DICK'S SPORTING GOODS, INC. (DKS)

ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with our Consolidated Financial Statements and related notes appearing elsewhere in this Annual Report on Form 10-K. This Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Refer to “Forward-Looking Statements” and Part I, Item 1A. “Risk Factors”.

Business Overview

We are a leading omni-channel sporting goods retailer offering an extensive assortment of authentic, high-quality sports equipment, apparel, footwear and accessories. In addition to DICK’S Sporting Goods stores, we own and operate Golf Galaxy, Public Lands and Going Going Gone! specialty concept stores, and also offer our products online and through our mobile apps. We also own and operate DICK’S House of Sport and Golf Galaxy Performance Center, as well as GameChanger, a youth sports mobile platform for live streaming, scheduling, communications and scorekeeping. When used in this Annual Report on Form 10-K, unless the context otherwise requires or specifies, any reference to “year” is to our fiscal year, which ends on the Saturday closest to the end of January each year.

Through our strategic pillars of athlete experience, differentiated product, brand engagement and teammate experience, we have transformed our business to drive sustained profitable growth. As part of our strategy, we have meaningfully improved our merchandise assortment through our vertical brands and strong relationships with our key brand partners, which provide access to highly differentiated products. We have also enhanced our store selling culture and service model and incorporated additional experiential elements and technology into our stores to further engage our athletes. Lastly, we continue to innovate our omni-channel athlete experience through our DICK’S House of Sport stores, Golf Galaxy Performance Centers and our DICK’S Field House stores, and believe that a key driver of our future omni-channel growth will include repositioning our store portfolio to grow these stores. In addition to these strategies and foundational improvements, consumers have also made what we believe will be lasting lifestyle changes in recent years, prioritizing sport and maintaining healthy, active lifestyles, which has increased demand for our products.

We believe there is strength and momentum in the sports industry in the United States and expect this trend to continue in the near term, with continued excitement around women’s sports, the 2026 World Cup and the 2028 Olympics. We believe that the convergence of sport and culture has never been stronger and we believe we’re well-positioned for this opportunity. From this position of strength, we plan to make investments in digital and in-store opportunities to grow our market share through repositioning our store portfolio, driving our footwear category and accelerating our eCommerce channel.

Business Optimization

During 2023, we completed a business optimization to better align our talent, organizational design and spending in support of our most critical strategies while also streamlining our overall cost structure (the “Business Optimization”). As part of our Business Optimization, we eliminated certain positions primarily at our customer support center and optimized our outdoor business, which included the integration of our Moosejaw and Public Lands operations, decisions about their go-forward inventory assortment and a comprehensive review of their store portfolios and closure of ten Moosejaw stores. We incurred pre-tax charges of $84.8 million from our Business Optimization, including $46.1 million of non-cash impairments of store and intangible assets, $26.7 million of severance-related costs and a $12.0 million write-down of inventory.

Business Environment

The macroeconomic environment in which we operate remains dynamic as a result of numerous factors, including ongoing elevated interest rates, inflationary pressures, potential changes to international trade relations from taxation and tariffs, which could impact pricing, consumer discretionary spending behavior and the promotional landscape in which we operate, as well as higher levels of inventory shrink, which has been noted throughout the retail industry.

Despite the dynamic macroeconomic environment and a shorter traditional holiday shopping season, we continued to drive comparable sales growth in fiscal 2024 with an increase of 5.2% which is on top of a 2.6% increase in 2023. Through the execution of our core strategies and operational strength, net sales increased 3.5% in fiscal 2024 as compared to 2023, and pre-tax income as a percentage of net sales grew to 11.30% in fiscal 2024 compared to 10.15% in fiscal 2023.

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Overview of other trends affecting 2024

•The prior year included an extra week of operations, which added $170.2 million of net sales, or $0.19 per diluted share to fiscal 2023 full year results.

•Within merchandise margin, while inventory shrink remains elevated compared to historical levels, inventory shrink as a percentage of net sales decreased 25 basis points during the current year compared to 2023, as the prior year included a cumulative unfavorable impact from shrink identified during our physical inventories. We do not expect a similar decrease in 2025.

•During 2024, selling, general and administrative expenses were approximately flat as a percentage of net sales compared to 2023 due to last year’s Business Optimization, offset by strategic investments beginning in 2024 to drive long-term growth based upon the strength of our business. We expect selling, general and administrative expenses to deleverage year-over-year in fiscal 2025 as we continue with these investments spanning across digital, in-store and marketing.

As a result of our strong fiscal 2024 performance, confidence in our strategic initiatives and operational strength, balanced against the macroeconomic environment and our planned investments, we have provided our full year outlook for 2025 and expect comparable sales growth for the year to be in the range of 1% to 3% and earnings per diluted share to be in the range of $13.80 to $14.40.

The Company’s current expectations described above include forward-looking statements. Please see the “Forward-Looking Statements” section in this Annual report on Form 10-K for information regarding important factors that may cause the Company’s actual results to differ from those currently projected and/or otherwise materially affect the Company.

How We Evaluate Our Operations

Senior management focuses on certain key indicators to monitor our performance, including:

•Comparable sales performance – Our management considers comparable sales, which includes digital revenue, to be an important indicator of our current performance. Comparable sales results are important to leverage our costs, which include occupancy costs, store payroll and other store expenses. Comparable sales also have a direct impact on our total net sales, net income, cash and working capital. A store is included in the comparable sales calculation during the fiscal period that it commences its 14th full month of operations. Relocated stores are included in the comparable sales calculation from the open date of the original location. Stores that were permanently closed during the applicable period have been excluded from comparable sales results. Our digital revenue includes all eCommerce sales, including omni-channel transactions which are fulfilled by our stores, GameChanger subscriptions as well as revenue from our DICK’S Media Network. For further discussion of our comparable sales refer to the “Results of Operations” section herein.

•Earnings before taxes and the related operating margin – Our management views operating margin and earnings before taxes as key indicators of our performance. The key drivers of earnings before taxes are comparable sales, gross profit, and our ability to control selling, general and administrative expenses.

•Cash flows from operating activities – Cash flow generation supports our general liquidity needs and funds capital expenditures for our omni-channel platform, which include investments in new and existing stores and our eCommerce channel, distribution and administrative facilities, continuous improvements to information technology tools, potential strategic acquisitions or investments that may arise from time-to-time and stockholder return initiatives, including cash dividends and share repurchases. We typically experience lower operating cash flows in our first and third fiscal quarters due to the timing of inventory purchases in advance of our peak selling periods and anticipated higher cash flows during our second and fourth fiscal quarters. For further discussion of our cash flows refer to the “Liquidity and Capital Resources” section herein.

•Quality of merchandise offerings – To measure effectiveness of our merchandise offerings, we monitor sell-throughs, inventory turns, gross margins and markdown rates at the department and style level. This analysis helps us manage inventory levels to reduce working capital requirements and deliver optimal gross margins by improving merchandise flow and establishing appropriate price points to minimize markdowns.

•Store productivity – To assess store-level performance, we monitor various indicators, including sales per square foot, store operating contribution margin and store cash flow.

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Executive Summary

•Net sales increased 3.5% to $13.44 billion during the 52 weeks ended February 1, 2025, from $12.98 billion during the 53 weeks ended February 3, 2024, which included an increase in comparable sales of 5.2% on a 52-week to 52-week basis, following a 2.6% increase in the prior year. Fiscal 2023 included $170.2 million of net sales for the 53rd week.

•We reported net income of $1.17 billion, or $14.05 per diluted share, in fiscal 2024, compared to $1.05 billion, or $12.18 per diluted share, during fiscal 2023.

◦Fiscal 2023 net income included business optimization charges of $62.8 million, net of tax, or $0.73 per diluted share. Additionally, fiscal 2023 earnings per diluted share included approximately $0.19 from the 53rd week.

•In addition, during fiscal 2024, we:

◦Declared and paid aggregate cash dividends on a quarterly basis for a total amount of $4.40 per share on our common stock and Class B common stock; and

◦Repurchased 1.3 million shares of common stock under our share repurchase program for a total cost of $268.0 million.

•The following table summarizes store activity in fiscal 2024:

(1)In some markets, we operate DICK’S Sporting Goods stores adjacent to our specialty concept stores on the same property with a pass-through for our athletes. We refer to this format as a “combo store” and include combo store openings within both the DICK’S Sporting Goods and specialty concept store reconciliations, as applicable. As of February 1, 2025, the Company operated 14 combo stores.

(2)As of February 1, 2025, includes 24 Golf Galaxy Performance Centers, with five new openings during fiscal 2024 that were converted from prior Golf Galaxy store locations.

(3)Excludes Warehouse Sale store locations that are temporary in nature, of which the Company operated 29 and 36 as of February 1, 2025 and February 3, 2024, respectively.

(4)Reflects stores converted between concept or prototype through store relocations (12) or remodels (10) as part of the Company's strategy to reposition its store portfolio.

(5)Includes square footage as of February 1, 2025 related to five Public Lands store closures as we plan to convert three into DICK'S House of Sport and two into DICK'S Field House stores during fiscal 2025.

(6)Columns may not recalculate due to rounding.

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Results of Operations

The following table presents, for the fiscal years indicated, selected items in the Consolidated Statements of Income as a percentage of our net sales, as well as the basis point change in percentage of net sales from fiscal 2024 to fiscal 2023:

(1)Revenue from retail sales is recognized at the point of sale, net of sales tax. Revenue from eCommerce sales, including vendor-direct sales arrangements, is recognized upon shipment of merchandise. A provision for anticipated merchandise returns is provided through a reduction of sales and cost of goods sold in the period that the related sales are recorded. Revenue from gift cards and returned merchandise credits (collectively the “cards”) is deferred and recognized upon the redemption of the cards. The cards have no expiration date. Subscription revenue from our GameChanger platform is recognized ratably over the subscription period with our customers.

(2)Cost of goods sold includes: the cost of merchandise and services (inclusive of vendor allowances, inventory shrinkage and inventory write-downs for the lower of cost or net realizable value and GameChanger costs); freight; distribution; shipping; and store occupancy costs. We define merchandise margin as net sales less the cost of merchandise and services sold. Store occupancy costs include rent, common area maintenance charges, real estate and other asset-based taxes, general maintenance, utilities, depreciation and certain insurance expenses.

(3)Selling, general and administrative expenses include payroll and fringe benefits for our stores, field support, administrative and our GameChanger platform, advertising, bank card charges, operating costs associated with our internal eCommerce platform, technology, other store expenses and all expenses associated with operating our customer support center.

(4)Pre-opening expenses, which consist primarily of rent, marketing, including grand opening advertising costs, payroll, recruiting and other store preparation costs are expensed as incurred. Rent is recognized within pre-opening expense from the date the Company takes possession of a site through the date of store opening and during periods when stores are closed for remodeling. Beginning in fiscal 2024, the Company now reflects grand opening advertising costs within pre-opening expenses, which were historically included within selling, general and administrative expenses. Prior period amounts have been reclassified to conform to the current year presentation.

(5)Beginning in fiscal 2024, we revised our method for calculating comparable sales to include GameChanger revenue. Prior year information has been revised to reflect this change for comparability purposes. See additional details as furnished in Exhibit 99.2 of the Company’s Current Report on Form 8-K, filed with the SEC on March 14, 2024.

Note - As retailers vary in how they record costs of operating their stores and supply chain between cost of goods sold and selling, general and administrative expenses, our gross profit rate and selling, general and administrative expenses rate may not be comparable to other retailers. For additional information regarding the types of costs classified within cost of goods sold, selling, general and administrative expenses or any other financial statement line items presented herein, refer to Note 1 – Basis of Presentation and Summary of Significant Accounting Policies included in Part IV. Item 15. Exhibits and Financial Statement Schedules of this Annual Report on Form 10-K.

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A discussion regarding our financial condition and results of operations for the year ended February 1, 2025 (Fiscal 2024) compared to the year ended February 3, 2024 (Fiscal 2023) is presented below. A discussion regarding our financial condition and results of operations for Fiscal 2023 compared to the year ended January 28, 2023 (Fiscal 2022) can be found under Item 7 of Part II of our Annual Report on Form 10-K for the fiscal year ended February 3, 2024, filed with the SEC on March 28, 2024.

Fiscal 2024 (52 weeks) Compared to Fiscal 2023 (53 weeks)

Net Sales

Net sales increased 3.5% to $13.44 billion in 2024 from $12.98 billion in 2023, primarily due to an increase in comparable sales on a 52-week to 52-week basis of 5.2%, or $641.8 million, partially offset by the inclusion of $170.2 million of net sales during fiscal 2023 from the 53rd week. The remaining decrease in net sales was primarily attributable to Moosejaw and other store closures, partially offset by an increase from new stores, including DICK’S House of Sport and Golf Galaxy Performance Center locations.

The increase in comparable sales included a 4.0% increase in sales per transaction and a 1.2% increase in transactions, and reflects growth in footwear, athletic apparel, accessories and hydration, offset by declines in outdoor-related categories including hunt, apparel and equipment, and fitness.

Income from Operations

Income from operations increased to $1,473.9 million in 2024 from $1,282.4 million in 2023.

Gross profit increased to $4,825.7 million in 2024 from $4,533.7 million in 2023 and increased as a percentage of net sales by 98 basis points. Merchandise margins as a percentage of net sales increased 64 basis points as a result of a favorable sales mix and the quality of our assortment, a 25 basis point decrease in inventory shrink from the prior year, which included a cumulative unfavorable impact from shrink identified during our physical inventories, and a $12.0 million write-down of inventory in the prior year related to our Business Optimization. Occupancy costs, which after the cost of merchandise represents the largest item within our cost of goods sold, are generally fixed on a per store basis and fluctuate based on the number of stores that we operate, increased $38.7 million compared to 2023 and were approximately flat as a percent of net sales primarily due to the increase in net sales. The remaining increase in gross profit as a percentage of net sales was driven by lower eCommerce shipping and fulfillment costs.

Selling, general and administrative expenses increased to $3,294.3 million in the current year from $3,183.5 million in 2023, and were approximately flat as a percentage of net sales compared to 2023, primarily due to the current year increase in net sales. The $110.7 million increase includes strategic investments across technology and marketing, along with higher incentive compensation, partially offset by Business Optimization charges of $72.8 million incurred in the prior year. The current period also includes a $9.7 million expense increase related to changes in the investment values of our deferred compensation plans, which is fully offset in Other Income.

Pre-opening expenses decreased to $57.5 million in the current year from $67.8 million in 2023. Pre-opening expenses in any period fluctuate depending on the timing and number of new store openings and relocations. The current year period includes pre-opening expenses to support the opening of seven DICK’S House of Sport stores, compared to nine in the prior year period.

Other Income

Other income totaled $98.1 million in 2024 compared to $93.8 million in 2023, and includes a $9.7 million expense decrease compared to the prior year from changes in our deferred compensation plan investment values driven by performance in equity markets. The Company recognizes investment income or investment expense to reflect changes in deferred compensation plan investment values with an offsetting charge or reduction to selling, general and administrative costs for the same amount.

Income Taxes

Our effective tax rate increased to 23.3% in the current year from 20.6% in 2023. Last year’s effective tax rate reflected $36.8 million higher excess tax benefits compared to the current year from a higher number of employee equity awards vesting and exercised in the prior year.

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Liquidity and Capital Resources

Our cash on hand as of February 1, 2025 was $1.7 billion. We believe that we have sufficient cash flows from operations and cash on hand to operate our business for at least the next twelve months, supplemented by funds available under our unsecured $1.6 billion Credit Facility, if necessary. We may require additional funding should we pursue strategic acquisitions, undertake share repurchases, pursue other investments or engage in store expansion rates in excess of historical levels. We had no revolving credit facility borrowings at any point during 2024.

The following sections describe the potential short and long-term impacts to our liquidity and capital requirements.

Leases

We lease substantially all of our stores, three of our distribution centers, and certain equipment under non-cancellable operating leases that expire at various dates through 2042. Approximately three-quarters of our DICK’S Sporting Goods stores will be up for lease renewal at our option over the next five years, and we plan to leverage the significant flexibility within our existing real estate portfolio to capitalize on future real estate opportunities. Refer to Part IV. Item 15. Exhibits and Financial Statement Schedules, Note 7 – Leases for further information.

Revolving Credit Facility

We have a $1.6 billion Credit Facility, which includes a maximum amount of $75 million to be issued in the form of letters of credit. Loans under the Credit Facility bear interest at an alternate base rate or an adjusted secured overnight financing rate plus, in each case, an applicable margin percentage. As of February 1, 2025, there were no borrowings outstanding under the Credit Facility, and we have total remaining borrowing capacity, after adjusting for $19.9 million of standby letters of credit, of $1.58 billion. We were in compliance with all covenants under the Credit Facility agreement at February 1, 2025. Refer to Part IV. Item 15. Exhibits and Financial Statement Schedules, Note 8 – Revolving Credit Facility for further information.

Senior Notes

As of February 1, 2025, we have $750 million principal amount of senior notes due 2032 (the “2032 Notes”) and $750 million principal amount of senior notes due 2052 outstanding (the “2052 Notes” and together with the 2032 Notes, the “Senior Notes”). Cash interest accrues at a rate of 3.15% per year on the 2032 Notes and 4.10% per year on the 2052 Notes, each of which are payable semi-annually in arrears on January 15 and July 15. Refer to Part IV. Item 15. Exhibits and Financial Statement Schedules, Note 9 – Senior Notes for further information.

As of February 1, 2025, our Senior Notes have long-term credit ratings by Moody’s and Standard & Poor’s rating agencies of Baa2 and BBB, respectively.

Capital Expenditures

Our capital expenditures are primarily allocated toward the development of our omni-channel platform, including investments in new and existing stores and eCommerce technology, while we have also invested in our supply chain and corporate technology capabilities. In 2024, capital expenditures totaled $802.6 million on a gross basis and $726.3 million on a net basis, inclusive of construction allowances provided by landlords.

We anticipate 2025 capital expenditures of approximately $1 billion, net of construction allowances provided by landlords. As we continue to reposition our store portfolio, these investments will be concentrated in store growth, relocations and improvements in our existing stores. We plan to open approximately 16 DICK’S House of Sport locations in 2025 and expect to begin construction on approximately 20 locations scheduled to open throughout 2026. By the end of 2027, we expect to have between 75 to 100 DICK’S House of Sport locations across the country. We also plan to open approximately 18 DICK’S Field House and 14 Golf Galaxy Performance Center locations in 2025. By leveraging our real estate flexibility, we expect approximately 70% of our 2025 store openings will be relocations or remodels of existing store locations, which will increase our square footage in 2025 by approximately 3%.

Our 2025 capital expenditures plan also includes ongoing investments in our supply chain and technology, including the construction of a new regional distribution center in Fort Worth, Texas, which is expected to open in 2026 and investments in technology to enhance our store fulfillment, in-store pickup and other foundational capabilities to drive efficiencies and enhance the omni-channel athlete experience. Additionally, we plan to invest in emerging growth opportunities with our GameChanger platform and DICK’S Media Network.

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Share Repurchases

From time-to-time, we may opportunistically repurchase shares of our common stock under our current $2 billion share repurchase program authorized by our Board of Directors on December 16, 2021. In 2024, we repurchased 1.3 million shares of our common stock at a cost of $268.0 million. As of February 1, 2025, the available amount remaining under the December 2021 share repurchase program is $511.5 million. On March 10, 2025, the Company's Board of Directors authorized an additional five-year share repurchase program of up to $3 billion of the Company's common stock. The 2021 program will remain available for purchases until it is exhausted or expires.

Any future share repurchase programs are subject to authorization by our Board of Directors and will be dependent upon future earnings, cash flows, financial requirements and other factors.

Dividends

In 2024, we paid $361.7 million of dividends to our stockholders. On March 10, 2025, our Board of Directors declared a 10% increase in our quarterly cash dividend compared to the previous quarterly per share amount. The dividend of $1.2125 per share of common stock and Class B common stock is payable on April 11, 2025 to stockholders of record as of the close of business on March 28, 2025.

The declaration of future dividends and the establishment of the per share amount, record dates and payment dates for any such future dividends are subject to authorization by our Board of Directors and are dependent upon multiple factors including future earnings, cash flows, financial requirements and other considerations.

Supply Chain Financing

We have entered into supply chain financing arrangements with certain third-party financial institutions, whereby suppliers have the opportunity to settle outstanding payment obligations early at a discount. We do not have an economic interest in suppliers’ voluntary participation and we do not provide any guarantees or pledge assets under these arrangements. Supplier invoices are settled with the third-party financial institutions in accordance with the original supplier payment terms and our rights and obligations to our suppliers, including amounts due and scheduled payment terms, are not impacted by these arrangements. Liabilities associated with the funded participation in these arrangements, which are presented within accounts payable on the Consolidated Balance Sheets, were $49.6 million and $45.9 million as of February 1, 2025 and February 3, 2024, respectively.

Cash Flows

Changes in cash and cash equivalents for the last three fiscal years are as follows (in thousands):

Operating Activities

Cash flows provided by operating activities decreased $215.5 million in 2024 compared to 2023. The decrease was primarily due to changes in inventory levels and accounts payable, which decreased operating cash flows by $354.3 million and reflects our investments in key categories to support our sales growth, partially offset by higher earnings. The remaining change in cash flows provided by operating activities was driven by working capital changes resulting from year-over-year changes in incentive compensation accruals and corresponding payments, and the timing of payments for payroll, rent and income taxes.

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Investing Activities

Cash used in investing activities increased $181.9 million to $796.6 million in 2024 compared to 2023. Gross capital expenditures increased $215.1 million primarily driven by investments in new and future DICK’S House of Sport stores and DICK’S Field House stores, as well as the construction of our sixth distribution facility and higher investments in remodels or other store enhancements. Cash used in investing activities in 2023 also included our acquisition of Moosejaw and progress payments for the purchase of corporate aircraft, offset by proceeds received from the sale of our Field & Stream trademark and other intellectual property.

Financing Activities

Financing activities have historically consisted of capital return initiatives, including share repurchases and cash dividend payments, cash flows generated from stock option exercises and cash activity associated with our Credit Facility, or other financing sources. Cash used in financing activities decreased $409.6 million during 2024 compared to 2023, primarily driven by lower share repurchases and lower cash payments for minimum tax withholding requirements as a result of the vesting of employee equity awards compared to the prior year, partially offset by changes in bank overdraft balances between periods and payments for dividends.

Contractual Obligations and Commercial Commitments

We are party to contractual obligations that involve commitments to make payments to third parties in the ordinary course of business. Our future contractual obligations primarily consist of payments for operating leases, long-term debt and related interest payments, and other purchase obligations. Refer to Part IV. Item 15. Exhibits and Financial Statement Schedules, Note 7 – Leases and Note 9 – Senior Notes for amounts outstanding as of February 1, 2025 related to operating leases and long-term debt.

Other purchase obligations are for marketing commitments to promote our brand and products, including media and naming rights, technology-related commitments, licenses for trademarks and other ordinary course commitments. In the ordinary course of business, we enter into many contractual commitments, including purchase orders and commitments for products or services, but generally, such commitments represent annual or cancellable commitments. The amount of non-cancellable purchase commitments as of February 1, 2025 were approximately $180 million.

Critical Accounting Policies and Use of Estimates

Our significant accounting policies are described in Part IV. Item 15. Exhibits and Financial Statement Schedules, Note 1 – Basis of Presentation and Summary of Significant Accounting Policies. Critical accounting policies and estimates are those that we believe are both (1) most important to the portrayal of our financial condition and results of operations and (2) require our most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Judgments and uncertainties affecting the application of such policies may result in materially different amounts being reported under different conditions or using different assumptions.

We consider the following policies to be the most critical in understanding the judgments that are involved in preparing our Consolidated Financial Statements.

Inventory Obsolescence

We value inventory using the lower of weighted average cost and net realizable value, which is generally based on the selling price expectations of the merchandise. We regularly review inventories to determine if the carrying value of the inventory exceeds net realizable value and, when determined necessary, record a reserve to reduce the carrying value to net realizable value. Our reserve requires management to make assumptions and apply judgement related to current and anticipated demand and the promotional environment, which may be impacted by changes in customer merchandise preference, current and anticipated demand, consumer spending, weather patterns, economic conditions, business trends or merchandising strategies that could cause our inventory to be exposed to obsolescence or slow-moving merchandise. A 10% change in our obsolete inventory reserves as of February 1, 2025, would have affected income before income taxes by approximately $8.1 million in fiscal 2024.

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Inventory Shrink

Shrink expense is accrued as a percentage of merchandise sales based on historical shrink trends. We perform physical inventories at our stores and distribution centers throughout the year. The shrink reserve represents the cumulative loss estimate for each of our locations since the last physical inventory date through the reporting date. Estimates by location and in the aggregate are impacted by internal and external factors and may vary significantly from actual results. A 10% change in our shrink reserves as of February 1, 2025, would have affected income before income taxes by approximately $2.9 million in fiscal 2024.

Goodwill and Intangible Assets

Goodwill, indefinite-lived and other finite-lived intangible assets are reviewed for impairment on an annual basis, or whenever circumstances indicate that a decline in value may have occurred. Our evaluation for impairment requires accounting judgments and financial estimates in determining the fair value of the reporting unit or asset. If these judgments or estimates change in the future, we may be required to record impairment charges for these assets.

Our goodwill impairment test compares the fair value of each reporting unit to its carrying value. We determine the fair value of our reporting units using a combination of an income approach and a market approach. The income approach involves estimates related to our projected future growth, profitability and discount rates on expected future cash flows, while the market approach considers observed market data. Estimates may differ from actual results due to, among other things, economic conditions, changes to our business models, or changes in operating performance. Significant differences between these estimates and actual results could result in future impairment charges and could materially affect our future financial results. If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that reporting unit, goodwill is not impaired. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, an impairment charge is recorded to reduce the carrying value of the reporting unit to its fair value. As of February 1, 2025, we had no reporting units at risk of impairment and a 10% change in the fair value of our reporting units would not indicate a potential impairment of goodwill. The fair value of our reporting units has remained substantially in excess of their carrying value over the last three fiscal years.

Similar to our test for impairment of goodwill, the impairment test for indefinite-lived intangible assets involves comparing their estimated fair values to their carrying values. We estimate the fair value of indefinite-lived intangible assets, which are comprised primarily of trademarks and trade names, based on an income approach using the relief-from-royalty method, which assumes that, in lieu of ownership, a third-party would be willing to pay a royalty in order to derive a benefit from these types of assets. This approach is dependent on a number of factors, including estimates of future sales projections and growth, royalty rates in the category of intellectual property, discount rates and other variables. If actual results are not consistent with our estimates and assumptions used in estimating fair value, we may be exposed to material losses. We recognize an impairment charge when the estimated fair value of the intangible asset is less than its carrying value. Refer to Part IV Item 15. Exhibits and Financial Statement Schedules, Note 11 – Fair Value Measurements for further information. We recorded no significant impairments in fiscal 2024, 2023 or 2022. As of February 1, 2025, a 10% change in the fair value of our intangible assets balance would not indicate a potential impairment.

Impairment of Long-Lived Assets

We review long-lived assets whenever events and circumstances indicate that the carrying value of these assets may not be recoverable based on estimated undiscounted future cash flows. Assets are reviewed at the lowest level for which independent cash flows can be identified, which is typically the store level. We use an income approach to determine the fair value of individual store locations, which requires discounting projected future cash flows over each store’s remaining lease term. When determining the stream of projected future cash flows associated with an individual store location, we make assumptions about key store variables that incorporate local market conditions, including sales growth rates, gross margin and controllable expenses, such as store payroll. An impairment loss is recognized when the carrying amount of the store location is not recoverable and exceeds its fair value. During 2023, we recorded non-cash impairment charges from our Business Optimization. During 2022, we recorded non-cash impairment charges for store asset disposals at twelve Field & Stream stores that we closed in the period for conversion into DICK’S House of Sport stores or expanded DICK’S Sporting Goods stores. Refer to Part IV. Item 15. Exhibits and Financial Statement Schedules, Note 11 – Fair Value Measurements for further information. There were no other significant long-lived asset impairment charges recognized during fiscal 2024, 2023 or 2022.

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ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with our Consolidated Financial Statements and related notes appearing elsewhere in this Annual Report on Form 10-K. This Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Refer to “Forward-Looking Statements” and Part I, Item 1A. “Risk Factors”.

Business Overview

We are a leading omni-channel sporting goods retailer offering an extensive assortment of authentic, high-quality sports equipment, apparel, footwear and accessories. In addition to DICK’S Sporting Goods stores, we own and operate Golf Galaxy, Public Lands, Moosejaw and Going Going Gone! specialty concept stores, and also offer our products online and through our mobile apps. We also own and operate DICK’S House of Sport and Golf Galaxy Performance Center, as well as GameChanger, a youth sports mobile app for scheduling, communications, live scorekeeping and video streaming. When used in this Annual Report on Form 10-K, unless the context otherwise requires or specifies, any reference to “year” is to our fiscal year, which ends on the Saturday closest to the end of January each year.

Through our strategic pillars of athlete experience, teammate experience, differentiated product and brand engagement, we have transformed our business to drive sustained profitable growth. As part of our strategy, we have meaningfully improved our merchandise assortment through strong relationships with our key brand partners, which provides access to highly differentiated product, and our vertical brands. We have also enhanced our store selling culture and service model and incorporated additional experiential elements and technology into our stores to engage our athletes. Lastly, we continue to innovate in our omni-channel athlete experience through our DICK’S House of Sport stores, Golf Galaxy Performance Centers and our next generation 50,000 square foot DICK’S store. Consumers have also made what we believe will be lasting lifestyle changes in recent years, prioritizing sport and maintaining healthy, active lifestyles, which has increased demand for our products.

As a result of our core strategies, foundational improvements and these strong secular consumer trends, net sales increased 48.4% in fiscal 2023 compared to fiscal 2019, while our pre-tax income as a percentage of net sales grew from 4.7% in fiscal 2019 to 10.2% in fiscal 2023. A key driver of our future omni-channel growth will include repositioning our portfolio to grow our DICK’S House of Sport stores, Golf Galaxy Performance Centers and next generation 50,000 square foot DICK’s stores.

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Business Optimization

During 2023, we completed a business optimization to better align our talent, organizational design and spending in support of our most critical strategies while also streamlining our overall cost structure (the “Business Optimization”). As part of our Business Optimization, we eliminated certain positions primarily at our customer support center and optimized our outdoor business, which included the integration of our Moosejaw and Public Lands operations, decisions about their go-forward inventory assortment and a comprehensive review of their store portfolios and closure of ten Moosejaw stores. We incurred pre-tax charges of $84.8 million from our Business Optimization, including $46.1 million of non-cash impairments of store and intangible assets, $26.7 million of severance-related costs and a $12.0 million write-down of inventory.

Field & Stream Exit

During the fourth quarter of 2022, we decided to exit the Field & Stream brand (the “Field & Stream Exit”). We converted the remaining 17 Field & Stream stores, the majority of which were part of a DICK’S and Field & Stream combo store, to DICK’S House of Sport stores, expanded DICK’S Sporting Goods stores, or other specialty concept stores. We closed twelve of these stores for conversion during the fourth quarter of 2022 and incurred pre-tax charges totaling $30.1 million, which included $28.5 million of non-cash impairment of store assets, $0.8 million of severance and a $0.7 million write-down of inventory. Additionally, we sold the Field & Stream trademark in fiscal 2023 for proceeds near its carrying value.

Business Environment

The macroeconomic environment in which we operate remains dynamic as a result of numerous factors, including inflationary pressures, the expiration of student loan payment deferments, and the potential impact of elevated interest rates, which could impact consumer discretionary spending behavior and the promotional landscape in which we operate. In addition, disruption of supply chains, including factory closures and port congestion, resulted in apparel overages in fiscal 2022 from late arriving inventory and elevated container and transportation costs which began to moderate during the second half of fiscal 2022. We took actions during the third and fourth quarter of fiscal 2022 to address these targeted inventory overages.

Overview of current trends affecting 2023

•Within merchandise margin, we have experienced higher inventory shrink relative to historical levels, which has been noted throughout the retail industry. As a percentage of net sales, inventory shrink was approximately 50 basis points higher than 2022 on a full year basis. We expect inventory shrink in the first quarter of 2024 to remain higher than the comparable 2023 period, until the trend is reflected in the results of the current and prior year periods beginning in the second quarter of 2024.

•Following the moderation in elevated container and transportation costs that began in the second half of 2022, supply chain costs were lower in 2023. We do not expect meaningful year-over-year declines to continue in 2024.

•Following our Business Optimization actions, our selling, general and administrative expenses during the fourth quarter of 2023 have moderated by approximately 78 basis points as a percentage of net sales. In 2024, we expect selling, general and administrative expenses to leverage as a percentage of net sales, driven by the future benefits from our Business Optimization actions and our ongoing focus on improving productivity and reducing discretionary costs.

The Company’s current expectations described above include forward-looking statements. Please see the “Cautionary Statement Concerning Forward-Looking Statements” in this Form 10-K for information regarding important factors that may cause the Company’s actual results to differ from those currently projected and/or otherwise materially affect the Company.

How We Evaluate Our Operations

Senior management focuses on certain key indicators to monitor our performance, including:

•Comparable store sales performance – Our management considers comparable store sales, which includes online sales, to be an important indicator of our current performance. Comparable store sales results are important to leverage our costs, which include occupancy costs, store payroll and other store expenses. Comparable store sales also have a direct impact on our total net sales, net income, cash and working capital. A store is included in the comparable store sales calculation during the fiscal period that it commences its 14th full month of operations. Relocated stores are included in the comparable store sales calculation from the open date of the original location. Stores that were permanently closed during the applicable period have been excluded from comparable store sales results. For further discussion of our comparable store sales refer to the “Results of Operations” section herein.

•Earnings before taxes and the related operating margin – Our management views operating margin and earnings before taxes as key indicators of our performance. The key drivers of earnings before taxes are comparable store sales, gross profit, and our ability to control selling, general and administrative expenses.

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•Cash flows from operating activities – Cash flow generation supports our general liquidity needs and funds capital expenditures for our omni-channel platform, which include investments in new and existing stores and our eCommerce channel, distribution and administrative facilities, continuous improvements to information technology tools, potential strategic acquisitions or investments that may arise from time-to-time and stockholder return initiatives, including cash dividends and share repurchases. We typically experience lower operating cash flows in our third fiscal quarter due to increased inventory purchases in advance of the holiday selling season and anticipated higher cash flows during our fourth fiscal quarter. For further discussion of our cash flows refer to the “Liquidity and Capital Resources” section herein.

•Quality of merchandise offerings – To measure effectiveness of our merchandise offerings, we monitor sell-throughs, inventory turns, gross margins and markdown rates at the department and style level. This analysis helps us manage inventory levels to reduce working capital requirements and deliver optimal gross margins by improving merchandise flow and establishing appropriate price points to minimize markdowns.

•Store productivity – To assess store-level performance, we monitor various indicators, including new store productivity, sales per square foot, store operating contribution margin and store cash flow.

Executive Summary

•Net sales increased 5.0% to $12.98 billion during the 53 weeks ended February 3, 2024 from $12.37 billion during the 52 weeks ended January 28, 2023, which included an increase in comparable store sales of 2.4% on a 52-week to 52-week basis and $170.2 million of net sales during the 53rd week of fiscal 2023.

•We reported net income of $1.05 billion, or $12.18 per diluted share, in fiscal 2023, compared to $1.04 billion, or $10.78 per diluted share, during fiscal 2022.

◦Fiscal 2023 net income includes Business Optimization charges of $62.8 million, net of tax, or $0.73 per diluted share. Additionally, fiscal 2023 earnings per diluted share includes approximately $0.19 from the 53rd week.

◦Fiscal 2022 net income included charges of $22.3 million, net of tax, or $0.25 per diluted share, related to the Field & Stream Exit. Additionally, earnings per diluted share for fiscal 2022 excluded $27.1 million of interest expense, net of tax, and included 10.8 million diluted shares related to the convertible senior notes due 2025 (the “Convertible Senior Notes”), which together decreased earnings per diluted share by $1.01. Although we were required to assume that our Convertible Senior Notes would be settled in shares of our common stock in accordance with the “if-converted method” under generally accepted accounting principles, we fully settled our Convertible Senior Notes without dilutive effect, due to cash payments for principal, shares received from our convertible bond hedge and share repurchases to offset the share settlement of the remaining $59.1 million principal during the first quarter of fiscal 2023.

•In addition, during fiscal 2023, we:

◦Retired the remaining $59.1 million of our aggregate principal amount outstanding of the Convertible Senior Notes and terminated the remaining convertible bond hedge and warrants for a collective issuance of 1.7 million shares of our common stock;

◦Declared and paid aggregate cash dividends on a quarterly basis for a total amount of $4.00 per share on our common stock and Class B common stock; and

◦Repurchased 5.4 million shares of common stock under our share repurchase program for a total cost of $648.6 million.

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•The following table summarizes store openings and closings in fiscal 2023 and fiscal 2022:

(1)Includes our Golf Galaxy, Public Lands, Going Going Gone! and other specialty concept stores. As of February 3, 2024, we operated 104 Golf Galaxy stores, seven Public Lands stores, 17 Going Going Gone! stores and other specialty concept stores. As of January 28, 2023, we operated 98 Golf Galaxy stores, seven Public Lands stores, 15 Going Going Gone! stores and five Field & Stream stores. In some markets, we operate DICK’S Sporting Goods stores adjacent to our specialty concept stores on the same property with a pass-through for our athletes. We refer to this format as a “combo store” and include combo store openings within both the DICK’S Sporting Goods and specialty concept store reconciliations, as applicable. As of February 3, 2024, the Company operated 18 combo stores.

(2)Excludes Warehouse Sale store locations that are temporary in nature, of which the Company operated 36 and 43 as of February 3, 2024 and January 28, 2023, respectively.

(3)Represents Moosejaw store locations acquired by the Company during the first quarter of fiscal 2023, which average approximately 4,000 square feet per store. The Company closed ten of the previously acquired Moosejaw store locations during fiscal 2023.

(4)As of February 3, 2024, includes twelve DICK'S House of Sport stores, including nine new openings during fiscal 2023, which were either converted or relocated from prior store locations.

Results of Operations

The following table presents, for the fiscal years indicated, selected items in the Consolidated Statements of Income as a percentage of our net sales, as well as the basis point change in percentage of net sales from fiscal 2023 to fiscal 2022:

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(A)Column does not add due to rounding.

(1)Revenue from retail sales is recognized at the point of sale, net of sales tax. Revenue from eCommerce sales, including vendor-direct sales arrangements, is recognized upon shipment of merchandise. A provision for anticipated merchandise returns is provided through a reduction of sales and cost of goods sold in the period that the related sales are recorded. Revenue from gift cards and returned merchandise credits (collectively the “cards”) is deferred and recognized upon the redemption of the cards. The cards have no expiration date.

(2)Cost of goods sold includes: the cost of merchandise (inclusive of vendor allowances, inventory shrinkage and inventory write-downs for the lower of cost or net realizable value); freight; distribution; shipping; and store occupancy costs. We define merchandise margin as net sales less the cost of merchandise sold. Store occupancy costs include rent, common area maintenance charges, real estate and other asset-based taxes, general maintenance, utilities, depreciation and certain insurance expenses.

(3)Selling, general and administrative expenses include store and field support payroll and fringe benefits, advertising, bank card charges, operating costs associated with our internal eCommerce platform, information systems, marketing, legal, accounting, other store expenses and all expenses associated with operating our CSC.

(4)Pre-opening expenses, which consist primarily of rent, marketing, payroll, recruiting and other store preparation costs are expensed as incurred. Rent is recognized within pre-opening expense from the date the Company takes possession of a site through the date of store opening and during periods when stores are closed for remodeling.

(5)Excludes temporary Warehouse Sale store locations. Fiscal 2022 store count reflected the closure of twelve Field & Stream stores for which the associated square footage of each closed store was retained as we converted them into DICK’S House of Sport stores, expanded DICK’S Sporting Goods stores, or other specialty concept stores in 2023.

Note - As retailers vary in how they record costs of operating their stores and supply chain between cost of goods sold and selling, general and administrative expenses, our gross profit rate and selling, general and administrative expenses rate may not be comparable to other retailers. For additional information regarding the types of costs classified within cost of goods sold, selling, general and administrative expenses or any other financial statement line items presented herein, refer to Note 1 – Basis of Presentation and Summary of Significant Accounting Policies included in Part IV. Item 15. Exhibits and Financial Statement Schedules of this Annual Report on Form 10-K.

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A discussion regarding our financial condition and results of operations for the year ended February 3, 2024 (Fiscal 2023) compared to the year ended January 28, 2023 (Fiscal 2022) is presented below. A discussion regarding our financial condition and results of operations for Fiscal 2022 compared to the year ended January 29, 2022 (Fiscal 2021) can be found under Item 7 of Part II of our Annual Report on Form 10-K for the fiscal year ended January 28, 2023, filed with the SEC on March 23, 2023.

Fiscal 2023 (53 weeks) Compared to Fiscal 2022 (52 weeks)

Net Sales

Net sales increased 5.0% to $12.98 billion in 2023 from $12.37 billion in 2022 due to a $290.6 million, or 2.4% increase in comparable store sales on a 52-week to 52-week basis, as well as the inclusion of $170.2 million of net sales from the 53rd week during fiscal 2023. The remaining $155.4 million increase in net sales was primarily attributable to Moosejaw and temporary Warehouse Sale stores. The increase in comparable store sales included a 1.6% increase in transactions and a 0.8% increase in sales per transaction, and reflects growth in footwear, hydration and licensed apparel, offset by declines in fitness and outdoor-related categories including outerwear, equipment and hunt.

Income from Operations

Income from operations decreased to $1,282.4 million in 2023 from $1,463.0 million in 2022.

Gross profit increased to $4,533.7 million in 2023 from $4,284.6 million in 2022 and increased as a percentage of net sales by 28 basis points due primarily to lower supply chain costs, partially offset by lower merchandise margins. Supply chain costs decreased 80 basis points from last year, which included elevated costs as a result of global disruptions following the start of the COVID-19 pandemic. Merchandise margins decreased 61 basis points due to a 53 basis point increase in inventory shrink from increased theft and a $12.0 million write-down of inventory related to our Business Optimization. This year also included higher markdowns from our decisive actions on excess product, which was offset by last year’s actions to reduce targeted apparel inventory overages from late-arriving inventory. Occupancy costs, which after the cost of merchandise represents the largest item within our cost of goods sold, are generally fixed on a per store basis and fluctuate based on the number of stores that we operate. Our occupancy costs increased $46.5 million compared to 2022 and leveraged by five basis points as a percent of net sales primarily due to sales from the 53rd week in 2023.

Selling, general and administrative expenses increased to $3,204.1 million in the current year from $2,805.5 million in 2022, and increased as a percentage of net sales by 200 basis points. The current year includes Business Optimization charges of $72.8 million as well as a $28.6 million expense increase related to changes in the investment values of our deferred compensation plans, which is fully offset in Other Income. Fiscal 2022 included Field & Stream Exit charges of $29.3 million. The remaining 145 basis point increase was primarily due to $191.7 million of investments in hourly wage rates, talent and technology to support our growth strategies and a $66.0 million increase in marketing expenses due to higher brand-building marketing and marketing to support DICK’S House of Sport store grand openings.

Pre-opening expenses increased to $47.3 million in the current year from $16.1 million in 2022. Pre-opening expenses in any period fluctuate depending on the timing and number of new store openings and relocations. The current year period includes pre-opening expenses to support the opening of nine DICK’S House of Sport stores.

Interest Expense

Interest expense decreased to $58.0 million in 2023 compared to $95.2 million in 2022, primarily due to $23.3 million of inducement charges related to the exchange of $515.9 million aggregate principal amount of the Convertible Senior Notes in 2022 and lower interest expense following their retirement in April 2023.

Other Income

Other income increased to $93.8 million in 2023 compared to $15.9 million in 2022. This $77.9 million increase in income was primarily driven by a $52.3 million increase in interest income as a result of higher average interest rates on cash and cash equivalents and a $28.6 million expense reduction from changes in our deferred compensation plan investment values primarily driven by performance in equity markets. The Company recognizes investment income or investment expense to reflect changes in deferred compensation plan investment values with an offsetting charge or reduction to selling, general and administrative costs for the same amount.

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Income Taxes

Our effective tax rate decreased to 20.6% in the current year from 24.6% in 2022. The current year effective tax rate was favorably impacted by a $37.9 million increase in excess tax benefits, resulting from a higher number of employee equity awards vesting and exercised in the current year at a higher share price than the prior year. Additionally, the prior year effective tax rate was unfavorably impacted by eliminated tax deductions from our bond hedge following our Convertible Senior Notes exchange transactions, which increased income tax expense by $21.5 million.

Liquidity and Capital Resources

Our cash on hand as of February 3, 2024 was $1.8 billion. We believe that we have sufficient cash flows from operations and cash on hand to operate our business for at least the next twelve months, supplemented by funds available under our unsecured $1.6 billion Credit Facility, if necessary. We may require additional funding should we pursue strategic acquisitions, undertake share repurchases, pursue other investments or engage in store expansion rates in excess of historical levels. We had no revolving credit facility borrowings at any point during 2023.

The following sections describe the potential short and long-term impacts to our liquidity and capital requirements.

Leases

We lease substantially all of our stores, three of our distribution centers, and certain equipment under non-cancellable operating leases that expire at various dates through 2040. Approximately three-quarters of our DICK’S Sporting Goods stores will be up for lease renewal at our option over the next five years, and we plan to leverage the significant flexibility within our existing real estate portfolio to capitalize on future real estate opportunities. Refer to Part IV. Item 15. Exhibits and Financial Statement Schedules, Note 7 – Leases for further information.

Revolving Credit Facility

We have a $1.6 billion Credit Facility, which includes a maximum amount of $75 million to be issued in the form of letters of credit. Loans under the Credit Facility bear interest at an alternate base rate or an adjusted secured overnight financing rate plus, in each case, an applicable margin percentage. As of February 3, 2024, there were no borrowings outstanding under the Credit Facility, and we have total remaining borrowing capacity, after adjusting for $16.1 million of standby letters of credit, of $1.58 billion. We were in compliance with all covenants under the Credit Facility agreement at February 3, 2024. Refer to Part IV. Item 15. Exhibits and Financial Statement Schedules, Note 8 – Revolving Credit Facility for further information.

Senior Notes

As of February 3, 2024, we have $750 million principal amount of senior notes due 2032 (the “2032 Notes”) and $750 million principal amount of senior notes due 2052 outstanding (the “2052 Notes” and together with the 2032 Notes, the “Senior Notes”). Cash interest accrues at a rate of 3.15% per year on the 2032 Notes and 4.10% per year on the 2052 Notes, each of which are payable semi-annually in arrears on January 15 and July 15. Refer to Part IV. Item 15. Exhibits and Financial Statement Schedules, Note 9 – Senior Notes for further information.

As of February 3, 2024, our Senior Notes have long-term credit ratings by Moody’s and Standard & Poor’s rating agencies of Baa3 and BBB, respectively.

Convertible Senior Notes

Following our exchanges during 2022, we had an aggregate remaining principal amount of $59.1 million of Convertible Senior Notes outstanding as of January 28, 2023. During the first quarter of 2023, we retired the remaining principal and accrued interest under the Convertible Senior Notes. Refer to Part IV. Item 15. Exhibits and Financial Statement Schedules, Note 10 – Convertible Senior Notes for further information.

Capital Expenditures

Our capital expenditures are primarily allocated toward the development of our omni-channel platform, including investments in new and existing stores and eCommerce technology, while we have also invested in our supply chain and corporate technology capabilities. In 2023, capital expenditures totaled $587.4 million on a gross basis and $520.4 million on a net basis, inclusive of construction allowances provided by landlords, which included the opening of nine DICK’S House of Sport stores and eleven Golf Galaxy Performance Centers.

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We anticipate 2024 capital expenditures of approximately $800 million, net of construction allowances provided by landlords. As we continue to reposition our store portfolio, these investments will be concentrated in new store development, relocations and remodels that will include eight DICK’S House of Sport stores, ten Golf Galaxy Performance Centers and 16 next generation 50,000 square foot DICK’S stores that will open in 2024 as well as, improvements within our existing stores including converting approximately 50 stores to premium full-service footwear decks. Additionally, we will begin construction on 15 DICK’S House of Sport stores that will open throughout 2025 and a new regional distribution center that we plan to open in 2026, while continuing to invest in technology to enhance our store fulfillment, in-store pickup and other foundational capabilities. Our 2024 capital expenditures plan also includes the purchase of certain real estate assets related to DICK’S House of Sport stores, for which we are evaluating potential sale-leaseback opportunities.

Share Repurchases

From time-to-time, we may opportunistically repurchase shares of our common stock under our $2.0 billion share repurchase program authorized by our Board of Directors on December 16, 2021. In 2023, we repurchased 5.4 million shares of our common stock for $648.6 million, a portion of which was repurchased to offset the dilution from our settlement of the remaining $59.1 million principal outstanding of the Convertible Senior Notes in shares. As of February 3, 2024, the available amount remaining under the December 2021 authorization is $779.6 million.

We currently anticipate 2024 share repurchases of approximately $300 million. Any future share repurchase programs are subject to authorization by our Board of Directors and will be dependent upon future earnings, cash flows, financial requirements and other factors.

Dividends

In 2023, we paid $351.2 million of dividends to our stockholders. On March 13, 2024, our Board of Directors declared a 10% increase in our quarterly cash dividend compared to the previous quarterly per share amount. The dividend of $1.10 per share of common stock and Class B common stock is payable on April 12, 2024 to stockholders of record as of the close of business on March 29, 2024.

The declaration of future dividends and the establishment of the per share amount, record dates and payment dates for any such future dividends are subject to authorization by our Board of Directors and are dependent upon multiple factors including future earnings, cash flows, financial requirements and other considerations.

Supply Chain Financing

We have entered into supply chain financing arrangements with third-party financial institutions, whereby suppliers have the opportunity to settle outstanding payment obligations early at a discount. We do not have an economic interest in suppliers’ voluntary participation and we do not provide any guarantees or pledge assets under these arrangements. Supplier invoices are settled with the third-party financial institutions in accordance with the original supplier payment terms and our rights and obligations to our suppliers, including amounts due and scheduled payment terms, are not impacted by these arrangements. Liabilities associated with the funded participation in these arrangements, which is presented within accounts payable on the Consolidated Balance Sheet, were $45.9 million and $40.1 million as of February 3, 2024 and January 28, 2023, respectively.

Cash Flows

Changes in cash and cash equivalents for the last three fiscal years are as follows (in thousands):

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Operating Activities

Cash flows provided by operating activities increased $605.5 million in 2023 compared to 2022. The increase was primarily due to working capital changes resulting from last year’s inventory replenishment following supply chain disruptions caused by the COVID-19 pandemic, year-over-year changes in incentive compensation accruals and corresponding payments, higher construction allowances received from landlords due to our investments to enhance and grow our stores, and the timing of payments for marketing, payroll, deferred compensation plans and rent.

Investing Activities

Cash used in investing activities increased $221.8 million to $614.7 million in 2023 compared to 2022. Gross capital expenditures increased $223.4 million primarily driven by investments in current and future stores, including nine DICK’S House of Sport stores and eleven Golf Galaxy Performance Centers that opened in 2023 as well as higher investments in store enhancements, including converting over 100 stores to premium full-service footwear decks, and technology. Cash used in investing activities in 2023 also includes our acquisition of Moosejaw, offset by proceeds received from the sale of our Field & Stream trademark and other intellectual property.

Financing Activities

Financing activities have historically consisted of capital return initiatives, including share repurchases and cash dividend payments, cash flows generated from stock option exercises and cash activity associated with our Credit Facility, or other financing sources. Cash used in financing activities decreased $211.9 million during 2023 compared to 2022, primarily driven by the exchange of $515.9 million aggregate principal amount of our Convertible Senior Notes in the prior year and changes in bank overdraft balances between periods, partially offset by higher cash payments for share repurchases, dividends and minimum tax withholding requirements in 2023 as a result of the vesting of employee equity awards.

Contractual Obligations and Commercial Commitments

We are party to contractual obligations that involve commitments to make payments to third parties in the ordinary course of business. Our future contractual obligations primarily consist of payments for operating leases, long-term debt and related interest payments, and other purchase obligations. Refer to Part IV. Item 15. Exhibits and Financial Statement Schedules, Note 7 – Leases and Note 9 – Senior Notes for amounts outstanding as of February 3, 2024 related to operating leases and long-term debt.

Other purchase obligations are for marketing commitments to promote our brand and products, including media and naming rights, technology-related commitments, licenses for trademarks and other ordinary course commitments. In the ordinary course of business, we enter into many contractual commitments, including purchase orders and commitments for products or services, but generally, such commitments represent annual or cancellable commitments. The amount of non-cancellable purchase commitments as of February 3, 2024 were approximately $215 million.

Critical Accounting Policies and Use of Estimates

Our significant accounting policies are described in Part IV. Item 15. Exhibits and Financial Statement Schedules, Note 1 – Basis of Presentation and Summary of Significant Accounting Policies. Critical accounting policies and estimates are those that we believe are both (1) most important to the portrayal of our financial condition and results of operations and (2) require our most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Judgments and uncertainties affecting the application of such policies may result in materially different amounts being reported under different conditions or using different assumptions.

We consider the following policies to be the most critical in understanding the judgments that are involved in preparing our consolidated financial statements.

Inventory Obsolescence

We value inventory using the lower of weighted average cost and net realizable value, which is generally based on the selling price expectations of the merchandise. We regularly review inventories to determine if the carrying value of the inventory exceeds net realizable value and, when determined necessary, record a reserve to reduce the carrying value to net realizable value. Changes in customer merchandise preference, current and anticipated demand, consumer spending, weather patterns, economic conditions, business trends or merchandising strategies could cause our inventory to be exposed to obsolescence or slow-moving merchandise. A 10% change in our obsolete inventory reserves as of February 3, 2024, would have affected income before income taxes by approximately $7.2 million in fiscal 2023.

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Inventory Shrink

Shrink expense is accrued as a percentage of merchandise sales based on historical shrink trends. We perform physical inventories at our stores and distribution centers throughout the year. The shrink reserve represents the cumulative loss estimate for each of our locations since the last physical inventory date through the reporting date. Estimates by location and in the aggregate are impacted by internal and external factors and may vary significantly from actual results. A 10% change in our shrink reserves as of February 3, 2024, would have affected income before income taxes by approximately $3.0 million in fiscal 2023.

Goodwill and Intangible Assets

Goodwill, indefinite-lived and other finite-lived intangible assets are reviewed for impairment on an annual basis, or whenever circumstances indicate that a decline in value may have occurred. Our evaluation for impairment requires accounting judgments and financial estimates in determining the fair value of the reporting unit or asset. If these judgments or estimates change in the future, we may be required to record impairment charges for these assets.

Our goodwill impairment test compares the fair value of each reporting unit to its carrying value. We determine the fair value of our reporting units using a combination of an income approach and a market approach. Estimates may differ from actual results due to, among other things, economic conditions, changes to our business models, or changes in operating performance. Significant differences between these estimates and actual results could result in future impairment charges and could materially affect our future financial results. If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that reporting unit, goodwill is not impaired. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, an impairment charge is recorded to reduce the carrying value of the reporting unit to its fair value. As of February 3, 2024, we had no reporting units at risk of impairment and a 10% change in the fair value of our reporting units would not indicate a potential impairment of goodwill. The fair value of our reporting units has remained substantially in excess of their carrying value over the last three fiscal years.

Similar to our test for impairment of goodwill, the impairment test for indefinite-lived intangible assets involves comparing their estimated fair values to their carrying values. We estimate the fair value of indefinite-lived intangible assets, which are comprised primarily of trademarks and trade names, based on an income approach using the relief-from-royalty method, which assumes that, in lieu of ownership, a third-party would be willing to pay a royalty in order to derive a benefit from these types of assets. This approach is dependent on a number of factors, including estimates of future sales projections and growth, royalty rates in the category of intellectual property, discount rates and other variables. If actual results are not consistent with our estimates and assumptions used in estimating fair value, we may be exposed to material losses. We recognize an impairment charge when the estimated fair value of the intangible asset is less than its carrying value. See Part IV. Item 15. Exhibits and Financial Statement Schedules, Note 11 – Fair Value Measurements for further information. We recorded no significant impairments in fiscal 2023, 2022 or 2021.

Impairment of Long-Lived Assets

We review long-lived assets whenever events and circumstances indicate that the carrying value of these assets may not be recoverable based on estimated undiscounted future cash flows. Assets are reviewed at the lowest level for which independent cash flows can be identified, which is typically the store level. We use an income approach to determine the fair value of individual store locations, which requires discounting projected future cash flows over each store’s remaining lease term. When determining the stream of projected future cash flows associated with an individual store location, we make assumptions about key store variables that incorporate local market conditions, including sales growth rates, gross margin and controllable expenses, such as store payroll. An impairment loss is recognized when the carrying amount of the store location is not recoverable and exceeds its fair value. During 2023, we recorded non-cash impairment charges from our Business Optimization. During 2022, we recorded non-cash impairment charges for store asset disposals at twelve Field & Stream stores that we closed in the period for conversion into DICK’S House of Sport stores or expanded DICK’S Sporting Goods stores. See Part IV. Item 15. Exhibits and Financial Statement Schedules, Note 11 – Fair Value Measurements for further information. There were no other significant long-lived assets impairment charges recognized during fiscal 2023, 2022 or 2021.

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ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with our Consolidated Financial Statements and related notes appearing elsewhere in this Annual Report on Form 10-K. This Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Refer to “Forward-Looking Statements” and Part I, Item 1A. “Risk Factors”.

Business Overview

We are a leading omni-channel sporting goods retailer offering an extensive assortment of authentic, high-quality sports equipment, apparel, footwear and accessories. In addition to DICK’S Sporting Goods stores, we own and operate Golf Galaxy, Public Lands and Going Going Gone! specialty concept stores, and offer our products both online and through our mobile apps. We also own and operate DICK’S House of Sport and Golf Galaxy Performance Center, as well as GameChanger, a youth sports mobile app for scheduling, communications, live scorekeeping and video streaming. When used in this Annual Report on Form 10-K, unless the context otherwise requires or specifies, any reference to “year” is to our fiscal year, which ends on the Saturday closest to the end of January each year.

Since 2017, we have transformed our business to drive sustainable growth in sales and profitability. During this time, we meaningfully improved our merchandise assortment through strong relationships with our key brand partners, which provided access to highly differentiated product and our vertical brands. We also enhanced our store selling culture and service model and incorporated additional experiential elements and technology into our stores to engage our athletes. Finally, we invested in technology and data science to improve our pricing strategy, digital marketing and personalization capabilities. Consumers have also made lasting lifestyle changes in recent years, increasing their focus on health and fitness, sports and outdoor activities which has increased demand for our products. As a result of our core strategies, foundational improvements and these strong secular consumer trends, net sales increased 41.3% in fiscal 2022 compared to fiscal 2019, and reflects growth in our key priority categories including footwear, athletic apparel, team sports and golf.

Our profitability is primarily influenced by growth in comparable store sales, the strength of our merchandise margins and ability to manage operating expenses. In addition to the structurally higher sales compared to pre-COVID levels, our merchandise margins increased over 300 basis points as a percentage of net sales in fiscal 2022 as compared to fiscal 2019, as we’ve maintained the majority of the merchandise expansion that we drove over the prior two years with our differentiated product assortment, combined with our disciplined pricing strategy and favorable sales mix. We’ve also experienced meaningful leverage on fixed occupancy costs and selling, general and administrative costs, due to the significant sales increase. With our structurally higher sales, expanded merchandise margins, and operating expense leverage, our pre-tax income as a percentage of net sales grew from 4.7% in fiscal 2019 to 11.2% in fiscal 2022 and our earnings per diluted share grew from $3.34 in fiscal 2019 to $10.78 in fiscal 2022.

Field & Stream Exit

During the fourth quarter of 2022, we decided to exit the Field & Stream brand (the “Field & Stream Exit”). We plan to convert the existing 17 Field & Stream stores, the majority of which are part of a DICK’S and Field & Stream combo store, to DICK’S House of Sport stores, expanded DICK’S Sporting Goods stores, or other specialty concept stores. We closed twelve of these stores for conversion during the fourth quarter of 2022 and incurred pre-tax charges totaling $30.1 million, which included $28.5 million of non-cash impairment of store assets, $0.8 million of severance and a $0.7 million inventory write-down. Additionally, we sold the Field & Stream trademark in fiscal 2023 for proceeds near its carrying value and plan to convert the remaining Field & Stream stores by fiscal 2024.

Macroeconomic Outlook

The macroeconomic environment in which we operate remains uncertain as a result of numerous factors, including inflationary pressures and the potential impact of rising interest rates. In addition, disruption of supply chains, including factory closures and port congestion, has resulted in apparel overages from late arriving inventory and elevated container and transportation costs which began to moderate during the second half of fiscal 2022. We took actions during the third and fourth quarter of fiscal 2022 to address these targeted inventory overages, and as a result, we believe our inventory is healthy and well-positioned to meet the demands of our athletes in fiscal 2023. Although we have successfully managed these issues thus far, the continued effect of these challenges may impact longer-term consumer discretionary spending behavior and the promotional landscape in which we operate. Our fiscal 2023 outlook contemplates this uncertainty.

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How We Evaluate Our Operations

Senior management focuses on certain key indicators to monitor our performance including:

•Comparable store sales performance – Our management considers comparable store sales, which includes online sales, to be an important indicator of our current performance. Comparable store sales results are important to leverage our costs, which include occupancy costs, store payroll and other store expenses. Comparable store sales also have a direct impact on our total net sales, net income, cash and working capital. A store is included in the comparable store sales calculation during the fiscal period that it commences its 14th full month of operations. Relocated stores are included in the comparable store sales calculation from the open date of the original location. Stores that were permanently closed during the applicable period have been excluded from comparable store sales results. For further discussion of our comparable store sales refer to the “Results of Operations” section herein.

•Earnings before taxes and the related operating margin – Our management views operating margin and earnings before taxes as key indicators of our performance. The key drivers of earnings before taxes are comparable store sales, gross profit, and our ability to control selling, general and administrative expenses.

•Cash flows from operating activities – Cash flow generation supports our general liquidity needs and funds capital expenditures for our omni-channel platform, which include investments in new and existing stores and our eCommerce channel, distribution and administrative facilities, continuous improvements to information technology tools, potential strategic acquisitions or investments that may arise from time-to-time and stockholder return initiatives, including cash dividends and share repurchases. We typically experience lower operating cash flows in our third fiscal quarter due to increased inventory purchases in advance of the holiday selling season, which typically normalizes in our fourth fiscal quarter. For further discussion of our cash flows refer to the “Liquidity and Capital Resources” section herein.

•Quality of merchandise offerings – To measure effectiveness of our merchandise offerings, we monitor sell-throughs, inventory turns, gross margins and markdown rates at the department and style level. This analysis helps us manage inventory levels to reduce working capital requirements and deliver optimal gross margins by improving merchandise flow and establishing appropriate price points to minimize markdowns.

•Store productivity – To assess store-level performance, we monitor various indicators, including new store productivity, sales per square foot, store operating contribution margin and store cash flow.

Executive Summary

•Net sales increased 0.6% to $12.37 billion in fiscal 2022 from $12.29 billion in fiscal 2021, which included a decrease in comparable store sales of 0.5% following a 27.4% increase in 2021. When compared to fiscal 2019, net sales increased 41.3%.

•We reported net income of $1.0 billion, or $10.78 per diluted share, in fiscal 2022, compared to $1.52 billion, or $13.87 per diluted share, during fiscal 2021.

◦Fiscal 2022 net income includes charges of $22.3 million, net of tax, or $0.25 per diluted share, related to the Field & Stream Exit. Additionally, earnings per diluted share for fiscal 2022 reflects our adoption of ASU 2020-06, which requires the assumption that our convertible senior notes due 2025 (the “Convertible Senior Notes”) will be settled in shares of our common stock. As a result, fiscal 2022 earnings per diluted share excluded $27.1 million of interest expense, net of tax, and included 10.8 million diluted shares related to the Convertible Senior Notes, which together decreased earnings per diluted share by $1.01. During fiscal 2022, we settled $515.9 million of our Convertible Senior Notes without dilutive effect, as the related principal was settled in cash and due to the shares received from its convertible bond hedge.

◦Fiscal 2021 net income included approximately $15.0 million of pre-tax expenses, or $0.10 per diluted share net of tax, of teammate compensation and safety costs resulting from the COVID-19 pandemic. Additionally, fiscal 2021 net income included $22.8 million of non-cash interest expense, net of tax, and earnings per diluted share included 11.3 million shares related to the Convertible Senior Notes that were designed to be offset at conversion by our bond hedge, which together decreased earnings per diluted share by $1.83 in the prior year.

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•In addition, during fiscal 2022, we:

◦Terminated the proportionate amount of warrants concurrent with our exchange of $515.9 million of our Convertible Senior Notes, resulting in the issuance of 9.8 million shares of our common stock;

◦Declared and paid aggregate cash dividends on a quarterly basis for a total amount of $1.95 per share on our common stock and Class B common stock; and

◦Repurchased 5.0 million shares of common stock under our share repurchase program for a total cost of $426.7 million.

•The following table summarizes store openings and closings in fiscal 2022 and fiscal 2021:

(1)As of January 28, 2023, includes three DICK'S House of Sport stores.

(2)Includes our Golf Galaxy, Field & Stream, Public Lands and Going Going Gone! stores. As of January 28, 2023, we operated 98 Golf Galaxy stores, seven Public Lands stores, 15 Going Going Gone! stores, and five Field & Stream stores. In some markets, we operate DICK’S Sporting Goods stores adjacent to our specialty concept stores on the same property with a pass-through for our athletes. We refer to this format as a “combo store” and include combo store openings within both the DICK’S Sporting Goods and specialty concept store reconciliations, as applicable. As of January 28, 2023, the Company operated 16 combo stores.

(3)Excludes 43 and 14 temporary Warehouse Sale store locations as of January 28, 2023 and January 29, 2022, respectively.

Results of Operations

The following table presents, for the fiscal years indicated, selected items in the Consolidated Statements of Income as a percentage of our net sales, as well as the basis point change in percentage of net sales from fiscal 2022 to fiscal 2021:

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(A)Column does not add due to rounding.

(1)Revenue from retail sales is recognized at the point of sale, net of sales tax. Revenue from eCommerce sales, including vendor-direct sales arrangements, is recognized upon shipment of merchandise. A provision for anticipated merchandise returns is provided through a reduction of sales and cost of goods sold in the period that the related sales are recorded. Revenue from gift cards and returned merchandise credits (collectively the “cards”) is deferred and recognized upon the redemption of the cards. The cards have no expiration date.

(2)Cost of goods sold includes: the cost of merchandise (inclusive of vendor allowances, inventory shrinkage and inventory write-downs for the lower of cost or net realizable value); freight; distribution; shipping; and store occupancy costs. We define merchandise margin as net sales less the cost of merchandise sold. Store occupancy costs include rent, common area maintenance charges, real estate and other asset-based taxes, general maintenance, utilities, depreciation and certain insurance expenses.

(3)Selling, general and administrative expenses include store and field support payroll and fringe benefits, advertising, bank card charges, operating costs associated with our internal eCommerce platform, information systems, marketing, legal, accounting, other store expenses and all expenses associated with operating our customer support center.

(4)Pre-opening expenses, which consist primarily of rent, marketing, payroll, recruiting and other store preparation costs are expensed as incurred. Rent is recognized within pre-opening expense from the date we take possession of a site through the date the store opens.

(5)Beginning in fiscal 2022, we revised our method for calculating comparable store sales by including relocated store locations. Prior year fiscal 2021 information was revised to reflect this change for comparability purposes. See additional details as furnished in Exhibit 99.2 of the Company’s Form 8-K, which was filed with the SEC on March 8, 2022.

(6)Includes our DICK’S Sporting Goods, Golf Galaxy, Public Lands, Going Going Gone! and Field & Stream stores. Excludes temporary Warehouse Sale store locations. Fiscal 2022 store count reflects the closure of twelve Field & Stream stores for which the associated square footage of each closed store was retained as we plan in the near-term to convert them into DICK’S House of Sport stores, expanded DICK’S Sporting Goods stores, or other specialty concept stores.

Note - As retailers vary in how they record costs of operating their stores and supply chain between cost of goods sold and selling, general and administrative expenses, our gross profit rate and selling, general and administrative expenses rate may not be comparable to other retailers. For additional information regarding the types of costs classified within cost of goods sold, selling, general and administrative expenses or any other financial statement line items presented herein, refer to Note 1 – Basis of Presentation and Summary of Significant Accounting Policies included in Part IV. Item 15. Exhibits and Financial Statement Schedules of this Annual Report on Form 10-K.

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A discussion regarding our financial condition and results of operations for the year ended January 28, 2023 (Fiscal 2022) compared to the year ended January 29, 2022 (Fiscal 2021) is presented below. A discussion regarding our financial condition and results of operations for Fiscal 2021 compared to the year ended January 30, 2021 (Fiscal 2020) can be found under Item 7 of Part II of our Annual Report on Form 10-K for the fiscal year ended January 29, 2022, filed with the SEC on March 23, 2022.

Fiscal 2022 Compared to Fiscal 2021

Net Sales

Net sales increased 0.6% to $12.37 billion in fiscal 2022 from $12.29 billion in fiscal 2021 due to a $131.9 million increase in net sales primarily attributable to new temporary Warehouse Sale and other stores, partially offset by $57.1 million, or 0.5%, of a decrease in comparable store sales. The decrease in comparable store sales included a 0.7% decrease in transactions offset by a 0.2% increase in sales per transaction, and reflects an anticipated sales normalization in certain categories, including fitness and outdoor equipment, along with a favorable sales impact in fiscal 2021 following government stimulus payments, partially offset by growth in footwear, team sports and athletic apparel.

Income from Operations

Income from operations decreased to $1,463.0 million in fiscal 2022 from $2,034.5 million in fiscal 2021.

Gross profit decreased to $4,284.6 million in fiscal 2022 from $4,711.9 million in fiscal 2021 and decreased as a percentage of net sales by 369 basis points. Merchandise margins decreased 304 basis points as a result of our actions to reduce targeted apparel inventory overages, item-level deals provided to our athletes during the holiday season and higher inventory shrink due to increased theft. Occupancy costs, which after the cost of merchandise represents the largest item within our cost of goods sold, are generally fixed on a per store basis and fluctuate based on the number of stores that we operate. Our occupancy costs increased $44.1 million compared to fiscal 2021 and decreased gross profit as a percentage of net sales by 30 basis points. The remaining decrease in gross profit as a percentage of net sales was driven by an increase in eCommerce shipping expense due primarily to higher shipping rates and penetration of eCommerce sales compared to the prior year.

Selling, general and administrative expenses increased to $2,805.5 million in the current year from $2,664.1 million in fiscal 2021, and increased as a percentage of net sales by 101 basis points. Fiscal 2022 included Field & Stream Exit charges of $29.3 million, and fiscal 2021 included approximately $15.0 million of COVID-related costs. The remaining $127.1 million increase was primarily driven by investments in hourly wage rates, talent and technology to support our growth strategies, offset by lower incentive compensation expense and a $31.7 million net cost reduction compared to fiscal 2021 related to changes in the investment values of our deferred compensation plans, for which the corresponding investment expense was recognized in Other Income.

Interest Expense

Interest expense increased to $95.2 million in fiscal 2022 compared to $57.8 million in fiscal 2021. The increase was primarily due to a $52.8 million increase in interest expense related to the aggregate $1.5 billion Senior Notes issued during the fourth quarter of 2021 and $23.3 million of inducement charges related to the exchange of $515.9 million aggregate principal amount of the Convertible Senior Notes, partially offset by a $36.2 million reduction in interest expense related to our Convertible Senior Notes, due to exchange transactions and our adoption of ASU 2020-06; Refer to Part IV. Item 15. Exhibits and Financial Statement Schedules, Note 1 – Basis of Presentation and Summary of Significant Accounting Policies for additional information.

Other Income

Other income decreased to $15.9 million in fiscal 2022 compared to $17.8 million in fiscal 2021. The Company recognizes investment income or investment expense to reflect changes in deferred compensation plan investment values with an offsetting charge or reduction to selling, general and administrative costs for the same amount. The Company recognized $14.6 million of investment expense during fiscal 2022 compared to investment income of $17.1 million during fiscal 2021, primarily driven by performance in equity markets which impacted the deferred compensation plan investment values. This total $31.7 million decrease related to our deferred compensation plan investment values was offset by a $26.7 million increase in interest income as a result of higher average interest rates on cash and cash equivalents during the current year.

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Income Taxes

Our effective tax rate increased to 24.6% in the current year from 23.8% in fiscal 2021. The current year effective tax rate was unfavorably impacted by eliminated tax deductions from our bond hedge following our Convertible Senior Notes exchange transactions, which impacted our income tax expense by $21.5 million, partially offset by the favorable rate impact of the vesting of employee equity awards on lower pre-tax income.

Liquidity and Capital Resources

Our cash on hand as of January 28, 2023 was $1.9 billion. We believe that we have sufficient cash flows from operations and cash on hand to operate our business for at least the next twelve months, supplemented by funds available under our unsecured $1.6 billion Credit Facility, if necessary. We may require additional funding should we pursue strategic acquisitions, undertake share repurchases, pursue other investments or engage in store expansion rates in excess of historical levels. We had no revolving credit facility borrowings at any point during fiscal 2022.

The following sections describe the potential short and long-term impacts to our liquidity and capital requirements.

Leases

We lease substantially all of our stores, three of our distribution centers, and certain equipment and storage under non-cancellable operating leases that expire at various dates through 2035. Approximately three-quarters of our DICK’S Sporting Goods stores will be up for lease renewal at our option over the next five years, and we plan to leverage the significant flexibility within our existing real estate portfolio to capitalize on future real estate opportunities. Refer to Part IV. Item 15. Exhibits and Financial Statement Schedules, Note 7 – Leases for further information.

Revolving Credit Facility

We have a $1.6 billion Credit Facility, which includes a maximum amount of $75 million to be issued in the form of letters of credit. Loans under the Credit Facility bear interest at an alternate base rate or an adjusted secured overnight financing rate plus, in each case, an applicable margin percentage. As of January 28, 2023, there were no borrowings outstanding under the Credit Facility, and we have total remaining borrowing capacity, after adjusting for $16.1 million of standby letters of credit, of $1.58 billion. We were in compliance with all covenants under the Credit Facility agreement at January 28, 2023. Refer to Part IV. Item 15. Exhibits and Financial Statement Schedules, Note 8 – Revolving Credit Facility for further information.

Senior Notes

As of January 28, 2023, we have $750 million principal amount of senior notes due 2032 (the “2032 Notes”) and $750 million principal amount of senior notes due 2052 outstanding (the “2052 Notes” and together with the 2032 Notes, the “Senior Notes”). Cash interest accrues at a rate of 3.15% per year on the 2032 Notes and 4.10% per year on the 2052 Notes, each of which are payable semi-annually in arrears on January 15 and July 15. Refer to Part IV. Item 15. Exhibits and Financial Statement Schedules, Note 9 – Senior Notes for further information.

As of January 28, 2023, our Senior Notes have long-term credit ratings by Moody’s and Standard & Poor’s rating agencies of Baa3 and BBB, respectively.

Convertible Senior Notes

Following our exchanges totaling $515.9 million principal amount in cash during fiscal 2022, we have an aggregate remaining principal amount of $59.1 million of Convertible Senior Notes outstanding as of January 28, 2023. On February 9, 2023, the Company provided irrevocable notice to the noteholders of our Convertible Senior Notes of our election to redeem the remaining principal in shares. The Company intends to offset share dilution from this settlement through share repurchases using excess cash, free cash flow or borrowings on our Credit Facility. Refer to Part IV. Item 15. Exhibits and Financial Statement Schedules, Note 16 – Subsequent Events for further information.

Capital Expenditures

Our capital expenditures are primarily allocated toward the development of our omni-channel platform, including investments in new and existing stores and eCommerce technology, while we have also invested in our supply chain and corporate technology capabilities. In fiscal 2022, capital expenditures totaled $364.1 million on a gross basis and $328.0 million on a net basis, which includes tenant allowances provided by landlords.

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We anticipate that fiscal 2023 capital expenditures will be in a range of $550 to $600 million, net of tenant allowances provided by landlords. We expect our capital expenditures to be concentrated on new store development, relocations and remodels, including nine DICK’S House of Sport stores and eleven Golf Galaxy Performance Centers, improvements within our existing stores including converting over 100 stores to premium full-service footwear decks, and continued investments in technology to enhance our store fulfillment, in-store pickup and other foundational capabilities.

Share Repurchases

From time-to-time, we may opportunistically repurchase shares of our common stock. In fiscal 2022, we repurchased approximately 5.0 million shares of our common stock for $426.7 million. During fiscal 2022, we also paid $31.7 million for shares repurchased during fiscal 2021. We currently operate under a $2.0 billion share repurchase program that was authorized by the Board of Directors in December 2021. As of January 28, 2023, the available amount remaining under the December 2021 authorization was $1.4 billion.

Any future share repurchase programs are subject to authorization by our Board of Directors and will be dependent upon future earnings, cash flows, financial requirements and other factors.

Dividends

In fiscal 2022, we paid $163.1 million of dividends to our stockholders. On March 6, 2023, our Board of Directors declared a 105% increase in our quarterly cash dividend compared to the previous quarterly per share amount. The dividend of $1.00 per share of common stock and Class B common stock is payable on March 31, 2023 to stockholders of record as of the close of business on March 17, 2023. During fiscal 2021, we paid $603.0 million in dividends, which included quarterly dividends and a special dividend in the amount of $5.50 per share, on our common stock and Class B common stock.

The declaration of future dividends and the establishment of the per share amount, record dates and payment dates for any such future dividends are subject to authorization by our Board of Directors and are dependent upon multiple factors including future earnings, cash flows, financial requirements and other considerations.

Supply Chain Financing

We have entered into supply chain financing arrangements with several financial institutions, whereby suppliers have the opportunity to settle outstanding payment obligations early at a discount. In turn, we settle invoices with the financial institutions in accordance with the original supplier payment terms. Our rights and obligations to our suppliers, including amounts due and scheduled payment terms, are not impacted. Our liability associated with the funded participation in the arrangements, which is presented within accounts payable on the Consolidated Balance Sheet, was $40.1 million and $76.0 million as of January 28, 2023 and January 29, 2022, respectively.

Cash Flows

Changes in cash and cash equivalents for the last three fiscal years are as follows (in thousands):

Operating Activities

Cash flows provided by operating activities decreased $695.0 million in fiscal 2022 compared to fiscal 2021. The decrease was primarily due to a $476.7 million decrease in earnings and a $213.1 million increase in cash payments for inventory and accounts payable to replenish inventory levels after a 28.3% sales increase in fiscal 2021 and supply chain disruptions following the emergence of COVID-19, which resulted in inventory growth to support our 41.3% sales growth in fiscal 2022 when compared to fiscal 2019. The remaining decrease in cash provided by operating activities was primarily driven by a $135.5 million decrease from accrued expenses as a result of year-over-year changes in incentive compensation accruals and corresponding payments, and the timing of marketing and deferred compensation plan payments, offset by an increase from changes in operating lease assets and liabilities of $70.1 million due to the timing of rent payments at the end of fiscal 2022.

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Investing Activities

Cash used in investing activities for fiscal 2022 increased $48.9 million to $392.9 million, due to an increase in gross capital expenditures. Gross capital expenditures for fiscal 2022 included higher investments in our stores and technology, offset by last year’s investments in merchandise presentation and improving the fitting and lesson experience in our golf business. Cash used in investing activities also included progress payments for the purchase of corporate aircraft and investments in organizations that focus on innovation and improving local communities through sport.

Financing Activities

Financing activities have historically consisted of capital return initiatives, including share repurchases and cash dividend payments, cash flows generated from stock option exercises and cash activity associated with our Credit Facility, or other financing sources. Cash used in financing activities increased $959.9 million during fiscal 2022 compared to fiscal 2021. Fiscal 2022 included the exchange of $515.9 million aggregate principal amount of our Convertible Senior Notes and $458.5 million in share repurchases. Fiscal 2021 included over $1.1 billion in share repurchases and the payment of a special dividend of $5.50 per share, which was partially offset by our issuance of the Senior Notes that provided net proceeds of approximately $1.5 billion.

Contractual Obligations and Commercial Commitments

We are party to contractual obligations that involve commitments to make payments to third parties in the ordinary course of business. Our future contractual obligations primarily consist of payments for operating leases, long-term debt and related interest payments, and other purchase obligations. Refer to Part IV. Item 15. Exhibits and Financial Statement Schedules, Note 7 – Leases, Note 9 – Senior Notes and Note 10 – Convertible Senior Notes for amounts outstanding as of January 28, 2023 related to operating leases and long-term debt.

Other purchase obligations are for marketing commitments to promote our brand and products, including media and naming rights, technology-related commitments, licenses for trademarks, and other ordinary course commitments. In the ordinary course of business, we enter into many contractual commitments, including purchase orders and commitments for products or services, but generally, such commitments represent annual or cancellable commitments. The amount of non-cancellable purchase commitments as of January 28, 2023 were approximately $265 million.

Critical Accounting Policies and Use of Estimates

Our significant accounting policies are described in Part IV. Item 15. Exhibits and Financial Statement Schedules, Note 1 – Basis of Presentation and Summary of Significant Accounting Policies. Critical accounting policies are those that we believe are both 1) most important to the portrayal of our financial condition and results of operations and 2) require our most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Judgments and uncertainties affecting the application of such policies may result in materially different amounts being reported under different conditions or using different assumptions.

We consider the following policies to be the most critical in understanding the judgments that are involved in preparing our consolidated financial statements.

Inventory Valuation

We value inventory using the lower of weighted average cost and net realizable value, which is generally based on the selling price expectations of the merchandise. We regularly review inventories to determine if the carrying value of the inventory exceeds net realizable value and, when determined necessary, record a reserve to reduce the carrying value to net realizable value. Changes in customer merchandise preference, current and anticipated demand, consumer spending, weather patterns, economic conditions, business trends or merchandising strategies could cause our inventory to be exposed to obsolescence or slow-moving merchandise. A 10% change in our obsolete inventory reserves as of January 28, 2023, would have affected income before income taxes by approximately $5.1 million in fiscal 2022.

Shrink expense is accrued as a percentage of merchandise sales based on historical shrink trends. We perform physical inventories at our stores and distribution centers throughout the year. The shrink reserve represents the cumulative loss estimate for each of our locations since the last physical inventory date through the reporting date. Estimates by location and in the aggregate are impacted by internal and external factors and may vary significantly from actual results. A 10% change in our shrink reserve as of January 28, 2023, would have affected income before income taxes by approximately $1.8 million in fiscal 2022.

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Goodwill and Intangible Assets

Goodwill, indefinite-lived and other finite-lived intangible assets are reviewed for impairment on an annual basis, or whenever circumstances indicate that a decline in value may have occurred. Our evaluation for impairment requires accounting judgments and financial estimates in determining the fair value of the reporting unit or asset. If these judgments or estimates change in the future, we may be required to record impairment charges for these assets.

Our goodwill impairment test compares the fair value of each reporting unit to its carrying value. We determine the fair value of our reporting units using a combination of an income approach and a market approach. Estimates may differ from actual results due to, among other things, economic conditions, changes to our business models, or changes in operating performance. Significant differences between these estimates and actual results could result in future impairment charges and could materially affect our future financial results. If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that reporting unit, goodwill is not impaired. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, an impairment charge is recorded to reduce the carrying value of the reporting unit to its fair value. As of January 28, 2023, we had no reporting units at risk of impairment and a 10% change in the fair value of our reporting units would not indicate a potential impairment of goodwill. The fair value of our reporting unit has remained substantially in excess of its carrying value over the last three fiscal years.

Similar to our test for impairment of goodwill, the impairment test for indefinite-lived intangible assets involves comparing their estimated fair values to their carrying values. We estimate the fair value of indefinite-lived intangible assets, which are comprised primarily of trademarks and trade names, based on an income approach using the relief-from-royalty method, which assumes that, in lieu of ownership, a third-party would be willing to pay a royalty in order to derive a benefit from these types of assets. This approach is dependent on a number of factors, including estimates of future sales projections and growth, royalty rates in the category of intellectual property, discount rates and other variables. If actual results are not consistent with our estimates and assumptions used in estimating fair value, we may be exposed to material losses. We recognize an impairment charge when the estimated fair value of the intangible asset is less than its carrying value. We recorded no such impairments in fiscal 2022 or 2021.

Impairment of Long-Lived Assets

We review long-lived assets whenever events and circumstances indicate that the carrying value of these assets may not be recoverable based on estimated undiscounted future cash flows. Assets are reviewed at the lowest level for which independent cash flows can be identified, which is typically the store level. We use an income approach to determine the fair value of individual store locations, which requires discounting projected future cash flows over each store’s remaining lease term. When determining the stream of projected future cash flows associated with an individual store location, we make assumptions about key store variables that incorporate local market conditions, including sales growth rates, gross margin and controllable expenses, such as store payroll. An impairment loss is recognized when the carrying amount of the store location is not recoverable and exceeds its fair value. During fiscal 2022, we recorded a non-cash impairment charge of $28.5 million for store asset disposals at twelve Field & Stream stores that we closed in the period for conversion into DICK’S House of Sport stores or expanded DICK’S Sporting Goods stores. There were no other significant long-lived assets impairment charges recognized during fiscal 2022, 2021 or 2020.

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ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with our Consolidated Financial Statements and related notes appearing elsewhere in this Annual Report on Form 10-K. This Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. See “Forward-Looking Statements” and Part I, Item 1A. “Risk Factors”.

Business Overview

We are a leading omni-channel sporting goods retailer offering an extensive assortment of authentic, high-quality sports equipment, apparel, footwear and accessories. In addition to DICK’S Sporting Goods stores, we own and operate Golf Galaxy, Field & Stream, Public Lands, and Going Going Gone! stores, and offer our products both online and through our mobile apps. We also own and operate DICK’S House of Sport and Golf Galaxy Performance Center, as well as GameChanger, a youth sports mobile app for video streaming, scorekeeping, scheduling and communications. When used in this Annual Report on Form 10-K, unless the context otherwise requires or specifies, any reference to “year” is to our fiscal year.

Our profitability is primarily influenced by the growth in consolidated same store sales, the strength of our gross margins derived from our omni-channel platform and our ability to manage expenses. We have grown from 676 DICK'S Sporting Goods stores at the end of fiscal 2016 to 730 DICK’S Sporting Goods stores at the end of fiscal 2021. Our current real estate strategy has resulted in a reduction in the rate at which we open new DICK’S Sporting Goods stores in recent years. We intend to continue this strategy over the next few years, which will allow us to continue to leverage the significant flexibility within our existing real estate portfolio to capitalize on future real estate opportunities as leases come up for renewal. We expect that our future real estate strategy will include growth in new retail concepts and experiential store prototypes. We deploy an in-house eCommerce platform, which allows for continued innovation and enhancements to our eCommerce websites and applications, new releases of our mobile and tablet apps, and the development of omni-channel capabilities that further integrate our online presence with our brick and mortar stores to increase athlete engagement, including ship-from-store, buy-online, pick-up in store or curbside and multi-channel marketing campaigns.

Our eCommerce sales penetration to total net sales increased from approximately 12% in fiscal 2016 to approximately 16% in fiscal 2019. Our eCommerce sales growth further accelerated during the COVID-19 pandemic. Compared to fiscal 2019, eCommerce sales increased 81% in fiscal 2021, and eCommerce penetration grew to 21% of total net sales. Approximately 70% of online sales during fiscal 2021 were fulfilled directly by our stores, which serve as localized points of distribution, and our stores enabled over 90% of fiscal 2021 sales through online fulfillment and in-person sales.

COVID-19 Update

Following temporary store closures in the spring of fiscal 2020 due to the COVID-19 pandemic, our differentiated product assortment, supply chain, technological capabilities and omni-channel platform enabled us to capitalize on strong consumer demand as net sales increased 40.5% in fiscal 2021 compared to fiscal 2019. In response to the pandemic, we implemented additional safety and cleaning protocols at our stores, distribution centers and corporate offices, as well as provided a temporary 15% pay premium program to our store and distribution center teammates through the end of fiscal 2020, resulting in $175 million in COVID-related costs. Following the conclusion of our temporary 15% pay premium program, in fiscal 2021 we transitioned these teammates to compensation programs with a longer-term focus, including accelerated annual merit increases and higher wages. Other COVID-related costs decreased significantly beginning in the second quarter of 2021 in consideration of guidance from the Centers for Disease Control and Prevention, resulting in total COVID-related costs of $15 million in fiscal 2021.

The effect that the COVID-19 pandemic may have on our future business remains uncertain, including the long-term economic outlook, inflation and its impact on consumer discretionary spending behavior when the pandemic ends. Additionally, COVID-19 has disrupted global supply chains, including factory closures and port congestion that have resulted in longer transit times and rising container and transportation costs, which we expect will continue to remain elevated in the near term. Although we have successfully managed these challenges thus far, our ability to continue to replenish our inventory to meet current levels of consumer demand could be impacted by further delays or disruptions to the flow of products from our key vendor partners and our vertical brand sources. Our fiscal 2022 outlook contemplates this uncertainty, and we plan to continue to actively manage any impacts of COVID-19 on our business.

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How We Evaluate Our Operations

Senior management focuses on certain key indicators to monitor our performance including:

•Consolidated same store sales performance – Our management considers same store sales, which consists of both brick and mortar and eCommerce sales, to be an important indicator of our current performance. Same store sales results are important to leverage our costs, which include occupancy costs, store payroll and other store expenses. Same store sales also have a direct impact on our total net sales, net income, cash and working capital. A store is included in the same store sales calculation during the same fiscal period that it commences its 14th full month of operations. Stores that were permanently closed or relocated during the applicable period have been excluded from same store sales results. Each relocated store is returned to the same store sales base during the fiscal period that it commences its 14th full month of operations at the new location. See further discussion of our consolidated same store sales within the “Results of Operations” section herein.

•Earnings before taxes and the related operating margin – Our management views operating margin and earnings before taxes as key indicators of our performance. The key drivers of earnings before taxes are same store sales, gross profit, and our ability to control selling, general and administrative expenses.

•Cash flows from operating activities – Cash flow generation supports our general liquidity needs and funds capital expenditures for our omni-channel platform, which include investments in new and existing stores and our eCommerce channel, distribution and administrative facilities, continuous improvements to information technology tools, potential strategic acquisitions or investments that may arise from time-to-time and stockholder return initiatives, including cash dividends and share repurchases. We typically experience lower operating cash flows in our third fiscal quarter due to inventory purchases in advance of the holiday selling season, which normalizes in our fourth fiscal quarter. See discussion of our fiscal 2021 cash flows compared to fiscal 2020 in the “Liquidity and Capital Resources” section herein.

•Quality of merchandise offerings – To measure acceptance of our merchandise offerings, we monitor sell-throughs, inventory turns, gross margins and markdown rates at the department and style level. This analysis helps us manage inventory levels to reduce working capital requirements and deliver optimal gross margins by improving merchandise flow and establishing appropriate price points to minimize markdowns.

•Store productivity – To assess store-level performance, we monitor various indicators, including new store productivity, sales per square foot, store operating contribution margin and store cash flow.

Due to temporary store closures and other actions taken in fiscal 2020 in response to the emergence of the COVID-19 pandemic, our fiscal 2021 operating plan was based on our 2019 results. Accordingly, we have also included comparative results from fiscal 2019 in our discussion of results of operations for fiscal 2021.

Executive Summary

•Net sales increased 28.3% to $12.29 billion in fiscal 2021 from $9.58 billion in fiscal 2020 and increased 40.5% from $8.75 billion in fiscal 2019.

◦Consolidated same store sales increased 26.5% from fiscal 2020, which was on top of a 9.9% consolidated same store sales increase last year. Fiscal 2019 consolidated same store sales increased 3.7%.

◦eCommerce sales increased 81% in the current year compared to fiscal 2019, a 9% decrease compared to fiscal 2020.

•We reported net income of $1.52 billion, or $13.87 per diluted share in fiscal 2021, compared to $530.3 million, or $5.72 per diluted share, during fiscal 2020. Net income was $297.5 million, or $3.34 per diluted share, in fiscal 2019.

◦Net income in the current year included $22.8 million of non-cash interest expense, net of tax, related to our convertible senior notes due 2025 (the “Convertible Senior Notes”) and earnings per diluted share included 11.3 million shares from these notes that are designed to be offset at conversion by our bond hedge, which together decreased earnings per diluted share by $1.83.

◦Net income in fiscal 2020 included $16.0 million of non-cash interest expense, net of tax, related to our Convertible Senior Notes and earnings per diluted share included 3.5 million shares from these notes that are designed to be offset at conversion by our bond hedge, which together decreased earnings per diluted share by $0.40.

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◦In fiscal 2021 and fiscal 2020, net income included approximately $15 million and $175 million of pre-tax expenses, or $0.10 and $1.40 per diluted share, net of tax, respectively, of teammate compensation and safety costs resulting from the COVID-19 pandemic.

•In addition, during fiscal 2021, we:

◦Declared and paid $603.0 million in dividends, including quarterly dividends and a special dividend in the amount of $5.50 per share, on our common stock and Class B common stock. The quarterly dividend of $0.4375 per share we paid in the third and fourth quarters represented a 21% increase over our previous quarterly dividend per share;

◦Repurchased 10.79 million shares of common stock under our share repurchase program for a total cost of $1.18 billion; and

◦Issued $1.5 billion of senior unsecured notes and concurrently replaced our revolving credit facility with a new unsecured $1.6 billion revolving credit facility (the “Credit Facility”) as part of our inaugural long-term investment grade debt issuance, ending fiscal 2021 with $2.6 billion of cash and cash equivalents and no borrowings under our Credit Facility.

•The following table summarizes store openings and closings in fiscal 2021 and fiscal 2020:

(1)Includes our Golf Galaxy, Field & Stream, Public Lands and Going Going Gone! stores, and excludes temporary Warehouse Sale store locations. In some markets, we operate DICK’S Sporting Goods stores adjacent to our specialty concept stores on the same property with a pass-through for our athletes. We refer to this format as a “combo store” and include combo store openings within both the DICK’S Sporting Goods and specialty concept store reconciliations, as applicable.

(2)Includes two new DICK'S House of Sport store prototypes which were relocations of former DICK'S Sporting Goods stores.

(3)Includes our closure and sublease of four Field & Stream stores in fiscal 2020.

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Results of Operations

The following table presents, for the fiscal years indicated, selected items in the Consolidated Statements of Income as a percentage of our net sales, as well as the basis point change in percentage of net sales from fiscal 2021 to fiscal 2020 and 2019:

(A) Column does not add due to rounding.

(1) Revenue from retail sales is recognized at the point of sale, net of sales tax. Revenue from eCommerce sales, including vendor-direct sales arrangements, is recognized upon shipment of merchandise. A provision for anticipated merchandise returns is provided through a reduction of sales and cost of goods sold in the period that the related sales are recorded. Revenue from gift cards and returned merchandise credits (collectively the “cards”) is deferred and recognized upon the redemption of the cards. The cards have no expiration date.

(2) Cost of goods sold includes: the cost of merchandise (inclusive of vendor allowances, inventory shrinkage and inventory write-downs for the lower of cost or net realizable value); freight; distribution; shipping; and store occupancy costs. We define merchandise margin as net sales less the cost of merchandise sold. Store occupancy costs include rent, common area maintenance charges, real estate and other asset-based taxes, general maintenance, utilities, depreciation and certain insurance expenses.

(3) Selling, general and administrative expenses include store and field support payroll and fringe benefits, advertising, bank card charges, operating costs associated with our internal eCommerce platform, information systems, marketing, legal, accounting, other store expenses and all expenses associated with operating our customer support center.

(4) Pre-opening expenses, which consist primarily of rent, marketing, payroll and recruiting costs, are expensed as incurred. Rent is recognized within pre-opening expense from the date we take possession of a site through the date the store opens.

(5) Represents the gain recorded in connection with our sale of two technology subsidiaries, Blue Sombrero and Affinity Sports, in fiscal 2019.

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(6) Consolidated same store sales include stores that were temporarily closed during fiscal 2020 as a result of the COVID-19 pandemic. The method of calculating consolidated same store sales varies across the retail industry, including as to the treatment of temporary store closures as a result of the COVID-19 pandemic. Accordingly, our method of calculating this metric may not be the same as other retailers’ methods.

(7) Includes our DICK’S Sporting Goods, Golf Galaxy, Field & Stream, Public Lands and Going Going Gone! stores. Excludes temporary locations.

Note - As retailers vary in how they record costs of operating their stores and supply chain between cost of goods sold and selling, general and administrative expenses, our gross profit rate and selling, general and administrative expenses rate may not be comparable to other retailers. For additional information regarding the types of costs classified within cost of goods sold, selling, general and administrative expenses or any other financial statement line items presented herein, refer to Note 1–Basis of Presentation and Summary of Significant Accounting Policies included in Part IV. Item 15. Exhibits and Financial Statement Schedules of this Annual Report on Form 10-K.

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A discussion regarding our financial condition and results of operations for the year ended January 29, 2022 (Fiscal 2021) compared to the year ended January 30, 2021 (Fiscal 2020) is presented below. A discussion regarding our financial condition and results of operations for the year ended January 30, 2021 (Fiscal 2020) compared to the year ended February 1, 2020 (Fiscal 2019) can be found under Item 7 of Part II of our Annual Report on Form 10-K for the fiscal year ended January 30, 2021, filed with the SEC on March 24, 2021.

Fiscal 2021 Compared to Fiscal 2020

Net Sales

Net sales were $12.29 billion in fiscal 2021, a 28.3% increase from net sales of $9.58 billion in fiscal 2020, due primarily to a consolidated same store sales increase of $2.45 billion, or 26.5%, after giving effect to last year’s temporary store closures resulting from the COVID-19 pandemic. The remaining $261.6 million increase in net sales was primarily attributable to new and relocated stores. The increase in consolidated same store sales was driven by balanced growth across hardlines, apparel and footwear, and included an 18.8% increase in transactions and a 7.7% increase in sales per transaction. Additionally, our consolidated same store sales increase included an increase in brick and mortar sales of over 42%, while eCommerce sales decreased approximately 9% compared to the prior year, as both channels were impacted by last year’s temporary store closures.

Compared to fiscal 2019, net sales increased approximately 40.5%. This included a 32.6% increase in brick and mortar sales and an 81% increase in eCommerce sales. eCommerce sales penetration as a percentage of net sales increased to approximately 21% in the current year compared to approximately 16% during fiscal 2019. As expected, eCommerce sales penetration decreased in the current year from 30% of net sales in fiscal 2020.

Income from Operations

Income from operations increased to $2,034.5 million in fiscal 2021 from $741.5 million in fiscal 2020 and $375.6 million in fiscal 2019.

Gross profit increased 54.5% to $4,711.9 million in fiscal 2021 from $3,050.7 million in fiscal 2020 and increased as a percentage of net sales by 650 basis points due primarily to higher merchandise margin and occupancy leverage. Merchandise margin increased 407 basis points, which was driven by our differentiated product assortment and disciplined promotional strategy, as well as a favorable sales mix. In addition, merchandise cost increases resulting from higher supply chain and input costs were partially offset by selective price increases during the year. Occupancy costs, which after the cost of merchandise represents the largest item within our cost of goods sold, are generally fixed on a per store basis and fluctuate based on the number of stores that we operate. Our occupancy costs increased $14.2 million compared to fiscal 2020, but increased gross profit as a percentage of net sales by approximately 223 basis points due to the increase in net sales. The remaining increase in gross profit as a percentage of net sales included lower eCommerce shipping expense due primarily to a lower penetration of eCommerce sales compared to the prior year, partially offset by increased freight expenses due to continuing global supply chain disruptions following the start of the COVID-19 pandemic. Gross profit included approximately $23 million of COVID-related compensation and safety costs in fiscal 2020.

Compared to fiscal 2019, gross profit increased approximately 914 basis points as a percentage of net sales, driven primarily by merchandise margin expansion of 626 basis points due to fewer promotions and a write-down of inventory related to the restructuring of our hunt business in fiscal 2019, and occupancy leverage of 336 basis points. These improvements were partially offset by higher freight costs due to the aforementioned global supply chain disruptions.

Selling, general and administrative expenses increased 15.9% to $2,664.1 million in the current year from $2,298.5 million in fiscal 2020, but decreased as a percentage of net sales by 231 basis points due primarily to leverage from the increase in sales. The $365.6 million increase was due primarily to current year cost increases to support the growth in net sales, last year’s operating expense reductions following our temporary store closures and higher incentive compensation expense, partially offset by lower contributions to The DICK’S Sporting Goods Foundation, as fiscal 2020 included a $30 million contribution to help jump-start youth sports programs struggling to return from the COVID-19 pandemic. Selling, general and administrative expenses included approximately $15 million and $152 million of COVID-related costs in fiscal 2021 and fiscal 2020, respectively. Prior year COVID-related costs were net of a $17 million benefit from employee retention tax credits provided by the Coronavirus Aid, Relief and Economic Security Act and included a temporary 15% pay premium program. In the current year, we transitioned store teammates to compensation programs with a longer-term focus, including increasing and accelerating annual merit increases and higher hourly wages, partially offsetting the year-over-year decrease in COVID-related costs.

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Compared to fiscal 2019, selling, general and administrative expenses decreased as a percentage of net sales by 317 basis points due primarily to leverage from the increase in net sales, while increasing 22.6% from $2,173.7 million in fiscal 2019. The $490.4 million increase in selling, general and administrative expenses was due primarily to higher payroll and operating expenses incurred to support the increase in net sales, hourly wage rate investments and higher incentive compensation expense. Fiscal 2019 included hunt restructuring charges due to our removal of that department from 440 DICK’S Sporting Goods stores and our exit from eight Field & Stream stores, a non-cash asset impairment and the favorable settlement of a litigation contingency.

Interest Expense

Interest expense increased to $57.8 million in fiscal 2021 compared to $48.8 million in fiscal 2020, due primarily to a full year of interest expense on our Convertible Senior Notes, which were issued in April 2020. Interest expense included non-cash debt discount amortization related to our Convertible Senior Notes of $30.8 million in the current year and $21.6 million in the prior year.

Other Income

Other income decreased to $17.8 million in fiscal 2021 compared to $19.1 million in fiscal 2020. Other income primarily relates to changes in our deferred compensation plan investment values, which we account for by recognizing investment income or expense and recording a corresponding charge or reduction to selling, general and administrative costs.

Income Taxes

Our effective tax rate decreased to 23.8% in the current year from 25.5% in fiscal 2020. The current year effective tax rate was favorably impacted by the vesting of employee equity awards at a higher share price than awards that vested in the prior year.

Liquidity and Capital Resources

Our cash on hand at January 29, 2022 was $2.6 billion, which was further strengthened as a result of our issuance of $1.5 billion investment-grade senior notes. We believe that we have sufficient cash flows from operations and cash on hand to operate our business for at least the next 12 months, supplemented by funds available under our new unsecured $1.6 billion Credit Facility, if necessary. We may require additional funding should we pursue strategic acquisitions, settle all or a portion of the Convertible Senior Notes, undertake share repurchases, pursue other investments or engage in store expansion rates in excess of historical levels. We had no revolving credit facility borrowings at any point during fiscal 2021.

The following sections describe the potential short and long term impacts to our liquidity and capital requirements.

Leases

We lease all of our stores, three of our distribution centers and certain equipment under non-cancellable operating leases that expire at various dates through 2033. Over two-thirds of our DICK’S Sporting Goods stores will be up for lease renewal at our option over the next five years, and we plan to leverage the significant flexibility within our existing real estate portfolio to capitalize on future real estate opportunities. See Part IV. Item 15. Exhibits and Financial Statement Schedules, Note 7–Leases for additional details.

Revolving Credit Facility

We have available to us a $1.6 billion Credit Facility, which includes a maximum amount of $75 million to be issued in the form of letters of credit. As of January 29, 2022, there were no borrowings outstanding under the Credit Facility, and we have total remaining borrowing capacity, after adjusting for $16.1 million of standby letters of credit, of $1.58 billion. See Part IV. Item 15. Exhibits and Financial Statement Schedules, Note 8–Revolving Credit Facility for additional details.

Senior Notes

As of January 29, 2022, we have $750 million principal amount of senior notes due 2032 (the “2032 Notes”) and $750 million of senior notes due 2052 outstanding (the “2052 Notes” and together with the 2032 Notes, the “Senior Notes”). Cash interest accrues at a rate of 3.15% per year on the 2032 Notes and 4.10% per year on the 2052 Notes, each of which are payable semi-annually in arrears on January 15 and July 15. See Part IV. Item 15. Exhibits and Financial Statement Schedules, Note 9–Senior Notes for additional details.

As of January 29, 2022, the Senior Notes were assigned long-term credit ratings by Moody’s and Standard & Poor’s rating agencies of Baa3 and BBB, respectively.

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Convertible Senior Notes

As of January 29, 2022, we have $575 million principal amount of Convertible Senior Notes outstanding. Cash interest accrues at a rate of 3.25% per year, payable semi-annually in arrears on April 15 and October 15. We currently anticipate that we will repay the principal amount of the Convertible Senior Notes in cash to minimize dilution, whether in connection with an early conversion of the Convertible Senior Notes or repayment at maturity in April 2025, using excess cash, free cash flow and borrowings on our Credit Facility.

At January 29, 2022, the stock price conditions under which the Convertible Senior Notes could be convertible at the holders’ option were met. However, the Company has not received any material conversion requests through the filing date of this Annual Report on Form 10-K. There can be no assurance as to the availability of capital to fund such repayments, or to the extent that capital is available through additional debt issuances or refinancing of the Convertible Senior Notes, that such capital will be available on terms that are favorable to us. See Part IV. Item 15. Exhibits and Financial Statement Schedules, Note 10–Convertible Senior Notes for additional details.

Capital Expenditures

Our capital expenditures are primarily allocated toward the development of our omni-channel platform, including investments in new and existing stores and eCommerce technology, while we have also invested in our supply chain and corporate technology capabilities. In fiscal 2021, capital expenditures totaled $308.3 million on a gross basis and $268.1 million on a net basis, which includes tenant allowances provided by landlords.

We anticipate that fiscal 2022 capital expenditures will be in a range of $340 to $365 million, net of tenant allowances provided by landlords. We expect our expenditures to be concentrated on improvements within our existing stores and new store development, as well as on continued investments in technology to enhance our store fulfillment and in-store pickup capabilities.

Share Repurchases

From time-to-time, we may opportunistically repurchase shares of our common stock under favorable market conditions. In fiscal 2021, we repurchased approximately 10.79 million shares of our common stock for $1.18 billion. We currently operate under a $2.0 billion share repurchase program that was authorized by the Board of Directors in December 2021. As of January 29, 2022, the available amount remaining under the December 2021 authorization was $1.85 billion.

Any future share repurchase programs are subject to the authorization by our Board of Directors and will be dependent upon future earnings, cash flows, financial requirements and other factors.

Dividends

In fiscal 2021, we paid $603.0 million of dividends to our shareholders, which included a special dividend in the amount of $5.50 per share. On March 7, 2022, our Board of Directors declared an 11% increase in our quarterly cash dividend compared to the previous quarterly per share amount. The dividend of $0.4875 per share of common stock and Class B common stock is payable on March 25, 2022 to stockholders of record as of the close of business on March 18, 2022.

The declaration of future dividends and the establishment of the per share amount, record dates and payment dates for any such future dividends are subject to authorization by our Board of Directors and are dependent upon multiple factors, including future earnings, cash flows, financial requirements and other considerations.

Supply Chain Financing

We have entered into supply chain financing arrangements with several financial institutions, whereby suppliers have the opportunity to settle outstanding payment obligations early at a discount. In turn, we settle invoices with the financial institutions in accordance with the original supplier payment terms. Our rights and obligations to our suppliers, including amounts due and scheduled payment terms, are not impacted. Our liability associated with the funded participation in the arrangements, which is presented within accounts payable on the Consolidated Balance Sheet, was $76.0 million and $67.5 million as of January 29, 2022 and January 30, 2021, respectively.

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Cash Flows

Changes in cash and cash equivalents for the last three fiscal years are as follows (in millions):

Operating Activities

Cash flows provided by operating activities increased $64.1 million in fiscal 2021 compared to fiscal 2020. The increase was primarily due to higher earnings, partially offset by higher cash payments for inventory and accounts payable to replenish inventory following a 11.3% inventory decrease in fiscal 2020, which included precautionary reductions in inventory receipts in response to the COVID-19 pandemic, supply chain constraints and a 9.5% sales increase in fiscal 2020 compared to fiscal 2019. The remaining year-over-year decrease in operating cash flows was primarily due to our fiscal 2020 deferrals of rent payments in response to the COVID-19 pandemic that we paid in fiscal 2021 and qualified payroll tax deferrals and related payments as permitted by the CARES Act.

Investing Activities

Cash used in investing activities for fiscal 2021 was $344.0 million, an increase of $119.8 million compared to the prior year. Gross capital expenditures increased $84.2 million, which included investments to enhance the athlete experience in our existing stores, including merchandise presentation, improving the fitting and lesson experience in our golf business, and store remodel and facility investments. Cash used in investing activities in fiscal 2021 also reflected $45.4 million of deposits and other investing activities, which included progress payments for the purchase of corporate aircraft.

Financing Activities

Financing activities have historically consisted of capital return initiatives, including share repurchases and cash dividend payments, cash flows generated from stock option exercises and cash activity associated with our Credit Facility, or other financing sources. Cash flows used in financing activities for fiscal 2021 included over $1.1 billion in share repurchases and the payment of a special dividend of $5.50 per share, which was partially offset by our issuance of the Senior Notes that provided net proceeds of approximately $1.5 billion. Prior year cash flows provided by financing activities included precautionary measures we took in response to the COVID-19 pandemic during fiscal 2020, which included activities related to the issuance of the Convertible Senior Notes and the temporary suspension of share repurchases.

Critical Accounting Policies and Use of Estimates

Our significant accounting policies are described in Part IV. Item 15. Exhibits and Financial Statement Schedules, Note 1–Basis of Presentation and Summary of Significant Accounting Policies. Critical accounting policies are those that we believe are both 1) most important to the portrayal of our financial condition and results of operations and 2) require our most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Judgments and uncertainties affecting the application of such policies may result in materially different amounts being reported under different conditions or using different assumptions.

We consider the following policies to be the most critical in understanding the judgments that are involved in preparing our consolidated financial statements.

Inventory Valuation

We value inventory using the lower of weighted average cost and net realizable value, which is generally based on the selling price expectations of the merchandise. We regularly review inventories to determine if the carrying value of the inventory exceeds net realizable value and, when determined necessary, record a reserve to reduce the carrying value to net realizable value. Changes in customer merchandise preference, current and anticipated demand, consumer spending, weather patterns, economic conditions, business trends or merchandising strategies could cause our inventory to be exposed to obsolescence or slow-moving merchandise.

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Shrink expense is accrued as a percentage of merchandise sales based on historical shrink trends. We perform physical inventories at our stores and distribution centers throughout the year. The shrink reserve represents the cumulative loss estimate for each of our locations since the last physical inventory date through the reporting date. Estimates by location and in the aggregate are impacted by internal and external factors and may vary significantly from actual results.

Business Development Allowances

Business development allowances include allowances, rebates and cooperative advertising funds received from vendors. These funds are determined for each fiscal year and the majority are based on various quantitative contract terms. Amounts we expect to receive from vendors for the purchase of merchandise inventories (“vendor allowances”) are recognized as a reduction of cost of goods sold as the merchandise is sold. Amounts that represent a reimbursement of costs incurred, such as cooperative advertising, are recorded as a reduction to the related expense in the period that the expense is incurred. We record estimates of earned allowances based on the latest projected purchase volumes and advertising forecasts.

Goodwill and Intangible Assets

Goodwill, indefinite-lived and other finite-lived intangible assets are reviewed for impairment on an annual basis, or whenever circumstances indicate that a decline in value may have occurred. Our evaluation for impairment requires accounting judgments and financial estimates in determining the fair value of the reporting unit or asset. If these judgments or estimates change in the future, we may be required to record impairment charges for these assets.

Our goodwill impairment test compares the fair value of each reporting unit to its carrying value. We determine the fair value of our reporting units using a combination of an income approach and a market approach. Estimates may differ from actual results due to, among other things, economic conditions, changes to our business models, or changes in operating performance. Significant differences between these estimates and actual results could result in future impairment charges and could materially affect our future financial results. If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that reporting unit, goodwill is not impaired. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, an impairment charge is recorded to reduce the carrying value of the reporting unit to its fair value. As of January 29, 2022, we had no reporting units at risk of impairment.

Similar to our test for impairment of goodwill, the impairment test for indefinite-lived intangible assets involves comparing their estimated fair values to their carrying values. We estimate the fair value of indefinite-lived intangible assets, which are comprised almost entirely of trademarks and trade names, based on an income approach using the relief-from-royalty method, which assumes that, in lieu of ownership, a third-party would be willing to pay a royalty in order to derive a benefit from these types of assets. This approach is dependent on a number of factors, including estimates of future sales projections and growth, royalty rates in the category of intellectual property, discount rates and other variables. If actual results are not consistent with our estimates and assumptions used in estimating fair value, we may be exposed to material losses. We recognize an impairment charge when the estimated fair value of the intangible asset is less than its carrying value. We recorded no such impairments in fiscal 2021 or 2020.

Impairment of Long-Lived Assets

We review long-lived assets whenever events and circumstances indicate that the carrying value of these assets may not be recoverable based on estimated undiscounted future cash flows. Assets are reviewed at the lowest level for which independent cash flows can be identified, which is typically the store level. We use an income approach to determine the fair value of individual store locations, which requires discounting projected future cash flows over each store’s remaining lease term. When determining the stream of projected future cash flows associated with an individual store location, we make assumptions about key store variables that incorporate local market conditions, including sales growth rates, gross margin and controllable expenses, such as store payroll. An impairment loss is recognized when the carrying amount of the store location is not recoverable and exceeds its fair value.

Self-Insurance

We are self-insured for certain losses related to health, workers' compensation and general liability insurance, although we maintain stop-loss coverage with third-party insurers to limit our liability exposure. Liabilities associated with these losses are estimated in part by considering historical claim experience, industry factors, severity factors and other actuarial assumptions.

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Stock-Based Compensation

We account for stock-based compensation in accordance with fair value recognition provisions. We use the Black-Scholes pricing model to estimate fair value of our stock options, which requires the input of multiple assumptions, such as the length of time employees will retain their vested stock options before exercising them (“expected term”), the volatility of our common stock price over the expected term and the expected dividend yield. In addition, we estimate the number of awards that will ultimately not complete their vesting requirements (“forfeitures”) and recognize expense for those stock awards expected to vest. Changes in the assumptions can materially affect the estimate of fair value of stock-based compensation and consequently, the related amount recognized on the Consolidated Statements of Income.