
Selling, general and administrative expenses (2)
2,173,677  1,986,576  1,982,363  1,875,643  1,613,075  
Pre-opening expenses (3)
5,268  6,473  29,123  40,286  34,620  
Income from operations
375,613  444,733  477,574  449,854  535,192  
Gain on sale of subsidiaries (4)
(33,779) —  —  —  —  
Interest expense
17,012  10,248  8,047  5,856  4,012  
Other (income) expense (5)
(15,324) 2,565  (31,810) (14,424) 305  
Income before income taxes
407,704  431,920  501,337  458,422  530,875  
Provision for income taxes
110,242  112,056  177,892  171,026  200,484  
Net income  $297,462  $319,864  $323,445  $287,396  $330,391  
Per Common Share Data:
     
Earnings per common share - Basic
$3.40  $3.27  $3.02  $2.59  $2.87  
Earnings per common share - Diluted
$3.34  $3.24  $3.01  $2.56  $2.83  
Dividends declared per common share
$1.10  $0.90  $0.68  $0.605  $0.55  
Weighted average common shares outstanding:
     
Basic
87,502  97,743  106,977  111,095  115,230  
Diluted
89,066  98,781  107,586  112,216  116,794  
Store Data:
     
Same store sales increase (decrease) (6)
3.7 %(3.2)%(0.3)%3.5 %(0.2)%
Number of stores at end of period (7)
850  859  846  798  741  
Total square footage at end of period (7)
41,834  42,283  41,755  39,330  36,704  
Other Data:
     
Gross profit margin
29.2 %28.9 %29.0 %29.9 %30.0 %
Selling, general and administrative expenses as a percentage of net sales
24.8 %23.5 %23.1 %23.7 %22.2 %
Operating margin
4.3 %5.3 %5.6 %5.7 %7.4 %
Inventory turnover (8)
2.83x3.19x3.19x3.06x3.03x
Depreciation, amortization and other
$270,448  $244,764  $242,978  $233,834  $193,594  
Balance Sheet Data:
     
Inventories, net
$2,202,275  $1,824,696  $1,711,103  $1,638,632  $1,527,187  
Total assets (9)
$6,628,560  $4,187,149  $4,203,939  $4,058,296  $3,559,336  
Long-term operating lease liabilities (9)
$2,453,346  $—  $—  $—  $—  
Working capital (10)
$333,542  $617,759  $581,071  $598,263  $621,015  
Total debt including finance lease obligations (11)
$227,214  $60,044  $65,286  $5,325  $5,913  
Retained earnings
$2,645,281  $2,455,192  $2,205,651  $1,956,066  $1,737,214  
Total stockholders' equity
$1,731,598  $1,904,161  $1,941,501  $1,929,489  $1,789,187  



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(1)Cost of goods sold for fiscal 2016 included a $46.4 million write-down of inventory in connection with the implementation of our new merchandising strategy. Fiscal 2017 included an $11.5 million charge related to transition costs to enhance our Scorecard loyalty program. Fiscal 2019 includes a $13.1 million write-down of inventory related to our hunt restructuring. See Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for further discussion of the hunt restructuring.
(2)Selling, general and administrative expenses for fiscal 2015 included a $7.9 million litigation settlement charge. Fiscal 2016 included a $32.9 million impairment of store assets and store closing charges primarily for ten Golf Galaxy stores in overlapping trade areas with acquired Golfsmith stores, merger and integration costs of $8.5 million to convert former The Sports Authority (“TSA”) and Golfsmith stores to DICK’S Sporting Goods and Golf Galaxy stores, and a $7.7 million non-cash impairment charge to reduce the carrying value of a corporate aircraft held for sale to its fair market value. Fiscal 2017 included a $7.1 million charge for severance, other employee-related costs and asset write-downs related to a corporate restructuring and $6.6 million for costs related to a litigation contingency. Fiscal 2019 includes $44.6 million of hunt restructuring charges, a $15.3 million non-cash impairment charge to reduce the carrying value of a corporate aircraft to its fair market value, which was subsequently sold, and a $6.4 million favorable settlement of a previously accrued litigation contingency. See Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for further discussion of the hunt restructuring.
(3)Pre-opening expenses for fiscal 2016 and fiscal 2017 included occupancy expenses totaling $5.1 million and $3.5 million, respectively, for TSA and Golfsmith stores converted to DICK’S Sporting Goods and Golf Galaxy stores.
(4)Represents the gain recorded in fiscal 2019 in connection with the sale of two technology subsidiaries, Blue Sombrero and Affinity Sports.
(5)Includes investment income recognized to reflect changes in deferred compensation plan investment values with a corresponding charge / reduction to selling, general and administrative expense for the same amount. Fiscal 2017 included the receipt of a $12.0 million contract termination payment and an $8.1 million multi-year sales tax refund.
(6)A store is included in the same store sales calculation during the same fiscal period that it commences its 14th full month of operations. Stores that were closed or relocated during the applicable period have been excluded from same store sales. Each relocated store is returned to the same store sales base during the fiscal period that it commences its 14th full month of operations at the new location. Our same store sales calculation consists of both brick and mortar and eCommerce sales. Fiscal 2017 excludes sales during the 53rd week.
(7)Includes DICK’S Sporting Goods, Golf Galaxy, Field & Stream and clearance stores.
(8)Calculated as cost of goods sold divided by the average monthly ending inventories of the last 13 months.
(9)In the first quarter of fiscal 2019, we adopted ASU 2016-02, Leases (Topic 842), which required us to recognize lease assets of $2.5 billion and liabilities of $3.1 billion on the balance sheet. We adopted the new standard using the optional transition method, which provided for adoption without restating any historical financial information.
(10)Defined as current assets less current liabilities. Balance at end of fiscal 2019 includes $423.0 million of operating lease liabilities following the adoption of Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842).
(11)During fiscal 2017, we financed $62.5 million for the purchase of a corporate aircraft. During fiscal 2019, we sold the aircraft and extinguished the related debt, which was $56.1 million as of the end of fiscal 2018.



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ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with Part II, Item 6, “Selected Financial Data” and our Consolidated Financial Statements and related notes appearing elsewhere in this Annual Report on Form 10-K. This Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. See “Forward-Looking Statements” and Part I, Item 1A. "Risk Factors”.

Business Overview

We are a leading omni-channel sporting goods retailer offering an extensive assortment of authentic, high-quality sports equipment, apparel, footwear and accessories through our teammates, in-store services and unique specialty shop-in-shops. In addition to DICK’S Sporting Goods stores, we own and operate Golf Galaxy and Field & Stream stores as well as GameChanger, a youth sports mobile app for scheduling, communications and live scorekeeping. We offer our products through a content-rich eCommerce platform that is integrated with our store network and provides athletes with the convenience and expertise of a 24-hour storefront. When used in this Annual Report on Form 10-K, unless the context otherwise requires or specifies, any reference to “year” is to our fiscal year.

Our profitability is primarily influenced by our number of store locations and selling square footage, the continued integration of eCommerce with brick and mortar stores, the growth in consolidated same store sales, which includes our eCommerce business, the strength of our gross profit margins and our ability to manage expenses. We have grown from 603 DICK'S Sporting Goods stores at the end of fiscal 2014 to 726 DICK’S Sporting Goods stores at the end of fiscal 2019. Recently, we have reduced the rate at which we open new stores, and we intend to continue this strategy over the next few years in an effort to leverage the significant flexibility within our existing real estate portfolio to capitalize on future real estate opportunities over the near and intermediate term as those leases come up for renewal.

In recent years, we have transitioned to an insourced eCommerce platform, allowing for continued innovation and enhancements to our eCommerce websites and applications, new releases of our mobile and tablet apps, and the development of omni-channel capabilities that integrate our online presence with our brick and mortar stores, including ship-from-store; buy-online, pick-up in-store; return-to-store and multi-channel marketing campaigns. Our eCommerce sales penetration to total net sales has increased from approximately 9% in fiscal 2014 to approximately 16% in fiscal 2019. Approximately 80% of our eCommerce sales are generated within brick and mortar store trade areas.

Hunt Restructuring

In connection with our previously disclosed strategic review of our hunt business, we have removed hunt category merchandise from approximately 135 DICK’S Sporting Goods stores through the end of fiscal 2019 and reallocated the space in these stores to a localized assortment in an effort to drive growth. In fiscal 2020, we plan to remove the hunt department from approximately 440 additional DICK’S Sporting Goods stores, which would leave the hunt department in approximately 12% of our remaining stores. During fiscal 2019, we recorded pre-tax charges totaling $57.7 million related to these activities, which included $35.7 million of non-cash impairments to a trademark and store assets, a $13.1 million write-down of inventory and an $8.9 million charge related to our exit from eight Field & Stream stores, which were subleased to Sportsman’s Warehouse, Inc. (collectively, “the hunt restructuring”).

Industry Challenges

The retail industry as a whole is dynamic, and sporting goods retail in particular has faced significant disruption in recent years, as several sporting goods retailers have gone out of business. Vendors have broadened their distribution into department stores and family footwear channels while continuing to grow their direct to consumer business. We have responded to these challenges by reallocating floor space to growing categories while focusing on driving profitable sales, emphasizing a refined merchandise assortment that delivers newness, innovation and exclusivity. We have also made strategic investments in our supply chain, digital capabilities, customer experience, private brands and teammates to support these efforts and have focused on increasing productivity, while eliminating non-essential expenses which has enabled us to fund our future strategic investments.

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In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (COVID-19) as a pandemic, which continues to spread throughout the United States and world. We issued our fiscal 2020 outlook on March 10, 2020, which included cautionary language related to supply chain disruption from COVID-19 potentially impacting our results beginning in the second quarter. Subsequent to March 10, 2020, our stores experienced a significant reduction in customer traffic and demand resulting from the continued spread of COVID-19. On March 18 2020, we announced that all of our stores will be closed for two weeks; however, our eCommerce business, including Contactless Curbside Pickup and ship-from-store, are continuing. Because of the negative impact of COVID-19 on our financial results and the uncertainty related to its duration, we have withdrawn our fiscal 2020 outlook. While we expect this matter to negatively impact our results of operations, cash flows and financial position, the related financial impact cannot be reasonably estimated at this time.

How We Evaluate Our Operations

Senior management focuses on certain key indicators to monitor our performance including:

Consolidated same store sales performance – Our management considers same store sales, which consists of both brick and mortar and eCommerce sales, to be an important indicator of our current performance. Same store sales results are important to leverage our costs, which include occupancy costs, store payroll and other store expenses. Same store sales also have a direct impact on our total net sales, net income, cash and working capital. See further discussion of our consolidated same store sales within Item 6. “Selected Financial Data”.
Earnings before taxes and the related operating margin – Our management views earnings before taxes and operating margin as key indicators of our performance. The key drivers of earnings before taxes are same 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, distribution and administrative facilities, costs associated with continued improvement of 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 generate significant cash flows from operating activities in our fourth fiscal quarter in connection with the holiday selling season and sales of cold weather sporting goods and apparel. See further discussion of our cash flows in the “Liquidity and Capital Resources” section herein.
Quality of merchandise offerings – To measure acceptance 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.

Executive Summary

Earnings per diluted share of $3.34 for the fiscal year ended February 1, 2020 increased 3.1% compared to earnings per diluted share of $3.24 during the fiscal year ended February 2, 2019. Net income for fiscal 2019 totaled $297.5 million compared to $319.9 million in fiscal 2018.
Fiscal 2019 net income included a charge of $50.1 million, net of tax, or $0.56 per diluted share, related to the hunt restructuring, a gain of $25.0 million, net of tax, or $0.28 per diluted share, related to the sale of two of our technology subsidiaries, a non-cash impairment charge of $11.3 million, net of tax, or $0.13 per diluted share, to reduce the carrying value of a corporate aircraft to its current fair market value, which was subsequently sold, and a benefit of $4.7 million, net of tax, or $0.05 per diluted share, from the favorable settlement of a litigation contingency that was originally accrued in fiscal 2017.
Net sales increased 3.7% to $8,750.7 million in fiscal 2019 from $8,436.6 million in fiscal 2018 due primarily to a 3.7% increase in consolidated same store sales, which included an increase of approximately 16% in eCommerce sales. eCommerce sales penetration increased to approximately 16% of total net sales in fiscal 2019 compared to approximately 15% of total net sales in fiscal 2018.
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In addition, during fiscal 2019, we:
Declared and paid aggregate cash dividends in the amount of $1.10 per share on our common stock and Class B common stock;
Repurchased 11.1 million shares of common stock for a total of $402.2 million under the currently authorized share repurchase program;
Amended our existing credit facility to increase lender commitments from $1.25 billion to $1.6 billion, extend the maturity date to June 28, 2024 and provide for a $500.0 million accordion feature; and
Sold two of our technology subsidiaries, Blue Sombrero and Affinity Sports, to Stack Sports, an unaffiliated third party, for proceeds of $40.4 million, net of cash sold.
The following table summarizes store openings and closings in fiscal 2019 and fiscal 2018:

 Fiscal 2019Fiscal 2018
 Dick's Sporting Goods
Specialty Concept Stores (1)
TotalDick's Sporting Goods
Specialty Concept Stores (1)
Total
Beginning stores
729  130  859  716  130  846  
New stores:
                  
Single-level stores
  11  19  —  19  
Two-level stores
—    —  —  —  
Total new stores
  12  19  —  19  
Closed stores (2)
11  10  21   —   
Ending stores (3)

726  124  850  729  130  859  
Relocated stores
      

(1) Includes our Golf Galaxy, Field & Stream and clearance 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 customers. 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.
(2) Includes our closure of eight Field & Stream stores during the third quarter of 2019, which were subleased to Sportsman’s Warehouse.
(3) Has been updated in both periods to reflect three re-opened DICK'S Sporting Goods stores that are being operated as clearance stores.

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Results of Operations

The following table presents, for the periods indicated, selected items in the Consolidated Statements of Income as a percentage of our net sales, as well as the basis point change in percentage of net sales from the prior year:
 Fiscal Year
Basis Point Increase / (Decrease) in Percentage of Net Sales from Prior Year (A)
 
2019 (A)
20182019 - 2018
Net sales
100.00 %100.00 %N/A
Cost of goods sold, including occupancy and distribution costs
70.81  71.10  (29) 
Gross profit
29.19  28.90  29  
Selling, general and administrative expenses
24.84  23.55  129  
Pre-opening expenses
0.06  0.08  (2) 
Income from operations
4.29  5.27  (98) 
Gain on sale of subsidiaries(0.39) —  (39) 
Interest expense
0.19  0.12   
Other (income) expense
(0.18) 0.03  (21) 
Income before income taxes
4.66  5.12  (46) 
Provision for income taxes
1.26  1.33  (7) 
Net income
3.40 %3.79 %(39) 

(A)Column does not add due to rounding.

Note - As retailers vary in how they record costs of operating their stores and supply chain between cost of goods sold and selling, general and administrative expenses, our gross profit rate and selling, general and administrative expenses rate may not be comparable to other retailers. For additional information regarding the types of costs classified within cost of goods sold, selling, general and administrative expenses or any other financial statement line items presented herein, refer to Note 1 included in Part IV. Item 15. Exhibits and Financial Statement Schedules of this Annual Report on Form 10-K.

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A discussion regarding our financial condition and results of operations for the year ended February 1, 2020 (Fiscal 2019) compared to the year ended February 2, 2019 (Fiscal 2018) is presented below. A discussion regarding our financial condition and results of operations for the year ended February 2, 2019 (Fiscal 2018) compared to the year ended February 3, 2018 (Fiscal 2017) can be found under Item 7 of Part II of our Annual Report on Form 10-K for the fiscal year ended February 2, 2019, filed with the SEC on March 29, 2019.
Fiscal 2019 Compared to Fiscal 2018
Net Sales
Net sales increased 3.7% in fiscal 2019 to $8,750.7 million from $8,436.6 million in fiscal 2018, due primarily to a $305.2 million, or 3.7%, increase in consolidated same store sales. The 3.7% increase in consolidated same store sales included a 1.7% increase in transactions and a 2.0% increase in sales per transaction. In addition, our eCommerce business increased by approximately 16% compared to the prior year, and eCommerce sales penetration also increased to approximately 16% of total net sales during the current year compared to approximately 15% of total net sales during fiscal 2018. The increase in consolidated same store sales was broad-based across hardlines, apparel and footwear, partially offset by a continued decline in the hunt category.
Income from Operations
Income from operations decreased to $375.6 million in fiscal 2019 from $444.7 million in fiscal 2018.
Gross profit increased 4.8% to $2,554.6 million in the current year from $2,437.8 million in the prior year and increased as a percentage of net sales by 29 basis points due primarily to occupancy leverage, which was partially offset by an increase in eCommerce shipping and fulfillment costs as well as a $13.1 million write-down of inventory related to the hunt restructuring. Our occupancy costs, which after the cost of merchandise represents the largest expense item within our cost of goods sold, are generally fixed in nature and fluctuate based on the number of stores that we operate. Occupancy costs decreased $7.0 million in fiscal 2019 compared to fiscal 2018, which increased gross profit by 52 basis points. eCommerce shipping and fulfillment costs increased due primarily to sales growth and to a higher penetration of eCommerce sales as well as costs incurred to open two new dedicated fulfillment centers.
Selling, general and administrative expenses increased 9.4% to $2,173.7 million in the current year from $1,986.6 million in the prior year, an increase as a percentage of net sales of 129 basis points. The current year included hunt restructuring charges of $44.6 million, a $15.3 million non-cash fixed asset impairment charge to reduce the carrying value of a corporate aircraft held for sale to its fair market value and an $18.3 million increase in expense associated with changes to the investment values in our deferred compensation plans, for which the corresponding investment income was recognized in other income. These expenses were offset by a $6.4 million favorable settlement of a previously disclosed litigation contingency. Apart from the enumerated items, selling, general and administrative expenses increased by 47 basis points compared to the prior year, which was driven primarily by higher incentive compensation expenses, wage inflation in store payroll expense and strategic growth investments.
Pre-opening expenses, which generally fluctuate depending on the timing and number of new store openings and relocations, decreased to $5.3 million in the current year from $6.5 million in the prior year. We opened 12 new stores in fiscal 2019 compared to 19 new stores in fiscal 2018.
Gain on Sale of Subsidiaries
In August 2019, we completed the sale of our Blue Sombrero and Affinity Sports technology subsidiaries to Stack Sports for net proceeds of $40.4 million. In connection with the sale we recognized a pre-tax gain of $33.8 million. Refer to Part IV. Item 15. Exhibits and Financial Statement Schedules, Note 5–Sale of Subsidiaries for additional information.
Other (Income) Expense
Other income totaled $15.3 million in fiscal 2019 compared to other expense of $2.6 million in fiscal 2018. Substantially all of the change is related to changes in our deferred compensation plan investment values, which we account for by recognizing investment income or expense and recording a corresponding charge or reduction to selling, general and administrative costs.
Income Taxes
Our effective tax rate increased to 27.0% in the current year compared to 25.9% in fiscal 2018. The increase in this year’s effective tax rate was primarily attributable to the non-deductible $28.3 million trademark impairment charge, partially offset by lower tax expense for certain share-based payments.

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Liquidity and Capital Resources
We have a $1.6 billion senior secured revolving credit facility (the “Credit Facility”), which includes a maximum amount of $150.0 million to be issued in the form of letters of credit. Under the Credit Facility, subject to satisfaction of certain conditions, we may request an increase of up to $500.0 million in additional borrowing availability. See Part IV. Item 15. Exhibits and Financial Statement Schedules, Note 8–Revolving Credit Facility for additional details.
Our liquidity and capital needs have generally been met by net cash provided by operating activities, supplemented by borrowings under the Credit Facility as seasonally necessary. We generally utilize our Credit Facility for working capital needs based primarily on the seasonal nature of our operating cash flows, as well as to fund share buybacks, dividends and capital expenditures. Historically, our peak borrowing level has occurred early in the fourth quarter as we increase inventory in advance of the holiday selling season.
Liquidity information is provided below for the following fiscal years ended (dollars in thousands):
February 1, 2020February 2, 2019
Funds drawn on Credit Facility
$2,263,550  $1,875,400  
Number of business days with outstanding balance on Credit Facility
245 days  195 days  
Maximum daily amount outstanding under Credit Facility
$795,900  $423,100  

Liquidity information is provided below as of the following dates (in thousands):
February 1, 2020February 2, 2019
Outstanding borrowings under Credit Facility
$224,100  $—  
Cash and cash equivalents
$69,334  $113,653  
Remaining borrowing capacity under Credit Facility
$1,359,769  $1,233,869  
Outstanding letters of credit under Credit Facility  $16,131  $16,131  

We intend to allocate capital to invest in future growth, specifically growing, relocating and remodeling our store network and eCommerce business together to deliver an improved omni-channel shopping experience. We may also allocate capital to other long-term strategic investments while returning capital to stockholders through share repurchases and dividends.
We believe cash flows generated by operations and funds available under our Credit Facility will be sufficient to satisfy capital requirements for at least the next 12 months. In response to the spread of COVID-19, on March 18, 2020, we announced we will temporarily close all of our stores for two weeks; however, our eCommerce business, including Contactless Curbside Pickup and ship-from-store, are continuing. Because of the negative impact of COVID-19 on our financial results and the uncertainty related to its duration, we have withdrawn our fiscal 2020 outlook. While we expect this matter to negatively impact our results of operations, cash flows and financial position, the related financial impact cannot be reasonably estimated at this time.

Capital expenditures
Our capital expenditures are primarily targeted toward the development of our omni-channel platform, including investments in new and existing stores and eCommerce technology, while we have strived to continuously improve our supply chain and corporate technology capabilities. Fiscal 2019 capital expenditures totaled $217.5 million on a gross basis and $179.5 million on a net basis, which includes tenant allowances provided by landlords.
Beginning in 2018, we reduced the annual rate at which we open new stores by opening 19 DICK’S Sporting Goods stores. We continued this lower rate of new store growth into fiscal 2019, opening eight DICK’S Sporting Goods stores and two Golf Galaxy stores. Approximately two-thirds 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 over the near and intermediate terms.
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Share repurchases 
On March 16, 2016, our Board of Directors authorized a five-year share repurchase program of up to $1.0 billion of our common stock. During fiscal 2019, we repurchased 11.1 million shares of our common stock for $402.2 million. Under the 2016 program, we have repurchased a total of $968.8 million of common stock and have $31.2 million remaining under this authorization. On June 12, 2019, our Board of Directors authorized an additional five-year share repurchase program of up to $1.0 billion of our common stock.
We intend to repurchase shares from time-to-time to offset dilution and also may pursue additional repurchases of shares under favorable market conditions. Any future share repurchase programs are subject to the authorization by our Board of Directors and will be dependent upon future earnings, cash flows, financial requirements and other factors.
Dividends 
During the fiscal year ended February 1, 2020, we paid $98.3 million of dividends to our stockholders. On March 6, 2020, our Board of Directors declared a quarterly cash dividend in the amount of $0.3125 per share on our common stock and Class B common stock payable on March 27, 2020 to stockholders of record as of the close of business on March 20, 2020.
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 will be dependent upon multiple factors including future earnings, cash flows, financial requirements and other considerations.
Cash Flows
Changes in cash and cash equivalents are as follows (in thousands):
 Fiscal Year Ended
February 1, 2020February 2, 2019February 3, 2018
Net cash provided by operating activities  $404,612  $712,755  $746,310  
Net cash used in investing activities  (129,271) (198,219) (485,648) 
Net cash used in financing activities  (319,660) (502,094) (324,240) 
Effect of exchange rate changes on cash and cash equivalents—  (42) 54  
Net (decrease) increase in cash and cash equivalents $(44,319) $12,400  $(63,524) 
Operating Activities
Cash provided by operating activities consists primarily of net income, adjusted for certain non-cash items and changes in operating assets and liabilities. Adjustments to net income for non-cash items include depreciation and amortization, intangible asset impairments, deferred income taxes and stock-based compensation expense, as well as gains and losses related to the disposal of our assets or subsidiaries. Changes in operating assets and liabilities primarily reflect changes in inventories, accounts payable and income taxes payable / receivable, as well as other working capital changes.
Cash provided by operating activities decreased $308.1 million in fiscal 2019 to $404.6 million due primarily to changes in inventory levels and accounts payable balances, which collectively decreased operating cash flows by $314.9 million. These changes were primarily due to strategic investments in key growth categories including footwear, apparel, baseball and golf.
Investing Activities
Cash used in investing activities was $129.3 million in fiscal 2019, a decrease of $68.9 million compared to fiscal 2018. The current year included proceeds of $40.4 million from our sale of two technology subsidiaries and $45.0 million from the sale of a corporate aircraft, which was partially offset by a $19.2 million increase in gross capital expenditures. The increase in capital spending was driven by store enhancements and technology investments. See Part IV. Item 15. Exhibits and Financial Statement Schedules, Note 5–Sale of Subsidiaries for additional details related to our sale of two technology subsidiaries.
Financing Activities
Financing activities consist primarily of capital return initiatives, including our share repurchase program and cash dividend payments, cash flows generated from stock option exercises and cash activity associated with our Credit Facility. The primary reason for the decrease in cash used in financing activities compared to the prior year was an increase in funds drawn on our Credit Facility, which funded strategic inventory investments in key categories. In addition, during fiscal 2019 we paid off the remainder of our term loan, which had a balance of $56.1 million at the end of fiscal 2018. See Part IV. Item 15. Exhibits and Financial Statement Schedules, Note 7–Deferred Revenue and Other Liabilities for additional details related to our pay down of the term loan.
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Contractual Obligations and Commercial Commitments
We are party to many contractual obligations that involve commitments to make payments to third parties in the ordinary course of business. The following table provides summary information concerning our future contractual obligations (within the scope of Item 303(a)(5) of Regulation S-K) as of February 1, 2020 (in thousands):
Payments Due by Period
 TotalLess than 1 year1-3 years3-5 yearsMore than 5 years
Contractual obligations
    
Revolving credit facility (Note 8) (a)
$224,100  $—  $—  $224,100  $—  
 Operating lease obligations (Note 9) (b)
3,562,096  652,337  1,189,948  876,342  843,469  
 Financing lease obligations
3,752  1,103  1,786  863  —  
 Purchase and other commitments (Note 14) (c)
135,136  56,405  66,646  5,864  6,221  
Total contractual obligations (d)
$3,925,084  $709,845  $1,258,380  $1,107,169  $849,690  

(a)At February 1, 2020, we had an outstanding balance of $224.1 million on our revolving credit facility. Amounts have been classified in the table above based on its maturity date of June 28, 2024 and do not include future commitment fees, interest expense or other fees as they are variable in nature. Accordingly, we cannot determine with accuracy the timing of future loan advances, repayments, or future interest rates to be charged.
(b)Amounts do not include approximately $152.8 million of minimum future payments for leases which have not yet commenced.
(c)Our primary purchase obligations are for marketing commitments, including naming rights, licenses for trademarks, minimum requirements with our third-party eCommerce fulfillment provider, and technology-related and other ordinary course commitments. In the ordinary course of business, we enter into many contractual commitments, including purchase orders and commitments for products or services, but generally, such commitments represent annual or cancellable commitments. The amount of purchase obligations shown is based on multi-year non-cancellable contracts outstanding at the end of fiscal 2019.
(d)Excludes $4.3 million of tax contingencies, including interest and penalties, because we are not able to make reasonably reliable estimates of the period of cash settlement. See Part IV. Item 15. Exhibits and Financial Statement Schedules, Note 11–Income Taxes for additional information.
The Note references above are to the Notes within Part IV. Item 15. Exhibits and Financial Statement Schedules of this Annual Report on Form 10-K.
At February 1, 2020, we have other commercial commitments totaling $16.1 million in the form of standby letters of credit that are currently off-balance sheet. We expect to fund these letters of credit with operating cash flows generated in the normal course of business.
Off-Balance Sheet Arrangements
Our off-balance sheet arrangements are primarily for purchase obligations for marketing commitments, including naming rights, licenses for trademarks, minimum requirements with our third-party eCommerce fulfillment provider and technology-related and other ordinary course commitments. We have excluded these items from the unaudited Consolidated Balance Sheets in accordance with accounting principles generally accepted in the United States of America. We do not believe that any of these arrangements have, or are reasonably likely to have, a material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or resources.

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Critical Accounting Policies and Use of Estimates
Our significant accounting policies are described in Part IV. Item 15. Exhibits and Financial Statement Schedules, Note 1–Basis of Presentation and Significant Accounting Policies. Critical accounting policies are those that we believe are both 1) most important to the portrayal of our financial condition and results of operations and 2) require our most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Judgments and uncertainties affecting the application of such policies may result in materially different amounts being reported under different conditions or using different assumptions.
We consider the following policies to be the most critical in understanding the judgments that are involved in preparing our consolidated financial statements.
Inventory Valuation
We value inventory using the lower of weighted average cost and net realizable value, which is generally based on the selling price expectations of the merchandise. We regularly review inventories to determine if the carrying value of the inventory exceeds net realizable value and, when determined necessary, record a reserve to reduce the carrying value to net realizable value. Changes in customer merchandise preference, current and anticipated demand, consumer spending, weather patterns, economic conditions, business trends or merchandising strategies could cause our inventory to be exposed to obsolescence or slow-moving merchandise.
Shrink expense is accrued as a percentage of merchandise sales based on historical shrink trends. We perform physical inventories at our stores and distribution centers throughout the year. The shrink reserve represents the cumulative loss estimate for each of our locations since the last physical inventory date through the reporting date. Estimates by location and in the aggregate are impacted by internal and external factors and may vary significantly from actual results.
Business Development Allowances
Business development allowances include allowances, rebates and cooperative advertising funds received from vendors. These funds are determined for each fiscal year and the majority are based on various quantitative contract terms. Amounts we expect to receive from vendors for the purchase of merchandise inventories (“vendor allowances”) are recognized as a reduction of cost of goods sold as the merchandise is sold. Amounts that represent a reimbursement of costs incurred, such as advertising, (“cooperative advertising”) are recorded as a reduction to the related expense in the period that the expense is incurred. We record estimates of earned allowances based on the latest projected purchase volumes and advertising forecasts.
Goodwill and Intangible Assets
Goodwill, indefinite-lived and other finite-lived intangible assets are reviewed for impairment on an annual basis, or whenever circumstances indicate that a decline in value may have occurred. Our evaluation for impairment requires accounting judgments and financial estimates in determining the fair value of the reporting unit. If these judgments or estimates change in the future, we may be required to record impairment charges for these assets.
Our goodwill impairment test compares the fair value of each reporting unit to its carrying value. We determine the fair value of our reporting units using a combination of an income approach and a market approach. Estimates may differ from actual results due to, among other things, economic conditions, changes to our business models, or changes in operating performance. Significant differences between these estimates and actual results could result in future impairment charges and could materially affect our future financial results. If the fair value of the reporting unit exceeds the