SEC Company Response from DICK'S SPORTING GOODS, INC. (DKS) (CIK 0001089063) (DKS) — Jun 27, 2016
DICK'S SPORTING GOODS, INC. (DKS) (CIK 0001089063)
Date: June 27, 2016 · CIK: 0001089063 · Accession: 0001089063-16-000157
AI Filing Summary & Sentiment
Reasoning
File numbers found in text: 001-31463
Referenced dates: May 27, 2016
Letter
Division of Corporation Finance Securities and Exchange Commission Filed March 25, 2016 Form 8-K Filed March 8, 2016 File No. 001-31463
Dear Ms. Thompson:
Enclosed please find our responses to the comments set forth in the letter dated May 27, 2016 from the Staff (the "Staff") of the Division of Corporation Finance of the U.S. 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. Fiscal years 2015, 2014 and 2013 ended on January 30, 2016, January 31, 2015 and February 1, 2014, respectively. References to "Form 10-K" refer to the Company's Annual Report on Form 10-K for the year ended January 30, 2016. This response letter has been filed on EDGAR.
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, 2016
Business Strategy, page 4
1.
In future filings, please expand the discussion of your strategy of growing your private brands. Specifically, please disclose the percentage of sales attributable to private brands, both your own and those you license from third parties. Please tell us whether a material amount of your business is dependent upon one or more third party license(s) and, if so, disclose the material terms of the license agreement(s).
Securities and Exchange Commission
June 27, 2016
Page 2
Response:
Our private brand strategy allows us to supplement the products of third party vendors we offer to our customers. Our private brand business primarily consists of merchandise branded by trademarks that we own. We also have entered into licensing agreements for the exclusive rights to use certain trademarks owned by third parties. We refer to trademarks we own or exclusively license as "private brands." Private brand merchandise comprised 10.9%, 10.6% and 11.8%, respectively, of total net sales for each of fiscal years 2015, 2014 and 2013. In fiscal 2015, over 70% of private brand sales were sales of merchandise branded with trademarks we own.
We do not consider a material amount of our business to be dependent upon any single third party license because no single licensed brand represented more than 2% of our net sales during fiscal 2015, 2014 and 2013. Furthermore, we believe there are suitable substitute products (either private brand product or third-party product) that could replace any of our licensed brands.
In response to the Staff's comment, in future 10-K filings we will disclose the percentage of private brand merchandise sales to total net sales and enhance disclosure about our private brand strategy, substantially as follows, using the Form 10-K as an example (changes noted in bold and strikethrough):
Part I, ITEM 1. BUSINESS
Business Strategy
Private Brands. To provide differentiation in assortment when compared to our competitors, we also offer a wide variety of private brands products that are not available from other retailers. Our exclusive private brand offerings include brands that we own such as CALIA, DBX, Field & Stream, Fitness Gear, Lady Hagen, MAXFLI, Nishiki, Primed, Quest, Top-Flite and Walter Hagen, as well as brands that we exclusively license from third parties including adidas baseball, Reebok (performance apparel), Slazenger (golf and racquets) and Umbro (performance soccer equipment, footwear and apparel) and products through exclusive licenses such as adidas baseball, CALIA, DBX, Field & Stream, Fitness Gear, Lady Hagen, MAXFLI, Nishiki, Primed, Quest, Reebok (performance apparel), Slazenger (golf and racquets), Top-Flite, Umbro (performance soccer equipment, footwear and apparel) and Walter Hagen. Our private brands and other exclusive products offer our customers products that they cannot find anywhere else. Our private brands also offer exceptional value and quality to our customers at each price point and obtain, while also providing the Company with higher gross margins than we obtain on sales of comparable third-party branded products. We consider our overall private brand strategy to be a key area of opportunity to increase productivity in our stores, and have invested in a development and procurement staff to support our private brand business. In fiscal 2015, we continued to expand our private brand business with a focus on our CALIA line of women's athletic apparel. Private brand sales represented approximately 10% of the Company's consolidated net sales during fiscal 2015, 2014 and 2013.
Securities and Exchange Commission
June 27, 2016
Page 3
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, page 20
2.
Please expand this section to discuss known material trends and uncertainties that will have, or are reasonably likely to have, a material impact on your revenues or income or result in your liquidity decreasing or increasing in any material way. In this regard, we note your indication in your most recent earnings call that consolidation in your marketplace is putting short-term pressure on your business. In future filings please discuss this trend and provide additional analysis concerning how this trend may impact the quality and variability of your earnings and cash flows. See Item 303 of Regulation S-K and SEC Release No. 33-8350. Please tell us what this disclosure will look like.
Response:
In response to the Staff's comment, we advise the Staff that in determining whether to disclose a known trend, we applied the guidance in SEC Release No. 33-8350, including assessing the materiality of the trend on our overall financial results, as well as such factors as market conditions and the long or short-term nature of such trends.
Based on these factors, we respectfully advise the Staff that we did not identify known trends or uncertainties that we believed had occurred or were likely to occur or that we believed would have a material favorable or unfavorable impact on our liquidity, capital resources or results of operations for the period ended January 30, 2016.
We experience various short-term pressures from time to time that could be the result of a variety of factors, such as weather, competition, consumer trends or preferences, economic conditions that affect consumer discretionary spending, and other factors that we describe further as part of the risks and uncertainties of our business in Item 1A. Risk Factors of our Form 10-K. Our results fluctuate during any one period and from period to period due to these factors and it is, therefore, difficult to predict or to identify any known trends. We assess these short-term pressures for materiality and inclusion in the Management's Discussion and Analysis of Financial Condition and Results of Operations, including assessing whether such pressure would be considered a material trend or uncertainty pursuant to the guidance in SEC Release No 33-8350. Absent the existence of any material impact that warrants specific comment, the Company's disclosures focus on material period-over-period changes in order to assist investors in understanding the Company's results of operations.
On our earnings call for the quarter ended April 30, 2016, we provided additional commentary about the short-term pressure on our business as a result of "going-out-of-business" and liquidation sales by sporting goods retailers who have recently entered Chapter 11 bankruptcy proceedings. "Going-out-of-business" and liquidation sales are short-term in nature (estimated to be approximately 90 days) and, in this case, are specific to recent Chapter 11 proceedings by two separate sporting goods retailers. The comments by our Chief Executive Officer on the earnings call describe the forward-looking directional impact of these short-term events on the Company's results due to the deep discounts and liquidation prices that will be offered to customers during the liquidation sales. We do not consider the short-term pressures on the Company's business due to liquidation sales to be a material trend or uncertainty. We will evaluate the impact that these "going-out-of business" and liquidation sales have on our future results and disclose any material impacts necessary to understand the period-to-period changes in the Company's results of operations.
Securities and Exchange Commission
June 27, 2016
Page 4
We will continue to evaluate material trends on our business and will disclose any additional material known trends in future 10-Q and 10-K filings, as applicable.
3.
In future filings, please revise your disclosure to discuss your intentions with respect to new store openings. As a related matter, please also discuss anticipated capital expenditures associated with new store openings and the source(s) of such funds. Please tell us what this disclosure will look like.
Response:
With respect to its liquidity, the Company expects to fund its planned fiscal 2016 capital expenditures through cash flows generated by its operations, supplemented from time to time by short term borrowings under its Credit Agreement. The Company will continue to evaluate the source of funds necessary for its total planned capital expenditures, including those necessary to support its planned new store openings.
In response to the Staff's Comment #3, we will enhance our disclosures in future 10-Q and 10-K filings to further describe the factors that we expect to impact the Company's liquidity, substantially as follows, using the Form 10-K as an example (changes noted in bold and strikethrough):
Capital expenditures – We expect capital expenditures to be approximately $230 million on a net basis and approximately $420 million on a gross basis in fiscal 2016. Normal capital requirements primarily relate to the development of our omni-channel platform, including investments in new and existing Dick's Sporting Goods stores and eCommerce technology investments. The Company also plans to invest in its specialty store concepts and continuously improveing its supply chain and corporate information technology infrastructure. We plan to open approximately 47 new stores in fiscal 2016. We expect our new stores, as well as investments in our existing stores, to represent the majority of our total capital expenditures during fiscal 2016. The Company has a capital appropriations committee that approves all capital expenditures in excess of certain amounts, and groups and prioritizes all capital projects among required, discretionary and strategic categories.
We will also enhance our disclosures in future 10-Q and 10-K filings to further describe the source of funds for our planned capital expenditures, substantially as follows, using the Form 10-K as an example (changes noted in bold and strikethrough):
The Company currently believes that cash flows generated by operations and funds available under its Credit Agreement will be sufficient to satisfy capital requirements, including planned capital expenditures, share repurchases and quarterly dividend payments to its stockholders through fiscal 2016. Other investment opportunities, such as potential strategic acquisitions, share repurchases, investments or store expansion rates in excess of those presently planned, may require additional funding. The Company may require additional funding should the Company pursue strategic acquisitions or undertake share repurchases, other investments or store expansion rates in excess of those presently planned.
Securities and Exchange Commission
June 27, 2016
Page 5
Results of Operations
Fiscal 2015 (52 weeks) Compared to Fiscal 2014 (52 weeks), page 22
4.
We note your discussion of the decrease in consolidated annual same store sales at the bottom of page 22. Your current analysis of this decline in same store sales focuses on record setting warm weather during the second half of your fiscal year and its resulting negative impact on the sale of cold weather related categories. However, we note that your consolidated same store sales declined in each quarter of fiscal 2015 when compared to the comparable quarter of the prior year. Please tell us how you considered also discussing the factors that contributed to the slower rate of growth in same store sales during the first half of your fiscal year, and particularly your second quarter, to provide a complete picture of your performance during fiscal 2015. Also tell us how you considered whether the underlying factors that caused each quarter of fiscal 2015 to have lower same store sales growth than the comparable quarter of the prior year represent a larger ongoing trend that should be disclosed to your investors or present uncertainty about your performance in fiscal 2016 that should be disclosed to your investors. We note this trend continued in the first quarter of fiscal 2016, which saw lower same store sales growth than the first quarter of fiscal 2015. Refer to Item 303(A)(3)(ii) of Regulation S-K and Section III.B.3 of our Release No. 33-8350.
Response:
The Company does not review "rate of growth" in comparable same store sales, and "rate of growth" in comparable same stores sales is not a performance indicator used by management in managing the business to analyze the Company's financial condition or operating performance or to identify trends or uncertainties that may impact the business.
Rather, comparable same store sales is the key performance indicator used by senior management to monitor the Company's performance. The Company monitors comparable same store sales on a continual basis and management makes decisions impacting revenues and expenses based on comparable same stores sales and the other key indicators of the Company's performance as discussed in the "Overview" section of the Company's fiscal 2015 Form 10-K on page 20.
We assess comparable same store sales for materiality and inclusion in the Management's Discussion and Analysis of Financial Condition and Results of Operations, including assessing whether any particular factors had a material effect on same store sales or whether there is a material trend or uncertainty pursuant to the guidance in SEC Release No 33-8350. Based on our evaluation of same store sales trends throughout fiscal 2015, we respectfully advise the Staff that we identified, and disclosed in the 10-K, that the record-setting warm winter in fiscal 2015 had a material impact on our same store sales, but fiscal 2015 same store sales did not indicate any known trends or uncertainties that we believed had occurred or were likely to occur or that we believed would have a material favorable or unfavorable impact on our liquidity, capital resources or results of operations for the period ended January 30, 2016 and April 30, 2016.
Securities and Exchange Commission
June 27, 2016
Page 6
Item 8. Financial Statement and Supplementary Data
Notes to Consolidated Financial Statements
1. Basis of Presentation and Summary of Significant Accounting Policies
Revenue Recognition, page 45
5.
We note your disclosure that you will recognize revenue from eCommerce sales upon shipment of merchandise. Please tell us why you believe the earnings process is complete and revenue recognition is appropriate upon shipment of the product rather than upon delivery. Your response should specifically address the point at which title to the product and/or service and all risks of ownership, including risk
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CORRESP 1 filename1.htm Document 345 Court Street, Coraopolis, PA 15108 June 27, 2016 BY EDGAR SUBMISSION Ms. Jennifer Thompson Accounting Branch Chief Division of Corporation Finance Securities and Exchange Commission 100 F Street, NE Washington, D.C. 20549 Re: Dick's Sporting Goods, Inc. Form 10-K for Fiscal Year Ended January 30, 2016 Filed March 25, 2016 Form 8-K Filed March 8, 2016 File No. 001-31463 Dear Ms. Thompson: Enclosed please find our responses to the comments set forth in the letter dated May 27, 2016 from the Staff (the "Staff") of the Division of Corporation Finance of the U.S. 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. Fiscal years 2015, 2014 and 2013 ended on January 30, 2016, January 31, 2015 and February 1, 2014, respectively. References to "Form 10-K" refer to the Company's Annual Report on Form 10-K for the year ended January 30, 2016. This response letter has been filed on EDGAR. 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, 2016 Business Strategy, page 4 1. In future filings, please expand the discussion of your strategy of growing your private brands. Specifically, please disclose the percentage of sales attributable to private brands, both your own and those you license from third parties. Please tell us whether a material amount of your business is dependent upon one or more third party license(s) and, if so, disclose the material terms of the license agreement(s). Securities and Exchange Commission June 27, 2016 Page 2 Response: Our private brand strategy allows us to supplement the products of third party vendors we offer to our customers. Our private brand business primarily consists of merchandise branded by trademarks that we own. We also have entered into licensing agreements for the exclusive rights to use certain trademarks owned by third parties. We refer to trademarks we own or exclusively license as "private brands." Private brand merchandise comprised 10.9%, 10.6% and 11.8%, respectively, of total net sales for each of fiscal years 2015, 2014 and 2013. In fiscal 2015, over 70% of private brand sales were sales of merchandise branded with trademarks we own. We do not consider a material amount of our business to be dependent upon any single third party license because no single licensed brand represented more than 2% of our net sales during fiscal 2015, 2014 and 2013. Furthermore, we believe there are suitable substitute products (either private brand product or third-party product) that could replace any of our licensed brands. In response to the Staff's comment, in future 10-K filings we will disclose the percentage of private brand merchandise sales to total net sales and enhance disclosure about our private brand strategy, substantially as follows, using the Form 10-K as an example (changes noted in bold and strikethrough): Part I, ITEM 1. BUSINESS Business Strategy Private Brands. To provide differentiation in assortment when compared to our competitors, we also offer a wide variety of private brands products that are not available from other retailers. Our exclusive private brand offerings include brands that we own such as CALIA, DBX, Field & Stream, Fitness Gear, Lady Hagen, MAXFLI, Nishiki, Primed, Quest, Top-Flite and Walter Hagen, as well as brands that we exclusively license from third parties including adidas baseball, Reebok (performance apparel), Slazenger (golf and racquets) and Umbro (performance soccer equipment, footwear and apparel) and products through exclusive licenses such as adidas baseball, CALIA, DBX, Field & Stream, Fitness Gear, Lady Hagen, MAXFLI, Nishiki, Primed, Quest, Reebok (performance apparel), Slazenger (golf and racquets), Top-Flite, Umbro (performance soccer equipment, footwear and apparel) and Walter Hagen. Our private brands and other exclusive products offer our customers products that they cannot find anywhere else. Our private brands also offer exceptional value and quality to our customers at each price point and obtain, while also providing the Company with higher gross margins than we obtain on sales of comparable third-party branded products. We consider our overall private brand strategy to be a key area of opportunity to increase productivity in our stores, and have invested in a development and procurement staff to support our private brand business. In fiscal 2015, we continued to expand our private brand business with a focus on our CALIA line of women's athletic apparel. Private brand sales represented approximately 10% of the Company's consolidated net sales during fiscal 2015, 2014 and 2013. Securities and Exchange Commission June 27, 2016 Page 3 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, page 20 2. Please expand this section to discuss known material trends and uncertainties that will have, or are reasonably likely to have, a material impact on your revenues or income or result in your liquidity decreasing or increasing in any material way. In this regard, we note your indication in your most recent earnings call that consolidation in your marketplace is putting short-term pressure on your business. In future filings please discuss this trend and provide additional analysis concerning how this trend may impact the quality and variability of your earnings and cash flows. See Item 303 of Regulation S-K and SEC Release No. 33-8350. Please tell us what this disclosure will look like. Response: In response to the Staff's comment, we advise the Staff that in determining whether to disclose a known trend, we applied the guidance in SEC Release No. 33-8350, including assessing the materiality of the trend on our overall financial results, as well as such factors as market conditions and the long or short-term nature of such trends. Based on these factors, we respectfully advise the Staff that we did not identify known trends or uncertainties that we believed had occurred or were likely to occur or that we believed would have a material favorable or unfavorable impact on our liquidity, capital resources or results of operations for the period ended January 30, 2016. We experience various short-term pressures from time to time that could be the result of a variety of factors, such as weather, competition, consumer trends or preferences, economic conditions that affect consumer discretionary spending, and other factors that we describe further as part of the risks and uncertainties of our business in Item 1A. Risk Factors of our Form 10-K. Our results fluctuate during any one period and from period to period due to these factors and it is, therefore, difficult to predict or to identify any known trends. We assess these short-term pressures for materiality and inclusion in the Management's Discussion and Analysis of Financial Condition and Results of Operations, including assessing whether such pressure would be considered a material trend or uncertainty pursuant to the guidance in SEC Release No 33-8350. Absent the existence of any material impact that warrants specific comment, the Company's disclosures focus on material period-over-period changes in order to assist investors in understanding the Company's results of operations. On our earnings call for the quarter ended April 30, 2016, we provided additional commentary about the short-term pressure on our business as a result of "going-out-of-business" and liquidation sales by sporting goods retailers who have recently entered Chapter 11 bankruptcy proceedings. "Going-out-of-business" and liquidation sales are short-term in nature (estimated to be approximately 90 days) and, in this case, are specific to recent Chapter 11 proceedings by two separate sporting goods retailers. The comments by our Chief Executive Officer on the earnings call describe the forward-looking directional impact of these short-term events on the Company's results due to the deep discounts and liquidation prices that will be offered to customers during the liquidation sales. We do not consider the short-term pressures on the Company's business due to liquidation sales to be a material trend or uncertainty. We will evaluate the impact that these "going-out-of business" and liquidation sales have on our future results and disclose any material impacts necessary to understand the period-to-period changes in the Company's results of operations. Securities and Exchange Commission June 27, 2016 Page 4 We will continue to evaluate material trends on our business and will disclose any additional material known trends in future 10-Q and 10-K filings, as applicable. 3. In future filings, please revise your disclosure to discuss your intentions with respect to new store openings. As a related matter, please also discuss anticipated capital expenditures associated with new store openings and the source(s) of such funds. Please tell us what this disclosure will look like. Response: With respect to its liquidity, the Company expects to fund its planned fiscal 2016 capital expenditures through cash flows generated by its operations, supplemented from time to time by short term borrowings under its Credit Agreement. The Company will continue to evaluate the source of funds necessary for its total planned capital expenditures, including those necessary to support its planned new store openings. In response to the Staff's Comment #3, we will enhance our disclosures in future 10-Q and 10-K filings to further describe the factors that we expect to impact the Company's liquidity, substantially as follows, using the Form 10-K as an example (changes noted in bold and strikethrough): Capital expenditures – We expect capital expenditures to be approximately $230 million on a net basis and approximately $420 million on a gross basis in fiscal 2016. Normal capital requirements primarily relate to the development of our omni-channel platform, including investments in new and existing Dick's Sporting Goods stores and eCommerce technology investments. The Company also plans to invest in its specialty store concepts and continuously improveing its supply chain and corporate information technology infrastructure. We plan to open approximately 47 new stores in fiscal 2016. We expect our new stores, as well as investments in our existing stores, to represent the majority of our total capital expenditures during fiscal 2016. The Company has a capital appropriations committee that approves all capital expenditures in excess of certain amounts, and groups and prioritizes all capital projects among required, discretionary and strategic categories. We will also enhance our disclosures in future 10-Q and 10-K filings to further describe the source of funds for our planned capital expenditures, substantially as follows, using the Form 10-K as an example (changes noted in bold and strikethrough): The Company currently believes that cash flows generated by operations and funds available under its Credit Agreement will be sufficient to satisfy capital requirements, including planned capital expenditures, share repurchases and quarterly dividend payments to its stockholders through fiscal 2016. Other investment opportunities, such as potential strategic acquisitions, share repurchases, investments or store expansion rates in excess of those presently planned, may require additional funding. The Company may require additional funding should the Company pursue strategic acquisitions or undertake share repurchases, other investments or store expansion rates in excess of those presently planned. Securities and Exchange Commission June 27, 2016 Page 5 Results of Operations Fiscal 2015 (52 weeks) Compared to Fiscal 2014 (52 weeks), page 22 4. We note your discussion of the decrease in consolidated annual same store sales at the bottom of page 22. Your current analysis of this decline in same store sales focuses on record setting warm weather during the second half of your fiscal year and its resulting negative impact on the sale of cold weather related categories. However, we note that your consolidated same store sales declined in each quarter of fiscal 2015 when compared to the comparable quarter of the prior year. Please tell us how you considered also discussing the factors that contributed to the slower rate of growth in same store sales during the first half of your fiscal year, and particularly your second quarter, to provide a complete picture of your performance during fiscal 2015. Also tell us how you considered whether the underlying factors that caused each quarter of fiscal 2015 to have lower same store sales growth than the comparable quarter of the prior year represent a larger ongoing trend that should be disclosed to your investors or present uncertainty about your performance in fiscal 2016 that should be disclosed to your investors. We note this trend continued in the first quarter of fiscal 2016, which saw lower same store sales growth than the first quarter of fiscal 2015. Refer to Item 303(A)(3)(ii) of Regulation S-K and Section III.B.3 of our Release No. 33-8350. Response: The Company does not review "rate of growth" in comparable same store sales, and "rate of growth" in comparable same stores sales is not a performance indicator used by management in managing the business to analyze the Company's financial condition or operating performance or to identify trends or uncertainties that may impact the business. Rather, comparable same store sales is the key performance indicator used by senior management to monitor the Company's performance. The Company monitors comparable same store sales on a continual basis and management makes decisions impacting revenues and expenses based on comparable same stores sales and the other key indicators of the Company's performance as discussed in the "Overview" section of the Company's fiscal 2015 Form 10-K on page 20. We assess comparable same store sales for materiality and inclusion in the Management's Discussion and Analysis of Financial Condition and Results of Operations, including assessing whether any particular factors had a material effect on same store sales or whether there is a material trend or uncertainty pursuant to the guidance in SEC Release No 33-8350. Based on our evaluation of same store sales trends throughout fiscal 2015, we respectfully advise the Staff that we identified, and disclosed in the 10-K, that the record-setting warm winter in fiscal 2015 had a material impact on our same store sales, but fiscal 2015 same store sales did not indicate any known trends or uncertainties that we believed had occurred or were likely to occur or that we believed would have a material favorable or unfavorable impact on our liquidity, capital resources or results of operations for the period ended January 30, 2016 and April 30, 2016. Securities and Exchange Commission June 27, 2016 Page 6 Item 8. Financial Statement and Supplementary Data Notes to Consolidated Financial Statements 1. Basis of Presentation and Summary of Significant Accounting Policies Revenue Recognition, page 45 5. We note your disclosure that you will recognize revenue from eCommerce sales upon shipment of merchandise. Please tell us why you believe the earnings process is complete and revenue recognition is appropriate upon shipment of the product rather than upon delivery. Your response should specifically address the point at which title to the product and/or service and all risks of ownership, including risk