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Dick’s Sporting Goods Inc. (NYSE:DKS)

Q1 2012 Earnings Call

May 15, 2012; 10:00 am ET

Executives

Ed Stack - Chairman & Chief Executive Office

Joe Schmidt - President & Chief Operating Officer

Tim Kullman - Executive Vice President of Finance & Administration & Chief Financial Officer

Anne-Marie Megela - Director of Investor Relations

Analysts

Christopher Horvers - JPMorgan

Michael Lasser - UBS

Gary Balter - Credit Suisse

Dan Wewer - Raymond James

Matthew Fassler - Goldman Sachs

Sean Naughton - Piper Jaffray

Robby Ohmes - Bank of America/Merrill Lynch

Sam Poser - Sterne, Agee

Kate McShane - Citi Investment Research

Camilo Lyon - Canaccord Genuity

Eric Tracy - Janney Capital Markets

Michael Baker - Deutsche Bank

Kate Lent - Wells Fargo

Sean McGowan - Needham & Company

John Zolidis - Buckingham Research Group

Paul Swinand - Morningstar

David Magee - SunTrust Robinson Humphrey

Peter Benedict - Robert W. Baird

Joseph Feldman - Telsey Advisory Group

Joseph Edelstein - Stephens, Inc.

Operator

Good morning and welcome to the Dick’s Sporting Goods first quarter earnings conference call. All participants will be in listen-only mode. (Operator Instructions)

I would now like to turn the conference over to Anne-Marie Megela, please go ahead.

Anne-Marie Megela

Thank you Amy. Good morning and thank you for joining us to discuss our first quarter 2012 financial results.

Please note that a rebroadcast of today’s call will be archived on the Investor Relations portion of our website located at dickssportinggoods.com for approximately 30 days. In addition, as outlined in our press release, the dial-in replay will be available for approximately 30 days.

In order for us to take advantage of the Safe Harbor rules, I would like to remind you that today’s discussions include 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. Such statements relate to future events and expectations and involve known and unknown risks and uncertainties. Our actual results or actions may differ materially from those projected in the forward-looking statements.

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

We have also included some non-GAAP financial measures in our discussion today. Our presentation of the most directly comparable financial measures, calculated in accordance with Generally Accepted Accounting Principles, and the related reconciliation can be found on the Investor Relations portion of our website at dickssportinggoods.com.

Leading our call today will be Ed Stack, Chairman and Chief Executive Officer. Ed will review our first quarter financial and operating results, our guidance and discuss our growth strategy. Following this Joe Schmidt, our President and Chief Operating Officer will outline our store and eCommerce development programs. After Joe’s comments, Tim Kullman, our Executive Vice President of Finance and Administration and Chief Financial Officer, will provide greater detail regarding our financial results.

I will now turn it over to Ed Stack.

Ed Stack

Thank you Anne-Marie and thanks to all of you for joining us today.

We had an exceptionally strong first quarter, generating a 50% increase in earnings per diluted share and a 15.1% increase in sales year-over-year, as operating margins expanded 168 basis points. Additionally, we maintained a healthy balance sheet, while executing our stock repurchase and dividend plans, augmenting our private brands through the Top-Flite acquisition and deploying capital for our U.K. investment in JJB Sports.

The 15.1% increase in the first quarter was driven by the growth of our store network and by an 8.4% increase in consolidated same store sales, on top of the 2.1% increase in the first quarter of last year.

Same store sales in the first quarter of 2012 for Dick’s Sporting Goods were up 7.3%, Golf Galaxy up 12.6% and eCommerce sales were up 33.4%. The comp growth at the Dick’s stores was broad based, with all three major categories, hardlines, apparel and footwear comping positively. Golf, team sports, athletic apparel and athletic footwear were particularly strong with the fitness category continuing to be soft.

Looking ahead, our continued profitability will be fueled by our three growth drivers, which are expanding our store base, strengthening our eCommerce business and continuing to develop our margin rate accelerators.

Regarding our store base; we opened six new Dick’s Sporting Goods stores in the first quarter. In 2012 we expect to open approximately 38 to 40 Dick’s Sporting Goods stores. Looking at the longer term, we believe we have the potential to open more than 400 additional stores over the next several years, giving us approximately 900 stores in the United States.

With regards to our eCommerce business, which represented approximately 3% of total sales in the first quarter, same store sales increased 33% over the first quarter of last year. We continue to invest in and grow this business as Joe will detail. We will be implementing capabilities that will improve the customer experience and profitability of this business.

We continue to make advancements in our margin rate accelerators, which are to increase private brand and private label penetration, migrate product mix and continue to improve inventory management. In the first quarter, we augmented our private brand portfolio with the purchase of the Top-Flite brand. We are successfully shifting our product mix through proven initiatives like the enhanced shops from Nike, Under Armour and The North Face and the shared service footwear deck with higher margin product increasing as percent of sales.

At the beginning of 2013 we expect to start seeing a positive impact from the system enhancements like price optimization, size and packaging optimizations that will facilitate more systemic inventory management solutions.

For the second quarter of 2012 we expect consolidated earnings per diluted share to increase by 19% to 21%, between $0.62 and $0.63 compared with non-GAAP consolidated earnings per diluted share of $0.52 for the same period of 2011. We expect consolidated same store sales to be positive 2% to 3% on top of the 2.5% increase in the second quarter last year.

For the full year 2012 we expect consolidated earnings per diluted share to increase by 21% to 23% to between $2.45 and $2.48 a share, which includes approximately $0.03 coming from the 53rd week this year. This compares to non-GAAP earnings per diluted share of $2.02 in 2011. On a 52-week or 52 week comparative basis, we anticipate consolidated same store sales will increase to between 3% and 4% on top of the 2% increase last year.

We generated record earnings this quarter, a 50% improvement over the last year. Our balance sheet remains healthy and we continue to invest in the growth opportunities of our business. I’d also like to take this opportunity to thank all of our associates for their hard work and commitment to serving our customers.

I’d now like to turn the call over to Joe.

Joseph Schmidt

Thanks Ed. In the first quarter of 2012 we opened six new Dick’s Sporting Goods stores, bringing our store count to 486 Dick’s Sporting Good stores with 26.5 million square feet and 81 Golf Galaxy stores with 1.3 million square feet. Within our stores we have 138 shared service footwear decks, 118 Nike Field House concept shops, 52 Under Armour All-American shops and three Under Armour Blue Chip shops.

Our new Dick’s Sporting Goods stores continue to perform well with a new store productivity of 105.8% in the first quarter. The detailed calculation of new store productivity can be found in the table section of the press release we issued this morning.

In total, we plan to open approximately 40 new Dick’s Sporting Goods stores this year. Approximately half of the stores are expected to be in new markets and half in existing markets. As a reminder, our leases are typically 10 years with options to renew.

This year we also plan to relocate five Dick’s Sporting Goods stores, which are at the end of their leases, to preferred locations that we have secured. For Golf Galaxy, we plan to repositioning two stores this fall.

To support future store growth, we are on plan to open our fourth distribution center in January of 2013. This 600,000 square foot facility will be located in Arizona and combined with our existing DC network, we will be able to support a total of 750 stores.

With respect to our eCommerce business, we are on target for piloting of ‘ship from store’ capabilities in 2012. In 2013 we will begin to develop in-store pickup capabilities.

As we continue to invest in capabilities, site functionality and analytics, we will provide customers with enhanced shopping experiences and the opportunity to buy and receive product, where, when and how they want. We will also be able to better leverage our inventory investment, while improving our fulfillment time and our in-stock positions.

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

Timothy Kullman

Thanks Joe. Sales for the first quarter of 2012 increased by 15.1% to $1.3 billion compared with the same period a year ago. Consolidated same store sales increased 8.4%; Dick’s Sporting Goods same store sales increased 7.3%; Golf Galaxy increased 12.6% and our eCommerce business increased 33.4%. The increase in same store sales in the Dick’s Sporting Goods stores was driven by a 4% increase in sales per transaction, and by a 3.3% increase in traffic.

Consolidated gross profit was $394.6 million or 30.79% of sales and was 112 basis points higher than the first quarter of 2011. This increase was driven by occupancy leverage. Merchandise margin slightly declined by eight basis points, primarily due to the clearance of select cold weather related products and to a lesser degree, the clearance of fitness equipment. We believe the margin impact for the excess cold weather related inventory is now complete and was contained within the first quarter as planned.

SG&A expenses in the first quarter of 2012 were $296.1 million, representing 23.1% of sales, compared with 23.68% of sales in last year’s first quarter. This leverage of 58 basis points was primarily due to payroll leverage and to a lesser degree advertising.

Moving to the balance sheet, we ended the first quarter of 2012 with $521 million in cash and cash equivalents and with no outstanding borrowings under our $500 million revolving credit facility. Last year, we ended the first quarter with $533 million in cash and cash equivalents and with no outstanding borrowings under this facility.

Our cash on hand at the end of the first quarter was impacted by our one-year share repurchase program, dividend payments, the recently announced investment in the U.K. based JJB Sports and the purchase of the Top-Flite brand.

With regards to share repurchase program, in the first quarter we repurchased 2.1 million shares of our common stock, at an average cost of $49.39 per share, for a total cost of approximately $104 million. We completed the share repurchase program yesterday. In total, we purchased approximately 4.1 million shares of our common stock at an average cost of $49.33 per share, for a total cost of approximately $200 million.

Net capital expenditures were $33 million in the first quarter of 2012 or $41 million on a gross basis, compared with net capital expenditures of $26 million or $33 million on a gross basis in the first quarter of last year.

On May 7, which is in our second quarter, we purchased our store support center for approximately $133 million. While leasing this property we recorded the cost of this building as property and equipment and recorded a corresponding lease obligation pursuant to GAAP reporting requirements.

In the second quarter, our payment to purchase of building will be reflected on the balance sheet as an extinguishment of this pre-existing financing lease obligation. Going forward, we will continue to record depreciation expenses, but because the debt has been eliminated, we will not incur interest expense in the future quarters. This transaction was and is contemplated in our guidance.

Now looking forward to our guidance for the second quarter of 2012, we anticipate same store sales to increase approximately 2% to 3%. We believe there was some pull forward with spring sales from the second quarter into the first quarter, particularly in categories like team sports, golf and bikes.

Earnings are expected to grow by 19% to 21% or in the range of $0.62 to $0.63 per share from non-GAAP earnings per diluted share of $0.52 in the second quarter of last year. In the second quarter, gross profit margin is expected to modestly increase and SG&A is expected to leverage.

As I mentioned earlier, interest expense will not be incurred in the second quarter of this year, as compared to the $2.7 million incurred in the second quarter of last year, due to our purchase of the store support center. The year-over-year decline in interest expense was already reflected in our original 2012 guidance.

For the full year 2012, we anticipate consolidated same store sales to increase 3% to 4% and earnings per diluted share to grow by approximately 21% to 23% or in the range of $2.45 to $2.48 as compared to non-GAAP earnings per diluted share of $2.02 in 2011. Fiscal 2012 includes a 53rd week, which we believe will add approximately $0.03 to earnings per diluted share and is contemplated in our guidance of $2.45 to $2.48.

Operating margin expansion in 2012 is expected to be driven by both an increase in gross profit margin rate and expense leverage. Our gross profit margin rate is expected to increase year-over-year, primarily driven by merchandize margin and occupancy leverage. Merchandize margin is expected to build momentum in the second half of the year.

SG&A as a percent of sales is expected to decline as compared to 2011, primarily due to lower advertising and store related expenses relative to sales year-over-year. This decline is expected to be partially offset by planned investments in eCommerce and systems implementation. With the execution of our share purchase plan, diluted shares outstanding are expected to be approximately $126 million for our full year, similar to the outstanding shares in 2011.

Looking at anticipated quarterly trends, we expect that in the second and fourth quarters, earnings per diluted share will grow at a high teens to low 20% rate. In the third quarter, we believe the EPS growth will be in the mid to high single digits, due to the following considerations.

First, pre-opening expenses are anticipated to be higher in the third quarter of 2012, as compared to the same quarter in 2011, since there are more new store openings planned in the third and fourth quarters of 2012 as compared to 2011.

Second, we will be hosting the annual Dick’s Sporting Goods Open, a Champion’s Tour Golf Tournament in the third quarter this year. Typically this tournament is a second quarter event. However, due to the flood damage to the En-Joie Golf Club caused from Tropical Storm Lee, the opening has been rescheduled to give the course more time to recover. As a result, the related expenses of the Open will shift from the second quarter to the third quarter.

And lastly, we will not be anniversarying a favorable tax benefit of approximately $0.001 per share, which we benefited from in the third quarter of last year.

Looking to the fourth quarter, we anticipate the start-up cost of our new distribution center will have an EPS impact of approximately $0.02 per share. The majority of these expenses will be incurred in the fourth quarter. Also in the fourth quarter we expect to earn approximately $0.03 per diluted share due to the extra week.

Turning to CapEx, net capital expenditures for the full year are expected to be approximately $190 million or $241 million on a gross basis. Net capital expenditures for 2011 were $154 million or $202 million on a gross basis. The anticipated increase in capital expenditures for 2011 and 2012 is primarily a result of the new distribution center and to a lesser extent investment in new stores, vendor shops, system enhancements and eCommerce.

We have delivered an exceptional quarter to kick-off 2012. With our financial strength and discipline, we plan to continue to deliver shareholder value by investing in growing our business through new stores, eCommerce advancements and avenues to support continued margin expansion with inventory management, private brands and product mix shift.

This concludes our prepared remarks. We will be happy to answer any questions you may have at this time.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from Christopher Horvers at JPMorgan.

Christopher Horvers - JPMorgan

Thanks and good morning.

Ed Stack

Morning.

Christopher Horvers – JPMorgan

Morning. A lot of retailers are talking about the weather and potential go forward and perhaps you could share how you flush that out and what are your thoughts on what was incremental for the company in 1Q that doesn’t repeat and comes out at 2Q. For what it’s worth, you saw this morning the census data in your category showed a 200 basis point acceleration to seven from five, so any insights there would be helpful.

Ed Stack

Well, we think that there is probably some pull through into Q1 based on the weather that we had last year. I mean people were playing golf earlier this year, they were fishing earlier this year, the kids were out on the field playing lacrosse and baseball earlier this year and we feel there is definitely some pull through into Q1 from Q2 sales.

Christopher Horvers – JPMorgan

Yes, but can we quantify that?

Ed Stack

No, we can’t quantify that. It’s just a sense that we have based on how good the first quarter was and kind of those categories that were weather sensitive last year performed much better this year.

With that being said, our merchants, our marketing people, the people in the stores, they did a great job taking full advantage of the better conditions we had this year than last year and as we said, our comps were north of 8% this year, which we thought was pretty good.

Christopher Horvers – JPMorgan

For sure. So then was there any – I mean a lot of retailers had great February and March’s and then April ended up decelerating. Do you think that pull forward, some of the impacted April or they are all coming out of Q2.

Ed Stack

Well, we think it may be coming out of the second quarter. We were very pleased with April also.

Christopher Horvers – JPMorgan

And then as a follow-up, BBCOR, any thoughts on how that impacted your comps overall in the first quarter and including the halo effect and how that might play out going forward?

Ed Stack

Well, it did impact our first quarter. It was important, although it was not meaningful to the 8%. We are not going to give exactly where it was, but it was important, but it wasn’t meaningful. It was less than 1% and as we said in our guidance, in our call last time, that we thought this was a first quarter phenomenon. Most of these bats are used for high school baseball players and it really wouldn’t move into the second quarter. It was primarily a first quarter opportunity.

Christopher Horvers – JPMorgan

Perfect. Thanks very much.

Operator

The next question comes from Michael Lasser at UBS.

Michael Lasser – UBS

Good morning and thanks a lot for taking my question. If you look back over the last couple of years, including the first quarter, there’s been a pretty wide variability in your comp results. How do you feel about your ability to manage, especially store labor in that environment, especially if that continues. Is there going to be a source of strain as we become a larger organization or could it actually be a source of potential benefit.

Ed Stack

We got a, what we think is a very good systemic solution to the sort of payroll. A mix of full time and part time associates we feel are appropriate and we can flex that payroll number as appropriate. So if business gets better, we are able to move payroll into the store to service our customers and if business is a little bit softer, we have the ability to move that payroll back, so as to not impact our earnings, maybe it will impact our earnings.

Michael Lasser – UBS

And then on the occupancy leverage you saw a really nice result in the first quarter. Is that how we should think about this line item moving forward and what’s the leverage point that you need – is the comp level you need at this point to lever.

Tim Kullman

This is Tim. On the occupancy side, we got a very good leverage because of the 8.4% comp. We feel that we need about a 3% comp these days to leverage occupancy, so we got that significant benefit, because we had such a high comp in the quarter. Don’t expect a triple digit basis point improvement in occupancy going forward, based on where our comp guidance is at this point.

Michael Lasser – UBS

Okay and if I could sneak one last one in on a related subject to that, I think Joe mentioned that your still going after 10 year leases. Philosophically, what is our process there, especially with retail changing so quickly, a lot of sales are migrating online and your seeing some of that impact yourself. Is there any thought given the possibility of going after shorter term leases or as you roll out ship-from-store, your not as concerned about it given that this could act as mini warehouses.

Ed Stack

Well, we continue to pursue the opportunity to short leases and we’ve had very minimal success so far, but by and large the industry average as we get on and look at these sites, it’s 10 years with the ability to re-up with a number of options. So I think you can look for the 10-year lease period to be pretty consistent moving forward. And again, we’ll look at those opportunities to grab a five-year lease where we can.

Michael Lasser – UBS

Great. Thank you so much.

Ed Stack

Yes.

Operator

Our next question comes from Gary Balter at Credit Suisse.

Gary Balter - Credit Suisse

Thank you. First of all congratulations on a great quarter. It’s too bad the penguins can’t do what you guys did.

Ed Stack

Thanks Gary.

Gary Balter - Credit Suisse

Maybe I may have missed it, did you give the percent of private label sales that you’re at now.

Ed Stack

We did not. Well, we said that we want to try to migrate that too over the next several years, but for competitive reasons we haven’t given what that exact number is.

Gary Balter - Credit Suisse

Okay. I thought the Top-Flite acquisition was a great acquisition. Could you talk about your thinking on that acquisition and where you’re taking that business right now in terms of private label and controlled label and growth opportunities in there.

Ed Stack

We think the Top-Flite acquisition was really a terrific acquisition for us, so we obviously we agree with you and it plays across both chains. It plays across the Dick’s chain and it plays across the Golf Galaxy chain and the margin rates that we are able to get on private brand golf balls is significantly better than buying from a domestic source.

So we still do an awful lot of business with the domestic companies and those partners. It’s just that the margin rate on the private brand golf balls are significantly higher and probably among the highest of anything we do in relation to the traditional brands, where these margin rates are in the 2,200 to 2,500 basis point difference. So that’s a huge difference and it will be positively felt at both Dick’s end and Golf Galaxy.

Gary Balter - Credit Suisse

Are there other categories, I guess your not going to tell me if you’re doing a similar thing. As I ask it I think I got the answer. I’ll switch the topic and then I’ll get off.

When talking about competitive environment, obviously you had really strong sales of flow through to earnings. Did you see anything changing competitively or was everybody just enjoying just a strong environment that you didn’t see a lot of price competition.

Ed Stack

Well, we didn’t see any irrational competition out there. I think everybody’s business was relatively good. Our business I think was better than most if you compared some of what people have reported, that we compete directly with such as Golfsmith, our golf members were pretty meaningfully above theirs. So I think everybody’s business I think was pretty good. I think we did better than most.

Gary Balter - Credit Suisse

Okay, thank you.

Ed Stack

Sure.

Operator

My next question comes from Dan Wewer at Raymond James.

Dan Wewer – Raymond James

Thanks. As you just brought up Golfsmith, could you just care to share thoughts on their merger in the Golf Town and how that could impact Golf Galaxy? And then also Golfsmith has been making a push into the 39,000 square foot stores, I guess similar in size to PGA Superstore. I believe one opened so far in Nashville, where you have one of your older Golf Galaxy stores. I was curious, in relocating Golf Galaxy, talking about a couple of locations, is Nashville one of the stores where you feel like you have to make a change in response to what Golfsmith is doing?

Ed Stack

Well, we are not making a response to what Golfsmith or Golf Town is doing. As we take a look at our business with Golf Galaxy, we are looking to reposition a number of the Golf Galaxy stores and they’ll be in larger format stores. We’ve tested a few of those. We’ve got one here in Pittsburgh, it’s done extremely well and as we go forward, we’ll be repositioning these into larger boxes that we think would be more effective than some of the boxes we have today.

I don’t believe that the Golf Town, Golfsmith merger is going to significantly impact our business at all. If you take a look at their results, I’m not getting – I don’t think it can have a big impact on our business.

Dan Wewer – Raymond James

Okay. The second question I had on the inventory, per store is up about 6% and I recognize that’s in line with your same store sales growth, but that’s the fastest rate of inventory growth I believe since the fourth quarter of 2007. What’s your thoughts since the rate of same store sales growth might moderate to a 3% or 4% rate for the year. Would you expect your inventory per square foot to moderate as well going forward?

Ed Stack

Well, if you remember and I’m sure you do, that we talked about the inventory being slightly elevated going forward because of the cold weather merchandize that we had left over. We felt that and as Tim indicated, the clearance activities that we also as you remember indicated would happen in the first quarter did happen and we concluded that and we did indicate very clearly that that inventory level would be slightly elevated as we go into the year.

We expect it doesn’t come out of the fourth quarter, that we’ll have this backed down to the appropriate levels, because inventory that we would have to go back and buy again, that was left over because of the warm winter weather such as black ski gloves and black ski pants, which are going to be the exact same again in the fourth quarter. We didn’t go out and flood the market and discount those. We just said no, there’s no issue with packing these up and with the same price we’re going to sell again next year and that’s what we did and that’s a big part of what’s causing this increase in inventory.

Dan Wewer – Raymond James

Okay, so the comments about the gross margin impact of the winter inventory, so we’re saying that the excess winter inventory will no longer have an impact on gross margin rate, but it will still stay on the balance sheet until it’s sold next year.

Ed Stack

That’s correct. Well, later this year, so into the fourth quarter of this year, yes.

Dan Wewer – Raymond James

Okay, great. Thank you.

Ed Stack

Great.

Operator

Your next question comes from Matthew Fassler of Goldman Sachs.

Matthew Fassler - Goldman Sachs

Thanks a lot. Good morning. First of all, if you could quantify the impact of the cold weather clearance activity on merchandize margins in the first quarter and then I guess talk just about the rational for the merch margin outlook building over the course of the year.

Ed Stack

We won’t give exactly what that was, but it was a big part of the margin erosion that we incurred in this quarter and we feel that this is behind us now. The merchandize that we do have left over going into the fourth quarter, we don’t think is going to have – we’re not going to use the discount there.

It’s very basic cold weather products and as we take a look at continuing to migrate our merchandize mix to higher margin rate products such as footwear, apparel, we think the NFL jerseys for the third quarter are going to be very helpful to the margin rate and as we go into the fourth quarter. We feel that this is a one-time blip in margin rate activity, which I think we called out.

Matthew Fassler - Goldman Sachs

And when you talk about, you said the majority of the margin erosion, not to nitpicky at all, but I think you said merch margin is down 8%. Presumably the clearance cycle -- 8 basis points rather, presumably the clearance activity was greater than any of this 8 basis point effect.

Timothy Kullman

Yes absolutely.

Matthew Fassler - Goldman Sachs

Secondly, you have a really evolving eCommerce business. I know some of that relates to the evolution of your agreement with GSI into your own capabilities. Can you talk to us about how your revolving capabilities in eCommerce and the way the mix of that business is going to evolve impacts to profitability of that business as it grows for you?

Ed Stack

Well, I think we talked about that we had a – we renegotiated with GSI the fee structure. So as we go forward that fee structure as a percent to sales comes down and also we feel we’re in a process of doing this, that we are migrating sales to more higher margin rate sales of apparel and footwear. We are seeing great growth in those areas, which the mix of that business is helping up the profitability pretty significantly and we think that we will continue going forward.

Matthew Fassler - Goldman Sachs

Is there a structural difference in the terms of your deal with GSI or for other reasons in the profitability of goods when it’s shipped by them versus shipped to you, versus in-store pickup. Is there kind of a stratification there that we should be thinking about?

Ed Stack

Sure, as more of the distribution or the fulfillment to the consumer, the less of it is done by GSI, the more profitable it is. So ship-from-store or in-store pickup is meaningfully more and vendor direct is meaningfully more profitable than shipping out of GSI’s warehouse.

Matthew Fassler - Goldman Sachs

Got it. And then finally you have spoken about the expectation of some inflation driven by materials costs or were much of a product complex we saw last year that you’d see as we went through 2012. Any update on whether that is in fact transpiring, how the pass-through is going, etcetera?

Ed Stack

It is. We have seen that, we are managing through that as you can see and our merchants and store personnel, everybody, we’ve done a very good job of managing through that. So we don’t think it’s going to have any meaningful impact.

Matthew Fassler - Goldman Sachs

Got it. Thank you so much.

Operator

Our next question comes from Sean Naughton at Piper Jaffray.

Sean Naughton - Piper Jaffray

Hi, thanks for taking the question. Just in terms of the real estate pipeline, can you remind us how long it typically takes you to get into a new location, and then maybe any sort of update on the current real estate development environment in key states where you feel like you maybe under penetrated compared to some of your peers?

Ed Stack

Sure. The pipeline really is dependent upon whether or not it’s a new build versus a reconstruction and it can vary anywhere from 12 to 18 months. If it’s an existing side, if we are taking over for an example a Kmart site, a Linens or Best Buy, I think something of that nature, then we can generally turn that building in less than a year. If it’s ground up construction, it typically takes 12 to 18 months, depending upon the size of the building.

As far as the landscape is concerned, there still is very limited new development out there. We continue to look at opportunities such as Kmart, Sears, Best Buy, Linens, (inaudible) opportunities like those retailers and we think that’s really going to continue for the next couple of years.

Sean Naughton - Piper Jaffray

Okay, that’s helpful. And then I guess just secondly then, can you talk about the further uses of cash. It looks like you have about $300 million in the balance sheet today. What do you think the appropriate level is to run the business and then maybe along those lines, could you discuss some of the rationale and how much maybe of management’s time is going to be spent in the U.K.?

Ed Stack

As far as the appropriate amount of cash, we feel that we’ve made the investment we are probably going to make through the balance of the year. There maybe a few small insignificant uses of cash, but for the most part, we feel that we put our cash to work for the balance of the year and we’ll reassess that as we get into next fiscal year.

As far as management’s times in the U.K., we’ve provided the JJB Group with the capital that they need to continue the business. Adidas, which has been announced, has also helped with the GBP 15 million investment in JJB. We have great confidence in the management team at JJB and don’t feel that there will be a significant requirement of our managements’ team in this endeavor. We will support them however they need it, but we will continue to spend 90% of our time here in the United States.

Sean Naughton - Piper Jaffray

Okay great. And then just lastly, any update on the outdoor categories; I know there was a little bit of a hiccup in Q2 last year. How do you feel like that business is tracking right now? Thanks.

Ed Stack

That business is tracking extremely well and the vast majority of the outdoor categories, we are comping above the company average, so it’s doing very well.

Sean Naughton - Piper Jaffray

That’s all. I’ll see you second quarter.

Ed Stack

Thank you.

Operator

Our next question comes from Robby Ohmes at Bank of America/Merrill Lynch.

Robby Ohmes - Bank of America/Merrill Lynch

Good morning guys.

Ed Stack

Good morning Robby.

Robby Ohmes - Bank of America/Merrill Lynch

Just a couple of quick follow-up questions. The first one Ed would be, could you talk about the footwear product outlook and maybe about how the price increases. I know you had mentioned earlier in the quarter at a conference that the price increases are working, is that still happening? And then also as you get into July, August here, how do the quantities of the Flyknit in the Nike Plus basketball sneaker work and your thoughts on whether that could be meaningful to the category or not and then I have a follow-up question after that?

Ed Stack

Yes, our footwear business continues to perform extremely well. As we called it out, it was one of the better performing categories that we had. The technology that is coming out in footwear continues to help drive the business partnerships with Nike, with Brooks, with Asics, a number of the other brands that they continue to bring out new products that’s been very well accepted by the consumer and we expect our footwear business to continue somewhat in the same direction in the past.

Robby Ohmes - Bank of America/Merrill Lynch

And can you comment specifically on the Flyknit in the new Nike Plus and whether you guys will be involved in those product launches?

Ed Stack

Well, we’re enthusiastic about those, but it’s too early to really make any real comments.

Robby Ohmes - Bank of America/Merrill Lynch

Then the other question I had, just a follow-up on the JJB Sports investment; can you give us the broader strategy that you guys are thinking of? What is in your head about whether you would fully consolidate that out and I guess I think its first quarter 2014? What are you looking to see happen at JJB Sports over the next year and a half?

Ed Stack

Well, we expect them to be able to turn the business around. We feel that the U.K. is a large market. It’s a $9.5 billion market and JJB doesn’t have – there’s about maybe 6%, 7% of that market share. So we think that there is a big opportunity.

The marketplace is very competitive in JJB. The previous management team didn’t do a very good job of running that business. We think there is an opportunity for JJB to turn this business around. We understand and we clearly communicated that this is a high risk, very high reward investment, but as we’ve spent time with the group there, understanding what their strategy is and what we can bring to the party so to speak, we think that this is a very good investment and we expect it to work our workforce.

Robby Ohmes - Bank of America/Merrill Lynch

Great. Thanks very much.

Ed Stack

Sure.

Operator

Our next question comes from Sam Poser at Sterne, Agee.

Sam Poser - Sterne Agee

Good morning. Thank you for taking my question. A specific question on your store opening plans. You talked about 500 stores. Can you give us an idea of the timeframe of getting there, a little more specifically?

Ed Stack

Well, how long it will take us to do, approximately 40 stores a year. So if the real estate pipeline improves, we can open up more stores and it will take us less time. Otherwise it’s kind of roughly 40 for the year, maybe 45.

The only thing that’s constraining our growth, it’s not distribution capabilities, it’s not management strength, it’s not capital. It’s really what I believe is the pipeline and the one thing we’ve worked very hard at is to not compromise our real estate strategy and we want to make sure we’ve got the right stores in the right location and if that means it takes a little longer, then it takes a little longer.

Sam Poser - Sterne Agee

Thank you. And then you saved money, you leveraged on store costs, I guess, does that have to do with the payroll optimization and so on, and isn’t your – you talked about raising your staff to when business is strong and lowering it when it isn’t. How much of staffing becomes almost (inaudible). If business picks up, you add staff it gets betters versus it being low and not doing as much business?

Ed Stack

I’m not really sure I understand the question Sam. If you are not doing as much business, there’s not as many customers and we don’t have to schedule as many part-timers to come in. If business is good, we know that we’ve got more customers in the store, we bring more part-time help in to assist those customers. I’m not sure what…

Sam Poser - Sterne Agee

All right, all right, let me re-ask if I may. Have you adjusted sort of the minimum level of staffing in your stores and your stores are absolutely beautiful stores, but sometimes I found that the staffing levels don’t quite live up to how nice the stores look, busy or not busy. Have you raised the minimum staffing levels in the stores to make sure that everybody gets taken care of on the manner by which you feel it should?

Ed Stack

We feel that we had the appropriate level of staffing in our stores to provide the appropriate level of service to our customers and there has been no change to that. We survey our customers many times during the year and keep an eye on how they view our customer service and our customer service scores have actually gone up recently as we’ve done a better job with training and better job with hiring our personnel, but we have not increased or decreased the level of service or level of payroll dollars we have in the store.

Sam Poser - Sterne Agee

Thank you very much. (inaudible).

Ed Stack

Thanks.

Operator

The next question comes from Kate McShane at Citi Investment Research.

Kate McShane - Citi Investment Research

Thank you. Good morning. This is a follow-up to another question that was asked earlier; if you could remind also some of the dynamics that you’re going up against in Q2 and Q3 from last year and what kind of changes can we expect to see in your lodge business in the upcoming quarters versus maybe what happened last year when you lost some footing in that category?

Ed Stack

Well, we were very clear and upfront in saying that we stubbed our toe when our outdoor business, we moved marketing dollars out of that category and felt the consequences of it. We thought that we can move marketing dollars out of that category into other areas of the business and we got hurt in the outdoor category.

We have not done that and are not going to do that this year and it was very helpful in the first quarter. We’ve also made some changes to our management in the outdoor category and put a merchant in charge of the outdoor camp water sports category, who is really doing an excellent job and we expect that business to improve significantly through the balance of the year and into next year, so we are pretty optimistic about it.

Like we said, all of our businesses, right now we are doing pretty well with the exception of the fitness category and the fitness category is primarily attributable to the big machine. So the strength machines, the cardios, elliptical, that type of exercises move to foam rollers, stretch band, the resistance bands, kettlebell, so we are working through that. So fitness remains to be soft, but the rest of the business, including the lodge is really quite good.

Kate McShane - Citi Investment Research

Okay great, thank you. And then my second question was just on the systems implementations that you are putting into place. I think there are four different systems that you’re updating or implementing with the expectation it will improve your gross margins next year and I just wondered if you could update us where you are in the process. Is it on schedule, ahead of schedule, any update there will be great?

Joseph Schmidt

Kate, this is Joe. We are still in the implementation and testing phase of those systems right now. We will start to see some very small benefits in Q4 of this year, but really look for those benefits to be in 2013.

Kate McShane - Citi Investment Research

Okay, thank you.

Joseph Schmidt

You bet.

Operator

Your next question comes from Camilo Lyon at Canaccord Genuity.

Camilo Lyon - Canaccord Genuity

Thanks and good morning everyone. I was hoping to get a little bit more color on your plans for the shop in shops, specifically around Nike and Under Armour and how you plan to grow those this year?

Ed Stack

We plan to continue to grow those. Nike will probably add approximately 50 of those this year. Under Armour will probably grow those at about an additional 80 stores and we’ll also be continuing to add to the North Face shops which have been very productive also for us.

Camilo Lyon - Canaccord Genuity

And can you talk about the timing of when do you expect to open up those additional 80 Under Armour stores, because I believe you opened up the initial 50 or so in Q3 of last year?

Ed Stack

Yes, they’ll be up basically throughout the year with very few in the fourth quarter. We don’t do a whole lot in the fourth quarter.

Camilo Lyon - Canaccord Genuity

Got it. And if you could also just share maybe some of the initial sales increases and the sales that you are seeing from those shop in shops. Obviously they are very accretive to top line and to gross margin as you stated in the past, but maybe any sort of financial numbers or quantitative numbers you could provide around that will be appreciated?

Ed Stack

From a competitive standpoint, we won’t do that, but as you could expect, because we continue to invest in them, as those Nike, Under Armour and the North Face continue to invest in them, they are very beneficial to both our business and Nike, Under Armour and the North Face’s business.

Camilo Lyon - Canaccord Genuity

Got it and then just a final question on that, is the sales what you do see in those shop-in-shops just a one-year phenomenon or is that sales lift continuing to used to use two, three and going forward?

Ed Stack

We continue to see a sales lift going forward.

Camilo Lyon - Canaccord Genuity

Great. Well good luck in the second quarter and the rest of the year.

Ed Stack

Thank you.

Operator

Our next question comes from Eric Tracy at Janney Capital Markets.

Eric Tracy - Janney Capital Markets

Thanks. Good morning. If I can just add a couple of follow-ups as well; you obviously got an easier compare from a weather perspective for this fall holiday, but can you maybe talk to how you are cleaning the sort of cold weather product within apparel and footwear. I know you got some carryover that you are continuing, but maybe just speak to the open-to-buy dollars as well as your ability to chase, if in fact your season does progress nicely?

Ed Stack

Well, we had indicated that the clean-up that we had to do with that merchandize that wasn’t going forward has been completed in the first quarter, so that has no impact going forward. We’ve indicated that we do have some product that is very basic with our merchandize that we carried over and will continue to carry over into the fourth quarter of this year. We feel that there is little or no margin impact of that product.

We were impacted by the warm weather this past winter. The first quarter was better this year because of the weather. So the weather hurt us in the fourth quarter; it helped us in the first quarter. If we do get a more traditional winner next year, we do have the ability to chase products. We have partnership orders for the number of the vendors that we do business with and we’ll be able to chase that product and optimize sales.

Eric Tracy - Janney Capital Markets

Do you feel like the vendors, say the Columbians, the North Faces are – does it seem like they’ve been pretty conservative in terms of their inventory positions. Do you feel like they are because they sort of announced to chase with you.

Ed Stack

We feel that the vendors, that we want to be in a position to chase product with – we are in a position to chase product with, yes.

Eric Tracy - Janney Capital Markets

Okay, that’s fair enough, thanks. And then really just to follow-up again with respect to the price increases that you’ve seen from some of the key vendors like Nike, Under Armour really hitting the spring, predominantly within the footwear category to a less degree the apparel; just again your sense of clearly comps coming through your sales per transaction up. You’re probably not going to be able to, but can you quantify what that contribution from the incremental pricing was to the comp and then how you think about it playing out for the balance of the year?

Ed Stack

We are not going to be able to quantify that, but for the most part, we’ve seen little price resistance. I think I said in the question at the last call, that there had been some specific items that prices had hit – when the price increase had gone into effect, it did have an impact on some specific items, but overall it hasn’t been very impactful.

Eric Tracy - Janney Capital Markets

Okay great. Thanks guys, thanks a lot.

Ed Stack

Thank you.

Operator

Our next question comes from Michael Baker at Deutsche Bank.

Michael Baker - Deutsche Bank

Thanks guys. I just wanted to ask you a little bit more on the trend through the quarter. You said April was good, if I go back and compare it to the previous ones and then I guess the follow-on to that is, if April was good, why are we expecting such a drop off in the second quarter as part of it. I think your comparisons got tough, get tougher in June and July. Is it sort of just anticipating those tougher comparisons that are wanting to stay a little bit conservative or is it something else that we should note?

Ed Stack

Well, as I said I think we moved business from the second quarter last year into the first quarter of this year. April was good. There was a shift in Easter earlier, which as usual was a bit better for us, but even through April last year it wasn’t great and we did very well in this first quarter and we’ll be naive to think that because people were playing golf six weeks earlier just to pick a number, roughly six weeks earlier this year, playing some meaningful golf four to six weeks earlier this year than they were last year, we’ll be naive to think that that wasn’t going to impact sales in the second quarter, so are we being conservative? I am not sure we are being conservative, we are being realistic.

Michael Baker - Deutsche Bank

So have you already seen that drop off or just have to occur in May I guess?

Joseph Schmidt

We never talked about what’s happening in a quarter as it’s happening, which is consistent with our practice over the last 10 years, but we are comfortable with the guidance that we’ve provided.

Michael Baker - Deutsche Bank

Okay, two more quick follow-ups. One, can you talk to us about the lacrosse business. I know you put some emphasis there, but some of data I have on lacrosse from the National Sporting Goods Association has at about a $40 million business growing about 10% a year. How meaningful can that actually be to your long-term comps?

And then one last question if I could, now that you’ve gone through your entire buyback plan, but with plenty of cash, any thoughts of re-upping on that? Thanks.

Joseph Schmidt

First of all on the lacrosse piece, we defined the lacrosse business as bigger than $40 million. So we think this is becoming meaningful to us and we believe it will become even more meaningful to us, but I wouldn’t look at the lacrosse market as a $40 million market, it’s bigger than that.

Michael Baker - Deutsche Bank

So what, do you have a number on the market, not necessarily your share, because that might be proprietary, but how you think of the total lacrosse market?

Joseph Schmidt

I don’t, but I can tell you that $40 million is not right, just based on our business, $40 million is not right and as far as the continued buyback, we have completed the buyback program. We indicated that this was a one-time buyback, because of some unusually large amount of options that will be expiring in 2013.

We’ve also indicated that we’ve kind of put the cash to work this year that we’re going to. There will be nothing meaningful – there will probably be nothing meaningful to the balance of the year. If something kind of shows up on our doorstep we will take a look at it, but we don’t expect anything meaningful through the balance of the year, which would mean that there is no additional buyback coming through the balance of the year either.

Michael Baker - Deutsche Bank

Okay, fair enough. Thank you.

Ed Stack

Sure.

Operator

The next question comes from Matt Nemer at Wells Fargo.

Kate Lent - Wells Fargo

Hi, it’s Kate Lent in for Matt Nemer. First just wanted to follow-up on real estate. I was wondering if you guys would consider a smaller box depending on the real estate that’s available and if you have any plans to test the small format, particularly given the really strong growth you’ve been seeing in eCommerce?

Ed Stack

Go ahead Joe.

Joseph Schmidt

Yes, as far as the smaller box, we have looked at some smaller box opportunities. In fact over the last couple of years we have opened some smaller boxes and really it’s dependent upon the marketplace.

As we look at some of these smaller towns with smaller populations, we’ve opened some stores that roughly are 35,000, 40,000 square feet, which is about 10,000 to 15,000 square feet smaller than our prototype store of about 50,000 square feet. So we have opened some smaller stores, but the stores have done pretty well. We are happy with the results.

We continue to look at those opportunities across the country as we fill out our real estate portfolio.

As far as anything really smaller just because of the eCom business, we are not looking to downsize the size of our typical prototype store, which again is about 50,000 square feet.

Ed Stack

What I’d like to add to that is there is – I think there is a misconception in retail today that whatever a retailer’s box is, it’s too big based on what’s happened with Best Buy and I think Best Buy is a very good company and I think Best Buy is going to do quite well, but Best Buy encountered some issues that are not the same as our business.

Best Buy had some categories of products that they sold that a technology eliminated or significantly reduced how that product was sold; music and movies, if you will. We see nothing on the horizon that is going to replace baseball gloves or technology that is going to replace baseball gloves, baseball bats, golf clubs, athletic shoes and those products will be sold somewhere in the state that they are today. There is no technology that is going to alter those.

So I think there is a misconception out there that whatever size the retailer’s box is, it needs to be smaller or it needs to be fewer of them based on what’s happened with Best Buy, and I think you got to look deeper under the story with what happened to Best Buy and not apply those thoughts to all the retailers.

Kate Lent - Wells Fargo

Okay, that’s helpful. I think I was more talking about the consumer purchases shifting from offline to online, but I – that’s your view point about Best Buy. Just as a quick follow-up on the outdoor category, I was wondering if you could talk about how your hunting and shooting business performed in the quarter and whether or not you think you are going to face some issues from international supply constraints in that category?

Ed Stack

We haven’t seen supply constraints in that category, although we are somewhat concerned about it and that’s part of the inventory, the increase of inventory we have. Those categories are carrying a bit more inventory, because we are concerned about that.

That business continues to do very well and we expect to continue to do very well for the balance of the year for two reasons. The business environment is good for that product and we were not very good with that product last year and we’ve made the appropriate improvements.

Kate Lent - Wells Fargo

That’s helpful. Thank you so much.

Operator

The next question comes from Sean McGowan at Needham & Company

Sean McGowan - Needham & Company

Thanks. Two questions; one, can you talk about the extent to which the improvement in golf, you think is just weather or is there a lot more going on there. People feel more comfortable about spending on equipment and then a quick question for Tim, is the tax rate we see in the first quarter the best indication of what we’d have for the full year? Thanks.

Ed Stack

So from a golf standpoint, we think there is three things happening with golf, so the weather in the first quarter was definitely beneficial to our golf business. Second, we think that from an economic standpoint, things are a little bit better and some people have postponed the purchase of golf product and they are now kind of – because they are feeling a bit better, they started to spend them on golf product.

And then also the technologies that are out there from a golf standpoint have been very helpful. What TaylorMade did with the, not only with R11S, but the RocketBallz promotions, what’s going on in golf ball technology, what Titleist has done with redoing the AP2s, the new pin product out there, there is some technology out there from a golf standpoint, that’s very good, along with footwear the lightweight, more casual, athletically inspired footwear from a golf standpoint has been very, very good.

So there’s a number of things that are working in golf; technology, product, weather and the academy.

Sean McGowan - Needham & Company

Thank you.

Tim Kullman

And Sean, assume a 39% tax rate for the year.

Sean McGowan - Needham & Company

Great, thank you.

Operator

Your next question comes from John Zolidis of Buckingham Research Group.

John Zolidis - Buckingham Research Group

Hey guys, good morning.

Ed Stack

Hi, how are you doing?

John Zolidis - Buckingham Research Group

Hi, I have two quick questions. One, you mentioned that the breakout of new markets versus existing markets for new stores this year is about 50/50, but you also highlighted the very strong performance of the new stores. Is there any meaningful difference on the revenues you see out of the gate depending on whether it’s an existing or new market.

And then my second question is on the Internet business over time, do you see additional entrants into that category, primarily Amazon, affecting the premium element that you’re involved with much? Thank you.

Joseph Schmidt

I’ll start with the new store question. As far as new stores in new markets versus existing markets, we are not seeing anything materially different in how those stores perform. From an Amazon standpoint we certainly keep an eye on what Amazon’s doing, but from a premium standpoint, which is a bit more where we play and kind of a better and best products, they don’t have access to a lot of that product. Nike doesn’t sell them on a direct basis, Under Armour doesn’t sell them on a direct basis, so some of that premium product, they don’t have access to.

John Zolidis - Buckingham Research Group

Okay great. So that makes it more defensible for Dick’s. Is it surprising to you internally that the stores in new markets do just the same as the stores in existing markets, because I find that a bit odd?

Ed Stack

Actually, it doesn’t. So that in new markets we are not competing with ourselves and we feel the toughest competitor we have is our self, so we are not sharing that business with our self.

We think that the national advertising that we do with ESPN, the golf channel and some other partners has really helped broaden our name recognition and our brand image, so that when we are coming to a new market, people are pretty enthusiastic to have a store. I’ve had a number of people that I’ve met at conferences who are out of town and they’ll say, when are we going to get a Dick’s store. So when we do open a store, there is some brand recognition that we didn’t have before we started this campaign a couple of years ago.

John Zolidis - Buckingham Research Group

Well, that makes sense. Thanks a lot and good luck.

Ed Stack

Thanks.

Operator

The next question comes from Paul Swinand at Morningstar.

Paul Swinand - Morningstar

Good morning and thanks for the patience in taking all the questions.

Ed Stack

Sure.

Paul Swinand - Morningstar

I guess I would like to follow-up on the eCommerce and store size question since I thought it was interesting one, analysts asked about the stores getting smaller. The same time you commented that the Golf Galaxy stores, you are testing some larger concept stores. What are you filling the store with incremental? Is it just more assortment in the same brands; in other words deepening with some brands or is it really a broader assortment of skews and offering more choice, even broader category wise?

Ed Stack

Well, there’s a couple of things. What’s very important in golf today is the fitting process and coming in and being fitted to make sure you’ve got the right driver, the right sort of irons, the right analysis of gaping with your wedges and distances.

So that space is being devoted to more fitting and services around those categories to make sure that your driver, you’ve got the right launch angle spin rate, all of these things that really do have a pretty meaningful impact on how far the ball travels. From an iron standpoint, making sure that you’ve got the right irons, the right loft to lie on your irons, so that’s a big part of this.

Another important aspect of this is we’ll be offering a much broader and more complete apparel assortment. Golf apparel is becoming much more important than it has been in the past. It’s growing as a percent of the business, which will also help the profitability of that business.

Paul Swinand - Morningstar

Okay, great. Thanks for that, and then also on your comments on big-ticket fitness not selling as well. I guess I was thinking that at the time you picked up and same-store sales picked up big ticket will start to come back a little bit. You think some of that is due to the weather? In other words, people get outside, they don’t need to go on a treadmill or an indoor cycle or is that just a long-term industry trend or do you think that’s something you did in the merchandize mix that you could fix?

Ed Stack

Well, I think and there is some weather impact of that, although we are seeing a very fundamental shift in how people exercise, that there is different ways to do cardio today and it’s not just on a treadmill or on elliptical machine or a bike. People doing cardio through boxing, through use of medicine ball, through the whole cross fit phrase that’s going on out there.

So there is a fundamental shift in how people workout and people are starting to realize and there is a lot of noise out there that to just do cardio, to just do treadmill work, you need more than that. You need that strength, the strength workout, you need the flexibility workout and you need the cardio workout and there is a number of ways to get cardio without a treadmill. So we believe there is fundamental shift in how people are working out. It’s not good for the treadmill and electrical and even the big weight machine workout.

We’ve seen a big increase in our sales of resistance bands, medicine balls, physio balls, all of those type of products and although the average unit sale is less, the profit margins on those categories are significantly better and just directionally look at a 30% margin versus a 50% margin, so roughly 2,000 basis points difference. So as we cycle through this and we start to then be able to grow the fitness business again, because of these other categories, our margin rates will move up significantly.

Paul Swinand - Morningstar

Okay, fascinating. Thanks for that and best of luck.

Ed Stack

Thank you.

Operator

The next questions is from David Magee at SunTrust Robinson Humphrey.

David Magee - SunTrust Robinson Humphrey

Yes, hi, thank you. Just a couple of follow-ups; one, you had mentioned earlier the relative margins on eCommerce, depending on how you fulfill the product. Can you talk about where you see that category going relative to the retail stores and whether you’re seeing any earlier signs of cannibalization with certain stores?

Ed Stack

We are not seeing any signs of cannibalization. We really feel that we believe in the idea of the omni channel experience that we don’t really care where that market share comes from, in-store or online and actually when you get a customer that buys online and in-store, they actually buy a lot more product from you in both places. So we are not seeing any cannibalization and we’ve indicated that the weather was helpful to us in the first quarter based on our first quarter results. You can see that you would assume there is little or no cannibalization.

David Magee - SunTrust Robinson Humphrey

And being agnostic on the channel, I would assume you would expect margins to be similar over time?

Ed Stack

Over time, yes. We’ve indicated that our eCommerce sale today is less profitable than in-store sale, but we are moving in that direction and we suspect over time that we’ll be ambivalent as to where that comes from.

David Magee - SunTrust Robinson Humphrey

Thanks Ed. And the second, you talked about the enthusiasm on the footwear, what you see there in terms of the fashion side of things? I would assume you feel the same way about apparel and what you see sort of in the second half of this year on the fashion?

Ed Stack

We see apparel doing very well also, but if I indicated fashion, I didn’t mean to. We are seeing our growth in the business as primarily out of the technical side of footwear. So technical running, technical basketball shoes – the only component of footwear that I would say is fashion and we are doing very well in is the pre shoe. We think the lightweight shoes that are technical are doing very well. We think from an apparel standpoint the technical products that have been brought now into color are doing very well, but they are still technically paced.

David Magee - SunTrust Robinson Humphrey

Great, thank you.

Ed Stack

Sure.

Operator

The next question comes from Peter Benedict at Robert W. Baird.

Peter Benedict - Robert W. Baird

Hey guys, most of the questions have obviously been asked here, but just want to circle back to the margin accelerators, particularly on the systems front. Could you guys help us may be rank order the timing and the magnitude of impact from some of the systems related initiatives you have on path.

I mean on our notes we’ve got the merchandize sizing and packaging optimization as one, price optimization as another and then labor scheduling. I understand generally kind of 2012 rollout, 2013 benefits, but can you give us maybe a little more granularity around that and maybe which are the most impactful that we should expect over the next several quarters? Thanks.

Timothy Kullman

I think the way you need to think about the implementation processes is the combination of the implementation of the systems and how they collectively work together to bring science to the art is the thing that we are most confident of.

So as we move forward and we get through the 2012 implementation process, as Joe mentioned earlier, for those first two that you mentioned in particular, definitely we’ll see some light benefit in 2012, near the end of the year, but more substantial benefit in 2013. What we won’t do yet is quantify what we believe the basis point benefit from each of those systems will be.

Peter Benedict - Robert W. Baird

Okay fair enough. Thanks Tim.

Operator

The next question comes from Joe Feldman at Telsey Advisory Group.

Joseph Feldman - Telsey Advisory Group

Yes, hi guys. Good morning and congratulations on the quarter. Similarly, most of mine were answered and asked, but I did want to go back to the shop-in-shops for a minute. I know you don’t want to give too much detail on the metrics, but we are just kind of curious, for the ones that have been open now for a year or so, are you still seeing good comp performance? Is it trending I guess in line with the plan that you would have or is it helping to continue to drive traffic or any more color you can give us around that?

Ed Stack

They are continuing to comp positively. Dick’s, Nike, Under Armour and North Face are all very pleased with the performance that we’ve had there at or exceeding plan and we were pretty optimistic about what benefit these would provide us. So we are pleased with this and continue to be so.

Joseph Feldman - Telsey Advisory Group

Got it. That’s good to hear. Thanks guys, I won’t ask any others.

Ed Stack

No problem, thank you.

Operator

The question comes from Joseph Edelstein at Stephens, Inc.

Joseph Edelstein - Stephens Inc.

Good morning and thank for taking my questions.

Ed Stack

Sure.

Joseph Edelstein - Stephens Inc.

I just like to follow-up on the eCommerce margins. I believe last quarter you said that you were on a path of roughly 18 months before you could reach the store level margins? Are we on track for that timing?

Timothy Kullman

I am not sure we quantified an 18-month timeframe, but we’ve said over a reasonable period of time, we feel that we’ll be in between these two wherever the sales comes from, but I am not sure that we identified 18 months.

Joseph Edelstein - Stephens Inc.

Okay and then just one other question. I know you said that the BBCOR bats were only a small component of the overall comp, but curious to know how the sale of those bats performed against the plan and really did you have a similar kind of experience that you saw to last year in California or do you think you were actually able to perform better in that particular category?

Ed Stack

Well, we were very pleased with the results and it’s not over with yet, although it’s got a much smaller impact in Q2, but we were very close to our plan. It was very positive for the baseball business and it was very helpful to the overall business.

Joseph Edelstein - Stephens Inc.

Great, and thanks for taking my question.

Ed Stack

Sure.

Operator

This concludes our question-and-answer session. Now, I’d like to turn the conference back over to Ed Stack for any closing remarks.

Ed Stack

I’d like to thank everyone for joining us on our first quarter earnings call and we look forward to talking everybody again in a couple of months. Thank you.

Operator

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