SEC Company Response from DICK'S SPORTING GOODS, INC. (DKS) (CIK 0001089063) (DKS) — Jun 25, 2010
DICK'S SPORTING GOODS, INC. (DKS) (CIK 0001089063)
Date: June 25, 2010 · CIK: 0001089063 · Accession: 0000950123-10-060923
AI Filing Summary & Sentiment
Reasoning
Referenced dates: June 2, 2010
Letter
Division of Corporation Finance Securities and Exchange Commission Form 10-K for Fiscal Year Ended January 30, 2010 Filed March 18, 2010 Form 8-K Filed March 9, 2010 File No. 1-31463
Dear Ms. Thompson:
Enclosed please find our responses to the comments set forth in the letter dated June 2, 2010 from the Staff (the “Staff”) of the Securities and Exchange Commission (the “Commission”), with respect to the above-referenced documents. References to the “Company”, “we”, or “our” in this letter refer to Dick’s Sporting Goods, Inc. and its consolidated subsidiaries. This response letter has been filed on EDGAR, and a copy has been sent by facsimile. Please note that the Company is providing a portion of its response to Comment 5 pursuant to Rule 83 of the Commission’s Rules of Practice, and requests confidential treatment for the redacted portions of the response, which are indicated herein as [*]. Please promptly inform me of any request for disclosure of all or a portion of such material made pursuant to the Freedom of Information Act or otherwise, so that the Company may substantiate the foregoing request for confidential treatment in accordance with Rule 83. A copy of this request is also being delivered to the Freedom of Information Act Officer of the Commission.
As requested by the Staff, the Company hereby acknowledges the following:
•
The Company is responsible for the adequacy and accuracy of the disclosures in its filings with the SEC;
Securities and Exchange Commission
June 25, 2010
Page 2
•
Staff comments or changes to disclosures in response to Staff comments do not foreclose the Commission from taking any action with respect to the filings; and
•
The Company may not assert Staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States.
All responses set forth below are keyed to the sequential numbering of the comments and to the headings used in the Staff’s letter. The Staff’s comments are in bold and our responses and supplemental information are in regular type.
Form 10-K for the Fiscal Year Ended January 30, 2010
Financial Statements, page 45
General
1.
We note your disclosure in MD&A that you amended your e-commerce agreement and began recording e-commerce revenue on a gross basis compared to your prior recording of these revenues on a net basis pursuant to FASB ASC 605-45. We have the following, comments:
•
Please clarify whether this e-commerce agreement is the same agreement with GSI discussed in footnote 13 on page 69. If so, please explain the terms of the agreement, including the compensation arrangement with GSI for their services and how it relates to the royalty arrangement.
Response:
The amended e-commerce agreement referenced in the MD&A is the same agreement with GSI discussed in footnote 13. Prior to the amendment in August 2008, the use of the www.DicksSportingGoods.com website (the “Website”) was licensed to GSI. Under the terms of the original agreement, GSI was responsible for merchandise procurement, assortment and pricing; and order fulfillment and collections. GSI had the full financial risk and reward associated with operations of the Website. In exchange for the use of the domain name, GSI made a royalty payment to the Company.
The royalty payment to the Company was calculated as a percentage of the net sales transacted on the Website. The royalty income was included in net sales for all periods presented in the Company’s Form 10-K prior to the effective date of amended agreement, which included fiscal years up to and including the fiscal year ending January 31, 2009. The royalty income recognized for the fiscal years ending February 2, 2008 and January 31, 2009 was less than 1% of the Company’s net sales reported in both periods.
•
Please tell us the terms of the amendment that resulted in the change to recording revenues gross from recording them net. In doing so, please address each indicator in ASC 605-45 to support your position that that gross reporting is now appropriate.
Securities and Exchange Commission
June 25, 2010
Page 3
Response:
Under the terms of the amended agreement dated August 2008, the Company assumed operational responsibility for the Website effective February 1, 2009, including merchandise procurement, assortment, and pricing while GSI became primarily responsible for hosting and maintaining the Website, and order fulfillment. GSI is paid a transaction fee by the Company based on the value and type of orders placed through the Website.
As stated within ASC 605-45, the following items are indicators that a company should record revenue based on the gross amount billed to a customer because it has earned revenue from the sale of goods:
•
The company is the primary obligor in the arrangement
•
The company has general inventory risk (before customer order is placed or upon customer return)
•
The company has latitude in establishing price
•
The company changes the product or performs part of the service
•
The company has discretion in supplier selection
•
The company is involved in the determination of product or service specifications
•
The company has physical loss inventory risk (after customer order or during shipping)
•
The company has credit risk
Based upon the aforementioned criteria / indicators, the Company concluded that its Website sales should be recorded on a “gross” basis effective with the new terms of the amended agreement (i.e. February 1, 2009). The Company’s conclusion is primarily based upon the following:
•
The company is the primary obligor in the arrangement — Although GSI is responsible for order fulfillment (except for merchandise ordered on-line and picked up in-store), the Company bears full responsibility for a customer’s acceptance of the products ordered by them. Customers may return merchandise on-line or to a Company store. Further, all Website orders include packing slips, invoices and return labels branded with the Company’s name, trademarks and/or logos, which provides further evidence that the Company is responsible for fulfilling the ordered product or service. In addition, the purchase line of each customer’s billing statement identifies the seller of said merchandise as “DicksSportingGoods.com”. We believe that all of these factors support the position that the Company is the primary obligor in the arrangement.
•
The company has general inventory risk (before customer order is placed or upon customer return) — The Company is primarily responsible for profits and losses of the merchandise it procures for the Website. Further, the Company is responsible for any in-store returns of products purchased via the Website.
•
The company has latitude in establishing pricing — The Company is responsible for establishing the selling price for the merchandise and related shipping fees charged to customers with respect to orders placed on the Website.
Securities and Exchange Commission
June 25, 2010
Page 4
•
The company changes the product or performs part of the service — Due to the nature of the transaction, this is not applicable.
•
The company has discretion in supplier selection and the company is involved in the determination of product or service specifications — The Company is primarily responsible for the assortment of products and services offered on the Website and negotiates the price, quantities, and specifications with merchandise vendors.
•
The company has physical loss inventory risk (after customer order or during shipping) — In the event a shipment is lost during delivery, the Company bears responsibility for making the customer whole.
•
The company has credit risk— Due to the nature of the transaction, there is no material credit risk.
•
Please tell us and disclose in MD&A the amount of revenue from e-commerce sales. We note your discussion in results of operations that net sales increased due to the addition of e-commerce sales; however, you do not quantify the amount of e-commerce sales. We also note that you appear to quantify sales from e-commerce in your quarterly earnings conference calls, and believe this is important information to also provide to your investors within your MD&A narrative.
Response:
For the year ended January 30, 2010, revenues from e-commerce sales totaled $103.6 million which represents less than 3% of the Company’s consolidated revenues. As the Staff notes, we have provided information during our quarterly earnings calls to facilitate our financial statement users’ understanding of the impact of recording e-commerce sales on a gross basis effective with the changes made to our agreement with GSI. To the extent we provide similar information in the future to clarify our financial statement users’ understanding of changes in the Company’s revenues from period to period and believe such information is important to financial statement users, we will enhance our disclosures within the MD&A section of the Company’s Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q.
Consolidated Statements of Operations, page 47
2.
We note on page 8 that you provide support services, such as golf services, bicycle maintenance and repairs, tennis racquet and lacrosse stick stringing, ice skate sharpening and assembly of fitness equipment. Please quantify for us your revenues from these support services for each year included in your filing. To the extent that your support service revenues exceed ten percent of your total revenues, please separately present service revenues on the face of your income statement. Refer to Rule 5-03 of Regulation S-X. Notwithstanding the preceding, please expand your revenue recognition policy for these support service revenues.
Securities and Exchange Commission
June 25, 2010
Page 5
Response:
The Company’s revenues from its support services do not exceed ten percent of total revenues in any of the last three fiscal years. The aggregate revenues from these support services were $21.0 million, $11.8 million and $10.7 million for fiscal years 2007, 2008 and 2009, respectively. These support service revenues represent less than 1% of the Company’s consolidated revenues for all of the aforementioned fiscal years.
The Company will revise its revenue recognition policy to clarify the inclusion of its support services and e-commerce sales and will include such revised policy in its future filings, beginning with the Company’s Annual Report on Form 10-K for the fiscal year ended January 29, 2011. The amended revenue recognition policy will read as follows:
Revenue Recognition — Revenue from retail sales of merchandise is recognized at the point of sale, net of sales tax. Revenue from e-commerce sales is recognized upon shipment of merchandise and any service related revenue primarily as the services are performed. A provision for anticipated merchandise returns is provided through a reduction of sales and cost of sales in the period that the related sales are recorded. Revenue from gift cards and returned merchandise credits (collectively the “cards”) are deferred and recognized upon the redemption of the cards. These cards have no expiration date. Income from unredeemed cards is recognized in the Consolidated Statements of Operations in selling, general and administrative expenses at the point at which redemption becomes remote. The Company performs an evaluation of the aging of the unredeemed cards, based on the elapsed time from the date of original issuance, to determine when redemption is remote.
Notes to Consolidated Financial Statements, page 52
Segment Information, page 56
3.
We note that you aggregate your operating segments into one reportable segment due to the economic characteristics of the store formats, the similar nature of the products sold, the type of customer and the method of distribution. Please explain to us what is meant by “economic characteristics of the store formats” and why that supports aggregation. Also, please tell us in sufficient detail how you identified your operating segments and how you determined that your operating segments have similar economic characteristics, including similar long-term average gross margins. In doing so, provide us with your analysis of the similar economic characteristics of your Dick’s Sporting Goods stores and your Golf Galaxy stores to support aggregating these stores into one reportable segment. Your response should also address the fact that you separately discuss the Dick’s Sporting Goods stores and the Golf Galaxy stores in your quarterly earnings conference calls, and provide your analysis of whether the differences in those businesses that warrant separate discussion in your earnings calls support presenting these chains as separate reportable segments. Refer to ASC 280-10-50.
Securities and Exchange Commission
June 25, 2010
Page 6
Response:
The Company considers its Dick’s Sporting Goods stores, its Golf Galaxy stores and its e-commerce business as operating segments under the guidelines outlined in ASC 280-10-50-1. The Dick’s Sporting Goods stores and the Golf Galaxy stores for the purpose of this discussion represent the collective aggregation of each individual store operating under the banner of Dick’s Sporting Goods or Golf Galaxy. We refer to these banners as “store formats”. The Dick’s Sporting Goods stores, the Golf Galaxy stores and the Company’s e-commerce business, each engage in business activities from which they earn revenues and incur expenses. Discrete financial information is available for each of these operating segments.
The operating results for these operating segments are reviewed regularly by our Chief Executive Officer, who operates as our chief operating decision maker (“CODM”). The key metrics that the CODM reviews include sales levels and trends, merchandise margins and gross profit as a percentage of sales, and merchandise inventory assortment and turns.
The Company believes that each of these operating segments have similar economic characteristics. The Company believes that the most meaningful financial measures to utilize when comparing economic characteristics of its store formats are gross profit as a percentage of sales and inventory turnover. While short term performance of these operating segments may vary, we believe these businesses have similar long-term economic characteristics.
During fiscal years 2005 through 2007, gross profit rates for the Dick’s Sporting Goods stores and the Golf Galaxy stores varied by no more than 3.4 percentage points. In February 2007, the Company acquired Golf Galaxy and initially retained the former management team to operate the Golf Galaxy operating segment until June 2008, when the former management team separated from the Company. During fiscal 2008 and into fiscal 2009, the Company continued to integrate the Golf Galaxy business and established a new Corporate based management team for the Golf Galaxy operating segment. During fiscal 2009, the new Corporate based management team implemented a new merchandise assortment and marketing strategy. As a result of these new strategies, the Golf Galaxy business experienced significant merchandise clearance activity throughout most of fiscal 2009. These management changes and corresponding merchandise clearance strategies caused the disparity in gross profit rates
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FOIA Confidential Treatment
Has Been Requested by Dick’s Sporting Goods, Inc.
Pursuant to 17 CFR 200.83
June 25, 2010
BY FACSIMILE AND EDGAR SUBMISSION
Ms. Jennifer Thompson
Branch Chief
Division of Corporation Finance
Securities and Exchange Commission
100 F Street NE
Mail Stop 3561
Washington, D.C. 20549-3561
Re:
Dick’s Sporting Goods, Inc.
Form 10-K for Fiscal Year Ended January 30, 2010
Filed March 18, 2010
Form 8-K Filed March 9, 2010
File No. 1-31463
Dear Ms. Thompson:
Enclosed please find our responses to the comments set forth in the letter dated June 2, 2010
from the Staff (the “Staff”) of the Securities and Exchange Commission (the “Commission”), with
respect to the above-referenced documents. References to the “Company”, “we”, or “our” in this
letter refer to Dick’s Sporting Goods, Inc. and its consolidated subsidiaries. This response
letter has been filed on EDGAR, and a copy has been sent by facsimile. Please note that the
Company is providing a portion of its response to Comment 5 pursuant to Rule 83 of the Commission’s
Rules of Practice, and requests confidential treatment for the redacted portions of the response,
which are indicated herein as [*]. Please promptly inform me of any request for disclosure of all
or a portion of such material made pursuant to the Freedom of Information Act or otherwise, so that
the Company may substantiate the foregoing request for confidential treatment in accordance with
Rule 83. A copy of this request is also being delivered to the Freedom of Information Act Officer
of the Commission.
As requested by the Staff, the Company hereby acknowledges the following:
•
The Company is responsible for the adequacy and accuracy of the disclosures in its
filings with the SEC;
Securities and Exchange Commission
June 25, 2010
Page 2
•
Staff comments or changes to disclosures in response to Staff comments do not
foreclose the Commission from taking any action with respect to the filings; and
•
The Company may not assert Staff comments as a defense in any proceeding initiated
by the Commission or any person under the federal securities laws of the United States.
All responses set forth below are keyed to the sequential numbering of the comments and to the
headings used in the Staff’s letter. The Staff’s comments are in bold and our responses and
supplemental information are in regular type.
Form 10-K for the Fiscal Year Ended January 30, 2010
Financial Statements, page 45
General
1.
We note your disclosure in MD&A that you amended your e-commerce agreement and began
recording e-commerce revenue on a gross basis compared to your prior recording of these
revenues on a net basis pursuant to FASB ASC 605-45. We have the following, comments:
•
Please clarify whether this e-commerce agreement is the same agreement with GSI
discussed in footnote 13 on page 69. If so, please explain the terms of the agreement,
including the compensation arrangement with GSI for their services and how it relates
to the royalty arrangement.
Response:
The amended e-commerce agreement referenced in the MD&A is the same agreement with GSI discussed in
footnote 13. Prior to the amendment in August 2008, the use of the www.DicksSportingGoods.com
website (the “Website”) was licensed to GSI. Under the terms of the original agreement, GSI was
responsible for merchandise procurement, assortment and pricing; and order fulfillment and
collections. GSI had the full financial risk and reward associated with operations of the Website.
In exchange for the use of the domain name, GSI made a royalty payment to the Company.
The royalty payment to the Company was calculated as a percentage of the net sales transacted on
the Website. The royalty income was included in net sales for all periods presented in the
Company’s Form 10-K prior to the effective date of amended agreement, which included fiscal years
up to and including the fiscal year ending January 31, 2009. The royalty income recognized for the
fiscal years ending February 2, 2008 and January 31, 2009 was less than 1% of the Company’s net
sales reported in both periods.
•
Please tell us the terms of the amendment that resulted in the change to
recording revenues gross from recording them net. In doing so, please address each
indicator in ASC 605-45 to support your position that that gross reporting is now
appropriate.
Securities and Exchange
Commission
June 25, 2010
Page 3
Response:
Under the terms of the amended agreement dated August 2008, the Company assumed operational
responsibility for the Website effective February 1, 2009, including merchandise procurement,
assortment, and pricing while GSI became primarily responsible for hosting and maintaining the
Website, and order fulfillment. GSI is paid a transaction fee by the Company based on the value and
type of orders placed through the Website.
As stated within ASC 605-45, the following items are indicators that a company should record
revenue based on the gross amount billed to a customer because it has earned revenue from
the sale of goods:
•
The company is the primary obligor in the arrangement
•
The company has general inventory risk (before customer order is placed or upon customer
return)
•
The company has latitude in establishing price
•
The company changes the product or performs part of the service
•
The company has discretion in supplier selection
•
The company is involved in the determination of product or service specifications
•
The company has physical loss inventory risk (after customer order or during shipping)
•
The company has credit risk
Based upon the aforementioned criteria / indicators, the Company concluded that its Website sales
should be recorded on a “gross” basis effective with the new terms of the amended agreement (i.e.
February 1, 2009). The Company’s conclusion is primarily based upon the following:
•
The company is the primary obligor in the arrangement — Although GSI is
responsible for order fulfillment (except for merchandise ordered on-line and picked up
in-store), the Company bears full responsibility for a customer’s acceptance of the
products ordered by them. Customers may return merchandise on-line or to a Company store.
Further, all Website orders include packing slips, invoices and return labels branded with
the Company’s name, trademarks and/or logos, which provides further evidence that the
Company is responsible for fulfilling the ordered product or service. In addition, the
purchase line of each customer’s billing statement identifies the seller of said
merchandise as “DicksSportingGoods.com”. We believe that all of these factors support the
position that the Company is the primary obligor in the arrangement.
•
The company has general inventory risk (before customer order is placed or upon
customer return) — The Company is primarily responsible for profits and losses of the
merchandise it
procures for the Website. Further, the Company is responsible for any in-store returns of
products purchased via the Website.
•
The company has latitude in establishing pricing — The Company is
responsible for establishing the selling price for the merchandise and related shipping
fees charged to customers with respect to orders placed on the Website.
Securities and Exchange Commission
June 25, 2010
Page 4
•
The company changes the product or performs part of the service — Due to the
nature of the transaction, this is not applicable.
•
The company has discretion in supplier selection and the company is involved in the
determination of product or service specifications — The Company is primarily
responsible for the assortment of products and services offered on the Website and
negotiates the price, quantities, and specifications with merchandise vendors.
•
The company has physical loss inventory risk (after customer order or during
shipping) — In the event a shipment is lost during delivery, the Company bears
responsibility for making the customer whole.
•
The company has credit risk— Due to the nature of the transaction, there is no
material credit risk.
•
Please tell us and disclose in MD&A the amount of revenue from e-commerce
sales. We note your discussion in results of operations that net sales increased due
to the addition of e-commerce sales; however, you do not quantify the amount of
e-commerce sales. We also note that you appear to quantify sales from e-commerce in
your quarterly earnings conference calls, and believe this is important information to
also provide to your investors within your MD&A narrative.
Response:
For the year ended January 30, 2010, revenues from e-commerce sales totaled $103.6 million which
represents less than 3% of the Company’s consolidated revenues. As the Staff notes, we have
provided information during our quarterly earnings calls to facilitate our financial statement
users’ understanding of the impact of recording e-commerce sales on a gross basis effective with
the changes made to our agreement with GSI. To the extent we provide similar information in the
future to clarify our financial statement users’ understanding of changes in the Company’s revenues
from period to period and believe such information is important to financial statement users, we
will enhance our disclosures within the MD&A section of the Company’s Annual Reports on Form 10-K
and Quarterly Reports on Form 10-Q.
Consolidated Statements of Operations, page 47
2.
We note on page 8 that you provide support services, such as golf services, bicycle
maintenance and repairs, tennis racquet and lacrosse stick stringing, ice skate sharpening and
assembly of fitness equipment. Please quantify for us your revenues from these support
services for each year included in your filing. To the extent that your support service
revenues exceed ten percent of your total revenues, please separately present service revenues
on the face of your income statement. Refer to Rule 5-03 of Regulation S-X. Notwithstanding
the preceding, please expand your revenue recognition policy for these support service
revenues.
Securities and Exchange
Commission
June 25, 2010
Page 5
Response:
The Company’s revenues from its support services do not exceed ten percent of total revenues in any
of the last three fiscal years. The aggregate revenues from these support services were $21.0
million, $11.8 million and $10.7 million for fiscal years 2007, 2008 and 2009, respectively. These
support service revenues represent less than 1% of the Company’s consolidated revenues for all of
the aforementioned fiscal years.
The Company will revise its revenue recognition policy to clarify the inclusion of its support
services and e-commerce sales and will include such revised policy in its future filings, beginning
with the Company’s Annual Report on Form 10-K for the fiscal year ended January 29, 2011. The
amended revenue recognition policy will read as follows:
Revenue Recognition — Revenue from retail sales of merchandise is recognized at the point
of sale, net of sales tax. Revenue from e-commerce sales is recognized upon shipment of
merchandise and any service related revenue primarily as the services are performed. A
provision for anticipated merchandise returns is provided through a reduction of sales and
cost of sales in the period that the related sales are recorded. Revenue from gift cards and
returned merchandise credits (collectively the “cards”) are deferred and recognized upon the
redemption of the cards. These cards have no expiration date. Income from unredeemed cards
is recognized in the Consolidated Statements of Operations in selling, general and
administrative expenses at the point at which redemption becomes remote. The Company
performs an evaluation of the aging of the unredeemed cards, based on the elapsed time from
the date of original issuance, to determine when redemption is remote.
Notes to Consolidated Financial Statements, page 52
Segment Information, page 56
3.
We note that you aggregate your operating segments into one reportable segment due to the
economic characteristics of the store formats, the similar nature of the products sold, the
type of customer and the method of distribution. Please explain to us what is meant by
“economic characteristics of the store formats” and why that supports aggregation. Also,
please tell us in sufficient detail how you identified your operating segments and how you
determined that your operating segments have similar economic characteristics, including
similar long-term average gross margins. In doing so, provide us with your analysis of the
similar economic characteristics of your Dick’s Sporting Goods stores and your Golf Galaxy
stores to support aggregating these stores into one reportable segment. Your response should
also address the fact that you separately discuss the Dick’s Sporting Goods stores and the
Golf Galaxy stores in your quarterly earnings conference calls, and provide your analysis of
whether the differences in those businesses that warrant separate
discussion in your earnings calls support presenting these chains as separate reportable
segments. Refer to ASC 280-10-50.
Securities and Exchange Commission
June 25, 2010
Page 6
Response:
The Company considers its Dick’s Sporting Goods stores, its Golf Galaxy stores and its e-commerce
business as operating segments under the guidelines outlined in ASC 280-10-50-1. The Dick’s
Sporting Goods stores and the Golf Galaxy stores for the purpose of this discussion represent the
collective aggregation of each individual store operating under the banner of Dick’s Sporting Goods
or Golf Galaxy. We refer to these banners as “store formats”. The Dick’s Sporting Goods stores,
the Golf Galaxy stores and the Company’s e-commerce business, each engage in business activities
from which they earn revenues and incur expenses. Discrete financial information is available for
each of these operating segments.
The operating results for these operating segments are reviewed regularly by our Chief Executive
Officer, who operates as our chief operating decision maker (“CODM”). The key metrics that the
CODM reviews include sales levels and trends, merchandise margins and gross profit as a percentage
of sales, and merchandise inventory assortment and turns.
The Company believes that each of these operating segments have similar economic characteristics.
The Company believes that the most meaningful financial measures to utilize when comparing economic
characteristics of its store formats are gross profit as a percentage of sales and inventory
turnover. While short term performance of these operating segments may vary, we believe these
businesses have similar long-term economic characteristics.
During fiscal years 2005 through 2007, gross profit rates for the Dick’s Sporting Goods stores and
the Golf Galaxy stores varied by no more than 3.4 percentage points. In February 2007, the Company
acquired Golf Galaxy and initially retained the former management team to operate the Golf Galaxy
operating segment until June 2008, when the former management team separated from the Company.
During fiscal 2008 and into fiscal 2009, the Company continued to integrate the Golf Galaxy
business and established a new Corporate based management team for the Golf Galaxy operating
segment. During fiscal 2009, the new Corporate based management team implemented a new merchandise
assortment and marketing strategy. As a result of these new strategies, the Golf Galaxy business
experienced significant merchandise clearance activity throughout most of fiscal 2009. These
management changes and corresponding merchandise clearance strategies caused the disparity in gross
profit rates