Dick's Sporting Goods' CEO Hosts Analyst Day Conference (Transcript)

| About: Dick's Sporting (DKS)

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

Analyst Day Conference

September 18, 2013 8:00 am ET


Anne-Marie Megela - Director of Investor Relations

Edward W. Stack - Executive Chairman and Chief Executive Officer

Lauren R. Hobart - Chief Marketing Officer and Senior Vice President

Michele B. Willoughby - Executive Vice President of Inventory, Supply Chain & eCommerce

John G. Duken - Executive Vice President of Global Merchandising

Joseph H. Schmidt - President and Chief Operating Officer

Matthew J. Lynch - Chief Information Officer and Senior Vice President

André J. Hawaux - Chief Financial Officer and Executive Vice President - Finance, Administration


Michael Lasser - UBS Investment Bank, Research Division

Michael Baker - Deutsche Bank AG, Research Division

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

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

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

Robert F. Ohmes - BofA Merrill Lynch, Research Division

William A. Priebe - Geneva Capital Management Limited

David Gober - Morgan Stanley, Research Division

Michael Jacob Karapetian - Janney Montgomery Scott LLC, Research Division

Camilo R. Lyon - Canaccord Genuity, Research Division

Gary Balter - Crédit Suisse AG, Research Division

Paul Swinand - Morningstar Inc., Research Division

Joseph I. Feldman - Telsey Advisory Group LLC

Mark R. Miller - William Blair & Company L.L.C., Research Division

Christopher Svezia - Susquehanna Financial Group, LLLP, Research Division

Christopher Horvers - JP Morgan Chase & Co, Research Division

Kate McShane - Citigroup Inc, Research Division

Anne-Marie Megela

Good morning, and welcome to DICK'S Sporting Goods Analyst Day. We're so excited that you're here with us, whether it's here in Pittsburgh or listening on our webcast.

As you know, this is our first-ever Analyst Day, and so we've worked really hard to create an agenda that's both informative as well as a representation of the DICK'S Sporting Goods culture. Our theme today, leading, growing, focused and driven, really speaks to our dominant position in the marketplace, our exciting growth opportunities and how we are keenly focused on succeeding and we are driven to results. Today, you'll get to know us a little bit better. You'll get to know our business plans. You'll get to know what we're doing and how we're doing it. And as we interact with you, answer your questions, engage you in the stores, we'll get to know you a little bit better, too.

This morning, we'll start by sharing with you some history of DICK'S Sporting Goods and how we built our business to be the leading company in the sporting goods sector. Additionally, we have several members of our management here today. They will be discussing key elements of how we're growing our business. We will also outline for you a financial roadmap to meet our 5-year growth and margin goals. Then, this afternoon, you'll have the opportunity to take a guided tour of a Field & Stream store, which is our first one, and also, our DICK'S Sporting Goods store.

But before we get started, I have a few housekeeping items to go over. The first is we will be conducting a Q&A session after the management presentations. We're going to have 2 roaming mics. I ask that you use those microphones when asking your questions for the benefit of our guests who are listening on the webcast. The second housekeeping item is that you'll be receiving a survey today. I ask that you take a few moments to fill it out. Your feedback will be very helpful as we continue to improve investor relations marketing efforts.

And the third housekeeping item is that 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 includes, but are not limited to, our views and expectations concerning our future results. Our actual results or actions may differ materially from those projected in the forward-looking statements. For a summary of the risk factors that could cause results to differ materially from those expressed in the forward-looking statements, please refer to our periodic reports filed with the SEC, including the company's annual report on Form 10-K for the year ended February 2, 2013.

We have also included some non-GAAP financial measures in our discussion today. Our presentation to the most directly comparable financial measures calculated in accordance with GAAP and the related reconciliations can be found on the IR portion of our website at dickssportinggoods.com.

Okay, that's it for all the housekeeping items. I hope you have a great day. I hope you get a lot out of it. And I'd like to introduce Ed Stack, our Chairman and CEO.

Edward W. Stack

Good morning, everybody. Can everybody hear okay? Well, good morning, everybody. We certainly appreciate you coming to see us today. I know some of you have come from a far distance, so we're happy to have you here. And again, this is our first-ever -- first Analyst Day, so bear with us. And hopefully, we'll do an okay job for you. And as Anne-Marie said, we've got the surveys. We'd appreciate if you fill it out so the next time we do this, we can do a little bit better job. We've talked about relentless improvement in our company all the time, so we would like to relentlessly improve this aspect of our business also.

I think we've got a great day in store for you today. Our management team will reveal our goal -- our business goals through 2017. We'll also illustrate our strategies and tactics for achieving these goals. You'll meet a number of people from our management team, who, I think, you'll find to be terrific. We'll also tour a newer -- a new DICK'S Sporting Goods store, as Anne-Marie said, that opened up last October, and we have a tour of the new Field & Stream store that we opened up just last month.

I'm going to kick off the presentation with a historical view of our company, beginning with my father who started the business and to where we are today. That will take maybe 15 minutes or so. I'll answer some the main questions that we've heard from the investment community over the last couple of months about our business, including the recent business issues that we've had over the last couple of quarters, structural or they're really only short term. We'll talk a little bit about our store size as we go forward. We'll talk a little bit about the number of stores that we plan to open, which has been one of the questions we continue to get back from you guys. We'll talk about why we built the Field & Stream concept, and we'll talk about our capital allocation plan.

So I'm going to begin with the history of the company. So the company, it was started by my father roughly 60 years ago, a little more than 60 years ago. We -- he started it -- he was working as a young kid. He was probably 18 or 19 years old, working in Binghamton, New York in an Army/Navy store. And as the Army/Navy surplus started to dry up after World War II, the guy that he worked for asked him if he would kind of put together what he needed to get into the tackle business. My father was an avid fisherman as a kid, fished all the time on the rivers back in Binghamton. And he spent a lot of time with his grandfather. And because, unfortunately, his dad was killed on a car accident when he was 5 years old, so he spent a lot of time with his grandfather fishing and hanging out. So this guy knew that he was really into the -- understood tackle, so he asked him to put this order together, what he needed to get into it.

Well, my father went home that night, as he tells the story, and put this order together. And every year that he told that story, he stayed up a little bit later. And by the time he told the story to my kids, he had stayed up all night long, he pulled an all-nighter to put this order together. And when he came back, and he tells the story, it was on 2 yellow sheets of paper. So what he did all night to only have 2 yellow sheets of paper, we have no idea. But his story is that, and he stuck to it, he stayed up all night long, putting that order together.

When he came in the next morning and handed the order to the guy who owned the store and the guy took the order, scribbled half the stuff off, told my father he was a dumb kid, didn't know what he was doing. And my father who had the typical Irish temper, didn't take that very well, grabbed the piece of paper from the guy, walked out of the store and never went back. He went over to his grandmother's house, which I've told you he spent a lot of time there, went over to his grandmother's house and sat down and talked with her about it, kind of was pretty upset about it. And we all know, grandmothers are usually pretty good listeners, so she sat and listened to him about what was going on.

And she finally, said, "What would this take for you to do it yourself?" And he said, "About $300." And this -- his grandmother, who is a matriarch of this Irish Catholic Depression family, who literally had virtually nothing, went over to this cookie jar in the kitchen, in the back corner of the kitchen, in this cookie jar where she had some money that she scrimped and saved for years and reached into this cookie jar and took out $300 and said, "Go do it yourself." So that's what he did.

He went and did it himself, and he opened up this store right here in Binghamton, New York. With this $300, he went down to a jobber, bought some fishing tackle and came back and opened this up. And as we used to tease my father kind of through life, that this place was so small that it didn't even deserve a full mailing address. As you see, it was 453.5 Court Street. So it was a pretty small place. So as he did this, he opened up this store, then he relocated to another store, a little bit bigger. And then, in 1961, he built his own store, found a piece of land down the street and built this store in 1961. This store was roughly 5,000 square feet, and in 1961, a 5,000 square feet kind of sporting goods store was a pretty big store.

Primarily, what we sold in the store was fishing tackle, hunting, camping and a little bit of sports. About 10 years later, 1971, 1972, my father bought a competitor out in the next town over. He liked to say that it was in a -- he bought in the -- bought a competitor out in one of the suburbs of Binghamton, but we never really thought Binghamton was big enough to have suburbs. And what it really was, was the town, the next town over. So he bought out this company, and it was 2,800 square feet. So we had 2 really small stores. We had a 5,000-square-foot store. We had a 2,800-square-foot store. And that was our family's business. That's the business that my father started.

When I was 13 years old, he put me to work in these stores because as he would say, he was going to teach me responsibility. And I worked there as a kid in vacations, summer vacation, Christmas vacations. If I wasn't playing baseball or football, I was working in the store. And to be honest with you -- I worked there through a little bit of junior high school, through high school and through college, and to be honest with you, I hated every minute of it. I wanted nothing to do with that business. I was -- when I -- as I got ready to go to college -- and my plan was to go to college and then go to law school. Just what we need, another lawyer, right? But that's what I plan to do, was going to go on to law school. And I wanted nothing to do with the business.

I remember my father took me up to -- I was the oldest of 5 kids. My father took me up to the college, and I remember standing in my dorm room, watching him drive away. And as I said, I'm the oldest of 5, we had the Chevy Chase National Lampoon's Vacation station wagon. We had that exact -- a different color but that exact car. And I remember standing up there in that third floor of my dorm room, watching him whine through campus to leave. And I -- just like it was yesterday. All I could think of is when he drove away, and I was in college, all I could think of is Martin Luther King, free at last, free at last. Thank God, I'm free at last, and I never have to go back to work there.

So as I got ready to get out of my freshman year, I got a job in a law firm, back in Binghamton, as a clerk, which sounded great, but I knew I was just a gopher. I was going to get coffee for this one and that one and file papers. But I just want to be around the environment. So I came back pretty excited, told my father that I got a job at this law firm downtown in Binghamton. And my father went ballistic, and he looked at me and he said, "That business is what puts the food on the table for this family. That business is what's allowing you to go to college. You're not going to work in any "fill in the blank" law firm. You're working right here." So I continue to work there.

So I stayed there through my college, when I come home for summer vacation or when I get back for Christmas vacation. I remember, one time, I actually stayed an extra night at school at Christmas vacation and most of -- my friends had all laughed. But I just took 1 extra night to stay there because I didn't want to go back because I knew, if I went back, the next morning, I was going to be at -- I was going to be working.

And so as I got ready to get out of college, I'm planning to go to -- I was going to go to law school. And as things would have it, my father got really sick. He had to have a double bypass operation back in the '75, '76 -- '76, I think he had it. He had a double bypass operation. And back then, a bypass operation and especially a double bypass operation was somewhat experimental surgery. It was pretty difficult surgery, and the mortality rate was relatively high.

His -- he went in and had the operation. When he came out, he started to bleed out. Anything that you see happen -- if you watched ER years ago, anything that you see happen in ER happened to this guy. He went in, had the operation, came out of the -- into the recovery room, started to bleed out. They took him back into the operating room to repair what happened. He had heart failure out in the operating table. They brought him back, revived him, and he lived for a long time. He passed away about 16 years ago. But he never quite made it back physically or emotionally from that ordeal.

And so as I'm getting ready to get out of college and I came back into the business to help out, I had to come back into the business to help out. So as I came back into the business to help out, never thinking I would stay this long, as I was there for probably a couple of months, I will tell you, I fell in love with the business. I just -- I fell in love with retail. I fell in love with the business. I fell in love with the sports business. I just absolutely fell in love with the business.

And as we started to -- I wanted to do some things in the business. I wanted to open up another store. I wanted to get into some categories that we weren't in. I wanted to get into the athletic footwear business. And as I played baseball and football through high school, I never bought my cleats at our store, if you can even imagine that, because we didn't sell them. So I wanted to get into these other categories, and I wanted to open up other stores. And my father wanted nothing to do with it. My father and I, as we would talk -- had talked later in life, we had a -- I definitely had a different agenda than he did, and we had some pretty spirited conversations.

As we talk about my father, my father was -- my father talked in incomplete sentences and 1-syllable words, but there was no interpretation required of what he was trying to tell you. You knew exactly what he was saying, and we were having one of these spirited conversations 1 day, and we'd had a couple of them. One day, one time, before this story I'm going to tell you about, he actually fired me. Well, he says that he didn't fire me, he said I quit. So I'm not sure which it was, but I still go on record and say that he fired me. But it lasted for about 2 days and I was back at work.

But as I said, my father talked in these incomplete sentences and 1-syllable words, and we were having one of these spirited conversations. He looked at me 1 day and stuck his finger in my face, and I'll clean up the language for you. He looked at me and he said, "You think you're such a smart SOB? Go down at the bank, get your own line of credit and buy me out." So that's what I did. I went down to the bank, talked to the banker, the local banker there, put together a line of credit and financing and came back for my father and said, "Okay, we're ready to go." And I quickly found out he wasn't quite ready to go yet.

So it took a little while longer. It actually took a couple of years later, and we put this together and bought my father out of the -- basically, these 2 stores. My brothers and sisters were part of the ownership group. They were all still in college or high school, but they were all sort of part of the ownership group. They all still have equity in the business today, and that's what happened when we took the kind of -- when I bought the business from my father.

As we kind of continued to grow the business 1 store a year, we opened up a store in Syracuse a couple of years after we did this. And my father, even at this point, wanted nothing to do with expanding the business. He just thought his oldest son was out of his mind. And as I said, my dad had been sick, and so I would try to get my father out from time to time. And so I was going up to the new store in Syracuse that we opened up, and it was -- this was 1986. And it was 20,000 square feet, which, in 1986, was a pretty big sporting goods store. So I've convinced my dad to come up -- just to get out of the house. I was having this meeting with Nike and said, "Why don't you come out up?" So he drove up with us. And my father was -- kind of looking to his personality, he was a pretty tough guy. He didn't -- he was really old school. He was that generation, that World War II generation, the greatest generation, and he didn't give out compliments very, very much.

So we got into the store and the guys from Nike said, "Dick, you must be really excited about this store. It looks fantastic. They've done a lot of business. You must be really proud of what all these guys did." My father looked at him straight-faced and said," You know what, they did 25% more business the first month than they thought they would. So you know what, they're really not quite as smart as they think they are." And he could have worked on Wall Street. So we did that, we continued to open up about a store a year. We had a number of venture capitalists who called us to see if they could make an investment in the business, and we really didn't want any partners at the time. Now we have all you partners so it's great.

So there are a number of people who'd called us, and we never really did anything. And then a guy, Michael Barach, called me from Bessemer Venture Partners in Boston. And some people you just click with, and Barach and I clicked, and he made an investment. Shortly after that, he -- Oak Investment Partners out of Minneapolis made an investment that holiday, along with Sprout, which was the venture arm of DLJ. They made an investment. We kind of -- we continued to grow the business. And then in 1994, we moved the business from Binghamton to Pittsburgh.

We knew that we're having a very difficult time trying to recruit any retail talents to Binghamton, so we felt that we really needed to move. We looked at a number of different places, and we ended up in Pittsburgh. By the time we got to Pittsburgh, we had 22 stores, we had a terrific Board of Directors, we had a new group of investors. So those investors still continue to invest in the business, the original ones. But we also had Denis Defforey, who was the Chairman -- who was the cofounder of Carrefour, invested in our business. And we had Paul Allen, through Vulcan Ventures, invest in, in our business.

When we got here to Pittsburgh, we had 22 stores, so we thought we'd open up 18 stores on a base of 22, and we had a case of indigestion, big case of indigestion. We almost lost the company. It was really difficult there for a while. We then -- the banks didn't want anything to do with us. The investors said that they would put more money in if we could restructure our loan. We went to some people, and we -- they said, "If the investors put in more business, we'll restructure the loan." So we were kind of caught between a rock and a hard place.

We actually finally got it done with GE Capital. And if you remember, GE Capital back in the mid-'90s, they were really the lender of last resort before you called Tony Soprano, and we didn't want to call Tony Soprano. So we got that deal done, recapitalized the company. The investors put in more money, and we stabilized the company. And we've had a great run since then. We kind of talk about it internally and say that we looked into the holes of hell and we're never going back. And we've really kind of done what we've done with the business since then.

One of the things that I'd like to take -- talk to you about now are things that we've done in the business to kind of stay ahead of the curve, some of the things that we've done to innovate in the business. And some of these decisions weren't really very popular at the time, but they ended up to be really good decisions. One of the things that we did early on back in 1999 is with the eCom business or the dot-com business, at that time, it was called, we embraced that business pretty quickly. I think sometimes, people think that all retailers are -- had reluctantly went into the eCommerce business. We're not one of those retailers. We embraced this right from the very beginning.

And in 1999, we spun out of DICK'S Sporting Goods a company called dsports.com. We invested a significant amount of money into this. We had a number of investors who invested in the business, including some of the people who had invested in the company. We're still a private company at this time. We appointed the President of DICK'S Sporting Goods, Bill Colombo, to run the dsports business, and Bill is still our Vice Chairman today. We put together an independent management team. We put together an independent board. We invested really heavily in this business back in the late '90s, early 2000.

When we realized we weren't going to be able to make any money for a very long time, we knew we needed a different direction. We couldn't continue to invest. Our partners realized this was going to be a long haul, and at this time, a number of the dot-com companies have started to burst. That bubble had burst. Even though we knew that this was going to be a long haul, there weren't going to be any profits available in this side of the business for possibly 10 years, we knew it was a business that we needed to be in. We knew it was going to be a significant aspect of the future of retailing.

In order to accomplish this -- we still wanted to be in this, but we couldn't continue to make those types of investments. So to do this, what we did is we licensed our name to GSI. GSI, in return, provided us a web-share program on the business that was associated from the DICK'S Sporting Goods or the dsports.com site. This required no financial investment from us, no inventory investment and no meaningfully ongoing expense structure at all. At the time, it was perfect, not perfect today. We're in the process right now of redoing this. We've partnered with IBM and WebSphere to build our own platform. And what was great then isn't necessarily great now, but it was terrific for us at the time. It gave us the opportunity to monitor this aspect of retail as it unfolded, while continuing to be a part of it.

In exchange for our name, GSI managed our eCommerce business, and we received an equity position in GSI. I think, at the time, we were roughly the fourth largest shareholder in GSI. Over that time period, we had no investment, no costs associated, but really, we're able to monitor the business and see what was going on. And we -- and the rev share, we received roughly $9 million that flowed right to the bottom line over these couple of years. And our investment, over time, we realized the profit of about $30 million. So all in all, it was a pretty good deal. If we think about it, and we talked about it internally, but just think if we hadn't done that partnership with GSI, we wouldn't be where we are today. And from that perspective, in sporting goods and a number of other people in retail, we're much further ahead, much more invested, much more enthusiastic about the eCommerce business, and we have been since 1999.

Another concept that we did that had -- that paid great dividends was, in 2003, we tested a concept called Ativa. It was a women's athletic concept focused on the woman 25-plus, who is interested in her own well-being. While a small company, we understood that we needed to get out of our comfort zone and try something different as a way to move our core business forward. As we did this, we were pretty pleased with it. We thought there was an opportunity here, but we soon realized that we were too small at the time and too undercapitalized to try to run 2 businesses. We eventually closed the Ativa concept and had been and continue to apply what we learned from that venture into the DICK'S Sporting Goods stores.

The results from the woman standpoint have been phenomenal. What we learned from Ativa is the genesis of what our women's business is today. Today, we're the largest women's premium retailer for Nike, Under Armour, Reebok, I think, Adidas, and a few others. We continue to push our vendor partners and ourselves to gain an increasingly larger share of the women's business. We really feel that if we hadn't tried the Ativa concept, our business, our women's business and our business as a whole, would be very different than it is today. It was a great learning experience. And what we learned from there, we've applied to our business, and we have a very different business today.

Another aspect that we did a number of years ago that wasn't very popular but turned out to be great is there was a company in Indianapolis, Indiana that had developed an interesting concept called Galyan's. We studied this business at a very detailed level. They concerned us. When we took a look at their business, they definitely concerned us. In 1995, The Limited bought the company and started to change it. It seemed to us what The Limited was trying to do with Galyan's is they were trying to make it Abercrombie & Fitch on steroids. We kind of like that direction because it kind of took it away from our competitive set and took it away from their roots. The Galyan's chain, some of you will remember, was starting to struggle, and The Limited brought in the private equity firm of Freeman Spogli to prop up the financial side of this. Pretty soon, this discussion -- and Galyan's was a public company at this time. Pretty soon, the Galyan's started -- the talk was the position had back to its sporting goods roots as an outdoor store. That concerned us.

In the meantime, we developed a 2-level store to better understand what Galyan's was doing. We felt to be able to really understand what was going on with our main competitor, we needed to try one of these stores ourselves. And this was right in our core business. They were going to -- this is a store at Romitan [ph] here in Pittsburgh. Galyan's was going to put their store in this space. And I went up to Forest City and talked to Al Ratner and convinced him to allow us to build our 2-level store, which we have never done in his mall, and he allowed us to do it. Our 2-level store worked great. We had studied Galyan's a lot. The store worked great. In the first year, it did nearly $20 million in sales.

As Galyan's began to really struggle, trying to reposition itself back to its core roots, we took the opportunity to buy it. This gave us a foothold in a number of key markets such as Chicago, Minneapolis, Washington D.C, Boston, Dallas and Denver. This acquisition might really be, in retrospect, the best strategic decision we made. I believe it made us what we are today. If we didn't have this foothold in these key markets and there was a different competitive landscape out there, we'd be a different company today. If we had never tried that first 2-level store and hadn't purchased Galyan's, DICK'S Sporting Goods would not be who DICK'S Sporting Goods is today.

Another thing that we did in 2007, again not very popular, is we bought Golf Galaxy. The specialty golf business at that time was doing pretty well. Golfsmith, Golf Galaxy, Edwin Watts and a few others, the golf business at that time was pretty good. We bought the -- and our golf business at DICK'S, at the time, was 15% of our total business. We had access to almost all premium products in the market, with the exception of PING. We started to hear rumblings from vendors that they were going to segment premium products. They were going to look at their distribution of where premium product was going to go. Titleist, at the time, had already stopped selling those Vokey wedges and stopped selling those Cameron putters. Others were starting to have the serious segmentation discussions that we didn't like. We needed -- we knew we needed to do something pretty quickly or the heart and soul of our golf business would evaporate, and that was 15% of our total business.

We designed, built, merchandised and opened 2 stores called The Golf Shop, one in Pittsburgh and one Washington D.C. We accomplished this in 90 days. In 90 days, the store wasn't there. We took a couple of stores that we're empty. We designed them, merchandised them, opened them in 90 days. The stores did great. We had made some overtures to Golf Galaxy in the past, as many of you know, when we talked about this deal, and we're unable to get a deal done. After we opened these golf shops, they saw how fast we reacted, they came pretty -- they became pretty serious about trying to get a deal done.

On the surface, this acquisition didn't seem like it was great from a financial standpoint. And probably, what we -- I would like to have waited a year to buy them. In 2008, we could have bought them for a lot less, but we knew that Lehman was going to fail and the financial markets were going to just kind of tumble the way that they did. But it didn't look like a great financial play. However, the strategy and benefits that accrued to the DICK'S Sporting Goods business have been enormous. If we hadn't bought Golf Galaxy, our DICK'S business would be very different than it is today. Our golf business would be very different, and our total business would be very different and not nearly as successful as it has been.

We at DICK'S Sporting Goods have always innovated. We've had the courage to experiment. We continued to implement that thought process today. Whether it's developing the Nike Fieldhouse, the Under Armour shops, building our strategic partnerships with ESPN, The Golf Channel, the strong co-branded marketing efforts we did with some of our key partners, we continue to test and innovate. That's who we are. As we take future risks in trying something new, before the red flags go up and everybody starts talking about all that could go wrong, I'd ask you to instead ask, "What will they learn from this? How will they apply this to their business?" As an investor, I'd be happy and enthusiastic that your company has the courage to get out of the box and try something new. I'm an investor also, and I'm happy that we have the courage to do that. We have continuously taken this approach and probably always will.

But I'll tell you, we will never make a bet so big that it will impact the long-term viability of the company. Imagine what DICK'S Sporting Goods would be like today if we hadn't made a deal with GSI and be so invested from an eCommerce and omni-channel standpoint, what would we be like today if we hadn't tested the 2-level store and been able to buy a Galyan's and get a foothold into those key markets from a competitive standpoint or we hadn't bought Golf Galaxy and our golf business today wasn't 15% of our business like it was but it was down to around 5% or 6% and our golf business looked no different than Sports Authority or some other competitors out there. I think if we hadn't developed the Nike Fieldhouse concept or the Under Armour shops or the TNF shops or some of the other things that we have tried to do, we'd be a very different company today and not nearly as exciting. We kind of like the path that we're on.

I'm going to discuss with you some of the questions that we heard from the investment committee over the past few months. One of the conversations we've heard is, "Do you have a structural problem in your business? Or is this really short term?" I will tell you, we don't believe we have a structural issue in this business. We do believe we hit the perfect storm. Last winter was the 10th warmest winter in 118 years. We had an unbelievably cool and wet spring that affected us and a number of other retailers.

There was a significant lack of innovation in the golf business. Now the golf business today is roughly 20% of our business, a little less than 20% of our business overall. In Q1 and Q2, that's a little more than -- probably a little more than 20% of the business. TaylorMade is the largest manufacturer of golf in the world today. They do 1 point -- a little less than $2 billion. TaylorMade is to the golf business what Nike or Under Armour is to the athletic business.

And TaylorMade is owned by adidas, so they had to call out TaylorMade's performance in their last earnings call. And they called out that TaylorMade was down 8%. As I said, TaylorMade is to the golf business what Nike or Under Armour is to the athletic business. And can you imagine what this business would be like, our business Foot Locker, Finish Line, everybody, if Nike ever said they were down 8%? It was a significant lack of innovation in the golf business. There was no reason for anybody to go buy anything new. TaylorMade came out with the new SLDR driver supposed to come out in the spring. They brought it out this fall, and it's made a very big difference in the golf business.

There are things that -- we don't feel that this is structural. Some people have indicated that dollars have cycled out of some aspects of retail into homes and autos. That may be the case, but we feel that doesn't really matter because we've got to go our share of wallet no matter what's happening with the consumer out there. We don't feel that we have a structural issue, as we said in the second quarter earnings call when we were asked about how things have been going in the third quarter, and we normally don't comment about how things are in an intra-quarter basis. We felt that, based on what had gone on, we should probably break that for this time and give you guys a sense of it. And we said that it had been a bit better.

We're much further into the third quarter today, probably a little more than halfway through the third quarter, and I will tell you the business has gotten better. We're pretty pleased with what's going on right now. Our team will share with you some of the strategies and tactics to develop, to grow our business from a sales and earnings perspective, which will drive shareholder value. We really don't believe we've got a structural issue. We hit the perfect storm. And as I said, Q3 has gotten better, and we realize we need to prove it to you, but we're pretty confident right now.

One of the other aspects of our business, we hear, is capital allocation. We have a defined capital allocation plan. We will continue to focus our capital on opening new stores, remodeling and updating stores and categories as needed. We'll invest heavily in what we still believe is the future of retailing through an eCommerce and omni-channel platform. We will continue to repurchase stock to alleviate any dilution from stock options. André will talk about this more in his presentation. We have board authorization to repurchase up to $1 billion of stock over the next 5 years, and we have an annual dividend of $0.50 a share and a 1% yield. André will get into this a little bit more detail in his presentation. We've got capital allocation plan. We're going to modify it a little bit, and I think you will all be happy with it. And André will kind of lay that out for you.

The other thing we hear a lot is number of stores and the size of our stores. We've been questioned about the number of stores that we're going to open and store size. We believe our store size is appropriate. We have identified a number of categories that we feel we can grow significantly. Actually, and this won't make you very happy, we actually feel a bit space-constrained. We think that there's some great opportunities in the women's business to build those categories. We feel we could double the space devoted to the women's merchandise, and we're looking at ways to accomplish this.

The youth area is another category with similar growth opportunities. The licensed professional, NCAA categories are another -- are a couple of other categories that have big growth areas. In all of these areas I just talked about, our margin rate is significantly higher than the rest of the company. But we do have some areas where we need to reduce space. We need to reduce space in the fitness area, the golf area. And if we grow Field & Stream and it becomes significant, which we think it does, we may have the opportunity to scale back some of the space in the hunt/fish area.

We also talked -- asked about the number of stores that we can open. We believe -- we're asked if we believe 1,100 stores is really the right number. The answer is yes, we do. Joe will discuss this in more detail. At the 1,100 store -- but at the 1,100 store size, you can see we'll be smaller than most other significant big-box retailers, smaller and less number of stores than Kohl's, Tractor Supply, Staples, PetSmart, to name a few. We've got -- of all of those stores up there, we've got the fewest stores out there today.

We have a very sophisticated sales forecasting model. This, coupled with our return hurdles, give me the confidence that we'll continue to make the right investment decisions from a store standpoint. We're very disciplined from a real estate standpoint. If it doesn't make our model, we don't do the store, plain and simple. We've actually taken -- put a bit more difficult filter. We've actually raised our internal hurdles, which we're not going to provide those to you. But we're going to -- we've raised our internal hurdles of what we will do and open a store or not. So we've got a very disciplined process.

A subset of these 1,100 stores is partially 200 small market stores. We believe these stores provide significant returns and were not included in our original store growth plan from years ago. We have tested some of these markets in Oneonta, New York; Bend, Oregon; Plattsburgh, New York; Paducah, Kentucky. We're pretty excited about these results. We also have great flexibility in the stores that we have today. So starting in 2016, we have 50-plus stores that will kick into the renewal option period. What that means is that we can take a number of stores, beginning in '16, and we don't have to go forward with those if we don't want to. We could close those stores if we needed to without any earnings charge. We've got the ability -- it's our option. We've got the option to continue on that space or not, and we can continue in these spaces in 5-year increments, and the total time that we control a piece of property is usually 20, most of the time 25 years.

So we've got great flexibility. By 2017, what we're talking about here, we'll have opened up about 800 stores. That's still 300 less than the 1,100 we've got. And we've got 50 -- in some later years, it gets as high as 75 stores a year that we can make a decision whether we want to do those or not. So we have great flexibility in the number of stores that we open. We feel 1,100 is right.

From a Field & Stream standpoint, we've been asked, "Why develop this concept? Is it a distraction? Is it viable? How are you going to compete with Bass Pro and Cabela's?" Cabela's has 47 stores, Bass has 58. Joe will provide some more detail about this in his conversation around Field & Stream. But as a precursor to Joe's presentation, I'd like to say, I'm really excited about this business. Research indicates that we capture only about 6% of the total of what fish customers spend. They want to be in a specialty shop. We feel there's a real business opportunity here.

Today, we're not that far behind in this category. As I mentioned, Cabela's has 47 stores, Bass has 58. Cabela's volume is about $3.1 billion. Bass Pro, private. Best that we can understand is they're about the same size as Cabela's. And then DICK'S Sporting Goods business, just in the DICK'S Sporting Goods business, our hunt/fish category, some of those related categories, we already do $1.2 billion in this category. So we're not that far behind. We feel, given our balance sheet, given our real estate machine, the infrastructure, our discipline around real estate selection process, we believe we can move faster than our competitors beginning in 2014 as we develop this concept further.

Field & Stream actually, in an odd way, brings the DICK'S Sporting Goods business full circle, the category that my father started this business with $300 from his grandmother, 60-some years ago. I think it's kind of neat. Not only is it pretty neat, but it's also a great business opportunity. And when you see the Field & Stream store, I think you'll say, "These guys did a great job." It doesn't look like a prototype. It looks like it's been there for a very long time, and the results have been really, really terrific.

What I want to talk to you a little bit about is also -- is our vision statement. So what do we come to DICK'S Sporting Goods every day to do? Our vision of what we do at DICK'S Sporting Goods is we build leading brands that serve and inspire athletes and outdoor enthusiasts around the world to achieve their personal best. We create value for our shareholders through the relentless improvement of everything we do, and we make a lasting impact on our communities through sports. That's what we come to work every day to do. And I think we've been doing a pretty good job of it.

Our 5-year goals that we really want to talk to you about today is that we expect to increase our sales from $6 billion in 2012 to $10 billion in 2017. We expect to expand our operating margins by 150 basis points from roughly 9% to 10.5% by 2017. We will internally control and grow our eCommerce business to in excess of $1 billion by 2017, and we'll grow the DICK'S Sporting Goods footprint to over 800 stores by 2017. This is an ambitious goal, yet we believe it's really achievable.

You'll hear from a lot of our management team. Who will kind of walk you through how we're going to do this. You'll meet Lauren Hobart, our Chief Marketing Officer, who will discuss our traditional marketing and our omni-channel marketing. This will include some really terrific projects that she and her team have done such as the Jersey Report, our second installment of Hell Week, which we partnered with ESPN this year, which was terrific, and a very emotional series for runners that we did in strictly a digital platform.

Michele Willoughby, who heads up our eCommerce business, inventory planning and supply chain, shall update you on our omni-channel business and how we continue to grow it much faster than our market as a whole. This may be the most exciting and important initiative the company has today. Michelle has done a great job in this role over the last 3 years. I think you'll enjoy hearing from her.

John Duken, who heads up our global merchandising, will walk you through our merchandising initiatives and see how each key growth area is playing out in such areas as women's and the young athlete, which you'll see when you see the Cranberry store today. John will review our plans to develop exclusive products with our own private brands and private labels, along with exclusive products and semi-exclusive products we've been developing with the vendors. When we say semi-exclusive, it only means that they -- you may find it with the vendor, but at retailers, exclusively at DICK'S Sporting Goods.

Joe Schmidt, our President and Chief Operating Officer, will discuss Golf Galaxy and Field & Stream. He'll update you on the DICK'S Sporting Goods initiatives, including our remodeling program and some in-store systems. Matt Lynch, our Chief Information Officer, will update you on our systems investments and our IT roadmap. And André will -- our CFO, will present our 5 -year operating goals in more depth, along with our capital allocation program.

Overall, I think -- I hope you'll have a great day and you have more insight into our company and a better understanding of the significant growth opportunities we have at DICK'S Sporting Goods. I'd like to turn it over to Lauren. Thank you.

Lauren R. Hobart

Thank you, Ed, and good morning. It's my pleasure to speak with you today about our marketing.

Today is all about sharing our plans to grow the business. Our brand, the DICK'S Sporting Goods brand, is one of the most important levers that we have to drive our sales to that $10 billion and beyond.

Our goal is to drive a long-term, sustainable advantage. And our brand is a key weapon to do just that. Creating a relevant and emotionally connected brand experience will drive consumer preference for the long term.

Working on the DICK'S Sporting Goods brand is a marketer's dream. When you combine the emotional power of sports with the company's leadership position and our opportunity to engage with customers in the retail environment, we've got all of the raw ingredients to create an iconic brand that really separates itself from the category and does drives long-term growth.

I'm going to focus today on 2 specific strategies that we employ to drive growth through marketing. The first is around our vision to build a best-in-class brand that transcends the retail category. The second is how we're using omni-channel marketing to drive traffic and engagement and to build the customer experience of the future.

Let me start by talking a little bit about the DICK'S Sporting Goods brand. At DICK'S, as you've heard us say, we have very lofty goals. Given our position as the #1 sporting goods retailer in the country, we have a unique opportunity to really build a brand that is synonymous with sports so that when people think of sports, they think of DICK'S the way they think of Gatorade and ESPN. We know that by driving that emotional brand connection, we can build loyalty and preference with our consumers.

We started this journey by defining the brand purpose and its personality. We identified our target customers, the true athletes, who we define as someone dedicated to relentless improvement in his or her sports. And by serving the true athlete, we know that we'll become aspirational for all athletes. Let's take a look at who this customer is.


Lauren R. Hobart

The customer is at the forefront of everything we do. And in order to serve that customer, our mission at DICK'S is to inform the mind, train the body and, of course, provide the best equipment to help them achieve their dreams. When mind, body and equipment come together, the athlete becomes untouchable. At DICK'S, we understand that, and we help them get there.

After we formed our brand strategy, the next step was to bring it to life through high-impact brand campaigns that really resonate with that true athlete. We wanted to develop syndications that were highly emotive, that were centered around meaningful insights and that signaled to true athletes that we understand them deeply. Our tone of voice speaks as athletes to athletes, valuing authenticity above all else.

We launched our first brand campaign in early 2012, which really laid the groundwork for the mind, body and equipment story. Let's take a look at our first brand spot.


Lauren R. Hobart

That was our first brand spot, and we then followed it up with a series of brand communications, exploring different aspects of a true athlete's journey to become untouchable.

In our day 1 campaign, which ran earlier this year, we showcased the mix of nervousness and anticipation that greets true athletes on their first day of practice. Let's take a look at day 1.


Lauren R. Hobart

More recently, with over Every Pitch and Every Snap series, put a spotlight on the behind-the-scenes moments in baseball and football that players know are pivotal to the game. Here's a look at Every Snap, which is running now.


Lauren R. Hobart

We found that holding ourselves committed to authenticity when speaking to true athletes is working. Our communications are succeeding in breaking through the clutter with both the trade and the mainstream public. We've been lucky enough to have received some amazing coverage in some of the leading media outlets in the country. But much more importantly, our consumers are responding as well.

DICK'S leads the pack as the favorite sporting goods store for teens, far outpacing other retailers. We're seeing this trend signaled in social media as well, where we've been excited to see our consumers get inspired by our advertising and then take to Twitter and Facebook in significant numbers.

Another focus of our brand communications is the development of content platforms. Creating digital and other long form content gives us the opportunity to engage with our consumers in ways that are highly relevant for them. One example of the concept that we've created is what Ed mentioned, Hell Week. This documentary series highlights the grueling preseason training that football teams around the country go through. Last year, the series was available only on YouTube, and we were very happy when it received about 1.5 million views without the benefit of significant marketing plans.

This year, we worked with our partner, ESPN, to build how we do a much bigger content platform. With ESPN's tremendous support, we aired the full 30-minute documentary 7x across ESPN2 and other ESPN properties. And we had 2-minute excerpts integrated right into the SportsCenter 11 p.m. broadcast multiple times. I'm going to show you a clip of one of the SportsCenter integrations.


Lauren R. Hobart

That kind of major integration and TV program development was a testament to our strong brand and our incredible partnership with ESPN.

Another successful yet very different content platform for us is what we call the Jersey Report. Through this digital experience, fans can track which NFL player is leading in popularity based on jersey sales ranking at DICK'S. It led [ph] to some great PR coverage as we're able to deliver content that the media find valuable. And, most importantly, the site is immersed with opportunities to buy jerseys so that fans can help drive the rankings of their favorite players up. And we can, of course, drive eCommerce sales.

We look at this as a way to not just ensure that we're in the conversation about fanwear but that we lead it and create that conversation. Here's a quick look at the Jersey Report experience.


Lauren R. Hobart

The last content platform I want to share with you is our running campaign. The insight behind this campaign is that every runner runs for a very unique reason. Something drives them to put in the dedication and time week in and week out in all kinds of weather at all times of day. To showcase this truth, we created 13 digital videos highlighting a wide range of runners and the vastly different reasons that each of them runs. Let's take a look at one of these runner stories.


Lauren R. Hobart

Okay, that one gets me a little [indiscernible].

Another area we've made significant progress over the past 12 months is in social media. We've more than doubled our Facebook community and had some terrific growth in all social platforms, including Twitter, Instagram, Pinterest and Vine. In one study, DICK'S was the top retail brand in social media growth. And since that study was published a year ago, we've more than doubled our total social fan base. This growth is meaningful for 2 reasons. First, it reflects that consumers are highly interested in receiving our brand content; but second, it's also meaningful because the size of social media fan bases like Facebook strongly correlates with website traffic to our eCommerce site. And DICK'S is leading the pack.

Another area in which we focus our brand building efforts is in community marketing. We're big believers that meaningful brands do meaningful things. And doing meaningful things starts at the community level. We're also passionate believers that sports matter. There are countless studies that correlate youth sports participation with more successful and fulfilling lives. To help ensure that children from all backgrounds have the opportunity to participate in sports, we've developed a strong community marketing function that donates over $10 million a year to local youth sports organizations and provides valuable tools to teams and leagues across the country, establishing strong relationships and also driving sales with those leagues.

That brings us to our second major area of focus, which is building a best-in-class omni-channel marketing function. As our business in the retail industry in general move toward an omni-channel commerce paradigm, in which consumers can make purchases anywhere and they expect to receive products anywhere, our role in marketing is to deliver highly relevant and targeted communications to them at the right time in the right ways.

We connect with our consumers at every stage along the purchase path. We start by inspiring them when they begin thinking about their future sporting goods needs, and we're with them through every phase of the purchase cycle, delivering relevant and informative materials to help them select what's right for them and, ultimately, drive the sales.

Our customer information is the lifeblood of our marketing plans. Who are they? How do they shop? How do they feel about us? And importantly, how do they respond to various communications and messages? We've put in place the right tools to effectively and accurately source this information.

The engine of our entire omni-channel marketing effort is our loyalty program, ScoreCard Rewards, which gives us a powerful CRM tool. With the addition of our mobile app this year, we've enhanced the program significantly. A large majority of our transactions go through the ScoreCard program, which gives us great intelligence about our customers. And ScoreCard customers are extremely valuable, spending 20% more per transaction. This program also gives us great data on what they're purchasing, allowing us to be much more effective in a "Right message at the right time" environment.

Data from the ScoreCard program allows us to significantly optimize our marketing mix. We've increased our response rate on direct mail by 240 basis points, and we grew sales through email by 80% in 2012. Overall, the ROI of our marketing spend has improved 17 percentage points.

As we move forward in our ability to digest and action [ph] large amounts of data continues to improve, we're going to make further improvements to our predictive analytics capabilities. Fundamentally, we want to be able to predict who is going to shop and when and who will respond best to different types of marketing communications. For example, in the future, our goal is to be able to identify that a consumer is training for a marathon based on her shopping patterns. It might be statistically proven that customers who buy gels, heart rate monitors, running shoes highly correlates to marathon runners. Once we quantify the right set of triggers to identify that individual, we can then send marathon-related messages to reach that customer throughout all phases of her training.

We have huge opportunities to enhance our customer experience in an omni-channel world. Our teams have worked together to set a vision of what an omni-channel future state might look like. And our marketing, eCommerce and IT road maps are set up to help us deliver these goals with an infrastructure that is powered by data. We've put this vision into a video that paints a potential futuristic look at our future customer experience. Think of this video as the concept car of sporting goods. It may never get built exactly as you're about to see it, but this vision helps us to have a north star to work towards. Let's take a look.


Lauren R. Hobart

The future as we see it is pretty incredible. It's an incredibly exciting time to be in retail, and it's moving at a very, very fast pace. But that creates opportunities for those who have the vision. At DICK'S, we have that vision.

At this point, I'm going to hand things over to Michele Willoughby, our EVP of eCommerce and Supply Chain. Thank you very much for your time today.

Michele B. Willoughby

Thank you, Lauren. It is an exciting time to be in retail. Over the next 20 minutes, I will share with our plans for eCommerce. I will share why we believe there is a significant market share opportunity, our plans to continue to drive the profitability of the business and our strategy to internally control this business.

Online sporting goods today, as defined by Internet Retailer, is penetrated at 6.75%. When compared to other categories, it is underpenetrated. And therefore, it represents a significant market share opportunity for DICK'S Sporting Goods.

The online sporting goods market is $6 billion, defined as Internet retailers in the top 500 that are in the sporting goods category as well as adding relevant apparel and footwear retailers.

The compounded annual growth of the market has been 19% over the last 4 years. We have outpaced this market growth, growing at 41% CAGR over the same period. Our market share of the $6 billion has grown from 2.9% in 2009 to 4.9% last year.

Our comp growth last year was the third largest in the industry at 50%. We broke through to the Internet Top 100, capturing position 94. We are gaining market share.

We believe eCommerce is approximately a $1.1 billion sales opportunity by the end of 2017. We are focused on 5 key initiatives to drive this growth.

The first initiative is driving assortment and content expansion. In all key areas of the business, we are driving assortment expansion, including a specific emphasis on exclusive styles to compete more effectively with other pure-play online retailers.

We're building experiences for different customer segments, creating a shopping experience that is distinct for each segment. We are focused on improving the content on the site. Great content is a key element to not only driving conversion on the website but also to engaging with our customers when they are in research mode, which will lead to an online or off-line purchase.

We have added selector tools for technical categories like running shoes, tents and kayaks. We partner with our vendors to create compelling content to educate the customer on the differences and advantages of our -- the technical -- the technologies in our products. We have built buyer guides to support all categories of business and, again, aid the research stage of a shopping cycle.

And finally, we have built many pages on our site showcasing our in-store services, giving the customer confidence to transact with us online, knowing we have a strong physical presence to add to their experience and relationship with us.

The second initiative is to leverage all of our marketing channels to drive traffic to our website. We are focused on improved and targeted email campaigns. We have increased our spend in paid and digital channels. We have an intensified focus on our website improvement to improve our search engine optimization value. And as Lauren shared, our marketing team is driving cohesive cross-channel marketing campaigns for all key seasons and businesses.

Here is an example of our recent back-to-school campaign. This is the website experience. And as you can see on this slide, all key marketing touch points are aligned and create a seamless experience for our customers. Our online store has prominent messaging in every vehicle: print, digital and social media.

Our third initiative is to drive multi-channel loyalty. Our own data, supported by external references, suggest that a multi-channel customer is worth at least 3x a single-channel customer. We are utilizing our ScoreCard Program to create value for our customers in every channel. We are also working hard to capture data across all channels to drive a strong level of personalization and engagement. Our stores and our store experience is a competitive advantage for us over pure-play online retailers. We leverage our experts in-store to provide a greater level of service and advice.

Our omni-channel capabilities of placing online orders in a store, free returns to store and leveraging all of our store inventory through our aggressive ship-from-store capabilities benefit our customers by creating an experience of finding what they need wherever and whenever they are shopping with us.

Our fourth initiative is maximizing the trends happening in smartphone and tablet usage. Smartphones are the key to omni-channel success. Forrester has stated that by 2016, 8% of eCommerce revenue will come from a mobile device. But perhaps equally important, the smartphone connects the customer to our brand as a tool for shopping, research and in-store engagement. Customers have a constant connection to their mobile phones. Mobile is the new face of engagement.

We are focused on initiatives to benefit from this growth. Our road map for mobile includes a rapid test and iterate process, driving improvements in site speed, personalization, homepage layout and creative, ease of shopping through improved navigation and faster checkout. In addition, we continue to improve the experience of the DICK'S app that we launched last September, which centers on ScoreCard engagement.

While we do see a shift of traffic to smartphones, we also see a rapid rise in adoption and buying on tablets. Forrester has reported that in 2012, tablet adoption in the United States reached 19% of the population, more than doubling 2011. We believe there is a significant revenue opportunity in optimizing the web experience for tablet devices. We launched a new tablet-optimized site in August. We are currently in pilot phase and are studying the shopping behavior. We will continue to iterate prior to a full launch. This site has enhanced touchscreen usability, larger buttons and a chunkier user interface that gets customers to products faster.

Our final large area of focus is on driving conversion. As we compare our results to the results of our competitors, our vendors and other best-in-class retailers, we see a significant opportunity to improve. In 2012, our conversion, as reported by Internet Retailer, was 2.1%. As you can see on this slide, many in the comparison group are in the high 2s or over 3% conversions. We have experienced consistent growth in conversion over the last several years and continue to use our web analytics and customer survey data to identify conversion barriers. We have an aggressive approach to testing and optimization of the website and relentlessly drive improvements with an increasing rate of frequency.

Our key areas of emphasis over the next 2 years to drive conversion are: improvements to the design, look and feel of the homepage in key landing pages; improved navigation; a new search engine; custom product builders and comparison tools; a new digital platform for our weekly circular; and a new store locator with individual store pages.

Now let's shift our plan -- to our plans to drive the profitability of our eCommerce business. There are 3 large levers to driving this profitability: volume, leveraging fulfillment channels and taking the controls in-house.

Over the last 3 years, we have improved the EBT margin by 1,000 basis points. We will continue to drive this profitability significantly over the next 5 years.

The first lever is volume. As I said earlier, we believe this business can reach approximately $1.1 billion by 2017. Higher volume leads to lower transaction costs with our current GSI contract.

The second lever is leveraging omni-channel fulfillment. This chart represents our progress with omni-channel capabilities over the last 4 years. We have had the ability to create online orders in our stores for several years, creating an endless [ph] aisle experience for our customers. Orders that are placed in-store ship for free. We have also leveraged utilizing vendors to ship directly to our customers for several years. This improves inventory turn as we do not have to carry the inventory.

We have progressed with a free shipping model, which we know is important to our customers. We will ship approximately 90% of our orders for free this year. So that expense hurdle is already built into our profitability model.

In 2011, we launched free in-store returns, which is a terrific benefit to our customers, giving them confidence to place an online order knowing that returning to a store is easy, and a benefit for us in that it drives our customer to the store. With our growing store base, this creates another advantage for us versus other pure-play online retailers and/or vendors.

In 2012, we piloted ship from store. We launched with 35 stores in May; and by holiday, we're utilizing 115 stores around the country. We now have every DICK'S store participating in this program. This has many benefits: it allows us to connect online customers with any inventory in any store; it improves inventory utilization; it lowers shipping costs; and improves speed to our customer, allowing us to now compete on speed. 75% of our orders are shipped to a customer within a 15-mile range of a DICK's store.

Later this year, we will be piloting buy online/pick up in store, which we believe will be a great benefit to our customers as well as drive the customer into the store.

And finally, we plan to pilot ship-to-store capabilities in 2014, allowing us to ship large, heavy items like gun [indiscernible] and treadmills to stores for customer pickup or cheaper local delivery. All fulfillment options from our vendors in our stores have a significantly reduced transaction fee associated with them versus using that GSI DC.

Our final strategy to improve the profitability of this business is to take our eCommerce capabilities in-house to internally control our eCommerce business. Aside from the profitability impacts of doing this, there are additional benefits. We will have the controls to differentiate our DICK'S Sporting Goods brands and online experiences, we will have easier access to our data and more easily use these cross channels to build more engaging customer experiences; we will have the control over development cycles, which will allow us to test and iterate at a significantly faster pace; and finally, we will be able to quickly stand [ph] up new verticals to capitalize on market opportunities. This will be a meaningful investment over the next 4 years with key investments in technology, the organization for our future and supply chain infrastructure.

Here is a high-level view of our road map. Phase 1, which kicked off in February of this year, will complete in midyear 2014. We will bring Golf Galaxy on to our new multi-store platform. This is being built by CrossView on the IBM WebSphere platform and will be hosted by Savvis. All of the integration to the existing DICK'S back-end systems will be completed in this phase.

Phase 2 will last from mid-2014 through 2015. During this period, we will focus on enhancing website features, integrating omni-channel capabilities and standing up in additional business. We expect to launch a Field & Stream transactional website during this phase.

We will complete our initial journey in 2016. We will continue to iterate on the site. And at the end of the fiscal year, postholiday, we plan to launch dickssportinggoods.com. This approach allows us to develop the internal capabilities to run eCommerce on our smaller sites and will well prepare us to manage the larger brand.

We are working with best-in-class partners. IBM is providing the program framework; CrossView is building the first version of the site itself; and Savvis will host our site, guaranteeing 24/7 availability. In parallel, we will build our internal team with all the technical competencies required to run a best-in-class eCommerce business.

We are very excited about the opportunities in the eCommerce business to drive profitable market share growth. As the supply chain plays an integral part in our future eCommerce success by enabling us to leverage inventory from anywhere to any customer anywhere, I would like to now spend a few minutes to share with you our 5-year view to the supply chain.

Our supply chain maximizes technology, process improvements, talent and strategic planning to provide the best-in-class network to support the customer experience.

As the supply chain plays an integral part of our future eCommerce success by enabling us to leverage inventory from anywhere to any customer anywhere, I would like to now spend a few minutes to share with you our 5-year view to the supply chain. Our supply chain maximizes technology, process improvements, talents and strategic planning to provide the best-in-class network to support the customer experience. Over the last several years, we have made significant investments in our supply chain, systems and processes to drive the productivity and efficiency of our distribution centers. The cumulative effect has done a 75% increase in productivity over the last 7 years. Our current distribution network consists of 4 distribution centers, which service all of our DICK'S Sporting Goods stores, Golf Galaxy stores, True Runner and Field & Stream. Our buildings are located in Smithton, Pennsylvania; Plainfield, Indiana; Atlanta, Georgia; and in our newest facility in Goodyear, Arizona, which we opened this past January. This 4 DC network is positioned to support approximately 750 stores, and our Atlanta DC also provides customer fulfillment services for our golfgalaxy.com website.

As we look at the next 5 years and contemplate the store growth of the DICK'S stores, coupled with the growth of our other chains and the desire to bring online order fulfillment in-house, we have laid out our roadmaps to accomplish these goals. In 2013, we completed, or in the process of completing, 5 meaningful initiatives, all of which are key foundational projects for our future. Perhaps the most important is the omni-channel strategic network design project. This project, currently underway, centers around maximizing supply chain and inventory efficiencies in the omni-channel retail world. We will build this strategy to leverage our stores and DCs for customer fulfillment, ensuring that we fully contemplate the fulfillment capabilities of our stores in tandem with traditional DC fulfillment.

In 2014, we will upgrade our transportation management system. In 2015, we plan to expand one of our existing distribution centers, as well as implement an eCommerce fulfillment solution. With our current store growth plans, we are planning 2 additional distribution centers, the fifth in 2016 and likely a sixth in 2017.

We are very excited about the profitable growth of our eCommerce business and the role the supply chain will play. We are confident that we will win in the eCommerce space.

I would now like to introduce John Duken, our EVP of Global Merchandising. Thank you.

John G. Duken

Thank you, Michele. On behalf of the DICK'S merchandising organization, I'd like to welcome you. This is our opportunity to share with you some of our great plans and strategies that drive our success. I'm confident that you will leave this room as excited as we are about our future. I love this slide because this speaks to great athletes competing to do their personal best for greatness isn't accomplished without great preparation, great strategies and great execution. In many ways, these parallel our organization. So in the next 20 minutes, I will outline for you our great preparations, our great strategies and our great execution to ensure that DICK'S dominates now and into the future.

I'll begin by sharing with you our key merchandising strategies, then go into a little bit more detail as I unpack each one of them. These strategies are focused on the customer. By focusing that way, we win their hearts, their minds and their wallets. Our first strategy is differentiated assortment, delivering an assortment that looks different from our competitors. This keeps our customers returning. Second, by attacking trends we see in the business and distorting those trends with assortment and visual dominance. If it's a trend, you'll find it at DICK'S. Next, we'll amplify the in-store experience. We know that visual merchandising sells products. I can't tell you the number of times people have come up to me and said, "I went to your store for just one thing and ended up buying a whole lot more." Well, I tell them it's my job to make sure that happens. I always get a little chuckle. And lastly, we'll envelope the customer to ensure they engage with our brand the way they want to. Given our strong brick-and-mortar footprint and our growing digital integration, we are well positioned to maximize the omni-channel opportunity.

Now because I know you're analysts and that you believe the devil's in the details, let me further explain some of these strategies. At the end of the day, what the customer cares most about is performing great and looking great. We will use exclusive products, key brands and a strong trend awareness to let the customer know to look great and perform great, they need to shop at DICK'S. The strong relationships we have with our brand are a key strategic advantage. These strong relationships have allowed us to collaborate to build great exclusive products, as well as great presentations. When you walk into our store, we want you to see the dominance of brands like Nike, Under Armour and The North Face. Distorting these brands from an assortment perspective excite and wows our customer.

Maybe the best way to explain to you why exclusivity is important is to share a short story that one of our brands told me. This brand wanted to learn more about the high school athlete, so they went to the Dallas Forth Worth and met with the local high school there. On this day, they met with the football team. They lined up the football team and they asked them a question, where do you buy your athletic apparel and equipment? And as they went down the line, the answer was the same, DICK'S Sporting Goods, DICK'S Sporting Goods, DICK'S Sporting Goods, DICK'S Sporting Goods. So they asked them, why DICK'S Sporting Goods? And the answer was consistent, "Because we see things at DICK'S that we don't see anywhere else." And that's why exclusivity is so important. This assortment separation drives customer loyalty. It also enhances the DICK'S Sporting Goods brand by owning that customer mindshare. And lastly, it enhances our gross margin rate.

Our assortment exclusivity comes from our domestic brands and our private brands, and approximately combined, represented around 23% of our sales during 2012. The domestic brand exclusive products that I'm going to show you today can only be found at DICK'S with the one exception that Ed mentioned, which you can purchase some of them directly from the vendor. There are 3 different strategic focuses: franchise exclusives, style exclusives and color print and pattern exclusives. And then lastly, within our private brands, we developed an entire line of product. I will explain each of these strategies, and I will start with domestic exclusivity. We work with our key brands to build a collection of product around the sub-brand. We refer to these as franchise exclusives. Here are 2 examples of great collections that are exclusive to DICK'S: Under Armour integrates their newest technologies with elevated design elements, positioning combine training as their best level men's performance training. Only available at DICK'S. Nike Swingman is a head-to-toe solution for the baseball player. The pipe pant with the Swingman logo is a must-have. In fact, customers ask for it by name. These collections drive destination traffic as the customer understands that we're the only place to find it.

We work with our brands to build many individual styles of products as well. In this example, we collaborated with Under Armour to take the most disruptive football cleat, the Highlight, into a rubber molded style. Now every youth football player can feel like Cam Newton in their pee wee football game. These partnerships enable DICK'S Sporting Goods to gain market share in competitive categories. The Elite basketball short that you see pictured here is an example of many Elite styles we offer to the customer. We own the vast majority of Elite basketball apparel and the customer knows that DICK'S is the place to find it.

We work with our vendors to build unique colors, prints and patterns that are exclusive to DICK'S. This strategy brings disruptive energy to our sales force and makes our assortment look different. Here's some great examples of prints and colors in leggings and capris, enabling DICK'S Sporting Goods to offer fresh new looks in trending categories of the business.

To summarize our domestic exclusivity, we've established exclusivity goals and we monitor them very closely. We will continue to collaborate with our key brands to build great exclusive products. We are pleased with the level of support that we have from our brands, and we expect that we can continue to grow. Given our knowledge of what's working at retail, we will build exclusive products that are innovative and novel. Innovation and novelty drives our business. We'll take credit for meaningful exclusive products within our store through signing, marketing and presentation. And lastly, we'll put our vendors to be first to market on key new product launches. These strategies are an important part of making us look different, no matter if you're a runner in Rhode Island or playing high school football in Dallas.

Our private brands are a critical part of our exclusivity strategy as well. Most importantly, these brands are meaningful to customers and make us look different. Additionally, the gross margin rate is significantly higher than we could buy domestically. I hope you're able to see some of our displays of our private branded merchandise upstairs in Every Seasons Hall this morning. We've got many terrific brands with strong product assortments. I'm sure you're already familiar with these, so I'm not going to go through them in detail. However, I'm excited about these brands and I look forward to showing them to you later today in our store.

Here's what's important to note about our private brand strategy. We are bringing innovation and novelty and newness to ensure our products have customer meaning, draw and pricing power. Build products that give reasons for the customers to shop at DICK'S. Our in-store experiences elevated with shop concept development, brand standards and signing. We will take credit for the -- we will take advantage of the ever-changing retail environment by entering into new strategic relationships that drive differentiation. We'll drive brand equity and consumer awareness by educating our sales teams on the features, technologies and benefits of our private brands. And lastly, support our key brands with a comprehensive marketing program that creates consumer meaning and demand.

Our second key merchandising strategy is attack developing trends. I've been with the company for 14 years, and what I love about the sporting goods space is there's always a new trend to chase. We call that next. We spend a lot of time focused on figuring out where the customer is going and what products will be next. Our next strategy not only drives sales that makes us look different, it's another reason that, that high school football player in Dallas says, "I shop at DICK'S." The fact is, I'm so excited about the trends we are seeing for the fall that I can spend my entire time presenting just that. Given the time constraints, I'm going to summarize some of our biggest trends that we'll take full advantage of during the fall selling season.

Take a look at some of our Alter Ego products. We tested this new Alter Ego product from Under Armour late last year. We were very happy with the sales performance. Consequently, we made such a big investment in this product, we ended up with a vast majority of Under Armour's total production. We distorted this product in the stores and we could not be happier with how it's selling. We will continue to support this trend with plenty of new receipts through the holiday selling season.

We've also seen a significant trend in basketball. Today, generation Y and Z are taking style cues from iconic NBA players. We have expanded the assortment to tell a head-to-toe story within this space. While footwear is a key story, we surrounded the footwear assortment with hookups to include socks, printed short, 3/4 leggings, graphic tees, hoodies. Our customers have told us that they also want a great basketball shoe selection year round. So when you walk into our stores, that's exactly what you see. The shoe is not just for the basketball player in the court, it's become part of the uniform for generation Y and Z. I know what you're thinking, "Socks, really?" Well, the socks is not just worn to performing anymore. While performance is critical, our athletes wear socks to express themselves when they're not performing. Our socks options from Nike, Under Armour and adidas bring color, novelty and innovation. We have made a big investment in socks and have merchandised them in several key locations to take full advantage of this trend.

We've seen a significant trend in our young athlete apparel business as well. Consequently, we have increased the amount of space given to the category, and we moved into the parallel to give it great visibility. Speaking of visibility, take a look at what these kids are wearing. Kids like to express themselves on and off the playing field and court, so we work with our key brands to broaden and deepen the assortment and added new fixtures to elevate the presentation. Kids love color, novelty and graphics, so that's exactly what we gave. We are seeing fantastic results. Thanks, kids.


John G. Duken

The youth footwear side of our business has also benefited from this trend. We will continue to increase our investment in this product so we can excite the young athlete from head to toe. We believe that this is a sustainable and growing trend, and one day, these young athletes will become our soccer moms and dads.

The technology now being offered by these products has created a major surge in customer demand. For those not yet familiar with this product, I'm wearing one right now. And all the data is sent wirelessly and automatically right here to my cell phone real time. I'm looking at the information right now. This is a little strange. It said my heart rate might be a bit high. These products turn fitness into a lifestyle by tracking your activity 24/7. Whether you're in the gym, you're running errands or sleeping, this technology is capturing critical information like calories burned, steps taken, distance traveled, as well as the quality of your sleep. You can even connect and challenge your friends. I'm confident that this performance tracking represents a big business opportunity and we've invested in dollars to drive it.

2014 is World Cup year. This drives major excitement around the world. We've taken a very strong inventory position to ensure that we are the destination in the United States for this product. We see a big opportunity to drive this business during the holiday season into early summer. Athletic fleece is hot, excuse the pun. College through grade school students have adopted the hoodie as a key staple of their daily uniform. One of the greatest things about this is that unseasonable weather patterns have little impact on the demand for fleece, which reduces our risk to weather. As a result, we made a large investment in color, print, pattern and novelty, and I'm confident that this will be a key driver of sales and traffic during the fall selling season.

We are also seeing a significant trend in our women's athletic apparel business. She is using athletic apparel to not only work out in, but also as an extension into her lifestyle. She wants to look great, whether she's in the gym, shopping or picking up the kids from school. Our studio line is a key driver of the business, more specifically, tight bottoms, bra tops and layer pieces. We will continue to drive this business with novelty to include color, prints and patterns. She wants a head-to-toe solution, so we expanded our hookups into footwear, socks, hats and hair bands.

As I mentioned, we are very excited about these and many other trends that we see occurring in our business this fall. These trends are in the center of our wheelhouse and we are well positioned to maximize it.

Our third key merchandising strategy is that we are amplifying our in-store experience. When you walk into a DICK'S store, we want it to be inspirational and motivational. We want you to feel confident that your decision to shop at DICK'S was the right one. How our store looks, how our assortment is presented is critical in building customer confidence and loyalty. Our strong relationships and co-investment strategy with our brands, along with our spirit of collaboration, has produced an unparalleled shopping experience as evidenced by the shops I'm going to show you. If you're looking for Nike, you're not going to find a more compelling assortment or presentation. We've added graphic elements, mannequins, specialty enhancements to bring dominance and separation. We'll add 120 doors this year and end with 290. Under Armour is another dominant brand which shows up differently at DICK'S. You can see how we distorted the Alter Ego product, which we showed you earlier in our trend discussion. These shops allow us to tell a head-to-toe story, making it easy for the customer to purchase a complete outfit. We'll add 133 doors this year and end with 240.

I can't wait for you to see our new Under Armour women's shopping cranberry later today. We developed the space which is uniquely hers by creating a boutique-type dealing in the middle of a sporting goods store. This space has allowed us to create a specialty experience for her with key presentations of tights, tops and bras.

Our strong relationship with The North Face and great collaboration has resulted in the addition of 80 new outerwear shops that you will see for the first time in our stores this fall. We've installed graphic wall focal point, skinned existing floor fixtures, added mannequins, added urban fixtures to distort the presentation. The visual disruption will draw customers into the department, giving us an opportunity to sell them some great outerwear, fleece and accessories. We are very excited about these shops and I am confident they will meaningfully impact our business. The adidas brand is also very important to us. We'll add 68 doors this year, we'll end with 75.

The light business is doing very well. In our large professional markets, we're able to make key statements around NFL, MLB, NHL and NBA.

We are also very excited about the footwear shop. Our center core is all about running. Our associates, many of whom are enthusiast runners, are ready, willing and able to complete a gait analysis to make sure that you are in the right shoe. We have also dedicated spaces for key assortments of cleats, basketball shoes and training shoes. When customers walk into our footwear shop, they can't help but feel confident that they came to the right place. Our team shops are also critical because they build relationships with a high school athlete who is critical to us. Our football shop differentiates DICK'S as the authentic retailer of choice. If they're a football player, we're going to have what you want and have it presented in the most compelling way.

Our baseball shop is another great example of a dominant presentation. If you're in a market for a pro soft glove or youth pull-up pant, we'll have a compelling presentation and assortment on both ends of the spectrum. Our lacrosse shop has a freestanding specialty store feel. We do custom stringing in many of our stores. And finally, we are testing shops and places like Under Armour hunting clothing where we are seeing very positive trends. We are very excited about this shop, and we think it has significant runway.

To win at 2 feet, we must engage the customer at 20 feet, and that's exactly what these shops allow us to do. While these shops are having a very positive impact in our business today, the fact is, we've only just begun. We are currently working on several amplification strategies that are game changing.

Our fourth and final merchandising strategy is to drive omni-channel capability. Clearly, the lines have blurred between the retail channels. As a result, we need to make sure that we're surrounding our customer with the opportunity to connect with our brand the way they want to. While this subject has been covered earlier by Michele, there are 5 strategic points on the next slide that I think are worth just touching on from a merchandising perspective.

We will continue to expand our assortment online, past what you'll find in the stores, this to include styles, colors, sizes and brands. This will ensure we're on the sporting goods space in the mind of the customer. We are working with our key brands to elevate the online experience similar to what we did with the Nike microsite. We'll continue to grow our ship-from-store business. This makes products available into our stores and also drives the eCommerce business. And we're also working with our key brands to bring elements like lookbooks, product information and customer reviews to the counters and shelves of our store. And we will continue to use eCommerce to test new assortment possibilities and gain early season rates. We'll apply that information back into our brick-and-mortar business. With these plans in place, we are positive that our relationship with our customer will continue to grow as we expand the way we reach them.

So you can probably tell I'm pretty excited about the future of DICK'S Sporting Goods and I hope you are too. I look forward to this afternoon where we can show you how the strategies I presented to you this morning come to life in our stores. Our strategies guarantee that our customer understands that only at DICK'S Sporting Goods will they find the best the chain has to offer, that our eye is always on next to ensure we're maximizing the opportunities in the sporting goods business, that our merchandise presentation is dynamic and builds customer confidence and loyalty, and that we continue to leverage our strengths of being an omni-channel retailer. With these strategies in place, DICK'S Sporting Goods moves into the future, leading, focused, growing, driven. Today, as you enjoy your tour in the days and weeks ahead, I hope you'll remember that every season starts at DICK'S. Thank you.

Edward W. Stack

Okay. With that, we are going to take a short break. We are going to be back here at 10:20. Feel free to use the facilities, get yourself a drink. All seasons -- Every Seasons Hall has some great PD products, if you haven't seen it. And we'll kick off again at 10:20 with Joe Schmidt. Thank you.


Joseph H. Schmidt

Welcome back, everyone. I think that I had the opportunity earlier this morning to say hello to many of you, but for those of you that I may have missed, my name is Joe Schmidt, and we are happy that you joined us at this, our first analyst meeting. So far this morning, you've heard from Ed about who we are, our vision and where we are headed. You've seen our dynamic marketing, merchandising and how we are taking control of eCommerce and the demand of selling in this ever-changing marketplace. By now you understand that DICK'S is not your average sporting goods company, that our vision is far-reaching; our strategies, dynamic; and our numbers are rising. But there's more. This morning, my job is to share with you our 5-year plan, as well as provide strategic overviews for Golf Galaxy and Field & Stream.

I'll begin with the DICK'S Sporting Goods store opportunities. The synergistic channel between our store business and our eCom business generates opportunities to drive sales, expand our distribution network and increase margins while supporting omni-channel growth. For example, we have seen that when a store opens in a new market, there is a corresponding increase in online sales for that market. In addition, with each new store, we enhance our distribution network as each store is ship-from-store ready. Building out the DC network in this manner reduces delivery costs, and most importantly, time to our customers. And as Michele noted, customers who shop us online and on store are 3x more valuable to us. So providing access to both the store experience and the online experience is extremely important to us.

At the end of the second quarter, we have 527 DICK'S Sporting Goods stores and believe that we have an opportunity for a total of approximately 1,100 stores in the U.S. This means that in the U.S. alone, there is enough white space to nearly double the number of DICK'S Sporting Goods stores. When opening a new store, specific hurdle rates must be met. We take into consideration various factors to determine the expected financial return, including population size and demographics, cannibalization and number, location and type of competition. These factors influence our decisions for both store size and the location.

When looking at our store potential of approximately 1,100, you see that our expectations are in line with other select national retailers. As we grow our store base, we anticipate that the majority of the stores will either be in the traditional 50,000 square foot prototype or the smaller market model, which is approximately 35,000 square feet. We will also augment the store base with 2-level, 80,000 square foot stores in select markets in which there exist strategic opportunities.

With our strong real estate team, our proven discipline around new store openings and an easing real estate market, we are anticipating opening over 300 stores over the next 5 years at a compounded annual growth rate of approximately 9.5%.

Today, we believe that the anticipated number and size of new stores are ideal for meeting customers' needs and for providing attractive returns. However, as dynamics continue to evolve, particularly on the eCommerce front, we will take into consideration new and evolving insight and incorporate that into our store strategy accordingly.

Many of you have heard us say before, we don't want to one day wake up to a tired chain. We continue to invest in our stores by remodeling in strategic areas and relocating others to more attractive locations as we have leases expire. This year, we will complete 75 apparel remodels. The apparel remodels focus on strategic growth categories and feature branded shop-in-shops, which are expected to both enhance sales and margins in these stores. In total, we expect to complete approximately 275 apparel remodels through 2017. We will also remodel an entire store when needed. In full remodels, we add several features that have proven to increase sales, margin and customer satisfaction, including shop-in-shops anchored by portal walls that enhance presentation and increase display space. Shared service footwear decks that feature a run specialty shop and queue-style registers that improve traffic flow and offer a quicker checkout experience for our customers. Merchandise becomes the hero as these brands come alive in the stores and further differentiate us from the competition. We plan to continue to invest in and selectively remodel our stores through 2017.

In addition to store investments, we invest in our associates. We start by hiring the right people. We have enhanced our recruiting and interviewing tools to assist in hiring associates with the foundation of knowledge and expertise. We staff our stores with enthusiasts to engage the customers. We think that this gives us credibility with the customer because these associates are extremely familiar with the merchandise they sell. We also communicate our authenticity by using a variety of marketing vehicles to generate awareness of our associates' backgrounds.

Additionally, customers have access to certified associates in key areas in the store, including PGA and LPGA pros, running specialists and fitness trainers. Our associates offer a wide range of pro services, including club fittings, repairs and adjustments; baseball gloves steaming; lacrosse sticks trimming; and bow tuning and repair. These services enhance authenticity, provide a distinct advantage, promote loyalty and generate traffic.

As you can see, we are engaging our customers in many ways. We understand the importance of outstanding customer service, and we are certain that the investment we make in our associates always gives us a great return. However, as most of you know by now, we are relentless in our efforts to improve, and this includes seeking initiatives that will enhance our customer service.

We are continually elevating our customers' feedback, understanding that there are opportunities to improve. We're engaging a third-party vendor to facilitate the collection and analytics of the customer perception. The new insights that we gain from these efforts will help us create new initiatives. For example, we have invested in a new workforce management tool that will modify schedules and staffing levels to guarantee that we have the staff needed to support the customers. And most importantly, in order to maximize on these insights, we are adding payroll back into every one of our stores. We are seeking to be the best in customer service, and we are paving the road to that title every day.

Let's switch gears and talk about Golf Galaxy. With Golf Galaxy, it's all about building and redefining the ultimate golf specialty retail experience. We engaged a third-party to go out and look at the competitive landscape, and they came back and told us that there's little differentiation between the competitors. It's a sea of sameness out there. Our goal is to create energy in our stores by developing a brand that equips golfers with a custom experience like no other.

To that end, we're going to redefine the golf experience by repositioning our Golf Galaxy stores. We will do this by adding features within the stores to enrich the shopping experience, elevating the fitting experience, optimizing the merchandise mix and, as Michele noted, we're developing a new web platform for Golf Galaxy.

We are increasing the average store size to approximately 30,000 to 40,000 square feet as compared to our legacy stores, which are approximately 15,000 square feet. These larger format stores include hitting base, driving ranges with launch monitors, a large putting green and 2 PGA lesson certification centers. Our repositioned stores have a platinum fitting area with a tour level experience. We've established a new training model, where our fitters go through more than 20 hours of knowledge-based training so that they can be certified to deliver the tour level fittings for our customers.

This premium service brings the vendor fitting experience into the store and includes driver fitting, putter fittings, golf fittings and the full club gap -- a full gap analysis for the golf club. By tailoring the length, life, shaft specs and grip size, our customers -- should the customers swing, our fitters ensure that the customers have the right equipment for their game.

We are also optimizing the merchandise mix in our stores. We've added apparel shops for Nike, Puma, Adidas and Oakley. And we're also elevating the footwear experience to highlight the key brands.

Much like the brand shops in our DICK'S Sporting Goods stores, the brand shops in our repositioned Golf Galaxy stores include a greater assortment of premium product. These shops allow us to showcase a head-to-toe look at the latest colors and styles.

And lastly, we are developing our own eCommerce site for Golf Galaxy, which, as Michele noted, is expected to go live in 2014. For a Golf Galaxy customer, this platform creates a powerful omni-channel experience and the choice to shop when, how and where they want. It also creates stability for new delivery capabilities, such as in-store pickup, ship from store and vendor direct. And it also provides us with more control, including site management and flexibility. It will become the foundation in which our DICK'S Sporting Goods platform will be built.

Finally, we are very excited to open our first outdoor specialty store, and we think it affords us much opportunity. As Ed mentioned, it's one of the core competencies and it's the heritage on which our original DICK'S Sporting Goods stores were built.

The outdoor equipment industry is large and stable. It's estimated to be approximately $47 billion market and grew at a 1% CAGR from 2006 to 2011. With our Field & Stream concept, we will be focusing on the core outdoor market, which excludes specialty equipment, such as motorized vehicles. This segment has an estimated size of $34 billion and grew at a 5% CAGR from 2006 to 2011.

Today, the outdoor equipment industry is fragmented, with the top 5 companies accounting for only approximately 27% of the market. This represents a great opportunity for us.

Decades of experience in the space, along with our established relationships with key vendors allows Field & Stream to offer compelling brands, including Hoyt, Sitka, Breda, Browning and Filson. The breadth and depth of these brands is a clear differentiator and will complement our private brand, Field & Stream, assortment.

As in our DICK'S stores, we have installed shop-in shops, and you'll see them later today. We have an archery shop, a guns shop and a tackle shop. These stores will offer pro level services. For example, in archery, these -- the basics of tying in a peep, serving a string or cutting arrows. In the gun shop, we offer scope mounting, foresighting, and we will leave in clean guns to help the customer get ready for the upcoming hunting season. And within our fish department, we'll put a fresh line on the customers' spool and we'll replace the tip on their favorite rod.

To capture the market share potential, we anticipate organically growing the Field & Stream store base in a similar fashion to what we've done at DICK'S Sporting Goods. We'll evaluate performance, we'll make tweaks where needed and we'll incorporate the learnings along the way.

We believe Field & Stream is a powerful vehicle for us to drive profitable growth over the next 5 years. We are excited about this brand.

I'd like to share with you the work that went into launching this brand. To set this up, I have to go back a few years. In 2004, we entered the market of Indianapolis with 3 DICK'S Sporting Goods stores. Now keep in mind, Indianapolis, at the time, was owned by Galyan's. It's where their corporate facility was located. They had a number of big stores in key locations. And they had little competition in the marketplace. So to enter that market, we had to develop a comprehensive marketing plan, and we did that. And the focus of the marketing plan was built around one word. That one word was wait. We told the customers in Indianapolis to wait. In a series of TV ads, billboards that ran in the Indianapolis market, for 6 weeks, we told the customer to wait. The first 2 weeks of this campaign was what we call the tease campaign. We told them to wait. We didn't tell them who we are. We just told them to wait.

With that, we came back and challenged the Field & Stream marketing team of how do we accomplish what we did in Indianapolis in Pittsburgh. The tagline for Field & Stream is, "Where traditions begin." So with that, our marketing team developed a campaign, and I'm going to show you how we launched it to the market at Pittsburgh. So if we can roll the first spot. This was a spot that rolled 6 weeks prior to grand opening and rolled for a period of 2 weeks.


Joseph H. Schmidt

It's a blind ad ran for 2 weeks. We had a series of 4 of those, I'm showing you just 1. We had -- including -- in addition to this, we had 2 that highlighted hunting and we had another that highlighted camping, and that one obviously will be tackle -- it'll turn into tackle.

The following 2 weeks, we revealed who we were. So this is weeks 3 and 4 prior to grand opening. We then ran the spot.


Joseph H. Schmidt

We revealed who we were. And then, finally, weeks 2 and 1 before the grand opening, we then put it all together and told the entire story of what Field & Stream is all about, and that's what you're going to see next. If we could roll that.


Joseph H. Schmidt

So that was a 6 weeks cadence of ads that we ran in the Pittsburgh market. And then, obviously, we had the grand opening. And I know I talked to a couple of you that were able to attend, and for those of you who did not, you're going to get a quick shot of what grand opening weekend was all about at Field & Stream. If we can roll that.


Joseph H. Schmidt

As you can see, our grand opening weekend was quite a success with our Field & Stream store. The beat continues to go on. The feedback from the customers has been overwhelmingly positive, and we're all really anxious to get you up to that store later on today.

These are exciting times for us at DICK'S Sporting Goods. Our plans for the future are robust and dynamic. Our team is dedicated and strategic. We take our cues from the athletes that we serve: always striving for excellence, always improving, always believing that it can be done and, most importantly, always passionate.

I've been here 23 years. I've seen a lot of changes and a lot of growth. And I'm equally excited about the opportunities that lie ahead of us.

And now to give you a strategic view of our IT department, please welcome our Senior Vice President, Chief Information Officer, Matt Lynch.

Matthew J. Lynch

Thank you, Joe. Good morning, and welcome to our store support center. As the leader responsible for information and technology services at DICK'S Sporting Goods, my role is to combine input from every function of the business, together with the trends we see in the broader retail industry, to identify the appropriate technologies, to help propel our strategies.

This review is intended to provide a brief overview of several of our key systems and how we are or plan to employ them within our business.

To start off, I think this statement on the screen summarizes the value that information technology delivers to our company.

As an example of continuous improvement, when we designed this building, we designated this floor as the technology center for the entire campus. Our store and technology labs are in the wings adjacent to this auditorium. These specialized facilities help us test ideas, evaluate concepts, build prototypes and measure the performance of hardware and software to enhance all functions of our business. In essence, the building itself supports our mission of relentless improvement.

Shortly after I joined DICK'S, Ed shared his vision for the company, as depicted on this slide. He used this illustration as an opportunity to stress his core requirements. Ed insisted that we leverage IT investments so that we did not have to build redundant systems as we added new businesses. And he was passionate that all associates must be capable of moving quickly and easily from business to business without the need for additional training.

Now that the IT organization knew what we had to do, we had to establish how we were going to achieve this vision. First, the company mission speaks to relentless improvement as fundamental to our success, check. Second, we established a plan called the IT roadmap to link IT investments directly to our growth strategies, check. Then we established ownership of this plan. While it is called the IT roadmap that is due to the content it contains, it is management's plan. We all own it, check. Finally, we segmented IT capital investments into 3 categories: run or maintain; grow; and transform. This classification helps ensure that our capital is invested appropriately to achieve the business plans and ultimately, the vision.

Our stewardship of IT capital is very deliberate and it is very disciplined. What you see on the screen are not suggestions, nor are they mere words on a PowerPoint slide. These are our core values, our guiding principles, that from the essence of how we generate economic value from information technology at DICK'S Sporting Goods. To solidify these points, our allocation of capital to growth and transformation, in total, over the last 6 years averages close to 4x the amount we spend on run.

So remember Ed's vision. When Ed drew this picture in 2007, we operated a single business with 350 stores and $3 billion in sales. He wanted us to grow new businesses, triple the number of stores, leverage technology and allow easy associate transition between businesses. So let's see how it worked out. Did we skate to where the puck was going to be?

Today, all businesses of DICK'S, brick-and-mortar and online, leverage a common portfolio of systems that form an enterprise platform. The financial leverage of our IT investment has been significant. There is no duplication of costs or functionality. The movement of people across businesses is unimpeded. Our growth potential is unconstrained. And we have one version of the truth across the enterprise. While visions are never complete, we have already leveraged our investments in information technology to help us get over halfway to our long-term goal.

On the next few slides, I will highlight some key systems that, when fully implemented and integrated, will further help us to grow and sustain our business.

First up, let's talk about supply chain. This table summarizes the major systems that we have deployed to optimize the movement and management of inventory. This technology automates our distribution centers; tracks and coordinates domestic and international freight; monitors the performance of our vendors; helps us control costs; and provides real-time insight into the productivity of our network. As you heard from Michele, the productivity and accuracy of our supply chain has increased dramatically since we began investing in information technology just a few years ago. Currently, our teams are evaluating how store-based fulfillment aligns with our future investments in supply chain.

Now let's touch on core merchandising. As you've heard from our team, systems are essential to the efficient operation of our business and they're integral to the way we plan, operate and grow the company. 7 of our core merchandising and inventory control systems are listed on this slide. They have been carefully selected to optimize the core elements of our business, specifically financial planning; assortment plans; space management in our stores; pricing controls across all channels; allocation of seasonal and fashion merchandise; replenishment of perpetual inventory; and key performance indicators and management controls.

This year, we began implementation of our latest system, the final phase of our core systems transformation, which will help us to better understand and forecast consumer demand across all businesses. This is especially important in businesses that leverage common inventory.

Our strategy is to choose highly configurable software and then optimize it to support our business model. Our goal is to solve the ultimate retail challenge: the right product in the right size and color at the lowest cost, priced by channel and region, available at exactly the right time in exactly the right quantity and, of course, located right where the customer wants it. This may help explain why we are so passionate about relentless improvement of everything we do at DICK'S Sporting Goods.

Moving on to stores. As Joe described, our emphasis on store systems is focused on relentlessly improving operational efficiency, providing rich product information to experienced associates, equipping those associates to deliver improved customer services and performing new store services, such as online order fulfillment. Our customers' omni-channel experiences and the role our stores play in delivery of those services will be significantly enhanced when we implement Phase 1 of our eCommerce platform starting in 2014.

Okay, let's review marketing. Several years ago, we began investing in advanced analytics and sophisticated technologies to better understand the key drivers of business performance. We have implemented very powerful tools to understand the profitability of our merchandise, our markets, our stores, individual transactions and, of course, our customers. Recently, we collaborated with a leading technology firm to create advanced algorithms to optimize e-mail campaigns and build targeted promotions. These investments ensure our marketing capabilities are leveraged across all businesses.

And finally, a word about eComm. As you heard from Michele and most of us actually during the course of this presentation, our investment in our omni-channel platform depicted on this slide will deliver improved economic value and maximum control of our internet properties starting in mid-2014. Our platform is built on IBM's WebSphere commerce. Our team is configuring a software and integrating it to our enterprise business systems with assistance from CrossView, an IBM business partner; Manhattan Associates, our supply chain partner; and Savvis, our data center partner in Dallas. We are delighted to have this world-class eCommerce platform join our growing portfolio of top-tier business systems.

Timing, as they say, is everything. As I discussed a few moments ago, at the beginning of 2013, we entered the final phase of our core merchandising systems transformation. That coincided perfectly with a shift in our focus and investments into eCommerce, together with additional technology to support store-based fulfillment.

What does that mean for the size of our capital investments in IT? We are confident that we can maintain our IT investment levels at/or very near our 6-year average while continuing to invest in growth, transformation and innovation at the rate of $4 to every $1 we spend on maintenance.

This slide reiterates our eCommerce timeline.

Our IT business partners are aligned with our capital allocation strategy, and they have been deliberately selected for their reputation; quality products and services; stability and durability in the marketplace; and their commitment to our growth.

The IT function at DICK'S Sporting Goods is built on the twin pillars of financial stewardship and delivering on service commitments. Our work is based on our guiding principles. We have relentlessly delivered toward the vision. We believe the results are material and that they are irreplaceable.

Finally, the technology, systems, infrastructure of this company is built, run, grown, transformed and innovated by very talented and dedicated professionals. This team works 24 by 365 to ensure that IT is built to support and sustain our growth, to deliver maximum financial leverage and that IT at DICK'S Sporting Goods is built to last.

Thank you for your intense interest in our business. And as our customers, thank you for your business.

It is my pleasure to introduce the newest member of the DICK'S management team, the quickest student of the business I've ever met, our EVP of Finance, Administration and Chief Financial Officer, André


André J. Hawaux

Thanks, Matt. Thank you. I know what you're thinking. Like Roberto Duran, we fought Sugar Ray Leonard, no muss, no muss. No more talking heads. Please, let me get out to the stores. John got you so worked up with our merchandising, and I know that Joe's presentation on our stores and what you're about to see later today is just fantastic, what you'll see in Cranberry, both at the DICK'S and our -- we're really proud of our Field & Stream concept. So you're -- I'm going to do a little bit with you, and then we'll do some Q&A, and then I promise you we'll be out there to the stores just to really see our world come to life.

As many of you know, I'm the newest member of the DICK'S Sporting Goods team. You now have seen why I feel so fortunate and excited to be here in terms of our growth plans. It's a great team working on an absolutely fantastic business.

Earlier today, Ed laid out our goals for the next 5 years. Our senior leaders have provided color and context as to how we're going to bring these plans to life over the next 5 years. Now my job here, as I summarize what you've heard a lot of today, is I'm going to walk you through the financial details of our plans to achieve these goals.

And let me reiterate what those 5-year goals are. We expect to increase our sales from approximately $6 billion in fiscal year 2012 to $10 billion in fiscal year 2017. We intend to increase our operating margin by 150 basis points to 10.5% in fiscal year 2017 from 9% in fiscal year 2012. As many people have mentioned, we are going to take control of our eCommerce and grow that business to approximately $1.1 billion by fiscal year 2017. We want to grow our store base to over 800 DICK'S Sporting Goods stores by fiscal year 2017.

And now, if we break down that sales, where are the sales going to come from? If you're going to look at our goal of $10 billion in sales in 2017, you'll note that the majority of this, well, it equates to $4.2 billion increase over the next 5 years, and that's a 5-year compound annual growth rate of 11%.

We believe this pace is -- of growth is achievable and have demonstrated an ability in the past to reach that pace before. Let's talk a little bit about that. Between 2002 and 2007, we grew sales at a compound annual growth rate of 25%, though notably, that was off of a much smaller base. Even with the financial crisis, we grew the business 8%. We feel very confident in our anticipated pace of growth to reach $10 billion in sales by fiscal year 2017. If we talk about the sales target, we anticipate that the majority of that top line growth will come from our DICK'S Sporting Goods business, with store sales reaching approximately $7.9 billion. And as I've mentioned before, eCommerce will reach $1.1 billion by 2017.

Our DICK'S store growth will be a combination of our 50,000-square-foot stores and some smaller market stores, which will be approximately about 35,000 square feet. Now additionally, we've modeled in and taken into account cannibalization of our stores from eCommerce.

We also expect to grow our Golf Galaxy chain moderately from approximately $300 million in fiscal year 2012 to approximately $350 million in fiscal year 2017. This growth at Golf Galaxy will be driven by a handful of new stores and the expansion of existing stores, which will add a much more experiential feel for our customers, as Joe discussed.

And while it's still notably early in its life, we believe we can grow Field & Stream to $750 million over the next several years, with growth, obviously, coming primarily from new stores. Our sales assumption for Field & Stream also factors in cannibalization of our DICK'S Sporting Goods stores as well.

On store growth, the largest driver of our growth is expected to come from -- obviously, from new stores. From the end of last year until the end of 2017, we expect to grow our total store base, including DICK'S, Golf Galaxy and Field & Stream, from 599 stores to approximately 956 total stores. This equates to a 5-year compound annual growth rate of about 10%.

At DICK'S, we anticipate a compound annual growth rate of about 9.5%, and we plan on having approximately 815 stores by the end of 2017. As you've heard from many of our speakers before, we have a very, very disciplined process to go there. Both of -- if you go back for one minute, please. Of our new stores, approximately 20% to 25% will be in those smaller markets that we've identified. We're also planning a total of approximately 275 apparel remodels and 44 full remodels, as Joe articulated. This means that over the next 5 years, we'll be touching approximately 60% of our existing store base. As Joe mentioned, we do not want a tired fleet out there.

For Golf Galaxy, we are planning an additional 5 stores from now through 2017, ending 2017 with a total of 86 Golf Galaxy stores. The new stores will be in that larger format that Joe shared with you before. And additionally, we're repositioning approximately 9 existing stores, which will offer enhanced services in a new 40,000-square-foot format.

For Field & Stream, we'll start with the opening of 2 stores this year. We have 1 already in place, but you'll see, we have 1 more coming in the end of the fall. As that business evolves, we plan to increase the pace to about 15 per year through 2017. At the end of 2017, we expect to have approximately 55 Field & Stream stores.

Now let's turn our attention to margins. As we grow the top line, we believe we can expand operating margins by about 150 basis points, from the 9% operating margin we delivered in fiscal 2012 to 10.5% in fiscal year 2017. On an absolute dollar basis, we expect to grow from approximately $516 million of operating income, which we delivered in fiscal year 2012, to a little over $1 billion in operating income in 2017, representing a compound annual growth rate of 15%. We anticipate the 150 basis points of operating margin expansion will come from both gross margin expansion of approximately 60 basis points and SG&A leverage of approximately 90 basis points. Now that gross margin driver will be driven by merchandise margin expansion and the leverage of occupancy cost and supply chain cost.

SG&A is expected to decline as a percentage of sales from leverage of advertising, other store expenses, overhead. And a lot of that will also come from that bringing in the eCommerce business in-house, as our margins will -- as Michele noted, we expect to internally control eCommerce by January of 2017. And so in fiscal year 2017, we will begin to see the related margin benefits in our financials. In the meantime, we will continue to grow our eCommerce team and invest in new technology and processes to ensure that we successfully bring the eCommerce business in-house. And you've heard Michele talk about that and Matt talk about it as well.

Let's talk about return on invested capital. Over the next 5 years, we believe these growth plans that we've outlined for you today will generate improved ROIC from about 11.8% to 13.3% in 2017.

I'd like to reiterate some things that Ed mentioned on capital deployment. As a growth company, we expect to provide returns to our shareholders through growing our business, paying dividends and repurchasing shares. To drive the growth of our business, we'll invest approximately $1.8 billion in capital expenditures over the next 5 years, primarily in new stores, the remodels we've talked about, and also eCommerce. Finally, our $1 billion, 5-year share repurchase authorization provides the capacity to not only offset dilution but also acquire shares opportunistically, which you should expect us to do. It's important to note that we anticipate all capital deployment will be funded by cash from operations.

Well, hopefully, you now have a better sense of our 5-year journey. We see ourselves as the clear leader in the U.S. sporting goods industry. We are focused on growth, driven to achieve outstanding financial results for our shareholders. You'll see that passion and commitment come to life this afternoon when you visit our stores. You got a great feeling of it this morning, I hope. I guarantee that what you'll see in the stores will be, in fact, the highlight of your day, and that's not taking anything away from my peers here.

Before I invite my colleagues to come up, I'd like to thank all of the DICK'S associates who made this day come to life. In particular, Anne-Marie Megela and Scott McKinney from our Investor Relations team have really done a fantastic job, hoarding cats is what it felt like for them, bringing us together, to put this day together for you. So thank you very much guys. We really appreciate that.

Now I'd like to invite my colleagues up to the stage as we open up the floor for Q&A. Now as Anne-Marie mentioned, it's really important, we have 2 roaming microphones. Please use one of these microphones when asking your questions so that the guests on the webcast can clearly hear those. And we can get going, okay? So we're going to take a couple of minutes just here to get everyone assembled. If I can ask my friends to come up, and we'll get started.

Question-and-Answer Session

Edward W. Stack

Well, one of the questions I ask is, do you think anybody will ask questions. But I guess, that won't be a problem. Matt?

Unknown Attendee

Can you give us some color on the financial trajectory associated with taking eCommerce in-house? I know that this year had some investments that you had called out, part of which were earmarked for your eCommerce investment. Presumably, you have ongoing investments. Presumably, there are also margin consequences over time of bringing your eCommerce business into DICK'S from GSI. So what does that path look like for the numbers?

Edward W. Stack

Well, to get to the specific numbers, we're not going to give you those right now, but we will be continuing to make investments for the next couple of years, and then beginning in '16, maybe, definitely in '17, if we feel it will become quite accretive to our earnings based on the fees and how the GSI deal is set up.

Unknown Attendee

If I could just follow up, if you think about the fact that eCommerce will be throwing at a faster rate than the overall business and presumably is still at a lower margin than the aggregate business, but that eCommerce itself, I think, is getting more profitable each year as you move to omni-channel.

Edward W. Stack


Unknown Attendee

Should the growth of eCommerce over the next several years be additive to margins, neutral or dilutive, if you could put a general range there?

Edward W. Stack

Yes, well, as it is right now, it's dilutive, but it's moving in an accretive fashion at a pretty rapid rate. And as we continue to do a better job with being able to change fulfillment options to the customer, it's getting much more profitable.

André J. Hawaux

To add, I think it's also important, to remember what Matt said, which is our IT spend in the aggregate, we believe that over the next several years will pretty much approximate what we've done over the last 6 years. So again, the way we've deployed a lot of that -- Matt mentioned a lot of the systems in the merchandising systems are now complete. A lot of our energy is going to be focused on the eComm and less so on the -- some of the internal things. So I think net-net on the capital deployment side, we'll be about the same as we've been over the last several years.

Edward W. Stack

Oh, somebody's got the mic already, Paul. We'll get to you next.

Michael Lasser - UBS Investment Bank, Research Division

It's Michael Lasser from UBS. I have 2 questions. First, looks like embedded into your top line goals over the next 5 years is a pretty modest comp expectation, so maybe you could describe how you built up at that comp goal. And second, for Ed, history, it was in online [ph] retail suggested it's very difficult for a company to run a multi-concept -- multiple concepts in multiple brands. What do you think it is? What's different about DICK'S that will allow it to be successful to have this pretty broad portfolio of concepts?

Edward W. Stack

I'll let you go first and...

André J. Hawaux

I was going to let you go first, but that's okay. I'll go first. So Michael, how we built the comp store growth, I mean, I guess, it depends on who you -- on this panel you talk to, whether it's conservative or not. But we built about a 2.5 point -- 2.5 comp in our existing DICK'S store platform from a growth standpoint. We assumed in the model that we -- and I'm going to get fairly granular for you all because I think you've kind of came out of Pittsburgh, you deserve some of that today. We also assume that our new store productivity, where a lot of that growth comes from, is going to be about 90% in year 1, 95%, and then gets to 100% of our existing stores by year 3. And then you saw, when we talked about relative to the new concepts, such as Field & Stream, how much we're expecting from that and how much we're expecting from eCommerce. So you populate your models as such.

Edward W. Stack

The second part of the question is if it's difficult for retailers to run and be successful with multi-concepts, and I suspect it is. The thing that's different about us, and a couple of other people have done it well for quite a while, is that the concepts that we're running are concepts that are core competencies of us. We're not getting outside our comfort zone into categories of business that we don't know. We're very confident and understand the golf business. We're very confident and understand the outdoor, hunt camp, fish business. So we're not going into new and different businesses or requiring something that's in a retail segment that we know nothing about. And I think if you stay inside that -- kind of that business that's core to your growth and your knowledge base, I think you're opportunity and probability of success is significantly higher. And we're pretty excited about it and feel that we can do this.

Michael Baker - Deutsche Bank AG, Research Division

Mike Baker from Deutsche Bank. I have 2 questions. One, just a follow-up on that comp comment, should that be even over the next few years or some years are going to be higher or lower? And I assume that 2.5% excludes the contribution from eCommerce, which I think you guys put in your reported comp. So that's all one question. The second question is on Field & Stream. Can you talk about some of the economics behind how you plan that out, what the CapEx might be? I guess you gave us some sales numbers, so we can figure out per store what the margins might look like in that store and what kind of returns you expect there.

André J. Hawaux

All right. Well, I'll start with the first question. So for modeling purposes, we basically look at 2.5% per year. We didn't get into the seasonality trough in quarter-by-quarter. And you all know that it's not going to be perfectly linear. But from a planning and modeling standpoint, we use 2.5%. Relative to Field & Stream, I think it's a little premature for us to get too deep into the weeds right now in terms of margins and things like that. We've been open, Joe, what, for about a month now?

John G. Duken

One month.

André J. Hawaux

One month and a day. So I think we have, obviously, for our model, built in some of our modeling assumptions. I don't think we're going to get too deep into that. It's going to be -- for the first 2 stores, it's going to be a lot of learning to determine where we need to be there. Is that fair, Joe? Is there anything else?

John G. Duken


Edward W. Stack

Who's got the microphone.

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

It's Brian Nagel from Oppenheimer. First, a question on the shop-in-shop. A few of you mentioned the continued what seems to be an aggressive rollout in the shop-in-shops Nike, Under Armour. Describe for us the ongoing -- the benefit you're getting as you roll these new shop-in-shops on your stores and then compare that to what you got maybe in the earlier stages of the shop-in-shop. And then related to that, is the vendor commitment, as you continue to roll these shop-in-shops, still the same?

Edward W. Stack

The vendor commitment is still the same. The vendors are really -- continue to be enthusiastic about this -- about these shops. We're looking to how can we broaden these shops to be more conducive to what we want and what our female customers want. There will be some additional square footage associated with that. We're seeing very similar -- continued similar gains as we put one of these shops in versus what we did a few years ago. You can actually say that they're at least as good, and we're smarter about those shops now. So from a margin standpoint, sales standpoint, some of the new products, the more exclusive products, so we continue to be just as enthusiastic about this. If we hadn't been, we wouldn't have talked about that we're taking 75 stores that were good-performing stores and remodeling the middle of that store and putting those shops in. We got 75 that we'll get done this year, we'll get somewhere between 75 and 100 done next year, and the same the following year. So we continue to be enthusiastic, and our vendor partners continue to be really enthusiastic about this.

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

Maybe just a follow-up, so Andre, if you look at the shop-in-shops in the 5-year plan you laid out, is there a piece of that comp growth or even some of the new store growth that relates specifically to the shop-in-shop rollout?

André J. Hawaux

Brian, I think it's part and parcel. It's all the things that we talked about. So that 2.5% embedded in that comp growth includes all the things we're talking about doing in the stores. So you heard earlier talking about how excited we are about the women's apparel, how we -- excited we are about Hughes, all the newness and the novelty that John brings into the store, that's all part and parcel of that 2.5%.

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

Peter Benedict from Robert Baird. On the 2.5% comp outlook, can you talk about your vision in terms of transaction count versus average ticket, kind of how that holistically is thought into that number? And then secondly, you talked about exclusivity earlier this morning. Can you give us some benchmarks around that, maybe were you've been with exclusive products, where you are today, where you hope to get to down the road?

Edward W. Stack

On the transaction versus unit retail, we're not going to get into providing guidance on how that's going to play out. So we feel that, overall, it'll be a -- roughly a 2.5% comp. And I'll let John talk on the exclusive side.

John G. Duken

So I think I said in my presentation that exclusivity represents around 23% of our 2012 sales. We have growth strategies in place through 2017. Again, we're confident that we have the support that we need to do so, and I think we're trying to target around a 35% area with that.

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

It's Dan Wewer of Raymond James. Also, I want to follow up on the same-store sales forecast. You noted earlier in the meeting that almost 20% of your revenue is from the golf category. That's the segment that hasn't grown in years. Golf participation rates have been dropping. Golf courses are closing. They got 2 ruling agencies putting limits on the performance of the golf balls and golf clubs. Curious, looking forward, are you assuming that the golf business is flat in the context of that 2.5% same-store sales forecast?

Edward W. Stack

Sounds like a great business to be at. So first of all, I would just say that I wouldn't say the golf business hasn't been growing over the last couple years. With some of the -- it hasn't this year. This has been difficult. But with some of the innovation that came out in the previous 2 years, we had some nice growth in the golf business. We are expecting the golf business to not be a growth vehicle. And I think you can see that based on the fact that we're not looking to roll out Golf Galaxy. We didn't put much of an increase over the next 5 years in the Golf Galaxy business. We think the Gold business is going to continue to be somewhat challenged. And you're right, the USGA and the Royal and Ancient are -- they've kind of constrained some of the aspects of the golf technology that can make the game easier. They're talking about doing some other things that I think will be -- that will make the game easier if they do discuss rolling the ball back. So we think the golf business is going to be somewhat difficult. And as we kind of roll this out, I wouldn't necessarily characterized that would -- the golf business would be flat.

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

And also just curious, how are you thinking about the firearms business going forward? There's been some indication that registrations are beginning to peak. If you could talk about how that fall into the 5-year forecast?

Edward W. Stack

Well, I think that we're not looking at the growth in the firearms business to continue the way that it has been. The -- it's been a big business right now. And a lot of people have a misconception, I think, that a lot of firearm businesses have been driven by somebody buying their 14th or 15th firearm. That's really not the case. There's a big part of this that has brought in new shooters, new people into this business. Right now, from a handgun standpoint, roughly 20% of the guns -- the handguns that are sold are sold to women. So we don't expect it to continue with -- at the pace that it is. We think there's a big opportunity out there, and there's a real sustainable business that we've been in from the very beginning that we think will -- we've got an opportunity to go take market share. Cabela's Vest Pro do a wonderful job. There's still -- a lot of this business is controlled by the small mom-and-pops. I mean, here in Pittsburgh, there's still a lot out of business done by big box gun shop up in the North Hills or another one down in the South Hills. We think there's a real opportunity to gain market share from those smaller independent retailers with the field like -- with a business like Field & Stream. Next question? Robbie?

Robert F. Ohmes - BofA Merrill Lynch, Research Division

I have, actually, 2 questions. It's Robbie Ohmes from Bank of America Merrill Lynch. First question, Ed, I thought it was great you talked about the Golf Galaxy acquisition and Galyan's in the context of strategy. Can you talk about the JJB investment and what you learned from that? And the 5-year plan has nothing for international, maybe comment on that. And then also, hopefully, the 5-year plan has any acquisitions. Will there be acquisitions associated with the Field & Stream concept or any of the other concepts, like the running concept? And then I have a second question.

Edward W. Stack

I think those were 4, yes, right there, Robbie. Let me see if I could remember those. The one I can remember because I still have a scar issue with JJB. So JJB was something that we knew -- and we said when we did this, we knew that it would be high risk, high reward. We got the risk, we didn't get the reward. And so we learned from JJB is that as we kind of move from an international expansion standpoint, we've got to be really careful and really understand what we're doing, and quite frankly, and we kind of fell on our sword when we did this, we didn't. We should have understood a little bit more about the market. And before we do anything like that internationally, whether it's from an investment standpoint, decide to open up something ourselves, or if we did desire to try to acquire JB-something, we would be much more diligent in how we approach this. We had some conversations with a number of the key brands that we're really enthusiastic to try to change the trajectory of that business, we partnered with them, in particular, Adidas, who are terrific partners through this whole thing, and it just didn't -- it didn't work out. So some things do, and some things don't. And we're not happy about the money that we lost there, but we learned a lot. It was an expensive education, though. What were one of the other -- what were the other 3 questions?

Robert F. Ohmes - BofA Merrill Lynch, Research Division

Acquisitions in...

Edward W. Stack

Yes, we don't have any acquisitions embedded in this growth rate. I think at the bottom of one of André's slides there, did talk for Joe's slide, and one of them talked about that you should view us as an organic growth vehicle. One of the things that -- and that's not to say that we won't acquire somebody along the way or do something. But right now, we would look at it as if we're an organic growth vehicle, and some of it we feel that we're probably a better builder than we are a buyer in the JJB kind of -- that kind of smart still. And...

Robert F. Ohmes - BofA Merrill Lynch, Research Division

Got a quick question for Joe Schmidt. Joe, you mentioned adding payroll back to the stores. Could you give us some more detail on the timing of that, the magnitude and sort of the drivers that are leading to that decision?

Joseph H. Schmidt

Sure, Robbie. We've already added payroll back into the stores for Q3 and Q4 of this year. So we've already begun the process. And as we sit down with finance to look for the 2014 budget, we're going to be very mindful of adding payroll back into the stores in 2014. So the process has already begun. Yes, and the driver, as you know -- most of you know, we spend a lot of time in our stores. We listen to our customers. We listen to our associates. We're doing a lot in the store. I talked a little bit about the services in the store, and this has gotten to be a more complicated business. And one of the things that we've learned from our store associates and our management team in the field is that we need some more payroll back in the stores. So we've listened to our management team, and we've already invested some payroll dollars back into the stores.

William A. Priebe - Geneva Capital Management Limited

Bill Priebe, Geneva Capital in Milwaukee. This is a sensitive question, but we were approached by a leading pension plan in Pennsylvania very recently, and we're told that we have to divest of DICK'S common stock -- we've been holders for over 10 years -- because you're in violation of a Sandy Hook Principles with the sale of assault weapons at just a Field & Stream store. Given the tragedies and the one this week and, unfortunately, maybe down the road, more to follow, have you reconsidered selling these high-end assault weapons? Because it seems to me, if this momentum gets going in the state funds and the city funds, you're going to start to restrict your eligible shareholder base.

Edward W. Stack

That's possible. I know some other people were restricted. I think Silvers with -- the California teachers wanted them to get rid of the Remington business. We haven't changed. We bifurcated what we're going to do here. So we've talked about it, in DICK'S, we're still not selling the semiautomatic weapons, the MSRs. In the outdoor category, we feel that that's an important part of that assortment, and it will be in there.

David Gober - Morgan Stanley, Research Division

Dave Gober from Morgan Stanley. Just a couple of quick questions on real estate. First, when you think about what we've seen in the last couple of years, there's obviously nothing on the real estate development. And as a result, I think it's held back your store growth a bit relative to what you've wanted to do, what are you seeing today that's allowing you to say that real estate growth is going to reaccelerate? And maybe for Ed or Joe, on the space reallocation that you talked about, little bit about, Ed, in your introductory remarks, how long do you think that process is going to take? Does it require full remodels of the stores? That just evolutionarily growing the Women's business and pulling back from Fitness or Field & Stream, or something like that?

Edward W. Stack

I'll start with real estate. We have seen an easing market in real estate. As we look at our new builds over the last 3 years, roughly 30% to 40% of our stores that we opened in 2011 was -- were attributable to new builds. Last year it was somewhere in the neighborhood of 45% to 50%, and this year it's going to be in the neighborhood of 65%. So we are seeing new construction pick up. What we are seeing out in there that has us enthused about the market is the REITs are adding dollars back into their facilities. And as we have seen some department store closures in the malls, we are typically the first retailer that these REITs are reaching out to fill the space. So We're pretty enthused about what we're seeing on new builds and REITs putting money back into their real estate.

Michael Jacob Karapetian - Janney Montgomery Scott LLC, Research Division

It's Mike Karapetian with Janney Capital Markets. I guess for Ed and/or Michelle, as we think about the brick-and-mortar concept growth, in conjunction with the evolution of e-commerce, can you maybe talk a little bit more color around the cannibalization that you expect, be it from your own digital evolution to third-party online retailers to the brands themselves? What's embedded within that five-year load?

Edward W. Stack

We've kind of taken a look -- as we said, there is some cannibalization from an e-commerce standpoint. But there's also -- we don't know exactly what is the cannibalization, and what is it that drives more customers. One of the things that Michelle put in her presentation was that a multichannel customer is -- you have 3x more revenue than somebody who is a single-digit or a single channel customer. So we're not so naive to believe that there is not some transition going there. We also believe that there's market share that we can take, as we take a look at other aspects of our business, whether it's still being able to take some market share in the Golf business, which as the business gets -- continues to kind of go the way it is, some of the smaller mom-and-pops are going to have a difficult time. The -- what we can do from the Women's side of the business, what we can do from an Athletic Footwear side of the business, there's still a lot of growth that we can have. And you can't just -- there is no way to say cannibalization is this from eCom, cannibalization is this from other eCom channels. You got to kind of take a swag your way you think it this, and overall, we believe that we can have a 2.5% comp gain in our stores over the next 5 years.

Michael Jacob Karapetian - Janney Montgomery Scott LLC, Research Division

Okay. Then maybe just a quick follow-up for André. In terms of the Op and Com CAGR, 15% over that 5 years, obviously appears, given the investments to be back end loaded. Are there any other sort of near-term sort of tailwinds that could help offset that are -- just think about, again, the cadence of that margin growth?

André J. Hawaux

Yes, 2 things. One is, I just want to correct you. I don't know -- I would not assume that our 15% Op, the growth of our operating income year-over-year is back end loaded. I think you can -- as you think about your modeling, I think it's fairly straightforward across our model. I'm not saying it's going to be 15% every year, but I don't think it's back loaded. So in other words, it's single digits, low single digits, that all becomes 20% at the outyear. I don't believe you should model that. And I apologize, what was the other question -- the other part of your question was?

Michael Jacob Karapetian - Janney Montgomery Scott LLC, Research Division

In just -- it sounds -- seems like the level of investments, given G&A is sort of 90 bps of that. It appears that those are a little bit more front-end loaded. So maybe just then, clarify how that plays? What are the tailwinds for the near-term that sort of offset that?

André J. Hawaux

Yes, so think a couple of things. I think what we'll see -- and we'll see some of it start to happen because, as we move some of the eCommerce, while a lot of it comes at the end, when we bring it all together, there are some things that Ed and Michele articulate that we're doing today, that actually improve our margin from where we are today. So there's an element of that. There's just an element of SG&A leverage that we'll have by the things in the investments we've already made in the shore sports center, and some of the IT things we've already done. So we see that more as an even breakout throughout the years.

Camilo R. Lyon - Canaccord Genuity, Research Division

Camilo Lyon with Canaccord Genuity. As you talked about feeling space contrained [ph] in your stores, and you talked about growth categories being women's, kids, NBA license businesses, of the 3 that you mentioned at the top of the presentation, do you feel that to expand those categories, that you need to contract -- do you need to transfer the Field & Stream business to the proper -- to its proper store base? Before you can do that, or can you get out one of your store base and if so, what categories would be diminished from the square footage calculation or perspective? And then I have a follow-up.

Edward W. Stack

Yes, I don't think this is not incumbent upon scaling back what we're doing from the hunt camp area, and having that transferred to Field & Stream. That's going to be a long process. As I said, some of the areas that we think we can contract, or we will contract is the golf equipment business. We feel that we can do a -- we can be more space efficient based on what's going on there, taking the apparel piece of the golf, moving that into the golf shops, scaling back some of the space we devote to equipment. I feel that we can move some of the fitness space, can be scaled back, possibly a little bit of the bike space. And we just need to go back in and take a look at, we've got -- I won't give you exactly what the parameters are. We've got a project that we're just kicking off to say, this is, and if we could do this with the Women's, the exercise is we're going to do this with Women's, and what are we going to do? But a couple of the big areas will be the Golf area and the Fitness area.

Camilo R. Lyon - Canaccord Genuity, Research Division

My follow-up is related to your discussion points around the fitness aspect of Women's and more of that StudioLux that you plan on doing with Under Armor. Is that considered part of the existing shop shelves that you're going to be doing with Under Armor? Or is that incremental to this growth orders [ph] that you've given out?

Edward W. Stack

We're going to try to -- we're trying to get some of that into the square footage now. But as we go forward, you would expect to see that be in incremental space.

Gary Balter - Crédit Suisse AG, Research Division

Gary Balter, Credit Suisse. When you were at the Mets conference last week, you talked about -- and some of it you mentioned today, you talked about lowering some of the opening price points, increasing advertising, increasing some of the store support or in labor, in the stores, what are you seeing competitively that is causing you to do that? And Part B of that question is, we talked a presentation upstairs, you had some fantastic displays and everything looks really good. But do you worry at times that you're moving too high end, like you're, somebody walks in, they go, "Wow, there's nothing cheap in this store," and maybe you're not offering enough for the middle class customer?

Edward W. Stack

Well, I think there's a couple of things. So going to these opening price points, we've indicated that we're doing -- that we're going to be doing that, and we've done some of that. And we've seen our bands kind of moving in that direction, to some extent. So some of the brands, Nike, Under Armour, coming out up with some lower priced product, that we feel that we need to have in our store. They were going to segment this in another channel distribution, we feel that we need to have that product, because although it's different than the product that we sell, if you look at it in retailer A, at a pant at $29, and in our store it's $39, you can't tell that difference unless you have the 2 of them right there. So we'll have those in the store, trying to provide the customer the opportunity if they want that $29 pant, that's great, we still feel the majority of -- the vast majority our business will be done in that better product. Your point about, are we concerned that we're getting too high-end? I don't think we're getting too high-end, Gary. I do think we abdicated a bit of those opening price points that we need to bring back in to let those customers come back in. So I don't -- we're not going to be scaling anything back from the high end, because we really haven't seen a big impact there. But I do think from a perception standpoint, we've got to have some of those, more opening price points in the store, to give the customer the opportunity to buy that, or at least see that, if they want.

Gary Balter - Crédit Suisse AG, Research Division

Just a second question is, can you talk a little bit about the ScoreCard and loyalty program and enhancements you may be doing too? We're seeing other people use them in a different way than you guys have been using?

Edward W. Stack

You want to do that Lauren? While [ph] I'm here.

Lauren R. Hobart

Yes, I mean, as I mentioned, ScoreCard's a huge advantage for us. It's something we spend a lot of time, we mine all the data. We're looking, actually night now to optimize the program even further, to provide even more value to our customers. A large majority of our customers do go through this ScoreCard program. And so, I would just look to -- for it to be continually enhanced, and for us to be communicating a little bit more going forward.

Paul Swinand - Morningstar Inc., Research Division

Paul Swinand with MorningStar. Just a, sort of being a follow-up to Gary's question, if we're thinking about the new concepts, with Field & Stream and then the new Golf Galaxy, how much of a SKU overlap do you have with some of the existing competitors? In other words, are you positioning yourself -- I was at the current restore already and, very high-end, very gorgeous merchandise. Is it really overlapping with Cabela's, and just in smaller box? Or are there areas where you've given up, we're not going to be able to be in stock in this type of stuff in this size store, how you're positioning the new 2 concepts, Golf and Field & Stream?

Edward W. Stack

Well, Field & Stream, we're positioning is, we feel that we can compete very effectively with what Cabela's doing. Some of the areas that we're not in, that Cabela's is in, is we don't have the food component of that. So you go to Cabela's you can have, on their big stores, you can have lunch and dinner. In their smaller stores, you can have sandwiches, fudge, sodas, kind of -- they've got an eatery there, if you will. We don't have that in the store. That takes up some square footage. We also have some things, from a home goods standpoint, that we don't have some things from a home goods standpoint that Cabela's does. So whether it's sheets, pillows, all that kind of stuff that you'd outfit your cabin with, we don't carry those products at, in Field & Stream. But so I would say, for what 95% of that hunt, fish, camp customer has, we have those and can compete very effectively. From a Golf standpoint, you're talking about Golf Galaxy versus DICK'S or other golf?

Paul Swinand - Morningstar Inc., Research Division

Versus other golf -- major retailers or concept retailers.

Edward W. Stack

So if you take Golfsmith, PGA Superstore and us, to be honest with you, we sell a lot of the same merchandise. We've got some private brands that are truly great brands the we can sell and differentiate ourself, such as, what we're doing with Slazenger, Top-Flite and Maxfli, Walter Hagan apparel. But the juice in the golf business is really in the equipment side of the business, drivers, irons, wedges, putters and the brands on that business. So it's pretty homogenized through the assortment between us and our other competitors, which is why we've got to find a way to differentiate the experience, to bring those customers into our store, because there's not a lot of differentiation from a, the equipment aspect of the golf business.

Paul Swinand - Morningstar Inc., Research Division

Just real quick on the hunt, camp. You say it was 90, 95. Do you have all the -- you pretty much have all the top brands and once you [ph] achieve and have more brands than Cabela's with their private label concentration?

Edward W. Stack

We do. One of the things that we've decided to do, Cabela's does have a lot of private brands, and Cabela's a great brand and their product -- their Cabela product is a very good. But we've just decided that we will have our Field & Stream product, which will be as good as anything out in the marketplace, but we'll really help focus this brand around the brand. So whether it's the Under Armour in the outdoor category, which has done well, Phil Simms, Sitka some of these other brands, we will make a big presentation of these brands versus what Cabela's is doing.

Joseph I. Feldman - Telsey Advisory Group LLC

Joe Feldman from Telsey Advisory Group. Wanted to get back to something you mentioned earlier about raising the hurdle rates for the stores, for the return levels, and how does that reconcile with the growth? Because it seems a bit to be a little accelerated growth for the next few years, that 9.5%. Can you find enough good space and hit those higher levels? And maybe a little more color on what those levels are?

Edward W. Stack

Well, and so, as I indicated, we weren't going to give you those levels, but nice try, I appreciate it. But we think that there is the ability to do that because as Joe indicated, the real estate business -- the real estate development business has picked up a bit. So we're starting to see more new centers being built, people starting to develop real estate again. And as you remember, as we talked about this for the last, really since the great recession or the economic collapse, whatever we want to call it, that the biggest constraint to our growth was, there was no real estate being developed. So that's being developed again. We're pretty confident that we can -- we're very confident we can hit those growth rates.

André J. Hawaux

If I can just add though, to build on that, I'm sorry. One of the things I think I'd mention, and we want to take away from that is the discipline we have around that real estate strategy. So we raised the hurdles partly because we knew that with eCommerce coming, we wanted to raise those hurdles and make the stores work harder to get to capital. And then there is a lot of debate amongst the real estate committee, which the 3 of us are on, as our teams bring about are we getting the right space, because if we don't get the right space and can't make the hurdle rate, we just don't do a deal. I mean, we're very disciplined around that. Ed and Joe are keenly focused making sure that we get those rates where they need to be.

Joseph I. Feldman - Telsey Advisory Group LLC

And on the Golf Galaxy stores, you mentioned that you're going to reposition and be much larger. Can you -- have you tested any? And what your thinking is there, the cost to do it, just any more color. I know it's not a lot of stores. You said 9, I think.

Edward W. Stack

Yes, so with the store we have here in Pittsburgh, we didn't have time to take you to that. That's a 30-plus-thousand square-foot store. And if we had 85 stores like that one right here, the world in the Golf business for DICK'S Sporting Goods would be a much better place. So while we've been able to give that better experience in the stores, it's worked out quite well.

Mark R. Miller - William Blair & Company L.L.C., Research Division

Mark Miller from William Blair. Within the gross margin objective, longer-term, I wanted to understand how you're thinking about pricing. Are there price investments contemplated in that, and also marked down via ScoreCard and direct mailers? I know those have been rising. And in the context is, with eCommerce, I think price transparency is rising for the consumer. And so, how does DICK'S manage that? Obviously you have great value and people are using the coupons. But for the occasional shopper, who might be just looking at less price, versus an eCom price, how do you show the value for them and manage that?

Edward W. Stack

Well, the transparency piece continues to be difficult. We don't have 2 prices. We've got the same price online as we do on the store. And what we have to prove to the customers, especially through the ScoreCard program, the benefits they get that if they use ScoreCard -- if they use their ScoreCard in the store or online. So whether that might be special pricing on product, like a lot of the grocery stores do so, it could be special pricing, it could be special benefit to the crew to the customer, whether it be the rebate program that we've got, the ability to shop at different times at a different price. So we're looking at all of those things. But the points you raise are something that all retailers are dealing with, from an eCommerce and competitive standpoint. And I can't say that we've figured it out. I don't think any retailer's really figured it out yet.

Mark R. Miller - William Blair & Company L.L.C., Research Division

On the gross margin side, are there contemplated price investments or markdowns out to 2017?

André J. Hawaux

Well, I think -- I don't know that we've gotten that granular by items, what the markdowns are going to be. I think we've taken a look at the -- all our categories, where we need to make a price investment. But also remember one of the things that we've said upfront, was there's also going to be a little bit of a mixed shift inside of our stores as well. Just to take an example of one of the things that I've said is, we may devote slightly less space to sort of, golf equipment. We may devote a little bit less space to Exercise. All those hard lines have slightly lower margins, and the products that will be replaced, such as youth apparel, such as women's apparel, that StudioLux line, et cetera, et cetera. So we feel that across all those things, as we looked at the categories, we've got the right gross margin penciled in for our growth rates.

Christopher Svezia - Susquehanna Financial Group, LLLP, Research Division

Christopher Svezia, Susquehanna. It's actually a perfect setup to my question. Just on the gross margin trajectory, 60 basis points, which seems somewhat conservative, I could say, just given your trajectory and some of the things you're talking about, in terms of merchandise mix, shop and shop concepts, so I just wondering if you can talk about a little bit, about maybe is that conservative? Is there something, whether it's a mix, whether it's online or maybe in Field & Stream, and how that business ramps up, that maybe give you a little bit of a conservative viewpoint, on 60 basis points of gross margin improvement? And then my next question's just on private label, I think you want it to be a billion dollar business by 2017. Maybe just talk about, are you going to grow with existing private brands? Is there anything new you want to do, or different you want to do? If you maybe just talk about the growth trajectory there, that'll be helpful.

Edward W. Stack

So is the 60 basis points conservative? I think it -- we're comfortable conveying to everyone that we feel that we can grow at 60 basis points by 2017. I think there's some -- we've had a pretty nice growth rate in our -- margin rates. We think we can continue to grow that. But we're not to get more aggressive right now than 60 basis points. We believe that we can get to a billion dollars in our private brand business. We're not really looking right now to buy -- to make any significant new investments in brands to get there. We feel that we can get to that billion dollar inside the brands we have today. We think some of the brands that have great growth potential for us is the Reebok brand. So from the Reebok athletic standpoint, probably 85%, 90% of the Reebok product, apparel product you see in our sales floor is product that we design and sourced ourself. We think we've got a real opportunity there. That's a place where we can take some of those opening price points and hit those to drive some additional traffic or give that customer that opportunity. We think there's a big opportunity from a Top-Flite standpoint, from a golf ball standpoint. It's a great brand. We've got a terrific marketing plan around golf, Top-Flite. We think we can do a big job there. We got some other brands that we feel has got some real potential, whether it be the Field & Stream brand inside the DICK'S stores, inside the Field & Stream stores. So we're pretty confident we can get there, and we're confident that we can get to 60 basis points.

Christopher Horvers - JP Morgan Chase & Co, Research Division

Chris Horvers, JPMorgan. So following up on the pacing question, can you talk about the pacing of the new store opens? It seems like you have a substantial step up here, in terms of the number of new stores per year. And also on the CapEx side, is my math right? It looks like it's $350 million per year, versus the recent run rate of $250 million per year. So again, can you talk about how that -- is that right, and how that paces out in the 5-year plan?

André J. Hawaux

Well, I'll take the capital one first. The $1.8 billion we talked about over 5 years, if you do the math, it's about $350 million. It's going to be a little -- I'd say it's going to be a little lumpier than that. I'm not sure it's going to be perfectly $350 million. It may be slightly more in the next couple of years, as we really move the store count up a little bit. So I think it's going to be a little different than a pure $350 million across the years. The other part of your question was?

Christopher Horvers - JP Morgan Chase & Co, Research Division

So it's about -- it looks like about 60 DICK'S core deck stores per year. Is that the right number? And is that relatively even over the five-year period?

André J. Hawaux

It's about 60, 70 the next couple of years.

Edward W. Stack

Yes, it's about 60 to 70 next year. It will probably ramp up a little towards the end.

Christopher Horvers - JP Morgan Chase & Co, Research Division

Okay, understood. And this year you're investing about $0.12 incremental spending for growth opportunities. As we think about the next 5 years, does that -- it sounds like that $0.12, we don't get it back in that period. But does it go higher in -- during that time frame, the incremental on top of what you just added in 2013?

André J. Hawaux

I think the way you should look at our capital spending is that $1.8 billion over 5 years, against the programs that we've talked about. I don't know -- we don't get it back. But it's not going to be a constant $0.12 incremental to our base spending. So I will look at it.

Christopher Horvers - JP Morgan Chase & Co, Research Division

Okay. So not -- doesn't sound like there's much incremental. Okay, and then, Ed, the question we get asked the most is about the traffic challenges that you've had, particularly in the last three quarters. With the business better now, can you talk about your thoughts around traffic? And maybe, can you do an updated postmortem on what you think has occurred over the past couple of quarters?

Edward W. Stack

Well, I think the past couple of quarters, the biggest issue has been just -- has been kind of that perfect storm we were in. If you take a look at -- there was roughly 350 -- 330 basis points of comp that was driven by the Camp and Water Sports business, the Golf business and to some extent, the Fitness business. If you take a look at what Cabela's had called out, in their second quarter earnings number, which they had a great quarter, but they indicated that, that camp or water aspect of their business was the softer area of their business also. So the cold -- the cool, wet spring in there were people -- the lakes were colder, the rivers were running faster, they were dirtier from all the rain that we had, it was just not a good water sports and camp environment out there, coupled with the TaylorMade, as we indicated, TaylorMade is to the golf business what Nike, Under Armour is to the athletic business, the business was down 8%. That was really the big cause of that. And if we hadn't had those issues, I don't think we'd be having these conversations. It's fine to have those conversations, but we really think we kind of ended up in the perfect storm. And as we've gone into the third quarter, we've indicated that originally, we indicated in our call that things have gotten a bit better. Now that we're halfway through with this, I can tell you, business is better.

Christopher Horvers - JP Morgan Chase & Co, Research Division

Is that traffic -- is traffic what you're seeing get better?

Edward W. Stack

So we've never -- we kind of have gotten out of our comfort zone, talking about, inter-quarter, how business is. We're not going to get any more granular than that, than to tell you that the business is better.

Christopher Horvers - JP Morgan Chase & Co, Research Division

And just slide one more in. You talked about, is Galyan's in Field & Stream, is there an analogy? You talked about the success around testing the two-story concept, you talked about Galyan's having no right real estate, having really -- was it good go-to-market strategy? So how was the competitive landscape in the outdoor category different? Is there a Galyan's-like opportunity out there?

Edward W. Stack

If you're asking if there Galyan's-like acquisition out there, there's not. I mean, there's not anybody that we would -- we'd look to buy right now. Does that -- there's nobody that we'd look at to buy at right now. We feel that there's a lot of open space. As I said, Cabela's has about 45 stores, Bass Pro has about 58 stores. That's not an awful lot of stores. We've got the ability to go and kind of stake our claim to a number of these markets. And we're not out in the acquisition business. Our expectation is that we'll build this business, we want to acquire it.

André J. Hawaux

We're going to have time for probably about 1 or 2 more questions. That will be the max. We've got about 2 minutes left. Right here.

Kate McShane - Citigroup Inc, Research Division

Kate McShane, Citi. I just wanted to talk a little bit more about the competitive environment, and how you see that playing out over the next 5 years? And what does your strategy assume for how the competitive environment might change? And finally, at what point do you think this market is saturated between big box, specialty, vendor, retail, eCommerce?

Edward W. Stack

We look at the competitive environment. It's not going to get any easier, as we've laid this out. We think that the competitive environment will kind of increase at the same pace that it has. In that time, there may be some people that don't make it, some people who really slow their growth, other people that may increase it. We think Academy does a great job. We'll continue to grow their business. We think Cabela's has done a wonderful job. We think some other people out there in that space aren't going to grow nearly as quickly. Some other people in the sporting goods business aren't going to grow nearly as quickly. I think it's -- where the saturation point comes from, I have no idea. I'm not sure anybody does, in any category of business what that saturation number is. One of the things that we're looking that, know that we have to do, is we have to provide the customer a differentiated experience to shop in our stores. The one thing that we talked about internally ourselves is that we know that we talk about loyalty in the business, we tried to dev a the loyalty program with the Scorecard, et cetera. And we can provide the customers a great reason to be loyal to us. But as we all know, the definition of loyalty, especially in the retail business, is the absence of a better alternative. So our objective is to make sure that we offer the customer the best alternative in the marketplace out there. We rode nothing from our customer. We're the ones who have to provide our customer something. And we want to provide them the best experience possible. And if we do that, wherever we get to that point, we'll continue to grab market share.

So with that, I think we're out of -- our timer's off. So we're going to get everybody on the bus, make a stop if you need to. Get on the bus and head up to the stores, where we hope you'll love -- we hope you'll love what you see. Thanks for being so patient, and we'll see you up at the stores.

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