Dick's Sporting Goods: The Do-Over Is Surprising

Here’s a restatement that’s a bit of a surprise, because the issues caused by it have been so well-traveled over the last few years.

Dick’s Sporting Goods (DKS) posted a non-reliance 8-K covering its fiscal year 2006 and 2005 10-Ks as well as interim reports. Reason: a “mathematical error” in preparing the Statements of Cash Flows related to tenant allowances received from landlords while building new stores during 2006. Other errors related to the classification of certain tenant allowances in the cash flow statements for those years that should have been reported as changes in deferred construction allowances to represent monies received by the Company as tenant allowances from landlords at stores where Dick’s was not the owner during the construction period.

There were other misclassifications of certain tenant allowances from increases or decreases in recoverable costs from developed properties to other captions. Capital expenditures should have included the Company’s investment in stores where it was the owner during the construction period, and proceeds from sale-leaseback transactions were also incorrectly stated for tenant allowances from landlords at stores where Dick’s was the owner during the construction period.

The net result of these revisions: a 27% decrease in cash from operations in 2006 and a 5% drop in 2005. Revised capital expenditures were 14% lower in 2006, but 34% higher in 2005. And revised proceeds from sale-leaseback transactions swelled 91% in 2006, and 229% in 2005.

All of these revisions affected only the cash flow statement; no effect on earnings or the balance sheet. That doesn’t mean they’re inconsequential: plenty of analysts and investors look to the statement of cash flows for information about (obviously) cash-generating ability and capital expenditure demands. Given the wave of lease re-examinations that went on two years ago, it’s pretty surprising to see one pop up this late.

DKS 1-yr chart: