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Section 1: 10-Q (10-Q)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 10-Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended November 2, 2019
 OR
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                     to                    .
 
Commission File No. 001-31463
 
 DICK’S SPORTING GOODS, INC.
(Exact name of registrant as specified in its charter)
Delaware
 
16-1241537
(State or Other Jurisdiction of
 
(I.R.S. Employer
Incorporation or Organization)
 
Identification No.)
 
345 Court Street, Coraopolis, PA 15108
(Address of Principal Executive Offices)
 
(724) 273-3400
(Registrant’s Telephone Number, including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol(s)
 
Name of Each Exchange on which Registered
Common Stock, $0.01 par value
 
DKS
 
The New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes þ No o
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes þ No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer Accelerated filer Non-accelerated filer Smaller reporting company Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes  No
 
As of November 22, 2019, Dick’s Sporting Goods, Inc. had 63,595,852 shares of common stock, par value $0.01 per share, and 24,291,123 shares of Class B common stock, par value $0.01 per share, outstanding.


 
 

INDEX TO FORM 10-Q
 
Page Number
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2

 
 

PART I.  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS 

DICK’S SPORTING GOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except per share data)
(Unaudited)
 
 
 
13 Weeks Ended
 
39 Weeks Ended
 
 
 
November 2,
2019
 
November 3,
2018
 
November 2,
2019
 
November 3,
2018
Net sales
 
 
$
1,962,204

 
$
1,857,273

 
$
6,142,093

 
$
5,944,480

Cost of goods sold, including occupancy and distribution costs
 
 
1,381,562

 
1,333,719

 
4,320,571

 
4,201,277

 
 
 
 
 
 
 
 
 
 
GROSS PROFIT
 
 
580,642

 
523,554

 
1,821,522

 
1,743,203

 
 
 
 
 
 
 
 
 
 
Selling, general and administrative expenses
 
 
531,704

 
468,691

 
1,539,934

 
1,434,344

Pre-opening expenses
 
 
3,313

 
1,997

 
4,887

 
6,135

 
 
 
 
 
 
 
 
 
 
INCOME FROM OPERATIONS
 
 
45,625

 
52,866

 
276,701

 
302,724

 
 
 
 
 
 
 
 
 
 
Gain on sale of subsidiaries
 
 
(33,779
)
 

 
(33,779
)
 

Interest expense
 
 
4,278

 
2,606

 
12,909

 
8,312

Other (income) expense
 
 
(2,020
)
 
68

 
(10,340
)
 
(1,233
)
 
 
 
 
 
 
 
 
 
 
INCOME BEFORE INCOME TAXES
 
 
77,146

 
50,192

 
307,911

 
295,645

 
 
 
 
 
 
 
 
 
 
Provision for income taxes
 
 
19,562

 
12,365

 
80,268

 
78,336

 
 
 
 
 
 
 
 
 
 
NET INCOME
 
 
$
57,584

 
$
37,827

 
$
227,643

 
$
217,309

 
 
 
 
 
 
 
 
 
 
EARNINGS PER COMMON SHARE:
 
 
 

 
 

 
 

 
 
Basic
 
 
$
0.68

 
$
0.39

 
$
2.57

 
$
2.20

Diluted
 
 
$
0.66

 
$
0.39

 
$
2.53

 
$
2.18

 
 
 
 
 
 
 
 
 
 
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
 
 
 

 
 

 
 

 
 

Basic
 
 
85,048

 
96,677

 
88,671

 
98,926

Diluted
 
 
86,601

 
97,890

 
90,130

 
99,878

 
 
 
 
 
 
 
 
 
 


See accompanying notes to unaudited consolidated financial statements.

3

 
 

DICK’S SPORTING GOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in thousands)
(Unaudited)
 
 
13 Weeks Ended
 
39 Weeks Ended
 
 
November 2,
2019
 
November 3,
2018
 
November 2,
2019
 
November 3,
2018
NET INCOME
 
$
57,584

 
$
37,827

 
$
227,643

 
$
217,309

OTHER COMPREHENSIVE INCOME (LOSS):
 
 

 
 

 
 
 
 
Foreign currency translation adjustment, net of tax
 
6

 
2

 
4

 
(40
)
TOTAL OTHER COMPREHENSIVE INCOME (LOSS)
 
6

 
2

 
4

 
(40
)
COMPREHENSIVE INCOME
 
$
57,590

 
$
37,829

 
$
227,647

 
$
217,269

 
 
 
 
 
 
 
 
 
 

See accompanying notes to unaudited consolidated financial statements.



4

 
 

DICK’S SPORTING GOODS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands) 
(Unaudited)
 
November 2,
2019
 
February 2,
2019
 
November 3,
2018
ASSETS
 

 
 

 
 
CURRENT ASSETS:
 

 
 

 
 
Cash and cash equivalents
$
87,622

 
$
113,653

 
$
92,103

Accounts receivable, net
70,463

 
37,970

 
57,559

Income taxes receivable
17,122

 
6,135

 
10,422

Inventories, net
2,573,250

 
1,824,696

 
2,196,777

Prepaid expenses and other current assets
128,458

 
139,944

 
138,468

Total current assets
2,876,915

 
2,122,398

 
2,495,329

 
 
 
 
 
 
Property and equipment, net
1,436,975

 
1,565,271

 
1,578,313

Operating lease assets
2,378,399

 

 

Intangible assets, net
123,855

 
130,166

 
131,763

Goodwill
245,857

 
250,476

 
250,476

Other assets:
 

 
 

 
 
Deferred income taxes
16,033

 
13,243

 
11,886

Other
128,965

 
105,595

 
115,991

Total other assets
144,998

 
118,838

 
127,877

TOTAL ASSETS
$
7,206,999

 
$
4,187,149

 
$
4,583,758

 
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 

 
 

 
 
CURRENT LIABILITIES:
 

 
 

 
 
Accounts payable
$
1,097,564

 
$
889,908

 
$
1,028,234

Accrued expenses
379,774

 
364,342

 
350,737

Operating lease liabilities
417,912

 

 

Income taxes payable
2,519

 
20,142

 
2,078

Deferred revenue and other liabilities
183,876

 
230,247

 
173,032

Total current liabilities
2,081,645

 
1,504,639

 
1,554,081

LONG-TERM LIABILITIES:
 

 
 

 
 
Revolving credit borrowings
719,300

 

 
382,300

Long-term operating lease liabilities
2,509,866

 

 

Deferred income taxes
8,530

 
11,776

 
14,951

Other long-term liabilities
178,756

 
766,573

 
785,384

Total long-term liabilities
3,416,452

 
778,349

 
1,182,635

COMMITMENTS AND CONTINGENCIES


 


 


STOCKHOLDERS' EQUITY:
 

 
 

 
 
Common stock
597

 
693

 
703

Class B common stock
243

 
245

 
245

Additional paid-in capital
1,240,864

 
1,214,287

 
1,204,293

Retained earnings
2,599,495

 
2,455,192

 
2,374,336

Accumulated other comprehensive loss
(116
)
 
(120
)
 
(118
)
Treasury stock, at cost
(2,132,181
)
 
(1,766,136
)
 
(1,732,417
)
Total stockholders' equity
1,708,902

 
1,904,161

 
1,847,042

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$
7,206,999

 
$
4,187,149

 
$
4,583,758

 
 
 
 
 
 

See accompanying notes to unaudited consolidated financial statements.

5

 
 

DICK’S SPORTING GOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Amounts in thousands, except share data)
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
Accumulated
 
 
 
 
 
 
 
 
 
Class B
 
Additional
 
 
 
Other
 
 
 
 
 
Common Stock
 
Common Stock
 
Paid-In
 
Retained
 
Comprehensive
 
Treasury
 
 
 
Shares
 
Dollars
 
Shares
 
Dollars
 
Capital
 
Earnings
 
Loss
 
Stock
 
Total
BALANCE, February 2, 2019
69,304,874

 
$
693

 
24,541,123

 
$
245

 
$
1,214,287

 
$
2,455,192

 
$
(120
)
 
$
(1,766,136
)
 
$
1,904,161

Adjustment for cumulative effect from change in accounting principle (ASU 2016-02)

 

 

 

 

 
(7,953
)
 

 

 
(7,953
)
Exchange of Class B common stock for common stock
50,000

 

 
(50,000
)
 

 

 

 

 

 

Exercise of stock options
6,388

 

 

 

 
213

 

 

 

 
213

Restricted stock vested
520,095

 
6

 

 

 
(6
)
 

 

 

 

Minimum tax withholding requirements
(158,021
)
 
(1
)
 

 

 
(5,858
)
 

 

 

 
(5,859
)
Net income

 

 

 

 

 
57,525

 

 

 
57,525

Stock-based compensation

 

 

 

 
11,907

 

 

 

 
11,907

Foreign currency translation adjustment, net of taxes of $6

 

 

 

 

 

 
(19
)
 

 
(19
)
Purchase of shares for treasury
(2,968,198
)
 
(30
)
 

 

 

 

 

 
(107,275
)
 
(107,305
)
Cash dividend declared, $0.275 per common share

 

 

 

 

 
(26,635
)
 

 

 
(26,635
)
BALANCE, May 4, 2019
66,755,138

 
$
668

 
24,491,123

 
$
245

 
$
1,220,543

 
$
2,478,129

 
$
(139
)
 
$
(1,873,411
)
 
$
1,826,035

Exercise of stock options
2,001

 

 

 

 
60

 

 

 

 
60

Restricted stock vested
20,920

 

 

 

 

 

 

 

 

Minimum tax withholding requirements
(6,809
)
 

 

 

 
(453
)
 

 

 

 
(453
)
Net income

 

 

 

 

 
112,534

 

 

 
112,534

Stock-based compensation

 

 

 

 
11,175

 

 

 

 
11,175

Foreign currency translation adjustment, net of taxes of ($5)

 

 

 

 

 

 
17

 

 
17

Purchase of shares for treasury
(4,485,903
)
 
(45
)
 

 

 

 

 

 
(159,274
)
 
(159,319
)
Cash dividend declared, $0.275 per common share

 

 

 

 

 
(24,963
)
 

 

 
(24,963
)
BALANCE, August 3, 2019
62,285,347

 
$
623

 
24,491,123

 
$
245

 
$
1,231,325

 
$
2,565,700

 
$
(122
)
 
$
(2,032,685
)
 
$
1,765,086

Exchange of Class B common stock for common stock
200,000

 
2

 
(200,000
)
 
(2
)
 

 

 

 

 

Exercise of stock options
28,875

 

 

 

 
887

 

 

 

 
887

Restricted stock vested
1,055

 

 

 

 

 

 

 

 

Minimum tax withholding requirements
(232
)
 

 

 

 
(8
)
 

 

 

 
(8
)
Net income

 

 

 

 

 
57,584

 

 

 
57,584

Stock-based compensation

 

 

 

 
8,660

 

 

 

 
8,660

Foreign currency translation adjustment, net of taxes of ($2)

 

 

 

 

 

 
6

 

 
6

Purchase of shares for treasury
(2,838,191
)
 
(28
)
 

 

 

 

 

 
(99,496
)
 
(99,524
)
Cash dividend declared, $0.275 per common share

 

 

 

 

 
(23,789
)
 

 

 
(23,789
)
BALANCE, November 2, 2019
59,676,854

 
$
597

 
24,291,123

 
$
243

 
$
1,240,864

 
$
2,599,495

 
$
(116
)
 
$
(2,132,181
)
 
$
1,708,902

 
See accompanying notes to unaudited consolidated financial statements.




6

 
 


DICK’S SPORTING GOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Continued)
(Amounts in thousands, except share data)
(Unaudited)

 
 
 
 
 
 
 
 
 
 
 
 
 
Accumulated
 
 
 
 
 
 
 
 
 
Class B
 
Additional
 
 
 
Other
 
 
 
 
 
Common Stock
 
Common Stock
 
Paid-In
 
Retained
 
Comprehensive
 
Treasury
 
 
 
Shares
 
Dollars
 
Shares
 
Dollars
 
Capital
 
Earnings
 
Loss
 
Stock
 
Total
BALANCE, February 3, 2018
78,317,898

 
$
783

 
24,710,870

 
$
247

 
$
1,177,778

 
$
2,205,651

 
$
(78
)
 
$
(1,442,880
)
 
$
1,941,501

Adjustment for cumulative effect from change in accounting principle (ASU 2014-09)

 

 

 

 

 
20,488

 

 

 
20,488

Exchange of Class B common stock for common stock
119,912

 
1

 
(119,912
)
 
(1
)
 

 

 

 

 

Restricted stock vested
399,604

 
4

 

 

 
(4
)
 

 

 

 

Minimum tax withholding requirements
(118,707
)
 
(1
)
 

 

 
(3,918
)
 

 

 

 
(3,919
)
Net income

 

 

 

 

 
60,085

 

 

 
60,085

Stock-based compensation

 

 

 

 
11,666

 

 

 

 
11,666

Foreign currency translation adjustment, net of taxes of $7

 

 

 

 

 

 
(22
)
 

 
(22
)
Purchase of shares for treasury
(3,338,000
)
 
(33
)
 

 

 

 

 

 
(107,884
)
 
(107,917
)
Cash dividend declared, $0.225 per common share

 

 

 

 

 
(23,672
)
 

 

 
(23,672
)
BALANCE, May 5, 2018
75,380,707

 
$
754

 
24,590,958

 
$
246

 
$
1,185,522

 
$
2,262,552

 
$
(100
)
 
$
(1,550,764
)
 
$
1,898,210

Exchange of Class B common stock for common stock
49,835

 
1

 
(49,835
)
 
(1
)
 

 

 

 

 

Restricted stock vested
8,398

 

 

 

 

 

 

 

 

Minimum tax withholding requirements
(2,437
)
 

 

 

 
(87
)
 

 

 

 
(87
)
Net income

 

 

 

 

 
119,397

 

 

 
119,397

Stock-based compensation

 

 

 

 
10,440

 

 

 

 
10,440

Foreign currency translation adjustment, net of taxes of $6

 

 

 

 

 

 
(20
)
 

 
(20
)
Purchase of shares for treasury
(2,218,200
)
 
(23
)
 

 

 

 

 

 
(73,766
)
 
(73,789
)
Cash dividend declared, $0.225 per common share

 

 

 

 

 
(22,925
)
 

 

 
(22,925
)
BALANCE, August 4, 2018
73,218,303

 
$
732

 
24,541,123

 
$
245

 
$
1,195,875

 
$
2,359,024

 
$
(120
)
 
$
(1,624,530
)
 
$
1,931,226

Restricted stock vested
124,249

 
1

 

 

 
(1
)
 

 

 

 

Minimum tax withholding requirements
(34,574
)
 

 

 

 
(1,258
)
 

 

 

 
(1,258
)
Net income

 

 

 

 

 
37,827

 

 

 
37,827

Stock-based compensation

 

 

 

 
9,677

 

 

 

 
9,677

Foreign currency translation adjustment, net of taxes of $0

 

 

 

 

 

 
2

 

 
2

Purchase of shares for treasury
(3,058,171
)
 
(30
)
 

 

 

 

 

 
(107,887
)
 
(107,917
)
Cash dividend declared, $0.225 per common share

 

 

 

 

 
(22,515
)
 

 

 
(22,515
)
BALANCE, November 3, 2018
70,249,807

 
$
703

 
24,541,123

 
$
245

 
$
1,204,293

 
$
2,374,336

 
$
(118
)
 
$
(1,732,417
)
 
$
1,847,042


See accompanying notes to unaudited consolidated financial statements.

7

 
 

DICK’S SPORTING GOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
 
39 Weeks Ended
 
November 2,
2019
 
November 3,
2018
CASH FLOWS FROM OPERATING ACTIVITIES:
 

 
 

Net income
$
227,643

 
$
217,309

Adjustments to reconcile net income to net cash (used in) provided by operating activities:
 

 
 

Depreciation, amortization, and other
201,152

 
179,437

Deferred income taxes
(3,438
)
 
(726
)
Stock-based compensation
31,742

 
31,783

Gain on sale of subsidiaries
(33,779
)
 

Changes in assets and liabilities:
 

 
 

Accounts receivable
(22,636
)
 
(7,218
)
Inventories
(758,016
)
 
(466,212
)
Prepaid expenses and other assets
3,822

 
7,950

Accounts payable
168,259

 
234,859

Accrued expenses
11,424

 
11,152

Income taxes payable / receivable
(28,610
)
 
(14,387
)
Deferred construction allowances
25,598

 
23,440

Deferred revenue and other liabilities
(35,936
)
 
(56,859
)
Net cash (used in) provided by operating activities
(212,775
)
 
160,528

CASH FLOWS FROM INVESTING ACTIVITIES:
 

 
 

Capital expenditures
(165,703
)
 
(135,288
)
Proceeds from sale of subsidiaries, net of cash sold
40,387

 

Proceeds from sale of other assets
4,103

 

Deposits and purchases of other assets
(1,000
)
 

Net cash used in investing activities
(122,213
)
 
(135,288
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 

 
 

Revolving credit borrowings
1,778,750

 
1,723,500

Revolving credit repayments
(1,059,450
)
 
(1,341,200
)
Payments on other long-term debt and finance lease obligations
(3,965
)
 
(3,924
)
Construction allowance receipts

 

Proceeds from exercise of stock options
1,160

 

Minimum tax withholding requirements
(6,320
)
 
(5,264
)
Cash paid for treasury stock
(366,148
)
 
(289,623
)
Cash dividends paid to stockholders
(74,540
)
 
(68,139
)
Increase (decrease) in bank overdraft
39,466

 
(49,700
)
Net cash provided by (used in) financing activities
308,953

 
(34,350
)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
4

 
(40
)
NET DECREASE IN CASH AND CASH EQUIVALENTS
(26,031
)
 
(9,150
)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
113,653

 
101,253

CASH AND CASH EQUIVALENTS, END OF PERIOD
$
87,622

 
$
92,103

 
 
 
 
Supplemental disclosure of cash flow information:
 

 
 

Accrued property and equipment
$
22,905

 
$
14,308

Cash paid for interest
$
12,427

 
$
7,185

Cash paid for income taxes
$
112,458

 
$
97,407

 

See accompanying notes to unaudited consolidated financial statements.

8

 
 

DICK’S SPORTING GOODS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1.  Description of Business and Basis of Presentation
Dick’s Sporting Goods, Inc. (together with its subsidiaries, referred to as “the Company”, “we”, “us” and “our” unless specified otherwise) is a leading omni-channel sporting goods retailer offering an extensive assortment of authentic, high-quality sports equipment, apparel, footwear and accessories through our dedicated associates, in-store services and unique specialty shop-in-shops. The Company also owns and operates Golf Galaxy and Field & Stream stores, as well as GameChanger, a youth sports mobile app for scheduling, communications and live scorekeeping. The Company offers its products through a content-rich eCommerce platform that is integrated with its store network and provides customers with the convenience and expertise of a 24-hour storefront. When used in this Quarterly Report on Form 10-Q, unless the context otherwise requires or otherwise specifies, any reference to “year” is to the Company’s fiscal year.
Basis of Presentation and Use of Estimates
The accompanying unaudited consolidated financial statements have been prepared in accordance with the requirements for Quarterly Reports on Form 10-Q and do not include all the disclosures normally required in annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The interim consolidated financial statements are unaudited and have been prepared on the same basis as the annual audited consolidated financial statements. In the opinion of management, such unaudited consolidated financial statements include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the interim financial information. 
The unaudited interim financial information should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended February 2, 2019 as filed with the Securities and Exchange Commission on March 29, 2019. Operating results for the 13 and 39 weeks ended November 2, 2019 are not necessarily indicative of the results that may be expected for the fiscal year ending February 1, 2020 or any other period.
Reclassifications
Certain reclassifications have been made to prior year amounts within the unaudited Consolidated Balance Sheets and Statements of Cash Flows to conform to the current year presentation.
Recently Adopted Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842), which required an entity to recognize lease assets and lease liabilities on the balance sheet and to disclose key information about an entity’s leasing arrangements. ASU 2016-02 was effective for annual reporting periods, and interim periods therein, beginning after December 15, 2018. In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases, and ASU 2018-11, Leases (Topic 842), Targeted Improvements, which affected certain aspects of the previously issued guidance. Amendments included an additional transition option that allowed entities to apply the new standard on the adoption date and recognize a cumulative effect adjustment to the opening balance of retained earnings, as well as a new practical expedient for lessors. The effective date and transition requirements for ASU 2018-10 and ASU 2018-11 are the same as ASU 2016-02.
On February 3, 2019, the Company adopted ASU 2016-02 and all related amendments using the optional transition method and elected the package of practical expedients permitted under the transition guidance within the new standard. Such election allowed the Company to not reassess whether any expired or existing contracts are or contain leases, not to reassess the lease classification for any expired or existing leases, and not to reassess initial direct costs for any existing leases. The Company also elected the practical expedient related to land easements. The Company did not elect the practical expedient of hindsight when determining the lease term of existing contracts at the effective date.
The Company has lease agreements with non-lease components that relate to the lease components and elected the practical expedient to account for non-lease components, and the lease components to which they relate, as a single lease component for all classes of underlying assets. The Company also elected to keep short-term leases with an initial term of 12 months or less off the Consolidated Balance Sheet.
Adoption of these standards did not materially affect our consolidated net income or cash flows, but resulted in recognition of lease assets of $2.5 billion and lease liabilities of $3.1 billion as of February 3, 2019. In connection with the adoption, pre-existing liabilities for deferred rent and various lease incentives were reclassified as a component of the lease assets. Accordingly, the Company recorded an $8.0 million adjustment to opening retained earnings, primarily resulting from the impairment of lease assets recognized at adoption. Refer to Note 5 to the unaudited Consolidated Financial Statements for additional information.

9

 
 
 
 
 
DICK’S SPORTING GOODS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)



2.  Earnings Per Common Share
Basic earnings per common share is computed based on the weighted average number of shares of common stock outstanding during the period. Diluted earnings per common share is computed based on the weighted average number of shares of common stock outstanding, plus the effect of dilutive potential common shares outstanding during the period, using the treasury stock method. Dilutive potential common shares are stock-based awards, which include outstanding stock options, restricted stock and warrants.
The computations for basic and diluted earnings per common share were as follows for the periods presented (in thousands, except per share data): 
 
 
13 Weeks Ended
 
39 Weeks Ended
 
 
November 2,
2019
 
November 3,
2018
 
November 2,
2019
 
November 3,
2018
Net income
 
$
57,584

 
$
37,827

 
$
227,643

 
$
217,309

 
 
 
 
 
 
 
 
 
Weighted average common shares outstanding - basic
 
85,048

 
96,677

 
88,671

 
98,926

Dilutive effect of stock-based awards
 
1,553

 
1,213

 
1,459

 
952

Weighted average common shares outstanding - diluted
 
86,601

 
97,890

 
90,130

 
99,878

 
 
 
 
 
 
 
 
 
Earnings per common share - basic
 
$
0.68

 
$
0.39

 
$
2.57

 
$
2.20

Earnings per common share - diluted
 
$
0.66

 
$
0.39

 
$
2.53

 
$
2.18

 
 
 
 
 
 
 
 
 
Anti-dilutive stock-based awards excluded from diluted calculation
 
3,234

 
3,065

 
3,208

 
3,672



3.  Fair Value Measurements
Accounting Standard Codification (“ASC”) 820, Fair Value Measurement and Disclosures, outlines a valuation framework and creates a fair value hierarchy for assets and liabilities as follows:
Level 1:
Observable inputs such as quoted prices in active markets;
Level 2:
Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and
Level 3:    Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
Assets measured at fair value on a recurring basis are set forth in the table below (in thousands):
 
Level 1
 
November 2,
2019
 
February 2,
2019
Assets:
 
 
 
Deferred compensation plan assets held in trust (1)
$
95,799

 
$
77,324

Total assets
$
95,799

 
$
77,324

 
 
 
 

(1) Consists of investments in various mutual funds made by eligible individuals as part of the Company’s deferred compensation plans.
The fair value of cash and cash equivalents, accounts receivable, accounts payable, revolving credit borrowings and certain other liabilities approximated book value due to the short-term nature of these instruments at both November 2, 2019 and February 2, 2019.
The Company uses quoted prices in active markets to determine the fair value of the aforementioned assets determined to be Level 1 instruments. The Company’s policy for recognition of transfers between levels of the fair value hierarchy is to recognize any transfer at the end of the fiscal quarter in which the determination to transfer was made.

10

 
 
 
 
 
DICK’S SPORTING GOODS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)



4. Revenue Recognition
Revenue is recognized upon satisfaction of all contractual performance obligations and transfer of control to the customer and is measured as the amount of consideration to which the Company expects to be entitled in exchange for corresponding goods or services. Substantially all of the Company’s sales are single performance obligation arrangements for retail sale transactions for which the transaction price is equivalent to the stated price of the product or service, net of any stated discounts applicable at a point in time. Each sales transaction results in an implicit contract with the customer to deliver a product or service at the point of sale. Revenue from retail sales is recognized at the point of sale, net of sales tax. Sales tax amounts collected from customers that are assessed by a governmental authority are excluded from revenue. Revenue from eCommerce sales, including vendor-direct sales arrangements, is recognized upon shipment of merchandise. The Company has elected to treat shipping and handling activities occurring subsequent to the transfer of control to the customer to be accounted for as fulfillment costs. 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.
Deferred gift card revenue
Revenue from gift cards and returned merchandise credits (collectively the “cards”) is deferred and recognized upon the redemption of the cards. The Company’s gift card liability was $121.9 million and $156.5 million as of November 2, 2019 and February 2, 2019, respectively. During the 39 weeks ended November 2, 2019 and November 3, 2018, the Company recognized $6.5 million and $5.1 million of gift card breakage revenue, respectively, and experienced approximately $72.4 million and $72.7 million of gift card redemptions that were included in its gift card liability as of February 2, 2019 and February 3, 2018, respectively. Based on the Company’s historical experience, the vast majority of gift card revenue is recognized within 12 months of deferral.
Customer loyalty program
Loyalty program points are accrued at the estimated retail value per point, net of estimated breakage. The Company estimates the breakage of loyalty points based on historical redemption rates experienced within the loyalty program, for which the estimated liability was $27.9 million and $32.4 million, as of November 2, 2019 and February 2, 2019, respectively. During the 39 weeks ended November 2, 2019 and November 3, 2018, the Company recognized approximately $23.3 million and $26.2 million, respectively, of revenue that was included in the customer loyalty program liability as of February 2, 2019 and February 3, 2018, respectively. Based on the Company’s customer loyalty program policies, the vast majority of program points earned are redeemed or expire within 12 months.
Net Sales by Category
The following table disaggregates the amount of net sales attributable to hardlines, apparel and footwear for the periods presented (in thousands):
 
 
13 Weeks Ended
 
39 Weeks Ended
 
 
November 2,
2019
 
November 3,
2018
 
November 2,
2019
 
November 3,
2018
Hardlines (1)
 
$
800,489

 
$
771,109

 
$
2,763,156

 
$
2,742,243

Apparel
 
684,072

 
643,301

 
1,940,237

 
1,835,844

Footwear
 
448,616

 
412,758

 
1,329,782

 
1,266,854

Other (2)
 
29,027

 
30,105

 
108,918

 
99,539

Total net sales
 
$
1,962,204

 
$
1,857,273

 
$
6,142,093

 
$
5,944,480


(1) 
Includes items such as sporting goods equipment, fitness equipment, golf equipment and hunting and fishing gear.
(2) 
Includes the Company’s non-merchandise sales categories, including in-store services, shipping revenues and credit card processing revenues.


11

 
 
 
 
 
DICK’S SPORTING GOODS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)



5. Leases
The Company leases all of its stores, three of its distribution centers and certain equipment under non-cancellable operating leases that expire at various dates through 2033. The Company’s stores generally have initial lease terms of 10 to 15 years and contain multiple five-year renewal options and rent escalation provisions. The lease agreements provide primarily for the payment of minimum annual rentals, costs of utilities, property taxes, maintenance, common areas and insurance.
The Company determines whether a contract is or contains a lease at contract inception. Beginning in fiscal 2019, operating lease assets and operating lease liabilities are recognized at commencement date based on the present value of remaining fixed lease payments over the lease term. As the rate implicit in the lease is not readily determinable in most of the Company’s leases, the Company uses its incremental borrowing rate based on the information available at a lease’s commencement date to determine the present value of lease payments. The Company’s incremental borrowing rate for a lease is the rate of interest it would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms. The operating lease asset also includes any fixed lease payments made and includes lease incentives and incurred initial direct costs.
Operating lease expense for fixed lease payments is recognized on a straight-line basis over the lease term. Variable lease payments are generally expensed as incurred and may include certain index-based changes in rent and other non-fixed payments for services provided by the lessor. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. The Company’s leases do not contain any material residual guarantees or material restrictive covenants.
The components of lease cost for the 13 and 39 weeks ended