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Dick's Sporting Goods, Inc. (NYSE:DKS)

2013 Consumer & Retail Conference

March 12, 2013 10:10 am ET

Executives

Edward W. Stack - Executive Chairman and Chief Executive Officer

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

Analysts

Robert F. Ohmes - BofA Merrill Lynch, Research Division

Robert F. Ohmes - BofA Merrill Lynch, Research Division

We're very pleased to have management from Dick's Sporting Goods here, hot off the presses from reporting yesterday. We have Ed Stack, Chairman and CEO; and Tim Kullman, CFO. I'm going to turn it over to Ed for some comments, and then we'll jump right into Q&A.

Edward W. Stack

Thanks, Robby. We appreciate everyone coming to see us today. I'll make some -- I'll talk a little bit about our business, and then I'll turn it over to Tim, who will walk you through some of the financial numbers. But at Dick's Sporting Goods, our mission is to be recognized by our customers as the #1 sports and fitness omni-channel retailer that serves and inspires athletes and outdoor enthusiasts to achieve their personal best through the relentless improvement of everything we do. That's our mission statement, and we'll do this by continuing to grow our store base; continuing to partner with our brands; aggressively building on our omni-store presence, which you saw in the fourth quarter is moving along at a very nice pace; and execute our strategic marketing plan.

We operate in a relatively stable industry, with the exception that sometimes we get caught with some issues from the weather in the fourth quarter, which happened this year. We're the clear leader in the space. We've grown our sales at a more rapid pace and had a compounded annual growth rate of 17% over the last number of years.

We're the largest U.S.-based sporting goods retailer, with sales this past year in excess of $5 billion in 2011, and this past year nearly $6 billion. We have approximately 8.5% market share, and we believe our size is a strategic asset, particularly in such a fragmented space.

While we're the largest in the industry, we still have, and we articulated yesterday, that we still have a lot of room for growth. Our strategy for new store growth is evolving to include a smaller market strategy that we talked about. Where we've opened up some of these stores, it's been -- we've had great success. In the past, we've stated that we would be able to open up 900 stores in the United States. As we've done the small market analysis and the tests that we've done, we feel that we can move this to roughly 1,100 stores in the country. And at the end of this year, we ended with 518 stores, so we can more than double the size of our store base.

Our new store productivity, which is certainly a measure of kind of the validity of our concept, our new stores have been extremely productive. This is due to a very disciplined real estate selection strategy that we have in place, and we're excited about the new stores, and we'll continue to add those stores. This next year, we'll open up roughly 40 new stores.

In 2013, we will increase our capital expenditures to further upgrade some of our existing stores and improve the shopping experience with our customers by implementing the Nike Fieldhouse concept and with what we're doing with Nike, Under Armour, Adidas and The North Face to bring those concepts to life.

As you walk our stores or shop us online, it's evident that the brand partnerships that which we reflect in the stores are very important to us. We have deep relationships with these brands, such as Nike, Under Armour, North Face, Asics, Columbia and a number of others, that you can see not only what we bring to life with them in our stores, but also what we do from a marketing effort around these brands.

Our in-store partnership with Nike, a few years ago, we began adding these very premium shops called the Nike Fieldhouse concept. We've got a couple different levels of these. We've developed this Fieldhouse concept, and at the end of the year, we had 171 Fieldhouse concepts in our stores. Nike also helped us roll out a micro site in our website, a Nike micro site, similar to what we've done with the shops. And this micro site has enhanced the online shopping experience and was developed in partnership with these guys, and it's really helped drive our business online.

As we continue to move forward, we will add roughly 100 of these Nike shops this next year, bring us up to just under 300 of these shops in our stores.

We'll continue to add these shops with Under Armour this year. At the end of the year, we had 107 in total, and we will add somewhere between 50 and 75 of the Under Armour shops next year also, which have been, again, very productive.

We've also continued to partner with The North Face. At the end of the year, we had 91 shops with them. We're actually working with TNF to develop a new shop concept that we can roll out to a significant number of our single-level stores, where more of the shops with -- North Face are in the two-level stores. So we're working with them. We think we've got a great opportunity with North Face to drive their shops and have similar type of results that we've had with Nike and with Under Armour.

Our marketing partnerships with these brands have continued to evolve. We have continued to move with Nike in the market -- very aggressively with Nike and Nike athletes around their football business. TaylorMade has been our primary vendor, partnering with their new racquetballs launch and their R1 launch. Adidas, we've continued to partner with them from a running standpoint. We'll be looking to them to partner from a soccer standpoint and basketball standpoint next year with marketing relationships. And The North Face has been a big driver of our marketing campaigns around their third and fourth quarter products, which have been helpful to both of us.

In these partnerships, we highlight products that are exclusive to Dick's. We leverage their athletes, and we receive a significant marketing contribution from these brands to be able to do this.

Some of the exclusive products that we carry with these brands. With Nike, we've got a little more than 20% of our Nike products from an apparel standpoint are exclusive to us, such as the Nike Elite basketball collection. With Under Armour around the NFL Combine, with Under Armour created exclusive products around the Combine. And with Adidas, we've -- the adizero Ghost basketball shoe with some other product has been very successful for us.

We also have our own private-brand and private-label products, which have continued to help differentiate us in the marketplace. We look to grow these brands to roughly $1 billion in business by the end of 2017. Some examples of these brands are the Field & Stream brand that we just -- we had licensed this brand previously. We bought this brand this year. Adidas baseball, Umbro, women's and men's Reebok athletic apparel that we make ourselves. And this past year, we've added, we bought the Top-Flite brand, which will be exclusive to Dick's and Golf Galaxy going forward.

The margin rates on these products are usually 600 to 800 basis points higher than the brands that they replace, and in some of the golf categories such as Top-Flite and Max Slide, these are up to 2,000 basis points difference in some of the golf categories, primarily golf balls. So we look to continue to drive that business.

Within our stores, we operate a number of specialty shops. A number of -- a lot of people talk about doing this. We actually execute against that from a footwear standpoint, team sport standpoint, our lodge golf area and the athletic apparel area. Some of these shops that we do, you could take these shops right out of our store and have its own independent retailer, and it's been, these have been very, very helpful to us. The new footwear shared service concept that we've done has been very productive for us. Bringing a different level of assortment and expertise into these categories have been very helpful to the business.

And we talked about our shared service footwear area. These areas have provided us with higher AURs and higher comps than in the stores that are the full service area. We have 174 of these up and running today. All of our new stores in 2013 and beyond will be -- will have these shared service footwear decks, which have been, as I said, very helpful to us.

There's been a bit of a concern that we take some service off the floor with the shared service areas. That's not the case. We have the same amount of people working on the floor. It's just they don't have to go into the back room to find shoes. They can work with the customer right out there on the floor to service them, and our customers have really responded very well to this. The research we've done, they love the shared service concept versus the previous concept that we had put together.

We complement these shops with a wide range of great associates. We're the largest employer of PGA and LPGA pros in the country. We have bike techs in a vast majority of the stores and certified fitness trainers in the vast majority of the stores to help make sure the customer can have -- we can help the customer make an informed decision as to products that they should have.

From a digital standpoint, we think the sporting goods online market is growing at a very rapid rate. We are a part of that, which you saw in the fourth quarter with our comps up 54%. Today, it's estimated that the online business is about $5 billion and with significant growth potential ahead. And in 2012, our eCommerce business represented about 5% of our sales or $292 million. We think there's big growth potential here, and we're aggressively going out to try to get that. You'll will see that with our conversations we had yesterday about the investments we're going to make in our business, and we're going to be spending about $0.04 in incremental expense this year to drive this business and to develop this business.

We have dramatically grown our eCommerce business. You can see that in 2009, we did $103 million. And this past year, we did just under $300 million. And as I said, we feel that there is continued growth opportunities here, where we believe by the end of 2015, we can about triple this business to get this significantly more.

We're continuing to upgrade the functionality, expanding the content, investing in new capabilities and beginning to leverage our store base. We now have in our stores, every store that we operate today has the ability to ship from store. So you can order online, ship from store. And the way we look at this is it's a great competitive tool as we really have 500 -- over 500 distribution centers in the country today that we can ship product from. And most of those stores are within 10 miles of the customers that we serve.

As you would expect today, we have -- you can return our stores -- you can return product to our stores. We can order products in the stores for you. So if you come in and we don't have the right size shoe or we don't have the right product for you, an associate can go to our online capabilities in the store, order that product for you and have it shipped to your door in the next couple of days.

This year in 2013, we're really excited about piloting the pick-up-in-store. Somebody is going to order it, pick it up in the store. And we're hoping that this will have a similar benefit to our online business that the ship-from-store capabilities had, which was really an important driver in increasing our business here.

From a marketing standpoint, we continue to build passion and loyalty for the brand. The new marketing campaign that we launched last year of Untouchable was extremely well received by the student athletes and the adults that we market to. It's helped build traffic and excitement, and it's really, we're in the process of optimizing this media mix. We took a number of dollars out of our Sunday circular and put it into this marketing campaign, which has had great success, and we really think it was a big help in driving our first, second and third quarter business this past year. We're going to do the same thing again. We've just launched our Day 1 campaign, which talks about the first day of practice. And the testing that we've done and the early spots that we've run, we've had great response from the athletes of really kind of understanding them and what it's like that first day of practice. So we continue to work this marketing mix differently than we've done in the past with great success.

As our consumers' media consumption continues to evolve, so does our marketing shift. We launched 2 digitally exclusive campaigns this last year, which was Hell Week that we put online, which Hell Week was a 5-part mini documentary series about an intercity Detroit high school team that won the state championship last year and kind of walked them, kind of went through them from what it took Hell Week in football and, to some extent, soccer is -- it was a great documentary. Like I said, it was 5 parts. It got great reviews, and it really resonated with those kids.

We also implemented something else that was exclusive online, which was the Dick's Sporting Goods jersey report, which you could go in and kind of see what was the key jersey of some the key NFL players this past year, which was really helpful. And our NFL jersey business was great this year with the launch of the new Nike jersey.

We're going to continue this year to a running campaign that will be online, which is going to be a 13-part series that takes different people and talks about how and why they won. This will be a campaign that will not only be online, but also portions of that will come in to the traditional media, and you can be -- you'll be driven to the online site to see more about the stories and about how and why these people run, whether it's they run because they're sick and they need to do that or they run because they're running for somebody, they're going to run a marathon in memory of someone, these are pretty gripping stories that kind of really touched the emotional heart of why real runners run. And we're pretty excited about that.

Our TV marketing is going to continue to build on the untouchable spot that we did last year, kind of telling -- encouraging athletes to come in and be untouchable and what it takes to be untouchable. The Father's Day spot, which took a father from playing his last high school or college football game to when his son played his last high school football game, and it was the amount of response and tweets and e-mails we got about that spot were terrific to the other marketing campaigns that we did. We're really excited about following this up this year with this Day 1 launch that just started last week.

We will continue to build these campaigns, and we're looking to what we're doing from a Father's Day standpoint. So these campaigns really did very well. We are excited about those. And as I said, we will continue to build on this emotional connection we have with these kids. It's been amazing the amount of kids or parents who've come up to me and talked to me about the untouchable spot or the Father's Day spot or this new spot we did about Day 1 and how it really resonated with them, they could see themselves in that. And you should take a look at this -- the Day 1 spot. There's a character in the film, these are real athletes. This girl who had an ACL blown out, and she's going to the first day of practice, and she's really -- and we just filmed these kids' practices. So this is really not staged. It was actually filming these kids' practices with the camera and kind of however it is and then we kind of cut it. And this one young girl that we've had the biggest response of has the scar on her knee that she'd blown out her ACL a year before, and you can see her the first day of practice putting on this brace, and she's just scared to death to go out there and play, because she knows that in an instant, this knee could blow out on her. And it's a pretty emotional aspect of the spot, and we've had just great reviews on this. So what we've done from a marketing standpoint has been great. What we're doing from a -- the way we think we can grow our digital business, the investments we're making in our business going forward. I can tell you that we have never been more excited about where our business can go than we are right now.

So with that, I'll let Tim talk to you about the financial aspect of our business and we'll open it up to questions.

Timothy E. Kullman

Thanks, Ed. We've successfully grown our top line over the years, with our 5-year cumulative annual growth rate for our sales at 8%, while our bottom line has grown at an the even faster pace at 16%.

On the inventory front, we've been focusing on reducing inventory per square foot. And at the end of 2012, our clearance inventory was down 14% per square foot, and our total inventory was up a small 0.7% as of end of the year. However, we're not done. With the system solutions that we're implementing, we believe that there's more opportunity and more improvement ahead.

Now looking to the return on invested capital. While this metric has improved over time, we recognize that we have much opportunity ahead. And to that end, we prioritize our use of cash in the following manner. First, we want to invest in the business. Ed mentioned that investment in eCommerce. But as we go forward, we'll continue to develop sustainable and continuing growth, whether that be adding to or investing in our stores, our eCommerce, as well as our new systems.

Second, we are returning cash to the shareholders. We initiated a dividend program back in 2011, and we have also started a share repurchase program in 2012 where we repurchased 4.1 million shares in order to offset the diluted impact from the exercise of 10-year options that were set to expire in 2013. We recently announced, as recently as yesterday, a new 5-year, $1 billion share repurchase plan. This plan at a minimum per year will take our stock outstanding share count to a flat perspective so that we mitigate or take away the dilution caused by our stock compensation.

And finally, we'll consider other investments over time up to and including strategic acquisitions. As we look at our recent results, in the fourth quarter of 2012, sales increased to 12%, driven by a 1.2% consolidated pound [ph] store sales increased, the opening of new stores and the addition of a 14th week.

The gross margin rate increased 79 basis points, and operating profit increased from $184.3 million to $211.1 million, resulting in a 17% increase in EPS from $0.88 to $1.03, including $0.03 from the 14th week.

Our guidance as of March 11 was as follows. For the first quarter of 2013, we expect consolidated earnings per diluted share to be in the range of $0.47 to $0.49. For the full year, we expect consolidated earnings per diluted share to be approximately between $2.84 and $2.86.

In 2013, we'll be making meaningful investments for the long-term benefit of the business and for our shareholders. These include investments in our omni-channel platform, store remodels, new systems and new concept development. In total, we expect that these investments will have a $0.12 impact on earnings per diluted share over the course of the year. Our guidance takes these incremental investments into consideration.

On a shifted basis, consolidated same-store sales in the first quarter of 2013 are expected to be a negative 2% to a negative 1% as compared to an 8.4% increase in the first quarter of last year.

On an unshifted basis, consolidated same-store sales are expected to be flat to 1% in the first quarter. For the full year, we anticipate that our consolidated same-store sales will increase between approximately 2% to 3%, and this is on top of a 4.3% increase in 2012.

In 2013, we plan to open approximately 40 Dick's Sporting Goods stores, of which 2 will open in the first quarter. We also plan to reposition approximately 2 Golf Galaxy stores and relocate 1 Dick's Sporting Goods store. We will also open 2 additional True Runner stores and open approximately 2 new Field & Stream stores.

Concerning the opportunities we have before us, our planned strategies and our demonstrated ability to execute, we have set the following goals: First, to reach double-digit operating profit margin. Second, to triple the 2011 size of our eCommerce business by 2015. Third, over time, to grow our new store base to 1,100 new stores. And fourth, to grow our private brand and private label business to $1 billion in sales by 2017.

And finally, we'd like to discuss our longer-term strategic growth opportunities and investment plans, so we've decided to have our first ever Analyst Day in September. September 18 will be the date that we have this event. During the event, we'll explain how we were leveraging the focus and drive of our team, to grow our company and to continue to lead the industry. Our commentary will include an overview of our merchandising strategy and a 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 investment plans. During the day, we will offer guided tours of nearby Dick's Sporting Goods store and our first Field & Stream store. It promises to be a great event, and we look forward to seeing most of you there.

This ends our prepared remarks. We'll now be able to open it up for Q&A.

Question-and-Answer Session

Robert F. Ohmes - BofA Merrill Lynch, Research Division

Great. I'll kick it off. Ed, I was hoping you could talk a little more about the eCommerce business. 2 things, remind us the sort of the history and transition of bringing that back in-house and where that stands and where you think the profitability is and where it could get. And then second, you're obviously investing in it a lot. Can you talk about the exclusivity of what you'll be able to sell through stores and online versus what you think could be happening at the Amazon and also with the vendor websites?

Edward W. Stack

Well, the eCommerce business, we've been in this for quite a while. We were in a relationship with GSI. The GSI did everything. GSI owned the inventory. We had originally just licensed it to them. We have now taken that back where we're responsible for the merchandising and marketing aspect of it, kind of the operation side of that aspect of the business. But GSI still does the fulfillment from their distribution center. They still host the website. It's still their technology platform for the most part that we're on. We were able to renegotiate that contract and from different aspects, and it now ends in 2017.

We think there is a huge opportunity for us from an eCommerce standpoint. And a number of people look at it as a threat. We look at it as an opportunity. There's going to be a significant amount of business done online, and we plan to go and get that. And you can see that with kind of the investments we've made and the way that business is growing.

It's still not the same profitability as an in-store transaction. So today, we're ambivalent, we want the business. So we're ambivalent as to whether you buy it from us online or you buy it from us in the store. But right now, it's more profitable if it's bought in the store. Michelle and her team, who have done a great job changing the profitability models from how it's distributed, that fulfillment channel and the ship-from-store component has made this significantly more profitable. We think over the next 3 years or so, we will be ambivalent as to where it comes from, from a profitability standpoint also.

So we're moving at a rate [ph], it's much more -- and we're not for competitive reasons going to kind of articulate this, but it was much more profitable this year than it was last year, and it will be much more profitable this year than it was this past year. So we continue to be excited about the progress we're making from a profitability standpoint.

Robert F. Ohmes - BofA Merrill Lynch, Research Division

And sorry, just in-store fulfillment and how that works with GSI.

Edward W. Stack

So GSI has a warehouse that they ship product out of. So we buy product. It gets shipped into the GSI warehouse. GSI does the fulfillment, and there is a fee that we paid to do that. We can now, by shipping from a store, we can ship products out of our inventory that we own in the store, and we can get it to the customer faster, and in many cases, we can get it to them cheaper than coming out -- from a distribution standpoint, freight standpoint -- than coming out of GSI's warehouse. And we expect that mix of fulfillment channel to move, continue to move more to ship-from-store at much more profitably. I think that's bad grammar, but you know what I mean, much more profitably than out of GSI's warehouse. From an exclusivity standpoint, the exclusive products that we sell in the store, we sell those online. We continue to move with our brands to try to have more product exclusive to us, whether it would be increasing the colors or the specific styles of product that are exclusive to us that you can't find other places that give us a competitive advantage, and we're continuing to move in that direction.

Robert F. Ohmes - BofA Merrill Lynch, Research Division

Questions?

Unknown Analyst

I have a couple of questions related to the store-within-a-store concepts you mentioned, such as Nike and Under Armour. One, could you characterize the sales per square foot and the profitability per square foot relative to the average of the chain? And then, second, what sort of ultimate penetration would you expect of those various concepts? So is it the kind of thing that will work in 1/3 of the stores, 1/2 the stores, 3/4 of the stores, all the stores? Just some feel for how widespread those might be.

Edward W. Stack

Sure. So for a competitive standpoint, we're not going to kind of get to that level of granularity of what the sales are and the profit is of those shops. Understand there's a big difference in the profitability and the sales of those shops versus when there isn't a shop. We think that from the number of stores that those could be in, it's probably somewheres around 75% to 80% of the stores. We've got the Nike Fieldhouse concept in 171 stores right now. We plan to add 100 stores this next year. Some of those will come through new stores, and then we're going to go back and remodel 75 stores. We looked at some really great stores from a performance standpoint that today doesn't have those shops in it and doesn't have the infrastructure in place to accommodate those shops. So we're going to go back to 75 of those stores and put that in this year. That's going to cost us about $0.02 in earnings this year above and beyond what we would normally do, and we'll have the infrastructure, the portal walls, the traffic patterns to be able to accommodate those shops. And virtually all of those will get shops this year. It won't be done until, really until Back To School. Most of them will get done by Back To School. But we're pretty excited about that, and we'll go back in next year and we'll do another 75 stores to maybe 100 stores next year.

Unknown Analyst

Just following up on Robbie's eCommerce question, why not bring eCommerce in house away from GSI sooner and assume full control of it? Right now, when I search for a sporting goods item, GSI fulfills you and a bunch of other places. And since it's their presentation, the picture of the basketball I'm looking for looks exactly the same across you and Sports Authority and Dunham's and a bunch of other places. And Dunham's always has a 10 or 20 off coupon, so if I buy it from them, it's cheaper. Since the level of competition in the Internet is not so high and since you're so far the leader, why not kind of seize the reins and drive it sooner and better and faster?

Edward W. Stack

So we're contractually obligated through '17 with GSI, but if you take a look at our site, we've made changes that it is different than -- if you looked at this 3 years ago, you looked at TSA's site, Dunham's site, a few others, it looked almost identical. It's not that way any longer. So the site looks different in some of the aspects that we've done, whether it be the Nike micro site, some of the things we've done in the footwear area, the golf area. So the answer is we would love to do that if we weren't contractually obligated through '17. That's why we're making these investments to give us the opportunity to do that when we have that opportunity. This investment we're going to make will house our Golf Galaxy website, which is not with GSI. It will give us the opportunity to house this website. We'll do a lot of our testing on Golf Galaxy and the Field & Stream concept we do, which will not be with GSI, to be able to cut over if we decide to cut over and have this all control. We're control freaks. We want to control the whole thing. If you're going to be a best-in-class retailer 3, 4, 5 years from now, you have to control all aspects of your site. And there's some limitations to the site today that we're disappointed about that we're working through. And if we could do that, believe me, we would do it in a second.

Unknown Analyst

Just as a follow-up, when you ship from the store, do you still owe GSI a fee?

Timothy E. Kullman

We still do owe GSI a fee, but it's a significantly reduced fee than if it's coming out of their distribution center, and it's a big difference. So that's why we've started to -- we have moved some of this fulfillment to the store channel, which, as I said, is a lot more profitable, which is why Michelle and the team have been able to make the eCommerce business a lot more profitable this year than it was last year.

Unknown Analyst

How do you think about your online customer acquisition cost? And how aggressive do you feel you're being in terms of advertising online?

Edward W. Stack

We think that we're appropriately aggressive right now. We continue to work on search engine optimization, both on natural search and in paid search, and we continue to market our online business through our traditional media also. So any of the Sunday circulars that you see, there's a meaningful presence of reminding people that they can go online. All of our tabs are online. So you can just scroll over a product online and...

Unknown Analyst

How aggressive are you being on mobile?

Edward W. Stack

Very aggressive.

Unknown Analyst

How much are you spending on mobile advertising? What are you doing on Facebook, for example? What are you doing in Pandora, what are you doing...

Edward W. Stack

Well, we're on Facebook, but we're not going to get down to the granularity of how much we're spending on these spaces. But we're investing very aggressively from a mobile standpoint, with search engine optimization, how we market this across all channels, and you can see that the benefits that we're getting, our eCommerce business last quarter increased 54% at increasing profitability.

Unknown Analyst

Sorry, last. But do you have any guess as to how big Amazon is in your category?

Edward W. Stack

I mean, they are relatively large, but they are selling different products. So the analysis that we've done is 72% of the products that we carry Amazon does not carry. So the overlap is much smaller than...

Unknown Analyst

What about by category? If you look at, you're selling -- are they selling running shoes and you're selling surfings [ph] or skis or whatever?

Edward W. Stack

Well, that means if there's -- if you take a look what they're selling, many of our brands don't sell Amazon on a direct basis, which is why we're 72% -- 72% of the product we carry they don't. So Nike is not selling them on a direct basis. Under Armour is not selling them on direct basis, and we don't think that's going to change any time soon. When we first took the company public 10 years ago, one of the conversations was how are you going to survive Walmart, Target, and -- it sounds kind of odd right now -- Kmart back then, but in the brands didn't sell those categories of retailer, and I don't suspect they're going to be opening up that distribution to Amazon on a direct basis.

Unknown Analyst

Could you -- you talked about opening 2 stores going to be, I'll use the term Cabela-like. And could you talk about what your thought process is there, why you think that's an attractive business in terms of the returns relative to Dick's, and what products will you carry there? Obviously, there will be more of it, but what products are you going to carry there that will not be in a typical Dick's store?

Edward W. Stack

So we think that the outdoor category is an evolving category. As we've taken a look at the outdoor category, when Cabela's -- and I think they're a really very good operator. We've got a lot of respect for Cabela's. As you take a look that they used to open up the 200-plus thousand square foot stores kind of outside kind of the market, if you will, on this enterprise zones, they were a different retailer. What they've done now is shrinking the size of their store, because when they built those stores, there would be certain types of bonds that they would be able to float or the town would float for all the improvements to get these stores done. That's not available any longer. So they've done a really nice job of modifying their business and having these next-generation stores that are between 80,000 and 110,000 square feet, or they're outpost stores that are 40,000 to 50,000 square feet, which changes their real estate strategy. Which now they can come in and drop a store kind of right in the same market that we're in, relatively close. So we feel that we've got to take a look and see -- we've got to look at that competitive dynamic. And one of the things that we've always been pretty good at is being able to forecast the market of what's coming at us from a competitive standpoint and be able to mitigate that threat. We think this is a business that we have expertise in. It's really the genesis of the business. Dick's Sporting Goods started as a bait and tackle shop and evolved into the hunting business. So we've got great expertise here. As we take a look at some of the products that we will be selling at -- in the Field & Stream concept as opposed to the Dick's concept, there will be some better higher-end hunting and shooting products, including some higher-end in a broader assortment of apparel that we don't carry at Dick's today, and the firearm assortment will be slightly modified that we don't sell handguns at Dick's, we will be selling handguns in the Field & Stream store.

Unknown Analyst

Could you just talk a little bit more about the on-ground competitive environment? Any changes with what you're seeing from Academy? And then with Sports Authority, I would think their struggles over the years have been a benefit to you. Any changes there?

Edward W. Stack

We haven't seen any real difference in the competitive dynamics of what people are doing out there. So Sports Authority hasn't really changed much. We haven't seen much change in Sports Authority when the new management team came in. So that's been relatively consistent. We see some stores that look good. We see some stores that don't look good. But we haven't seen a big difference. We haven't seen a big difference either with Academy. So when KKR came in, they've done a very nice job with that business. We have -- we think and we've always said that Academy was our toughest competitor. We think that they run a good shop. And we haven't seen any changes where their new owners have kind of mucked it up. They're still a very good operator, and we've got a lot of respect for them. And we see they continue to open stores, but at relatively the same rate as they have. TSA seems to be opening some stores, but not nearly at the rate that they did at one time. Other questions?

Unknown Analyst

[indiscernible]

Edward W. Stack

Yes, so we're looking of those algorithms to be able to do that. Right now, if the product is not in GSI's warehouse, it's going to the store. And there will be some who will be able to kind of modify that mix, as we don't ship some product into the GSI warehouse and it can only be found in the store. So we'll move some of that traffic that way.

Unknown Analyst

[indiscernible]

Edward W. Stack

We're a ways off from that. I talk to Michelle about that all the time, that -- it drives her nuts. I always say, I don't understand how somebody can -- you can order a pizza, they can make the pizza, it's $15, and they can deliver it in 30 minutes. I don't know why we can't deliver a $400 driver sometime that day, but we're working on that, but we're a ways away from it. And it drives her nuts, and she's giving me the evil eye right now.

Robert F. Ohmes - BofA Merrill Lynch, Research Division

We are out of time. I want to thank Ed and Tim for a great presentation.

Edward W. Stack

Thanks.

Robert F. Ohmes - BofA Merrill Lynch, Research Division

Thank you.

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