DICK'S Sporting Good

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DICK'S SPORTING GOODS : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

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11/26/2019 | 11:19 pm


FORWARD-LOOKING STATEMENTS
We caution that any forward-looking statements (as such term is defined in the
Private Securities Litigation Reform Act of 1995) contained in this Quarterly
Report on Form 10-Q or made by our management involve risks and uncertainties
and are subject to change based on various important factors, many of which may
be beyond our control. Accordingly, our future performance and financial results
may differ materially from those expressed or implied in any such
forward-looking statements. Investors should not place undue reliance on
forward-looking statements as a prediction of actual results. These statements
can be identified as those that may predict, forecast, indicate or imply future
results, performance or advancements and by forward-looking words such as
"believe", "anticipate", "expect", "estimate", "predict", "intend", "plan",
"project", "goal", "will", "will be", "will continue", "will result", "could",
"may", "might" or any variations of such words or other words with similar
meanings. Forward-looking statements address, among other things, current
expectations; planned strategic investments and growth strategies, including the
continued enhancement of our digital capabilities and eCommerce platform,
investments in our eCommerce fulfillment network and corporate information
technology capabilities, improvements in the customer experience in both stores
and online, and inventory investments in key growth categories; projections of
our future profitability and results of operations; plans to open new stores and
remodel existing stores; investments in our teammates and their productivity;
eliminating non-essential expenses to fund our future strategic investments; the
hunt industry remaining under significant pressure; the effect of changes in
corporate income tax laws and tariffs; capital expenditures; the impact of the
sale of Blue Sombrero and Affinity Sports; plans to return capital to
stockholders through dividends or share repurchases; and borrowings under our
credit facility.
The following factors, among others, in some cases have affected and in the
future could affect our financial performance and actual results, and could
cause actual results for fiscal 2019 and beyond to differ materially from those
expressed or implied in any forward-looking statements included in this
Quarterly Report on Form 10-Q or otherwise made by our management:
? The dependence of our business on consumer discretionary spending;


? Intense competition in the sporting goods industry and in retail,
including the level of competitive promotional activity;



? Disruptions to our eCommerce platform, including interruptions, delays or



downtime caused by high volumes of users or transactions; deficiencies in



design or implementation; or platform enhancements;



? Vendors continuing to sell or increasingly selling their products directly



to customers or through broadened or alternative distribution channels;



? Negative reactions from our customers or vendors regarding changes to our



policies related to the sale of firearms and accessories;



? The results of the strategic review of our hunt business, including Field



& Stream;


? That our strategic plans and initiatives may initially result in a
negative impact on our financial results, or that such plans and



initiatives may not achieve the desired results within the anticipated



time frame or at all;


• Our ability to manage the impact of new tariffs or increased rates on
existing tariffs;



• Our vendor relationships, disruptions in our or our vendors' supply



chains, and increasing product costs, which could be caused by foreign



trade issues, currency exchange rate fluctuations, increasing prices for
raw materials, foreign political instability or other reasons;



• Our ability to predict or effectively react to changes in consumer demand



or shopping patterns;


? Lack of available retail store sites on terms acceptable to us, our
ability to leverage the flexibility within our existing real estate



portfolio to capitalize on future real estate opportunities over the near



and intermediate term as our leases come up for renewal, and other costs



and risks relating to a brick and mortar retail store model;



? Unauthorized disclosure of sensitive or confidential customer information;



? Risks associated with our private brand offerings, including product



liability and product recalls, specialty concept stores, and GameChanger;



? Disruptions or other problems with our information systems;



? Our ability to access adequate capital to operate and expand our business



and to respond to changing business and economic conditions;


? Risks and costs relating to changing laws and regulations affecting our
business, including consumer products, firearms and ammunition, tax,
foreign trade, labor, data protection and privacy;



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? Litigation risks for which we may not have sufficient insurance or other
coverage;



? Our ability to secure and protect our trademarks and other intellectual



property and defend claims of intellectual property infringement;



? Our ability to protect the reputation of our Company and our brands;





? Our ability to attract, train, engage and retain qualified leaders and
associates or the loss of Mr. Edward Stack as our Chairman and Chief
Executive Officer;



? Wage increases, which could adversely affect our financial results;



? Disruption at our supply chain facilities or customer support center;



? Poor performance of professional sports teams, professional team lockouts



or strikes, or retirement, serious injury or scandal involving key
athletes;


? Weather-related disruptions and the seasonality of our business, as well



as the current geographic concentration of Dick's Sporting Goods stores;



? Our pursuit of strategic investments or acquisitions, including the timing



and costs of such investments and acquisitions; the integration of



acquired businesses or companies being more difficult, time-consuming, or



costly than expected; or the investments or acquisitions failing to



produce the anticipated benefits within the expected time frame or at all;





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


? Our current anti-takeover provisions, which could prevent or delay a
change in control of the Company; and



? The issuance of quarterly cash dividends, and our repurchase activity, if



any, pursuant to our share repurchase program.





The foregoing and additional risk factors are described in more detail in Item
1A. "Risk Factors" of this Quarterly Report and other reports or filings filed
or furnished by us with the Securities and Exchange Commission, including our
Annual Report on Form 10-K for the year ended February 2, 2019, filed on
March 29, 2019. In addition, we operate in a highly competitive and rapidly
changing environment; therefore, new risk factors can arise, and it is not
possible for management to predict all such risk factors, nor to assess the
impact of all such risk factors on our business or the extent to which any
individual risk factor, or combination of risk factors, may cause results to
differ materially from those contained in any forward-looking statement. The
forward-looking statements included in this Quarterly Report on Form 10-Q are
made as of the date hereof. We do not assume any obligation and do not intend to
update or revise any forward-looking statements whether as a result of new
information, future developments or otherwise except as may be required by
securities laws.


OVERVIEW



We are a leading omni-channel sporting goods retailer offering an extensive
assortment of authentic, high-quality sports equipment, apparel, footwear and
accessories through our dedicated associates, 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. We offer 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. When used
in this Quarterly Report on Form 10-Q, unless the context otherwise requires or
specifies, any reference to "year" is to our fiscal year.
Our profitability is primarily influenced by the number of our 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, and the strength of our gross profit margins. We have
grown from 597 Dick's Sporting Goods stores as of November 1, 2014 to 733 Dick's
Sporting Goods
stores as of November 2, 2019. Recently, we have reduced the rate
at which we have opened 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 terms as those leases come up for
renewal.
In recent years, we have transitioned to an insourced eCommerce platform,
allowing for continued innovation of our eCommerce websites 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, 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 7% to approximately 13% for the year-to-date periods ended

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November 1, 2014 and November 2, 2019, respectively. Approximately 80% of our
eCommerce sales are generated within brick and mortar store trade areas.
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. Weak customer demand for
firearms and other hunting merchandise across the industry has slowed our
growth. Further, trade tensions between the U.S. and China have resulted in
either new or increased tariffs on imported products. We have responded to these
challenges by focusing on driving profitable sales, emphasizing a refined
merchandise assortment that delivers newness, innovation and exclusivity and
have made strategic investments in our supply chain, digital capabilities,
customer experience, private brands and teammates to support these efforts. We
are also focused on increasing productivity and eliminating non-essential
expenses to fund our future strategic investments.
As we look to the future, we are determined to continue to invest in our
business to meet the changing needs of our athletes and increasing their level
of engagement with the Company. We plan to further enhance our store experience
by optimizing our merchandise assortment, reallocating floor space to regionally
relevant and growing merchandise categories and making our stores more
experiential. Our primary areas of investment during fiscal 2019 continue to be
1) enhancing the athlete experience in our stores; 2) improving our eCommerce
fulfillment capabilities; and 3) implementing technology solutions that improve
the athlete experience and our teammates' productivity. We also plan to continue
to focus on increasing productivity across the business to help fund these
investments.
We are conducting a strategic review of our hunting business, including Field &
Stream
. As part of our ongoing review, we removed hunt category merchandise from
approximately 135 Dick's Sporting Goods stores and reallocated the space in
these stores to a localized assortment of categories and products in an effort
to drive growth. In addition, we exited eight Field & Stream stores in the third
quarter, which were subleased to Sportsman's Warehouse, Inc.
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. 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 results. 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.



See further discussion of our consolidated same store sales in the
"Results of Operations and Other Selected Data" section herein.



? 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 and Changes in Financial Condition" section herein.





? Quality of merchandise offerings - To measure acceptance of its
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.




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CRITICAL ACCOUNTING POLICIES
As discussed in Item 7. "Management's Discussion and Analysis of Financial
Condition and Results of Operations" of the Company's Annual Report on Form 10-K
for the fiscal year ended February 2, 2019, filed with the Securities and
Exchange Commission
on March 29, 2019, we consider our policies on inventory
valuation, vendor allowances, goodwill and intangible assets, impairment of
long-lived assets and closed store reserves, self-insurance reserves and
stock-based compensation to be the most critical in understanding the judgments
that are involved in preparing our consolidated financial statements. Other than
the adoption of ASU 2016-02, Leases (Topic 842), on February 3, 2019 as
discussed in Note 1 of our unaudited Consolidated Financial Statements, there
were no significant changes to our critical accounting policies during the
period ended November 2, 2019.

RESULTS OF OPERATIONS AND OTHER SELECTED DATA
Executive Summary
? Earnings per diluted share of $0.66 in the current quarter increased 69.2%


compared to earnings per diluted share of $0.39 during the third quarter



of 2018. Net income in the current quarter totaled $57.6 million compared



to $37.8 million during the third quarter of 2018.





• Net income for the current quarter included a gain of $25.0 million,
net of tax, or $0.29 per diluted share, related to the sale of two
of our technology subsidiaries, a charge of $6.6 million, net of
tax, or $0.08 per diluted share, related to our exit from eight
Field & Stream stores, and a non-cash impairment charge of $5.6
million
, net of tax, or $0.07 per diluted share, to reduce the
carrying value of a corporate aircraft that is held for sale to its
current fair market value.



• Net sales increased 5.6% to $1,962.2 million in the current quarter from



$1,857.3 million during the third quarter of 2018.





• Consolidated same store sales increased 6.0% from the third quarter
of 2018, which included an increase of approximately 13% in
eCommerce sales.


• eCommerce sales penetration increased to approximately 13% of total
net sales during the current quarter compared to approximately 12%
of total net sales during the third quarter of 2018.



• In addition, during the current quarter we:





• Declared and paid a quarterly cash dividend in the amount of $0.275
per share on our common stock and Class B common stock.


• Repurchased 2.8 million shares of common stock for a total of $99.5
million
under the five-year $1.0 billion share repurchase program
that we announced on March 16, 2016.


• Sold two of our technology subsidiaries, Blue Sombrero and Affinity
Sports, to Stack Sports for proceeds of $40.4 million, net of cash
sold.


• Exited eight Field & Stream stores and subleased the



facilities to



Sportsman's Warehouse, Inc. as part of our ongoing strategic review
of our hunt business.



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? The following table summarizes store openings and closings for the periods
indicated:


39 Weeks Ended 39 Weeks Ended
November 2, 2019 November 3, 2018
Dick's Specialty Dick's Specialty
Sporting Concept Stores Sporting Concept Stores
Goods (1) Total Goods (1) Total
Beginning stores 729 129 858 716 129 845
Q1 New stores - 1 1 8 - 8
Q2 New stores 2 - 2 5 - 5
Q3 New stores 6 1 7 6 - 6
Closed stores (2) 4 9 13 3 - 3
Ending stores 733 122 855 732 129 861

Relocated stores 3 2 5 4 1 5



(1) Includes our Golf Galaxy and Field & Stream 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 the exit from eight Field & Stream stores during the third
quarter of 2019.



The following tables present selected information from the unaudited
Consolidated Statements of Income as a percentage of net sales and the changes
in the percentage of net sales from the prior year period, and other data, which
is provided to facilitate a further understanding of our business. These tables
should be read in conjunction with Item 2. "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the accompanying unaudited
Consolidated Financial Statements and related notes thereto.


Basis Point
Increase /
(Decrease)
13 Weeks Ended in
Percentage
of Net Sales
from Prior
Year
November 2, November 3, 2018-2019
2019 (A) 2018 (A) (A)
Net sales (1) 100.00 % 100.00 % N/A
Cost of goods sold, including occupancy and
distribution costs (2) 70.41 71.81


(140)



Gross profit 29.59 28.19


140



Selling, general and administrative
expenses (3) 27.10 25.24 186
Pre-opening expenses (4) 0.17 0.11 6
Income from operations 2.33 2.85 (52)
Gain on sale of subsidiaries (5) (1.72 ) - (172)
Interest expense 0.22 0.14 8
Other (income) expense (0.10 ) - (10)
Income before income taxes 3.93 2.70 123
Provision for income taxes 1.00 0.67 33
Net income 2.93 % 2.04 % 89

Other Data:
Consolidated same store sales increase
(decrease) 6.0 % (6.1


%)



Number of stores at end of period (6) 855 861


Total square feet at end of period (6) 42,101,780 42,372,767



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Basis Point
Increase /
(Decrease)
39 Weeks Ended in
Percentage
of Net Sales
from Prior
Year
November 2, November 3, 2018-2019
2019 (A) 2018 (A) (A)
Net sales (1) 100.00 % 100.00 % N/A
Cost of goods sold, including occupancy and
distribution costs (2) 70.34 70.68


(34)



Gross profit 29.66 29.32


34



Selling, general and administrative expenses
(3) 25.07 24.13 94
Pre-opening expenses (4) 0.08 0.10 (2)
Income from operations 4.50 5.09 (59)
Gain on sale of subsidiaries (5) (0.55 ) - (55)
Interest expense 0.21 0.14 7
Other income (0.17 ) (0.02 ) (15)
Income before income taxes 5.01 4.97 4
Provision for income taxes 1.31 1.32 (1)
Net income 3.71 % 3.66 % 5

Other Data:
Consolidated same store sales increase
(decrease) 3.1 % (3.0


%)



Number of stores at end of period (6) 855 861


Total square feet at end of period (6) 42,101,780 42,372,767






(A) Column does not add due to rounding.



(1) Revenue from retail sales is recognized at the point of sale, net of sales



tax. Revenue from eCommerce sales, including vendor-direct sales



arrangements, is recognized upon shipment of merchandise. A provision for



anticipated merchandise returns is provided through a reduction of sales and



cost of goods sold in the period that the related sales are



recorded. Revenue from gift cards and returned merchandise credits



(collectively the "cards") is deferred and recognized upon the redemption of



the cards. The cards have no expiration date.



(2) Cost of goods sold includes: the cost of merchandise (inclusive of vendor



allowances, inventory shrinkage and inventory write-downs for the lower of



cost and net realizable value); freight; distribution; shipping; and store



occupancy costs. We define merchandise margin as net sales less the cost of



merchandise sold. Store occupancy costs include rent, common area
maintenance charges, real estate and other asset-based taxes, general
maintenance, utilities, depreciation and certain insurance expenses.



(3) Selling, general and administrative expenses include store and field support



payroll and fringe benefits, advertising, bank card charges, operating costs



associated with our internal eCommerce platform, information systems,
marketing, legal, accounting, other store expenses and all expenses
associated with operating our Customer Support Center.



(4) Pre-opening expenses, which consist primarily of rent, marketing, payroll



and recruiting costs, are expensed as incurred. Rent is recognized within



pre-opening expense from the date we take possession of a site through the
date of store opening.



(5) Represents the gain recorded in connection with the sale of two technology



subsidiaries, Blue Sombrero and Affinity Sports.



(6) Includes Dick's Sporting Goods, Golf Galaxy, and Field & Stream stores.







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13 Weeks Ended November 2, 2019 Compared to the 13 Weeks Ended November 3, 2018




Net Sales
Net sales increased 5.6% in the current quarter to $1,962.2 million from
$1,857.3 million for the quarter ended November 3, 2018, due primarily to a
$108.1 million, or 6.0%, increase in consolidated same store sales. This
increase was partially offset by a $3.2 million decrease resulting from the
closure of eight Field & Stream stores, partially offset by net sales from new
stores. The 6.0% increase in consolidated same store sales included a 3.3%
increase in transactions and a 2.7% increase in sales per transaction and
reflected an increase of approximately 13% in eCommerce sales. eCommerce sales
penetration increased to approximately 13% of total net sales during the current
quarter compared to approximately 12% of total net sales during the prior year
quarter.
The increase in consolidated same store sales was broad-based across hardlines,
apparel and footwear, which was partially offset by a continued decline in the
hunt category. Our removal of hunt category merchandise from approximately 135
Dick's Sporting Goods stores beginning in late 2018 contributed to the decline
in the category during the quarter. However, we reallocated space in these
stores to a more compelling localized assortment of categories and products.
Income from Operations
Income from operations decreased to $45.6 million in the current quarter from
$52.9 million for the quarter ended November 3, 2018 for the reasons described
below.
Gross profit increased 10.9% to $580.6 million in the current quarter from
$523.6 million for the quarter ended November 3, 2018 and increased as a
percentage of net sales by 140 basis points due primarily to occupancy leverage
and improved merchandise margins, partially offset by higher eCommerce shipping
fulfillment costs. 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 $2.3 million in the current quarter compared to the
quarter ended November 3, 2018 and increased gross profit by 87 basis points.
Merchandise margins increased 60 basis points, primarily driven by fewer
promotions and a favorable sales mix, which was impacted in part by our hunt
business traditionally having significantly lower merchandise margin rates
compared to other categories. These improvements in gross profit were partially
offset by an increase in eCommerce shipping fulfillment costs incurred in
connection with the opening of two new dedicated fulfillment centers.
Selling, general and administrative expenses increased 13.4% to $531.7 million
in the current quarter from $468.7 million for the quarter ended November 3,
2018
and increased 186 basis points as a percentage of net sales. The current
quarter included an $8.9 million pre-tax charge associated with our exit from
eight Field & Stream stores and a $7.6 million non-cash fixed asset impairment
charge to reduce the carrying value of a corporate aircraft held for sale to its
fair market value. Apart from the enumerated items, selling, general and
administrative expenses increased by 102 basis points compared to the prior year
quarter, which was driven primarily by higher incentive compensation expense.
Pre-opening expenses increased to $3.3 million in the current quarter from $2.0
million
for the quarter ended November 3, 2018. Pre-opening expenses in any
period fluctuate depending on the timing and number of store openings and
relocations. We opened seven new stores in the current quarter compared to six
new stores during the quarter ended November 3, 2018.
Gain on Sale of Subsidiaries
In August 2019, we completed the sale of Blue Sombrero and Affinity Sports 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 Note 7 to the unaudited
Consolidated Financial Statements for additional information.
Other Income
Other income totaled $2.0 million in the current quarter compared to
approximately $0.1 million in expense in the prior year quarter. 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 25.4% for the current quarter from 24.6% for
the quarter ended November 3, 2018.


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39 Weeks Ended November 2, 2019 Compared to the 39 Weeks Ended November 3, 2018
Net Sales
Net sales increased 3.3% in the current period to $6,142.1 million from $5,944.5
million
for the period ended November 3, 2018, due primarily to a $176.0
million
, or 3.1%, increase in consolidated same store sales. The remaining $21.6
million
sales increase was primarily attributable to new stores, partially
offset by store closures. The 3.1% increase in consolidated same store sales
included a 1.2 % increase in transactions and a 1.9% increase in sales per
transaction and reflected an increase of approximately 16% in eCommerce sales.
eCommerce sales penetration increased to approximately 13% of total net sales
during the current year to date period compared to approximately 11% of total
net sales during the prior year period. The increase in consolidated same store
sales was broad-based across hardlines, apparel and footwear, but was partially
offset by a continued decline in the hunt category.
Income from Operations
Income from operations decreased to $276.7 million in the current period from
$302.7 million for the period ended November 3, 2018 for the reasons described
below.
Gross profit increased 4.5% to $1,821.5 million for the current period from
$1,743.2 million for the period ended November 3, 2018 and increased as a
percentage of net sales by 34 basis points due primarily to occupancy leverage,
which was partially offset by eCommerce shipping fulfillment costs. 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 $2.7 million in the current period from the period ended November 3,
2018
and increased gross profit by 47 basis points. This improvement was
partially offset by an increase in eCommerce shipping fulfillment costs
resulting from growth and increased penetration of eCommerce sales as compared
to our total net sales and costs incurred in opening two new dedicated
fulfillment centers.
Selling, general and administrative expenses increased 7.4% to $1,539.9 million
in the current period from $1,434.3 million for the period ended November 3,
2018
, and increased as a percentage of net sales by 94 basis points. The current
period included 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, an $8.9 million pre-tax charge associated with our exit from eight Field
& Stream
stores and a $9.1 million expense associated with changes in our
deferred compensation plan investment values, 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 accrued litigation
contingency. Apart from the enumerated items, selling, general and
administrative expenses increased by 65 basis points compared to the prior year
period, which was driven primarily by higher incentive compensation expenses,
wage inflation in store payroll expense and strategic growth investments.
Pre-opening expenses decreased to $4.9 million in the current period from $6.1
million
for the period ended November 3, 2018. Pre-opening expenses in any
period fluctuate depending on the timing and number of new store openings and
relocations. We opened ten new stores in the current period compared to 19 new
stores during the prior year period.
Gain on Sale of Subsidiaries
In August 2019, we completed the sale of Blue Sombrero and Affinity Sports 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 Note 7 to the unaudited
Consolidated Financial Statements for additional information.
Other Income
Other income totaled $10.3 million in the current period compared to $1.2
million
for the period ended November 3, 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 decreased to 26.1% for the current period from 26.5% for
the same period last year.

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LIQUIDITY AND CAPITAL RESOURCES
Overview
We have a $1.6 billion senior secured revolving credit facility (the "Credit
Facility"), which includes up to $150 million in the form of letters of credit.
Under the Credit Facility, which is further described within Note 6 to the
unaudited Consolidated Financial Statements, subject to satisfaction of certain
conditions, we may request an increase of up to $500 million in additional
borrowing availability.
Our liquidity and capital needs have generally been met by net cash provided by
operating activities and 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. 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 for the periods ended:
November 2, November 3,
(in thousands) 2019


2018



Funds drawn on Credit Facility $ 1,778,750


$ 1,723,500
Number of business days with outstanding balance on Credit
Facility


188 days


190 days
Maximum daily amount outstanding under Credit Facility $ 719,300 $ 382,300



Liquidity information as of the following dates:



November 2, November 3,
(in thousands) 2019


2018



Outstanding borrowings under Credit Facility $ 719,300 $ 382,300
Cash and cash equivalents


$ 87,622 $


92,103



Remaining borrowing capacity under Credit Facility $ 864,569 $ 851,569
Outstanding letters of credit under Credit Facility $ 16,131 $ 16,131







We intend to allocate capital to invest in future growth, specifically growing
and remodeling our store network and eCommerce business to deliver an
omni-channel shopping experience, as well as other long-term strategic
investments while returning capital to stockholders through share repurchases
and dividends.
Capital expenditures
We anticipate that fiscal 2019 capital expenditures will approximate $230
million
on a gross basis and $200 million on a net basis, which includes tenant
allowances provided by landlords. Normal capital requirements primarily relate
to the development of our omni-channel platform, including investments in new
and existing stores and eCommerce technology. 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 term as those leases come up for renewal. We also
anticipate further improvements to our eCommerce fulfillment network and
corporate information technology capabilities through additional investment.
Share repurchases
On March 16, 2016, our Board of Directors authorized a five-year share
repurchase program of up to $1 billion of our common stock. During the 39 weeks
ended November 2, 2019, we repurchased approximately 10.3 million shares of our
common stock for $366.1 million. Under the 2016 program, we have repurchased
$932.7 million of common stock and have $67.3 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 billion of our common stock. We intend to
repurchase shares from time-to-time to offset dilution and may pursue additional
repurchases of shares under favorable market conditions. Any future share
repurchase programs are subject to authorization by our Board of Directors and
will be dependent upon future earnings, cash flows, financial requirements and
other factors.

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Dividends
During the 39 weeks ended November 2, 2019, we paid $74.5 million of dividends
to our stockholders. On November 21, 2019, our Board of Directors authorized and
declared a quarterly cash dividend in the amount of $0.275 per share of common
stock and Class B common stock payable on December 31, 2019 to stockholders of
record as of the close of business on December 13, 2019. 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.
We believe cash flows generated by operations and funds available under our
Credit Facility will be sufficient to satisfy capital requirements over the next
12 months, including planned inventory investments in key growth categories,
capital expenditures, share repurchases, and quarterly dividend payments to our
stockholders. We may require additional funding should we pursue strategic
acquisitions or undertake share repurchases, other investments or store
expansion rates in excess of historical levels.
Cash Flows
Changes in cash and cash equivalents are as follows:
39 Weeks Ended
November 2, November 3,
(in thousands) 2019 2018



Net cash (used in) provided by operating activities $ (212,775 )


$ 160,528
Net cash used in investing activities (122,213 ) (135,288 )
Net cash provided by (used in) financing activities 308,953 (34,350 )
Effect of exchange rate changes on cash and cash equivalents 4 (40 )
Net decrease in cash and cash equivalents $ (26,031 )


$ (9,150 )





Operating Activities
Operating activities consist 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, deferred
income taxes and stock-based compensation expense, as well as gains and losses
related to the disposal of assets or subsidiaries. Changes in operating assets
and liabilities primarily reflect changes in inventories, accounts payable and
income taxes payable or receivable, as well as other working capital changes.
Cash flows from operating activities decreased $373.3 million for the 39 weeks
ended November 2, 2019 compared to the same period last year due primarily to
changes in inventory levels and accounts payable at the end of the current
fiscal period, which decreased operating cash flows by $358.4 million. These
changes were primarily due to strategic investments in key growth categories
including footwear, apparel, baseball and golf. In addition, changes in accounts
receivable at the end of the current fiscal period decreased operating cash
flows by $15.4 million compared to the same period last year, primarily due to
the timing of collections for vendor receivables year-over-year.
Investing Activities
Cash used in investing activities decreased $13.1 million for the 39 weeks ended
November 2, 2019 compared to the prior year period. The current period receipt
of $40.4 million of proceeds from our sale of two technology subsidiaries was
partially offset by a $30.4 million increase in gross capital expenditures
relating to store enhancements and technology investments. See Note 7 to the
unaudited Consolidated Financial Statements.
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 increase in cash provided by financing
activities compared to the prior year period was an increase in funds drawn on
our Credit Facility, which funded strategic inventory investments in key
categories.

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Off-Balance Sheet Arrangements
Our off-balance sheet arrangements as of November 2, 2019 primarily relate to
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 U.S. GAAP. 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.
Contractual Obligations and Other Commercial Commitments
We are party to many contractual obligations that involve commitments to make
payments to third parties in the ordinary course of business. For a description
of our contractual obligations and other commercial commitments as of
February 2, 2019, see our Annual Report on Form 10-K for the fiscal year ended
February 2, 2019, filed with the Securities and Exchange Commission on March 29,
2019
. During the current quarter, there were no material changes with respect to
these contractual obligations and other commercial commitments outside the
ordinary course of business.

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