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Dick's Sporting Goods (NYSE:DKS)

Q4 2012 Earnings Call

March 11, 2013 10:00 am ET

Executives

Anne-Marie Megela - Director of Investor Relations

Edward W. Stack - Executive Chairman and Chief Executive Officer

Joseph H. Schmidt - President and Chief Operating Officer

Timothy E. Kullman - Chief Financial Officer, Executive Vice President of Finance & Administration and Treasurer

Analysts

Brian W. Nagel - Oppenheimer & Co. Inc., Research Division

Michael Baker - Deutsche Bank AG, Research Division

Matthew J. Fassler - Goldman Sachs Group Inc., Research Division

Camilo R. Lyon - Canaccord Genuity, Research Division

Christopher Horvers - JP Morgan Chase & Co, Research Division

Sean P. Naughton - Piper Jaffray Companies, Research Division

N. Richard Nelson - Stephens Inc., Research Division

Robert F. Ohmes - BofA Merrill Lynch, Research Division

Paul Swinand - Morningstar Inc., Research Division

Peter S. Benedict - Robert W. Baird & Co. Incorporated, Research Division

Daniel R. Wewer - Raymond James & Associates, Inc., Research Division

Kate McShane - Citigroup Inc, Research Division

Sam Poser - Sterne Agee & Leach Inc., Research Division

Matthew R. Nemer - Wells Fargo Securities, LLC, Research Division

John Zolidis - The Buckingham Research Group Incorporated

Michael Lasser - UBS Investment Bank, Research Division

Shaun Kolnick - Morgan Stanley, Research Division

Joseph I. Feldman - Telsey Advisory Group LLC

David G. Magee - SunTrust Robinson Humphrey, Inc., Research Division

Christopher Svezia - Susquehanna Financial Group, LLLP, Research Division

Operator

Good morning, and welcome to the Dick's Sporting Goods Fourth Quarter Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Anne-Marie Megela, Director of Investor Relations. Please go ahead.

Anne-Marie Megela

Thank you. Good morning. Thank you for joining us to discuss our fourth quarter 2012 financial results. Please note that a rebroadcast of today's call will be archived on the Investor Relations portion of our website located at dickssportinggoods.com for approximately 30 days. In addition, as outlined in our press release, the dial-in replay will be available for approximately 30 days.

In order for us to take advantage of the Safe Harbor rules, I would like to remind you that today's discussion includes some forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which include, but are not limited to, our views and expectations concerning our future results. Such statements relate to future events and expectations and involve known and unknown risks and uncertainties. Our actual results or actions may differ materially from those projected in the forward-looking statements.

For a summary of risk factors that could cause results to differ materially from those expressed in the forward-looking statements, please refer to our periodic reports filed within the SEC, including the company's annual report on Form 10-K for the year ended January 28, 2012. We disclaim any obligation and do not intend to update these statements except as required by the securities laws.

We've also included some non-GAAP financial measures in our discussion today. Our presentation of the most directly comparable financial measures calculated in accordance with generally accepted accounting principles and related reconciliations can be found on the Investor Relations portion of our website at dickssportinggoods.com.

Leading our call today will be Ed Stack, Chairman and Chief Executive Officer. Ed will review our fourth quarter and full year financial and operating results and discuss planned investments and guidance for 2013. Joe Schmidt, our President and Chief Operating Officer, will then review our store development program and discuss recent and expected systems implementations, as well as provide insight into our new concepts. After Joe's comments, Tim Kullman, our Executive Vice President of Finance and Administration and Chief Financial Officer, will provide greater detail regarding our financial results, investments and expectations. Ed will then provide some closing comments before opening the lines for Q&A.

I will now turn it over to Ed Stack.

Edward W. Stack

Thank you, Anne-Marie, and I'd like to thank all of you for joining us today. In the fourth quarter, we again generated record results, with earnings per diluted share increasing 17% to $1.03. These earnings compare to our original guidance of $1.03 to $1.05. The fourth quarter included a 14th week, which contributed $0.03 of earnings in the quarter. Sales increased 12% on the fourth quarter, driven by the growth of our store network, a 1.2% increase in consolidated same-store sales on a 13- to 13-week basis and the inclusion of a 14th week.

The 1.2% increase in consolidated same-store sales compared to our comp expectation of 4%. Same-store sales in the fourth quarter of 2012 for Dick's Sporting Goods were down 2.2%, Golf Galaxy sales were up 1.3% and eCommerce sales were up 54.2%. Higher-than-anticipated sales in hunting were more than offset by significantly lower expected sales in outerwear and cold weather accessories, as we experienced warmer weather relative to this year versus last year during peak selling periods, as well as in fitness, where we experienced a significant decline in the sales of ellipticals and treadmills. To demonstrate the magnitude of this impact, these businesses, our consolidated comps would have been 5.4% for the quarter, excluding cold-weather-related categories and the fitness category.

In December, the warm weather again this year, we significantly reduced receipts of our partnership orders in winter outerwear and related accessories. The catalyst driving this decision was our intent not to carry over winter inventory for another year following 2 warm winters. Compared to last year, our winter inventory is down 17% on a per square foot basis and our clearance inventory is down 14% per square foot versus last year. This decision helped maintain our margin rates and allowed us to keep our inventory clean. Although if we finally received cold weather, along with snow, in January, it had a negative effect on our store sales performance for the back end of Q4 and into Q1.

Looking to fitness. The sales decline was a result of lower large equipment sales, as I mentioned, treadmills and ellipticals. We understand the issues that contributed to this sales decline and are taking action to correct them. For the full year 2012 and on a 53-week basis, we increased our non-GAAP earnings per diluted share by 25% to 12% sales growth, operating margin expansion of 72 basis points. We also opened up 38 new stores, which are demonstrating solid productivity, and our growth brought our total number of stores to 518.

We also made several achievements that demonstrated our commitment to driving continuous improvement. For example, we opened up new specialty shops under a -- we opened up a number of new specialty shops in our stores with Nike, Under Armour, Adidas and The North Face. We also bought 2 established brands during the year, Top-Flite and Field & Stream, which have great sales and margin growth potential. Additionally, we invested in our True Runner retail concept and have opened a new concept store for our Golf Galaxy brand.

We also made significant achievements with our omni-channel strategy. We have demonstrated that we can meaningfully grow our eCommerce business at an aggressive pace, in a way that is both profitable and is increasing in profitability. We generated nearly 50% growth on our eCommerce business, rolled out ship-from-store capabilities, significantly enhanced our mobile site and launch a new mobile app, which provides a mobile shopping platform and the ability for customers to look up and redeem their loyalty points.

Two extremely powerful and strategic assets that will make our progress with omni-channel possible. The first is our talented team of associates. We've invested heavily in talent over the past couple of years, building our knowledge base in many areas, including site merchandising, website development, search engine optimization and analytics. We will continue to aggressively make these investments in the eCommerce area. The second strategic asset is the distribution network that exists within our store base. We have 518 stores across the country, and today, each and every store is set up and running with ship-from-store capabilities.

We're very pleased with the progress we made this year, but we recognize we have a lot more to do. As a result, we will be making meaningful investments in our business for the continued long-term benefit of the company and our shareholders. In 2013, these substantial investments include growing our omni-channel platform through advanced mobile capabilities, the piloting of pickup in store and growing our eCommerce team. We will also be remodeling existing stores, implementing new systems and developing our new concepts. In total, we expect these investments to have a $0.12 impact on earnings per diluted share in 2013, while building the capability for future sales and margin growth. Our 2013 guidance take these -- takes these investments into consideration.

I would also like to point out that because fiscal 2012 included 53 weeks, any comparison to the 2012 retail calendar will reflect a shift. This shift will not have a net effect on our total results for the full fiscal year but will impact our quarterly results. Our reported comparable sales and earnings will be positively impacted in quarters 1 and 2, but this will be offset in quarters 3 and 4. In the first quarter of 2013, we anticipate consolidated earnings per diluted share of $0.47 to $0.49 compared with consolidated earnings per diluted share of $0.45 for the same period last year. Our earnings expectations include a $0.02 impact from long-term growth investments I just mentioned and a $0.05 benefit from the shifted calendar.

On a shifted basis, consolidated same-store sales are expected to be negative 2% to negative 1% on top of an 8.4% increase in the first quarter last year. On an unshifted basis, consolidated same-store sales are expected to be flat to positive 1%. For the full year, we anticipate consolidated 2013 same-store sales to increase 2% to 3% on a 52- to 52-week basis, on top of a 4.3% increase in 2012. We are anticipating consolidated earnings per diluted share between $2.84 and $2.86. This compares to non-GAAP earnings per diluted share of $2.53 in 2012, including the 53rd week and excluding the impairment charge from JJB. Our guidance includes a $0.12 impact from our growth investments, so even with the substantial investments we're making in the business in 2013, we expect to generate double-digit earnings growth and deliver operating margin expansion.

In summary, we had a strong year with steady progress in growing all aspects of our business. We made several important investments in the future, including adding locations, acquiring established brands, developing and testing retail concepts, launching eCommerce technologies and creating new marketing strategies. All of these investments have strengthened our foundation and positioned us for continued growth. We're optimistic about the outlook for the coming year and excited about our prospects for the future. We're also proud of the people who continue to prove and – who continue to prove that focus and drive are key to staying on top of our game. I want to thank our entire team of associates for their hard work and commitment.

I'll now turn the call over to Joe.

Joseph H. Schmidt

Thanks, Ed. In 2012, we continued to grow our store base, augment supply chain efficiency and support omni-channel initiatives. We opened 38 new Dick's Sporting Goods stores and relocated 5 Dick's Sporting Goods stores to preferred locations. Our new Dick's Sporting Goods stores continued to perform well, with new store productivity of 93.5% in the fourth quarter of 2012 compared to 94.2% in the fourth quarter of 2011. The detailed calculation of new store productivity can be found in the tables section of the press release we issued this morning.

Looking to 2013, we expect to add more stores while increasing investments in our existing store base. On the real estate front, our plan is to open approximately 40 new Dick's Sporting Goods stores and relocate 1 Dick's store to a preferred location. In addition, we will increase capital expenditures to further upgrade some of our existing stores to improve the shopping experience for our customers.

Keep in mind that we did not conduct any full store remodels in 2012, as we were finalizing our new store prototype. In 2013, our plan is to complete approximately 4 full remodels, as well as approximately 75 partial remodels. Our 2013 remodel plan is one step in a multiyear program, which is expected to span across a significant portion of our store base. The partial remodels focus on strategic growth categories and when completed, will feature Nike and Under Armour shops.

These vendor shops continue to perform well, as they generate higher sales and margin while increasing product exclusivity. At the end of 2012, we had 171 Nike Fieldhouse shops, 97 Under Armour All-American shops, 10 Under Armour Blue Chip shops and 91 North Face shops. In 2013, we plan to accelerate the pace of these new vendor shops by adding approximately 100 Nike Fieldhouse shops, 70 Under Armour All-American shops, as well as 65 new brand shops with Adidas.

We are working closely with The North Face to add new shops in conjunction with store remodels, as well as elevate their branding in our seasonally expanded shops. We continue to see strong financial results and positive customer feedback in stores with shared service footwear decks. As of 2012 year-end, they are featured in 174 Dick's locations. In 2013, shared service footwear decks are planned for all new and fully remodeled stores.

Given the anticipated investment in our new stores, relocated stores, remodels and vendor shops, we plan to nearly double our CapEx spend on stores in 2013 over 2012. Our strategy for new store growth is expanding to smaller markets. Based on research in smaller markets and considering the success of our smaller market format stores, we believe this strategy opens up a range of new expansion possibilities for us. In the past, we have stated that we believe there was an opportunity for at least 900 Dick's Sporting Goods stores in the U.S. This new growth strategy allows us ultimate grow -- goal to grow to over 1,100 stores.

In addition to our excitement surrounding our growth opportunities, we are beginning to see benefits of recent investments in our supply chain, such as freight savings generated by the opening of the new distribution center in Goodyear, Arizona this past January. These savings are expected to more than offset the related DC costs. We are also pleased with the implementation of systemic solutions, such as merchandise assortment planning, which helps to optimize inventory across categories by store size and by region; and size scaling and pack optimization, which generates apparel size combination based on the store-level sales data.

Additionally, we are seeing positive results from testing and implementing other systems, including price management and optimization, which maintains item pricing across channels; and space planning, which enables consistent and efficient execution in our stores by taking into account the subtle differences in fixtures and square footages across the chain. In 2013, we will continue to invest in these systems while we deploy additional mobile technology in our stores, implement merchandise demand forecasting capabilities and better align our store associates with customers by utilizing our new workforce management system.

Moving to Golf Galaxy. We repositioned 1 store in the fourth quarter of 2012. This store is significantly larger than our current format and includes a greater focus on golf services and more experiential shopping with an increased presence of our key vendor brand shops. The initial reads on this store have been very encouraging. We are planning to open 1 new store and relocate another store in 2013, both of which will be in the larger format.

In 2012, we developed and tested a new concept running store, True Runner. These stores allow us to further connect with the enthusiast runners, giving us valuable insight that we can apply across our businesses. Our plans are to open 2 additional locations in 2013. Finally, we plan to introduce an outdoor concept store in 2013. Our Field & Stream stores will be destinations for hunting, fishing and camping enthusiasts and will offer premium assortments, with superior service levels. Our plans are to open 2 stores this year, the first of which is scheduled to open in Pittsburgh in the third quarter.

The planned investments in new stores, existing stores and supply chain, combined with the continuing evolution of eCommerce outlined by Ed, is evidenced by a powerful omni-channel platform that is taking hold, one that continues to drive sales, improve profitability, and most importantly, provide more choices and shopping options to our customers.

I will now turn the call over to Tim to review our financial performance, investments, outlook in greater detail.

Timothy E. Kullman

Thanks, Joe. Sales for the quarter of 2012, which was a 14-week quarter, increased by 12% to $1.8 billion compared with the 13-week quarter a year ago. On a 13-week to 13-week comparative basis, same-store sales at Dick's Sporting Goods stores decreased 2.2%, Golf Galaxy increased 1.3% and our eCommerce business increased 54.2%. The decrease in same-store sales from the Dick's Sporting Goods stores was driven by a 3.2% increase in sales per transaction and by a 5.4% decrease in traffic.

I would also like to remind everyone of the change in our disclosure policy for same-store sales in 2013. Beginning with the first quarter of 2013, we will report same-store sales for our Dick's Sporting Goods stores' eCommerce business together with the business for our stores. We will continue to provide the size of the eCommerce business as a percentage of total sales. To provide an example, had we reported fourth quarter results with this new methodology, the comps would be -- have been as follows: a 1.2% increase in consolidated same-store sales, with same-store sales for Dick's Sporting Goods up 1.2% and Golf Galaxy up 1.3%; eCommerce penetration would be reported as 8.6% of total sales. We are making this reporting change because as we build out our omni-channel platform, it is becoming apparent that the traditional sales channels are overlapping with the digital space and that providing comp sales on a combined basis will be more meaningful.

Now looking to gross profit. In the fourth quarter of 2012, consolidated gross profit was $588.7 million or 32.61% of sales and was 79 basis points higher than the fourth quarter of 2011. This increase was driven by merchandise margin expansion, up 46 basis points, and occupancy leverage of 48 basis points, partially offset by freight and distribution deleverage, which was driven by the increase in eCommerce sales. SG&A expense in the fourth quarter of 2012 was $375.8 million or 20.82% of sales compared to SG&A expenses of $326.6 million or 20.26% of sales in last year's fourth quarter. This deleverage of 56 basis points was due to increased administrative expenses primarily related to payroll for IT and eCommerce as we continued to strengthen our omni-channel platform.

On the balance sheet, we ended the fourth quarter of 2012 with $345 million in cash and cash equivalents and with no outstanding borrowing under our $500 million revolving credit facility. Last year, we ended the fourth quarter with $734 million in cash and cash equivalents and no outstanding borrowing under the facility. Over the course of the past 12 months, we've utilized capital to fund the $200 million share repurchase program, pay quarterly dividends, purchase our Store Support Center, invest in JJB, acquire intellectual property rights to the Top-Flite and Field & Stream brands, build our new distribution center and fund a $246 million special dividend. Inventory per square foot increased by 0.7% at the end of the fourth quarter this year compared to the end of the fourth quarter of last year. By year-end, current inventory was down 14% per square foot.

Net capital expenditures were $51 million in the fourth quarter of 2012 or $62 million on a gross basis compared with net capital expenditures of $36 million or $54 million on a gross basis in the fourth quarter of last year. For the full year, net capital expenditures were $187 million or $219 million on a gross basis compared with net capital expenditures of $154 million or $202 million on a gross basis last year. Recall that 2012 includes CapEx related to our distribution center.

Now looking to guidance. Keep in mind that because fiscal 2012 includes 53 weeks, any comparison to the 2012 retail calendar will reflect a shift. This shift will not have a net effect on our total results for the fiscal year, but will impact our quarterly results. Our reported comparable sales and earnings will be positively impacted in quarters 1 and 2, but this will be offsetting quarters 3 and 4. Also keep in mind that our earnings guidance takes into consideration the impact of the substantial investments planned in 2013 in our omni-channel platform, stores, information systems and new concepts, which are expected to have $0.12 impact on earnings per diluted share for the full year. The impact of these growth investments in 2013 by quarter is expected to be $0.02 to $0.03 in the first quarter and $0.03 for quarters 2, 3 and 4.

For the first quarter of 2013, we anticipate consolidated earnings per diluted share of $0.47 to $0.49 compared with consolidated earnings per diluted share of $0.45 for the same period last year. Our earnings expectations includes a $0.02 to $0.03 impact from the growth investments and a $0.05 benefit from the shifted calendar. Gross margin is expected to increase year-over-year, driven by higher merchandise margins, partially offset by occupancy deleverage and an increase in freight and distribution costs as a percentage of sales. The occupancy deleverage is a result of an increase in new store costs. SG&A as a percentage of sales is expected to increase in the first quarter due to increased administrative expenses, primarily as a result of payroll expenses related to IT and eCommerce as we continue to build out our omni-channel offering.

On a shifted basis, consolidated same-store sales in the first quarter of 2013 are expected to be negative 2% to negative 1% on top of an 8.4% increase in the first quarter of last year. On a shifted basis, consolidated same-store sales are expected to be flat to 1% in the first quarter. For the full year, we are anticipating consolidated earnings per diluted share between $2.84 and $2.86. As we mentioned earlier, this guidance includes a $0.12 impact from the meaningful growth investments being made in 2013.

For the full year, gross margin is expected to remain relatively flat in 2013, driven by merchandise margin expansion, primarily offset by an increase in occupancy costs. Occupancy is expected to deleverage in 2013 due to the increase in new store costs and store remodels. SG&A as a percent of sales is expected to leverage compared to 2012, even with the significant investments in eCommerce, IT and new concepts, as we continue to build our omni-channel infrastructure and develop additional growth drivers. Diluted shares outstanding are expected to be approximately 126 million for the -- our full year compared to 126 million outstanding shares in 2012. We anticipate consolidated 2013 same-store sales will increase 2% to 3% on top of a 4.3% increase in 2012.

For the full year, net capital expenditures are expected to be approximately $258 million or $299 million on a gross basis. Net capital expenditures for 2012 were $186 million or $219 million on a gross basis. The anticipated increase in capital expenditures from 2012 to 2013 is primarily the result of the planned growth investments in the business in 2013.

As we consider our capital allocation strategy for 2013, there are 4 main components: first is investing in the growth of our business; second is the quarterly dividend plan; third is the stock repurchase plan, which was announced this morning; and fourth is the consideration of opportunistic acquisitions that fit within our strategic plans. As discussed, we will make substantial investments in the growth of our business by investing in our omni-channel strategy, opening new stores, remodeling existing stores, implementing system enhancements and opening new store concepts, which includes the repositioning of 2 Golf Galaxy stores, the addition of 2 new True Runner stores and the opening of our first 2 Field & Stream stores.

The second component, the quarterly dividend plan, was initiated at the declaration of an annual dividend in 2011 and subsequent quarterly dividend. On February 19 of this year, we announced that our board declared a quarterly dividend of $0.125 per share, payable in cash on March 29 to stockholders of record as of the close of business on March 8. The third component, share repurchase authorization, is a 5-year $1 billion program. At a minimum, it is intended to be used to keep the share count flat, which is contemplated in our guidance. The last capital allocation component is the consideration of opportunistic acquisitions. We will evaluate those that are strategically important to our business.

I will now turn the call back to Ed.

Edward W. Stack

Thank you, Tim. We see significant opportunity ahead. In over the next 5 years, we plan to make meaningful investments that will position us to capture it. Today, we provided you with insight into our expectations for this year, including our planned growth investments.

To discuss our long-term strategic growth opportunities and investment plans, we are hosting our first ever analyst day this September. During this event, we'll explain how we're leveraging the focus and drive of our team to grow our company and continue to lead our industry. Our commentary will include an overview of our merchandising strategy, the discussion of the omni-channel opportunities we plan to pursue through eCommerce, our stores and marketing. We'll also review our plans for technology advancements and review our longer-term capital investments. During the day, we'll offer guided tours of a nearby Dick's Sporting Goods store and our first Field & Stream store. That promises to be a great event, and we look forward to seeing you there.

This concludes our prepared remarks. We'd now be happy to answer any questions you may have.

Question-and-Answer Session

Operator

[Operator Instructions] The first question will come from Brian Nagel of Oppenheimer.

Brian W. Nagel - Oppenheimer & Co. Inc., Research Division

The question -- I wanted to ask you a question about your fitness equipment. You clearly called that out as one of your weaker spots during the quarter, and it was a reason for the drag in total sales. My question is, having followed Dick's for a while now, fitness equipments has had its issues. So did something else happen? Was there a reason for incremental weakness here in Q4? And then, going forward, what sort of, say, levers can you pull there to improve the performance of that category?

Edward W. Stack

Well, Brian, fitness was a -- we got kind of thrown a curveball here with fitness. With -- the Livestrong brand is a little bit more than 50% of our treadmill and elliptical business. And unfortunately, when the news came out about Lance and the issues that he had, and that being confirmed, people had a very negative reaction to the Livestrong brand, unfortunately. Even though with Lance, the -- he's no longer with the foundation, the foundation does great work, the customers had a very negative reaction to the Livestrong brand. And the business with Livestrong treadmills and ellipticals, which, as I said, were over 50% of our business, just stopped. And as long as it takes to get product in, we couldn't get new products in, in order to offset that, so -- and we still have some of that inventory here, which will be -- we will get through. But there'll be some costs associated with getting through it, which are all baked into our guidance going forward. But that's the biggest issue around the fitness business.

Brian W. Nagel - Oppenheimer & Co. Inc., Research Division

Got it. And just sort of to be clear on that, in your stores now, you'd started to significantly deemphasize the Livestrong brand on those categories?

Edward W. Stack

Yes, we're marking that product down and attempting to clear that off the floor and make arrangements for other products to come in.

Operator

The next question will come from Michael Baker of Deutsche Bank.

Michael Baker - Deutsche Bank AG, Research Division

So jeez, a lot to ask here. I'll ask pace of business, can you sort of discuss what November and December looked like relative to January and then, even early February? What's in your guidance? I think you can figure out, by the way you're talking about shift and non-shift, that the end of January or early February was probably pretty bad for a week in there but then got better. Can you confirm that?

Edward W. Stack

Well, we don't -- we've never talked about kind of what's going on in a particular quarter. We've indicated that with the cold weather not coming again in December, we made a decision to cancel the partnership orders that we have in that product, and we didn't want to have 2 years of inventory backed up as we did last year. Last year was -- we were able to get through this, and last year, it was fine. But to have 2 years of this, we made the decision to cancel those partnership orders as it didn't look like winter was going to come again. And then, when we did get some of the colder weather, we didn't have enough inventory to really support those sales, and as we said in the prepared remarks, that had an impact on Q4 sales and had an impact going into Q1. But if we had the decision to do over again, at the time that we made the decision, we'd probably make the same decision because we wanted to have this inventory clean and we didn't want to have 2 years of cold weather merchandise back up on us.

Michael Baker - Deutsche Bank AG, Research Division

Let me ask it another way. Just the terminology, shifted and non-shifted is a little confusing. What -- when you talk about your shifted comps, what weeks are you looking at this year versus last year? Is that sort of looking at the weeks ending May 4, 2013, which, I think, is when your quarter's going to end, versus April 28 last year? Or -- so how is exactly? If you can give us those days, we can probably figure out from there.

Edward W. Stack

I don't have those days right off the top of my head. But the quarter ends a week later this year every quarter because there was 53 weeks. Unfortunately, in the retail calendar, every number of 6 years, there's a 53rd week so that pushes everything out a quarter, which means...

Michael Baker - Deutsche Bank AG, Research Division

I think we understand that. It's just the shift -- when you say it shifted or non-shift, so non-shift means you're going back to the same weeks that you've looked at -- that you had in your fourth quarter last year. Is that the non-shifted part?

Timothy E. Kullman

No. The non-shifted or unshifted is our reported. The shifted is being more comparable to the prior year we correct.

Operator

The next question will come from Matthew Fassler of Goldman Sachs.

Matthew J. Fassler - Goldman Sachs Group Inc., Research Division

I've got one question on investments, then just a quick follow-up on store growth. On the investments, you invest money every year. What makes this $0.12 incremental? And then, as the P&L geography, it was a little surprising that it sounds like the expenses will lever anyway even with this. So what's happening to the so-called core expenses above and beyond these $0.12?

Edward W. Stack

A couple of these are pretty big investments, Matt, that haven't been in the normal course of business. So one is around eCommerce, we know that the -- what we're looking to do from an eCommerce standpoint and the traction we have here. We're going to continue to make additional investments in our eCommerce business around infrastructure of people to make sure we've got the right people in place here. We're in the process of building out a new platform that we haven't done in the past, and we think that in order to be truly relevant going forward, we need to be very relevant from an eCommerce standpoint or an omni-channel standpoint. So this is different than what we've done in the past. As we continue to take a look at what our growth opportunities are going to be going forward, we want to have the ability to have growth outside of Dick's Sporting Goods when the tail -- when the growth of Dick's Sporting Goods starts to slow down, as we kind of hit that end of the runway of the number of stores that we would have. We think that the outdoor category is extremely important, and a great growth opportunity for us; we're making meaningful investments in that channel. There's also a difference in the competitive dynamics out there in the outdoor category, with what Cabela's has done with the next-generation stores and their 80,000 to 100,000 square-foot stores and their 40,000 to 50,000 square-foot stores and the real estate strategy that they're going to employ. So we really feel that it's important for us to have a competitive answer to those -- to that concept. We're also going to be doing some meaningful remodeling of our stores, which is what we haven't done in the past where we're going to be taking the Nike shop, the Under Armour shops, The North Face shops and Adidas shops and making meaningful investments in roughly 75 additional stores that are above and beyond what has been our normal run rate. With the investments that we've made in these shops, we've seen meaningful increase in sales and margin rate because those products have a higher margin rate, we've -- that we think that this is really a terrific investment to have. And we've got a couple -- we have several hundred stores that don't have these shops in here, and we've decided to really distance ourselves from our competitors. It's important to do this. So I know this is somewhat -- painful is the only word I can think of. It is somewhat painful, from an investment standpoint, to swallow. But we're really taking a look and making these investments for the long-term benefit of the company and not just trying to manage the business quarter-to-quarter, and I know that that's difficult. A lot of people really articulate that, that's the way a business should be run, until you run it that way and then it's -- there's some pain associated with it. But we feel that these are absolutely the right things to do for the company going forward.

Matthew J. Fassler - Goldman Sachs Group Inc., Research Division

If I can slip in the second part of my question. From an ROI perspective, clearly, you're doing well in eCommerce and that business is growing. Your store growth continues apace as well. And presumably, as you look at your traffic trends and where the growth is coming from, more of the business is going to be done online as a proportion of the overall on an ongoing basis. Talk to us about how you think about ROI on the box itself and how essential it is that you have that unit growth to ultimately capture that revenue.

Edward W. Stack

Well, we think that the ROI that we look at, or the IRR that we look at, from a real estate standpoint, has not changed. We still expect to have that same IRR with our new stores going forward. We're excited about a couple of these concepts that we've tested in the smaller markets that have done extremely well. So we still think we've got meaningful growth opportunity in the Dick's Sporting Goods stores, and that isn't going to change. We'll open up next year north of 40 stores again.

Matthew J. Fassler - Goldman Sachs Group Inc., Research Division

And that IRR is reflective of some of the earnings from online or is it purely for sales that come through the retail channel?

Edward W. Stack

That's strictly coming through the retail channel. But we do know that we have seen, as we've opened up stores, the eCommerce business that we get from that geography increases pretty substantially as we open up stores in those new markets.

Operator

The next question will come from Camilo Lyon of Canaccord Genuity.

Camilo R. Lyon - Canaccord Genuity, Research Division

Joe, I was hoping you could shed a little bit more light on the definition of the smaller markets that you referenced and how that's enabling you to extend your long-term square footage growth runway.

Joseph H. Schmidt

Sure. Over the last couple of years, we have experimented opening some of these smaller market stores. They're stores that are reduced in square footage, and those stores range anywhere from 35,000 to 45,000 square feet. And we've had very good success in some of the smaller markets, and based on that success, we've done some additional studies that tell us we have the opportunity to grow an additional 200 stores across the country.

Camilo R. Lyon - Canaccord Genuity, Research Division

And then, smaller markets, how would you define that?

Joseph H. Schmidt

We define -- I mean, like what are some of those markets?

Camilo R. Lyon - Canaccord Genuity, Research Division

Yes, so population sizes of 100,000 people, 200,000 people, whatever measure it is that you use.

Joseph H. Schmidt

Less than 200,000, less than 200,000.

Camilo R. Lyon - Canaccord Genuity, Research Division

Okay. And how should we look or think about the mix of those smallish stores or the smaller market opportunities versus your normal bigger box opportunities?

Joseph H. Schmidt

I think you can think about 15% to 20% of our stores on an annual basis will be below 45,000 square feet.

Camilo R. Lyon - Canaccord Genuity, Research Division

Got it. And then just shifting to the shop-in-shops that you mentioned. I think to date, most, if not all, of the Under Armour shop-in-shops are in stores that have the Nike Fieldhouse concept in them. With respect to the adidas shops you'll be opening, are those adidas shops -- would they also be in stores that have both Under Armour and Nike shops in them? Or is adidas going to be housed in a noncompetitive store?

Joseph H. Schmidt

No. You can think about that the shops that we will add for adidas will be in those stores that currently have Nike and Under Armour shops today.

Operator

The next question will come from Chris Horvers of JPMorgan.

Christopher Horvers - JP Morgan Chase & Co, Research Division

Just wanted to parse out some of the impacts. So the 400 basis point hit from fitness and weather, would you say that was roughly evenly split? Or was the cold weather categories more? And also did you see any impact from Sandy in the quarter?

Edward W. Stack

It was relatively even between the 2 categories. And we're not going to break out Sandy's impact. I mean, some of the stores around there were hardest hit, yes. But in a meaningful aspect, no meaningful issue around Hurricane Sandy.

Christopher Horvers - JP Morgan Chase & Co, Research Division

Okay. And then on the fitness, fitness equipment, do you think that you'll get through that inventory here in the first quarter? And can you talk about perhaps the seasonality of that business fourth quarter versus the first half?

Edward W. Stack

Well, let's put it -- the fourth quarter and the first quarter are the 2 key fitness quarters. So we're kind of in that, and it's really the first part of the first quarter. So we're kind of coming out of the back half of this. The team has done a nice job starting to reduce that inventory, but we still have some work to go. But it's all planned in the guidance and there shouldn't be an earnings impact from markdowns.

Christopher Horvers - JP Morgan Chase & Co, Research Division

Yes. And then in terms of the investments that you're making in the step-up, the $0.12, I was just curious. I mean, how much of that is really on the system side, the eCommerce side versus this remodel program?

Timothy E. Kullman

Let me give you a rough breakdown, Chris. As Ed mentioned, eCommerce is really leading the pack. That's about $0.04 of that investment. The new concepts, as we build those out, will be about $0.03. The IT impact and systems that Joe has mentioned is about $0.03. And then the additional depreciation for these remodels as well as the 75 store partial remodels will be about $0.02.

Christopher Horvers - JP Morgan Chase & Co, Research Division

And that depreciation, just an accounting question, does that go through cost of goods? Or does that go through SG&A?

Timothy E. Kullman

The $0.02 that I just spoke of goes through cost of goods.

Christopher Horvers - JP Morgan Chase & Co, Research Division

Okay. And then finally, just a follow-up on Michael's question. the -- what you'll report for the first quarter for the period that started February 3, that is 0 to plus 1%. That's your guide for that.

Timothy E. Kullman

Yes.

Operator

The next question will come from Sean Naughton of Piper Jaffray.

Sean P. Naughton - Piper Jaffray Companies, Research Division

Just on the hunting category. This has obviously been a relatively interesting year from a demand perspective over the last several months. Just curious if you could talk about any supply constraints in this particular department, as well as potentially any changes you're making in terms of the product assortment in that particular area of the store.

Edward W. Stack

The inventory has certainly been a struggle as it relates to ammunition. On the hardlines aspect of it, we haven't seen as much -- you may or may not know, we don't sell handguns and haven't sold handguns for 20 years. So we're not experiencing any issues around handguns. But the ammunition has been very difficult to keep in stock. We actually have people who call the store every morning to find out if we got ammunition, they come in and buy it. This is -- but we don't expect the ammunition supply to be fixed anytime soon.

Sean P. Naughton - Piper Jaffray Companies, Research Division

Okay. So there's no changes in the types of long guns that you're carrying in the store then at this point in time?

Edward W. Stack

We haven't -- we focus on the hunter. We suspended the sale of MSRs after the issue -- the tragedy at Sandy Hook, and have not put those back in the store. But we don't expect any other modifications to what we sell. We focus our products primarily on the sportsman and the hunter.

Sean P. Naughton - Piper Jaffray Companies, Research Division

Okay. And then just a follow-up on the systems implementations you're working on. It seems to be this has been going on for a number of years now. But maybe if you could just give us an idea of where we are in the assortment planning and price optimization process and when we should start seeing some of the benefits from those systems come into play.

Edward W. Stack

Well, the where we stand today is those systems were implemented in 2012. But keep in mind, as you implement those systems, there is 6 to 9 months worth of beginning to understand how they work and getting them up to full capacity. So late 2013 is where we expect to see some results from those systems implementations.

Sean P. Naughton - Piper Jaffray Companies, Research Division

Okay. So really on the full year, maybe 2014, we'll start to see the full benefit from that?

Edward W. Stack

That is correct.

Operator

The next question will come from Rick Nelson of Stephens.

N. Richard Nelson - Stephens Inc., Research Division

I'd like to ask you about the gun and ammo sales, how that affected your comp in the period and how you're planning that business for the remainder of 2013.

Edward W. Stack

Well, it had a positive impact. We don't call out specifically category-by-category. But it had -- it was certainly a positive impact. We think it's going to be relatively neutral, maybe down a little bit as we go into '13 just because of the lack of inventory from an ammunition standpoint.

N. Richard Nelson - Stephens Inc., Research Division

The size of these Field & Stream stores, what are you talking about here?

Edward W. Stack

I'm sorry. Could you repeat that?

N. Richard Nelson - Stephens Inc., Research Division

The size of the Field & Stream stores?

Edward W. Stack

Yes. So the first 2 Field & Stream stores will be 50,000 square feet. And that's -- we think the research that we've done, we think we can get everything we need to do in roughly 50,000 square feet.

Operator

The next question will come from Robby Ohmes of Bank of America Merrill Lynch.

Robert F. Ohmes - BofA Merrill Lynch, Research Division

Ed, I was hoping you could comment on one of places where did have good momentum, which you called out apparel and footwear. Could you just talk a little more about what was working in those categories in the fourth quarter? And maybe help us understand how you're thinking about maintaining that momentum in 2013 and some examples of things that can keep it going.

Edward W. Stack

Sure. The athletic apparel business was really very good. Cleats [ph] product was very good. The women's athletic piece was really very good. And the footwear businesses, as we indicated, was good for us. And we've seen -- we're seeing, as some other people are, a resurgence in the basketball business. So the basketball silhouette has been very good, and we will be taking a much more aggressive stance in basketball going forward in 2013.

Operator

The next question will come from Paul Swinand of Morningstar Investment Research.

Paul Swinand - Morningstar Inc., Research Division

I guess, the first question is maybe a tough one. But retailers have been dealing with weather problems for as long as they've been around. But is there any new technology that you think will help this type of problem? I mean, my visit to the stores definitely showed stuff sold out in January just when the weather turned. So not to give you guys too much of a soft ball, but is there anything that's going to be different next year or...

Edward W. Stack

I don't think there's going to be anything different. I mean, we try to -- we look at plan analytics to try to get some sense of what's going to happen. We can kind of predict based on the weather. Starting in November of the fourth quarter and through probably middle of April, based on the temperature, we can pretty much predict on a date-by-date basis what our business is going to do. The issue is we can't influence the temperature. This next week, we're going to be on average -- I was just talking to our team today. On average next week, sales are going to be -- I mean, temperature is going to be 15 degrees colder than it was last year, which was one of the things that helped drive that 8% gain we had last year. As we take a look at this from an outerwear standpoint, we continue to -- we think the outerwear business is still really very good and an important business for us. But when -- and I've said this 100 times, when it's been cold and we've had a lot of snow, I've indicated to the street, "Hey, we're not as smart as we look, the weather was helpful to our business. And when the weather isn't helpful to our business, we're not as dumb as we look." But what we can do to change how to predict the weather and how sales are going to be based on the weather, I don't see anything different next year than this year, and I don't see anything different 5 years from now than this year.

Paul Swinand - Morningstar Inc., Research Division

Does the customer exhibit any learning behavior like buying earlier instead of waiting? Or have you ever seen that in your experience?

Edward W. Stack

No, I don't. I mean, some of -- well, I shouldn't say that. There's some of the fashion items, colors, some hot products that might sell out earlier in the season that people want. But for the most part, most of the time, people buy very close to need. When a snowstorm is coming or cold weather is coming or when it's here is when they buy it.

Paul Swinand - Morningstar Inc., Research Division

Got it. And then a quick question on the ellipticals and treadmills versus the apparel and the LIVESTRONG brand. It seems like you've got a lot of apparel still. Is that still doing pretty well?

Edward W. Stack

The apparel had -- didn't do as well either. We had a hit from the apparel standpoint also.

Operator

The next question will come from Peter Benedict of Robert W. Baird.

Peter S. Benedict - Robert W. Baird & Co. Incorporated, Research Division

A couple of questions. First, if you think about the eCommerce business, obviously the penetration up big this year, and it was as high as 8.6% in the fourth quarter. When you think about next year's fourth quarter, are there any merchandising strategy adjustments you have to make recognizing that? I mean, eCommerce being around 4% of sales Q1, 2 and 3, but then more than doubling in the fourth quarter. Can you talk about maybe how that changes your thinking going forward about the fourth quarter?

Edward W. Stack

Well, a couple of the things that helped our fourth quarter was the -- earlier in the year, we didn't have as much setup from ship from store. So having ship from store being as fully robust as it was in the fourth quarter was certainly helpful. With that being said, we think that next fourth quarter will be the highest penetration of eCommerce business versus the other quarters. Yes, we take a look at where those products sold, where we think that the trend is going to be and make sure that we have those products in place. Some of the things that we'll do to try to do a better job in next year's fourth quarter is on the marketing front, we won't be as outerwear-focused. We were really enthusiastic about the outerwear business. We probably overinvested from a marketing standpoint in outerwear, both online and in the stores. And we will modify that to be more balanced next year than we were this year.

Peter S. Benedict - Robert W. Baird & Co. Incorporated, Research Division

Okay. And then, if we look at the square footage growth of the business last couple of years, running around 7% or so, you talked about the new market -- the new smaller market opportunity. As we think about making our way towards the 1,100 store target, should we think about a square footage growth backdrop that's somewhere around that 7%? Does it -- do you still think you can get that closer to 9%, 10%? Or should we think 7% is the number or less?

Joseph H. Schmidt

I think you can think about 7% to 8% in 2013. But we think we can move that up to 9%, maybe 10% in the coming years. So we do think there will be an opportunity to increase that slightly over the next couple of years once we get through '13.

Peter S. Benedict - Robert W. Baird & Co. Incorporated, Research Division

Great. That's helpful. And then just lastly, a clarification. The $0.12 investment expense that's coming this year, clearly it's a step-up. But we're not to think of this as being a one-time. It's kind of a new level of expenses and they'll probably persist as we go forward. Is that the right way to think about it?

Joseph H. Schmidt

You should consider this part of the infrastructure.

Operator

The next question will come from Dan Wewer of Raymond James.

Daniel R. Wewer - Raymond James & Associates, Inc., Research Division

Ed, I know that golf category becomes significantly more important in the next 2 quarters. Given the late start to spring, I think you alluded to it's going to be 15 degrees colder next week. I was unaware of that. But is that one of the reasons why you're guiding conservatively on 1Q that you would expect golf get off to a slower start?

Edward W. Stack

Yes. I think everything in the spring is going to get off to a little bit slower start this year. So what I looked at from a forecast standpoint is 15 degrees colder next week, that has an impact. Now what I will tell you though is I think between the first quarter and second quarter, it will even out. We talked about last year that in the first quarter, we moved business from the second quarter to the first quarter. I think this year, it's going to be more normalized. And when we take a look at the 2 quarters combined, we anticipate that it's going to be fine. But it's just going to be a big difference between the first and second quarter. Somebody asked me one time about a year ago what Wall Street doesn't understand about our business. And I kind of smiled and kind of tongue-in-cheek said, "What Wall Street doesn't understand about our business is that our customers don't understand the concept of quarters. They don't understand that when they begin and end." But season-wise, as we go into the 2 -- the first and second quarter combined, I think it's going to be fine. We're really pretty enthusiastic. We think that golf, there's some great, new technology out there from a golf standpoint, TaylorMade RocketBallz Stage 2, the R1 from TaylorMade. The new Nike Covert Driver is doing very well. The Callaway products are doing very well. This is a great product cycle from a golf standpoint right now.

Daniel R. Wewer - Raymond James & Associates, Inc., Research Division

And you talked about -- moving to the large store format for Golf Galaxy. But I think there's only 1 relocation and 1 opening this year. But what makes your large store format different than PGA Tour Superstore or different than the new Golfsmith format?

Edward W. Stack

Well, it's still smaller than PGA Superstore. And as you take a look at what we're going to do there, they'll be fitting similar to what you get at PGA Superstores. But what will really be a big differentiating factor with us is going to be the apparel aspect we have in the store. And when you take a look at -- we're not going to talk about it right here. When you take a look at some of the services and the way that we're going to provide some of the services, and it's going to be -- it's going to see much more like what happens on tour than what happens when somebody kind of goes into the backroom and takes care of your club. We're going to provide much more of a tour experience in our store than you'll find anyplace else.

Operator

The next question will come from Kate McShane of Citi.

Kate McShane - Citigroup Inc, Research Division

Most of my questions have been answered. But with regards to the commercial real estate opportunity, I wondered if you could update us on if you're seeing any improvement in the build-out or availability and what costs are like, just based on your mentioning of the deleveraging on occupancy in 2013.

Joseph H. Schmidt

Sure, Kate. We're not seeing a significant change in new construction of shopping centers. What we are seeing is that REITs are buying more property from department stores. They're repurposing small shops, base vacant department stores, movie theaters, junior anchors. Obviously, Sears, with what's going on with Sears, we are seeing some opportunity there to repurpose some of those properties. And then with what's going on with Best Buy, Barnes & Noble, Office Depot, OfficeMax, potential clothes store closures there, as you would expect, we are looking at all of those opportunities as we become aware of those. New growth has been pretty consistent over the last couple of years, where we've been about 50% new construction versus repurposing existing boxes. And I think you can expect to see 2013 pretty similar in that regard. As far as prices, we are seeing prices escalate a little bit in some of the major mets. So as you think about Chicago, New York, L.A. and some of the major mets across the country, we are starting to see some increases there. But elsewhere around the country, I think you'd see pretty consistent pricing over the last couple of years and expect it to be pretty similar moving forward.

Kate McShane - Citigroup Inc, Research Division

That's very helpful. And then my second question is just a follow-up with regards to real estate. How are you viewing -- how is Dick's viewing the metro market opportunities for this 1,100-door strategy?

Joseph H. Schmidt

We think there's an opportunity there. We'll test out -- we have tested some close to urban settings. But this year, I think we're going to add a couple of stores in the urban area of Chicago. So we think there's an opportunity there to expand some store growth as well.

Operator

The next question will come from Sam Poser of Sterne Agee.

Sam Poser - Sterne Agee & Leach Inc., Research Division

Can you talk about week 53 specifically, and if you were impacted by the delay of the tax refunds and how that's all working into the story right now?

Edward W. Stack

I mean, the refund, Sam, I have no idea. I mean, we haven't tracked that. Some people have talked that, that's been an impact. And maybe it is somewhat of an impact because people aren't getting their checks back early enough. But we can't quantify that, so we can't really make a comment.

Sam Poser - Sterne Agee & Leach Inc., Research Division

Can I ask you this? On -- some larger boxes, not competitors but commented on January when they gave their January same-store sales, basically it showed a significant falloff in the week 5 of January, even though it wasn't in their comp. The comps were okay. Did you see a similar kind of thing? I mean, did you -- did week 5 live up to your expectations? Even though you made the guidance, the EPS addition, did it do what you expected it to do? Or was it disappointing?

Edward W. Stack

Well, we had always indicated that we thought the 53rd week was going to be approximately $0.03 in earnings impact. And that's exactly what it came in at.

Sam Poser - Sterne Agee & Leach Inc., Research Division

Okay. And then just to confirm, you're saying that weeks 1 -- that quarters 1 and 2 will be helped by the calendar shift. So the revenue, the responding revenue -- but you're saying that you're -- but you reported -- or your comp sales on a fiscal basis are going to be down, but your comp stores on a calendar basis will be flat to up. Doesn't that say that there's a negative impact in the first quarter and that should be the other way around in Q2 and 4, I would say?

Timothy E. Kullman

Sam, let's back up. On a fiscal year basis, there is no change.

Sam Poser - Sterne Agee & Leach Inc., Research Division

Understood.

Timothy E. Kullman

All right. But as we get on a reported basis, we have to report as the weeks fall out. From a reported basis, we get a $0.05 benefit in the first quarter, as we indicated. We get a little bit less than that in the second quarter. And then it completely turns around in Qs 3 and 4. So if you look at how we guided our comp, for example, our reported or unshifted comp is flat to 1%, whereas the shifted comp is negative 2% to negative 1%. So you understand that with a positive comp, we get better earnings. With a negative comp, we have less earnings.

Edward W. Stack

And the shift is really taking a look at -- if I can explain this. This does get confusing, and a number of retailers are going through this right now. But Q1, we replaced the first week of Q1 with a different -- with the last week of Q1. So last year, the first week of Q1 would have been the first fiscal week of February. This year, it's the second week of February, which gets offset with a week in April, which was really the first week of May. And we do a lot more business in the first week of May than we do in the first week of February. If that makes it any clearer, Sam, I hope it does.

Sam Poser - Sterne Agee & Leach Inc., Research Division

No, it does. A lot of other companies do more business at first week of February than the first week of May. So the shift is different because...

Edward W. Stack

Yes. We do a lot more business for the first week of May than we do the first week of February.

Sam Poser - Sterne Agee & Leach Inc., Research Division

And most of that, I would assume, comes from your active outside equipment stuff -- your camping and all the stuff that people do outside versus a lot of the athletic footwear guys and so on that sell a lot more basketball and that kind of stuff earlier as a percent of your total business.

Edward W. Stack

We just a lot of stuff that we do outside. So you've got people who are buying running shoes. You've got people who are buying apparel to run, our golf business, baseball business, hunting business, camping business, all of that. But when people start to get outdoors in the spring, we do a lot more business.

Sam Poser - Sterne Agee & Leach Inc., Research Division

And then in Q3, you basically lose a big week of back to school and you gain a smaller week at the end of October.

Edward W. Stack

That's exactly correct.

Sam Poser - Sterne Agee & Leach Inc., Research Division

Okay. Good. Okay, so I understand the difference.

Operator

The next question will come from Matt Nemer of Wells Fargo Securities.

Matthew R. Nemer - Wells Fargo Securities, LLC, Research Division

I just want to sneak in two questions. First is the competitive response to Cabela's next-generation small market store that you mentioned. Have you seen impact in your stores where there's geographic overlap to these concepts? And then secondly, I know it's early. But can you comment on the volume that you're pushing through ship from store, and then any impact that you've seen in terms of shipping speed to the customer and margins?

Edward W. Stack

With Cabela's stores, any time a competitor opens up, there's always some impact. And I had to give the guys at Cabela's credit. They've done a really nice job with these stores. So yes, we do see an impact, and we'll take a look at what we're going to do from a competitive standpoint. We think testing these stores is the appropriate course of action. We're really very excited about it, and it's in an expertise area that we have. As far as ship from store capabilities per volume, we're not going to comment at that granular level. We kind of laid out to you what our total eCommerce penetration was. Ship from stores is certainly a meaningful part of that. And one of the things that we look at is that we have 500 distribution centers around the country very close to the customer. So we can get product to people very quickly and relatively inexpensively from a shipping standpoint by having this ship -- the ability to ship from store.

Matthew R. Nemer - Wells Fargo Securities, LLC, Research Division

And is the goal of that program primarily to increase shipping speed? Or is it more around rebalancing inventory and reducing markdowns?

Edward W. Stack

Well, the primary objective is not to rebalance inventory, although as we get more sophisticated, I think that we'll be able to do that. But the primary objective is to provide the customer with the best service possible and get them their product as quickly as we can.

Operator

The next question will come from John Zolidis of Buckingham Research Group.

John Zolidis - The Buckingham Research Group Incorporated

A big-picture question, we've got the True Runner concept you're opening. You're doing another concept with the Field & Stream, where we're looking at the smaller markets now. When we take all that together from a strategic standpoint, does that -- should that tell us anything about how you feel about the core concept? It would suggest that maybe you're somewhat less enthusiastic about the core concept.

Edward W. Stack

Good question, but the answer is not even close. We are extremely enthusiastic about the core business. And one of the ways that you could -- and one of the dots to connect to say how enthusiastic we are about this is that we're renovating 75 stores and putting in 75 of these Nike concept shops, Under Armour, adidas, North Face. The stores are doing extremely well. Still the vast majority of our earnings are coming from those stores, and we're very enthusiastic about it going forward. What we want to do as we think from a competitive standpoint, it gives us another part of the competitive arsenal for us with the Field & Stream concept, with the Golf Galaxy concept and with the True Runner concept. And we are looking for an area to grow the business once that tail slows with the Dick's stores. We're going to hit that particular number of stores. That growth curve is going to be more difficult for us. And at that point, the street will be asking us like, "Well, why don't you have anything in your back pocket to grow?" And we've looked at a lot of other retailers who have not really positioned themselves for that day. We want to position ourselves for that day.

John Zolidis - The Buckingham Research Group Incorporated

And one just follow-up. How do you ensure that you don't get -- the management doesn't get distracted by these smaller new concepts with the ongoing challenges that you would face in the course of ordinary business in the core business?

Edward W. Stack

Well, the best way to do that is hire great talent to run them, which what we anticipate, which is why part of the $0.12 is for talent infrastructure. But the best way to make sure that our present management isn't distracted and the new management has the best chance of success is to hire great talent.

Operator

The next question will come from Michael Lasser of UBS.

Michael Lasser - UBS Investment Bank, Research Division

Just one. Ed, you've dealt with product cycles, weather in the past. As you become a bigger organization, is it more difficult to manage through those types of issues than when you were a smaller company?

Edward W. Stack

Is it more difficult? I think it's more complex. I don't think it's necessarily more difficult. When we were a smaller organization, we didn't have the talent we have today. We didn't have systemic solutions we have today. So I don't think it's more difficult. I just think it's more complex. And I think we have the resources that are at our disposal to work through those complex issues.

Michael Lasser - UBS Investment Bank, Research Division

So does it lead to greater volatility in sales because you can manage through it?

Edward W. Stack

I think we can manage through it. I mean, at the end of the day, so we guided to $1.03 to $1.05. We wish we had been at $1.05 instead of $1.03, but we still got within our guidance. And when you take a look at the original guidance we've provided for 2012, the high end of that guidance was $2.41. So we beat the original guidance by a pretty wide margin. I wish we had, had a better fourth quarter. Some of the things were beyond our control. Some of it weren't beyond our control. We could have held a little tougher on the -- reducing the incoming cold weather accessories. That was a decision I made. I didn't want to have that inventory backed up again. Should I have made a different decision? You could say that. But we continue to manage through these with still pretty good earnings, although not what we had anticipated, which is disappointing to us.

Operator

The next question will come from David Gober of Morgan Stanley.

Shaun Kolnick - Morgan Stanley, Research Division

This is Shaun on for Dave. Just on the new store rollouts, in particular, in the South with the 4 Oklahoma openings and 1 in Louisiana this quarter. What are you seeing in those markets? And how do you describe the competitive dynamics maybe relative to your existing markets?

Joseph H. Schmidt

We don't give specific information by market. But you can expect that we're pleased with how the business has gone in Oklahoma. And in the South, in particular, we're very pleased with how business is going. I would just say, which you can see in our new store productivity numbers.

Shaun Kolnick - Morgan Stanley, Research Division

Got you. Just one more follow-up on the incremental SG&A spend. Given that those investments are going to be ongoing in nature, do you think there's going to be any impact on your operating margin goal long term? Or how long it might take to get there?

Edward W. Stack

You know what, I don't think so. Although these expenses are ongoing, what we're doing is we're building the infrastructure ahead of the sale. And we'll talk more about this at the Analyst Day. But we're building the infrastructure for the new concept. We're building the infrastructure for the eCommerce business, which we now have a lot of that done through GSI. But we're building this infrastructure ahead of what the sales are.

Operator

The next question will come from Joe Feldman of Telsey Advisory.

Joseph I. Feldman - Telsey Advisory Group LLC

I'll try to be brief as well. But eCommerce, just wanted to drill down a little bit. Can you talk about the profitability that you're seeing in eCommerce these days relative to the stores? I know there's a lot of investment going on, so not to say that -- and I know what the game plan has been with eCommerce. But just wanted to better understand that because it is growing pretty rapidly and it's now 8% or 9% of sales, and just kind of wanted to go down that path with you.

Edward W. Stack

We think that the eCommerce business is going to continue to be an important part of our business. We think that there's a lot of opportunities out there from an eCommerce standpoint, and we want to go capture that. We expect to do the same from an eCommerce standpoint as we have with the Dick's Sporting Goods stores.

Joseph I. Feldman - Telsey Advisory Group LLC

And then just one more question. The remodels that you guys are doing this year, how much of it -- I guess, what's different than what you've done before, is it mainly just that you're adding the vendor shops? And I guess, I was wondering if you could talk about the split between your cost of the vendor shop versus the vendors themselves and what kind of lift you would expect. Because with the 2% to 3% comp lift, it seems a pretty conservative number, given that you're adding some of these new in-store shops with the remodels.

Edward W. Stack

Well, these in-store shops haven't been added yet, so this is -- we're doing this during the year. And kind of the cost split between us and the vendors, we haven't talked with them about kind of articulating what that is. So we're not going to articulate that. But we think that this is going to have an important impact on our business going forward. But these shops won't be fully done until roughly halfway through the year.

Joseph I. Feldman - Telsey Advisory Group LLC

And is that the bulk of what's going on in the remodel, just the in-store shop and the shared footwear remodel? Or is it -- or are there other things?

Edward W. Stack

Understand that it's not just as simple as adding the shop. We're basically taking the center part of the store, both sides of the center part of the store and rebuilding it. So yes, the simple answer is putting the shops in, but there's a lot more to it than just dropping a shop in there. We've got to build the infrastructure, the walls to house these shops. We've got a different traffic pattern that will go into the store, different lighting, different graphics. There's a lot that goes into this really from the front of the store all the way back to footwear. So it's really not as simple as it sounds.

Joseph I. Feldman - Telsey Advisory Group LLC

Got it. That's exactly what I was trying to get.

Operator

The next question will come from David Magee of SunTrust.

David G. Magee - SunTrust Robinson Humphrey, Inc., Research Division

Just two quick questions. First, on the renovations. Are they going to be ticking on the comp pool during the construction period?

Edward W. Stack

They are not.

David G. Magee - SunTrust Robinson Humphrey, Inc., Research Division

Okay. Do you think -- okay. Then secondly, with regard to the eCommerce business, have you said what your ultimate penetration goal would be there? Is there a point which it becomes a little bit alarming to you, given that's growing so fast?

Edward W. Stack

We haven't given -- we haven't provided guidance as to what we think it would be long term. But we think it will be meaningfully better than it is today. But we're not going to go out on a limb and give you that guidance.

David G. Magee - SunTrust Robinson Humphrey, Inc., Research Division

Is a big part of this coming from areas that don't have stores right now?

Edward W. Stack

No, it's mixed. But as I said earlier, the -- as we open up stores in new markets, our eCommerce penetration goes up pretty dramatically.

Operator

The next question will come from Sam Poser of Sterne Agee.

Sam Poser - Sterne Agee & Leach Inc., Research Division

Just a quick follow-up. You talked about the new smaller market stores. Can you give us -- can you tell us what 2 markets the current test stores are in, so we can get some idea of the kind of actual market it is?

Edward W. Stack

Oneonta, New York is one of them. And we've done a couple -- we did a couple here outside of -- excuse me, outside Pittsburgh, we did 1 in Washington, Pennsylvania a few years back.

Joseph H. Schmidt

We just opened 1 in Holly Springs down in North Carolina, which would be a good example of that as well.

Operator

The next question will come from Chris Svezia of Susquehanna Financial Group.

Christopher Svezia - Susquehanna Financial Group, LLLP, Research Division

Tim, for you. Just curious on the gross margin outlook, in the fourth quarter, you leveraged some occupancy. I'm assuming that's some truing up of -- I'm just curious, you said for the year, you wouldn't do it, but in the fourth quarter, you did on a pretty low comp. So just maybe talk about that for a sec.

Timothy E. Kullman

Well, I think you also have to look at the high comp that we had on the eCommerce side. So that helped a great deal on the leverage on the occupancy.

Christopher Svezia - Susquehanna Financial Group, LLLP, Research Division

Okay. And you don't anticipate that as much in 2013, given the store remodels and store growth?

Timothy E. Kullman

That is correct.

Christopher Svezia - Susquehanna Financial Group, LLLP, Research Division

Okay. And then just lastly on as you guys think about competitive environment, particularly in outdoor and fish as Sports Authority continues to deemphasize those categories, I mean, what are you seeing in those markets? Are you picking up that market share opportunity as they continue to deemphasize those categories?

Edward W. Stack

I think they talk about deemphasizing those categories, but I don't think they had much market share in the first place. So I don't think it's a big impact.

Operator

The next question is from Matthew Fassler of Goldman Sachs

Matthew J. Fassler - Goldman Sachs Group Inc., Research Division

Just 2 modeling questions that hopefully will be of broad interest. First of all, can you talk about -- or can you size the sales shifts by quarter associated with the movement of the weeks?

Edward W. Stack

Yes, we can do that. I mean, but it's given -- but Matt, we've never gone that granular before. I mean, we've kind of laid out what the shifted basis is and an unshifted basis, which we think kind of gives you a sense of where business is at.

Matthew J. Fassler - Goldman Sachs Group Inc., Research Division

Yes. I guess, I'm asking you for Q1, which you kind of figured it out, but then there's a piece for Q2. I'm not sure if that's bigger or smaller than the Q1 shift. And then if the payback in the second half is split evenly or disproportional the way it's 1 quarter or the other. Given that, what would be very helpful [indiscernible] the quarters started out?

Timothy E. Kullman

What we can do, Matt, is much like what we did in the press release, where we laid out now the consolidated comps when we include eCommerce. We could give you an idea of how they -- what the difference is in the comp guidance on a quarterly basis as we get through the next quarter.

Matthew J. Fassler - Goldman Sachs Group Inc., Research Division

As they go. Okay, that's fine. And then secondly, just going back to the notion of the gross margin guide versus the SG&A guide. You cited the store remodel effort as weighing on occupancy costs. And if that's $0.02, that's an upset in basis points to gross margin. And your merch margin rate has run kind of up 40 bps or better with some continuity. So I'm not sure if giving back the leverage associated with the extra week in the fourth quarter of last year is a decisive factor or if you're modeling a much lower merch margin improvement than you've had to date. Just try to figure out why occupancy with a 2% or 3% comp, which should be okay, is that much of a weight for you.

Timothy E. Kullman

Well, there's 2 components that we outlined, Matt. It was the impact of the remodels, but we also have the carryover impact of the 2012 stores coming online.

Operator

And that will conclude our question-and-answer session. I would like to turn the conference back over to Mr. Edward Stack for his closing remarks.

Edward W. Stack

I'd like to thank everyone for joining us today in the call to discuss our fourth quarter earnings. We will look forward to talking to everybody about first quarter. Thank you.

Operator

Ladies and gentlemen, the conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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