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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 May 2, 2020
 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)
Delaware16-1241537
(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 classTrading Symbol(s)Name of Each Exchange on which Registered
Common Stock, $0.01 par valueDKSThe 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 May 29, 2020, DICK’S Sporting Goods, Inc. had 65,156,173 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 OPERATIONS
(Amounts in thousands, except per share data)
(Unaudited)
 13 Weeks Ended
 May 2,
2020
May 4,
2019
Net sales
$1,333,228  $1,920,677  
Cost of goods sold, including occupancy and distribution costs
1,113,900  1,356,868  
GROSS PROFIT
219,328  563,809  
Selling, general and administrative expenses
403,221  487,158  
Pre-opening expenses
2,280  578  
(LOSS) INCOME FROM OPERATIONS
(186,173) 76,073  
Interest expense
8,045  3,081  
Other expense (income)13,522  (6,738) 
(LOSS) INCOME BEFORE INCOME TAXES(207,740) 79,730  
(Benefit from) provision for income taxes
(64,318) 22,205  
NET (LOSS) INCOME$(143,422) $57,525  
(LOSS) EARNINGS PER COMMON SHARE:
  
Basic
$(1.71) $0.62  
Diluted
$(1.71) $0.61  
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
  
Basic
83,734  92,887  
Diluted
83,734  94,388  


See accompanying notes to unaudited consolidated financial statements.
3

DICK’S SPORTING GOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(Amounts in thousands)
(Unaudited)
 13 Weeks Ended
 May 2,
2020
May 4,
2019
NET (LOSS) INCOME$(143,422) $57,525  
OTHER COMPREHENSIVE LOSS:  
Foreign currency translation adjustment, net of tax
(63) (19) 
TOTAL OTHER COMPREHENSIVE LOSS(63) (19) 
COMPREHENSIVE (LOSS) INCOME$(143,485) $57,506  
 

See accompanying notes to unaudited consolidated financial statements.


4

DICK’S SPORTING GOODS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands) 
(Unaudited)
May 2,
2020
February 1,
2020
May 4,
2019
ASSETS
  
CURRENT ASSETS:
  
Cash and cash equivalents
$1,484,004  $69,334  $92,423  
Accounts receivable, net
100,895  53,173  52,382  
Income taxes receivable
56,291  5,762  4,435  
Inventories, net
2,096,964  2,202,275  2,142,022  
Prepaid expenses and other current assets
102,249  79,472  148,442  
Total current assets
3,840,403  2,410,016  2,439,704  
Property and equipment, net
1,369,873  1,415,728  1,478,910  
Operating lease assets
2,260,189  2,313,846  2,484,660  
Intangible assets, net
93,676  94,768  128,563  
Goodwill
245,857  245,857  250,476  
Deferred income taxes
14,263  14,412  12,858  
Other
128,289  133,933  116,823  
TOTAL ASSETS
$7,952,550  $6,628,560  $6,911,994  
LIABILITIES AND STOCKHOLDERS' EQUITY
  
CURRENT LIABILITIES:
  
Accounts payable
$844,991  $1,001,589  $932,055  
Accrued expenses
317,026  415,501  320,603  
Operating lease liabilities
505,678  422,970  367,768  
Income taxes payable
2,062  10,455  38,772  
Deferred revenue and other liabilities
217,223  225,959  196,190  
Total current liabilities
1,886,980  2,076,474  1,855,388  
LONG-TERM LIABILITIES:
   
Revolving credit borrowings
1,429,000  224,100  369,500  
       Convertible senior notes
398,121      
Long-term operating lease liabilities
2,428,133  2,453,346  2,683,561  
Deferred income taxes
4,362  9,187  8,073  
Other long-term liabilities
133,929  133,855  169,437  
Total long-term liabilities
4,393,545  2,820,488  3,230,571  
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
  
Common stock
598  593  668  
Class B common stock
243  243  245  
Additional paid-in capital
1,364,568  1,253,867  1,220,543  
Retained earnings
2,475,065  2,645,281  2,478,129  
 Accumulated other comprehensive loss  (183) (120) (139) 
Treasury stock, at cost
(2,168,266) (2,168,266) (1,873,411) 
Total stockholders' equity
1,672,025  1,731,598  1,826,035  
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$7,952,550  $6,628,560  $6,911,994  
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)
(Unaudited)
       Accumulated  
   Class BAdditional Other  
 Common StockCommon StockPaid-InRetainedComprehensiveTreasury 
 SharesDollarsSharesDollarsCapitalEarningsLossStockTotal
BALANCE, February 1, 202059,256  $593  24,291  $243  $1,253,867  $2,645,281  $(120) $(2,168,266) $1,731,598  
Equity component value of convertible note issuance
—  —  —  —  160,693  —  —  —  160,693  
Purchase of convertible note hedge
—  —  —  —  (161,057) —  —  —  (161,057) 
 Sale of common stock warrants—  —  —  —  105,225  —  —  —  105,225  
Restricted stock vested
745  7  —  —  (7) —  —  —    
Minimum tax withholding requirements
(185) (2) —  —  (3,388) —  —  —  (3,390) 
Net loss
—  —  —  —  —  (143,422) —  —  (143,422) 
Stock-based compensation
—  —  —  —  9,235  —  —  —  9,235  
Foreign currency translation adjustment, net of taxes of $20
—  —  —  —  —  —  (63) —  (63) 
Cash dividend declared, $0.3125 per common share
—  —  —  —  —  (26,794) —  —  (26,794) 
BALANCE, May 2, 202059,816  $598  24,291  $243  $1,364,568  $2,475,065  $(183) $(2,168,266) $1,672,025  
 
       Accumulated  
   Class BAdditional Other  
 Common StockCommon StockPaid-InRetainedComprehensiveTreasury 
 SharesDollarsSharesDollarsCapitalEarningsLossStockTotal
BALANCE, February 2, 201969,305  $693  24,541  $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    (50)   —  —  —  —    
Exercise of stock options
6    —  —  213  —  —  —  213  
Restricted stock vested
520  6  —  —  (6) —  —  —    
Minimum tax withholding requirements
(158) (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) (30) —  —  —  —  —  (107,275) (107,305) 
Cash dividend declared, $0.275 per common share
—  —  —  —  —  (26,635) —  —  (26,635) 
BALANCE, May 4, 201966,755  $668  24,491  $245  $1,220,543  $2,478,129  $(139) $(1,873,411) $1,826,035  

See accompanying notes to unaudited consolidated financial statements.
6

DICK’S SPORTING GOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
13 Weeks Ended
 May 2,
2020
May 4,
2019
CASH FLOWS FROM OPERATING ACTIVITIES:
  
Net (loss) income$(143,422) $57,525  
Adjustments to reconcile net (loss) income to net cash used in operating activities:   
Depreciation, amortization, and other
86,081  82,604  
Amortization of discount on convertible notes
1,094    
Non-cash lease costs69,560  (16,580) 
Deferred income taxes
(4,676) (720) 
Stock-based compensation
9,235  11,907  
Changes in assets and liabilities:
  
Accounts receivable
(14,745) (15,433) 
Inventories
105,311  (317,326) 
Prepaid expenses and other assets
(13,190) (7,983) 
Accounts payable
(167,707) 22,531  
Accrued expenses
(90,047) (43,100) 
Income taxes payable / receivable
(58,922) 20,330  
Deferred construction allowances
8,638  16,387  
Deferred revenue and other liabilities
(2,063) (32,294) 
Net cash used in operating activities(214,853) (222,152) 
CASH FLOWS FROM INVESTING ACTIVITIES:
  
 Capital expenditures
(59,591) (46,882) 
Net cash used in investing activities(59,591) (46,882) 
CASH FLOWS FROM FINANCING ACTIVITIES:
  
Revolving credit borrowings1,291,700  635,300  
Revolving credit repayments(86,800) (265,800) 
Proceeds from issuance of convertible notes575,000    
Payments for purchase of bond hedges(161,057)   
Proceeds from issuance of warrants105,225    
Transaction costs paid in connection with convertible notes issuance(14,341)   
    Payments on other long-term debt and finance lease obligations
(199) (1,330) 
    Proceeds from exercise of stock options
  213  
Minimum tax withholding requirements(3,390) (5,859) 
Cash paid for treasury stock  (107,305) 
Cash dividend paid to stockholders(28,070) (27,012) 
Increase in bank overdraft11,109  19,616  
Net cash provided by financing activities1,689,177  247,823  
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
(63) (19) 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS1,414,670  (21,230) 
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
69,334  113,653  
CASH AND CASH EQUIVALENTS, END OF PERIOD
$1,484,004  $92,423  
Supplemental disclosure of cash flow information:
  
Accrued property and equipment
$21,033  $17,520  
Accrued transaction costs
$2,939  $  
Cash paid for interest
$5,138  $2,456  
Cash paid for income taxes
$182  $3,219  
 

See accompanying notes to unaudited consolidated financial statements.
7

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 its dedicated teammates, 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 condensed 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 1, 2020 as filed with the Securities and Exchange Commission on March 20, 2020. Operating results for the 13 weeks ended May 2, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending January 30, 2021 or any other period.
Reclassifications
Certain reclassifications have been made to prior year amounts within the unaudited Consolidated Statements of Cash Flows to conform to the current year presentation.

Impact of COVID-19
The novel coronavirus (“COVID-19”) pandemic has significantly impacted global economic conditions, including the Company's results and operations, which experienced a significant reduction in customer traffic and demand resulting from the spread of COVID-19. In response to the public health crisis posed by COVID-19, the Company prioritized the health and safety of its teammates and athletes and temporarily closed its stores to the public after the close of business on March 18, 2020. The Company also closed its corporate office to comply with mandatory shelter-in-place orders and meet the recommended social distancing guidance, using its business continuity plans to operate its corporate support functions under remote work arrangements.
In response to the potential impacts and uncertainty about the duration of the COVID-19 pandemic, the Company took a number of precautionary measures, including, among other things:
Significantly reducing operating expenses and inventory receipts;
Modifying the Company’s capital allocation plan for fiscal 2020, including a reduction in planned capital expenditures and temporary suspension of its share repurchase and dividend programs;
Extending payment terms with vendors;
Negotiating rent deferrals with landlords, including abatements for certain store locations;
Temporarily deferring salaries for executives, senior leadership, and certain other teammates;
Temporarily suspending salaries for Ed Stack, Chairman and Chief Executive Officer, Lauren Hobart, President and Lee Belitsky, Chief Financial Officer other than to cover benefits;
Suspending payment of cash retainers for members of the Board of Directors;
Furloughing a significant number of teammates at the Company’s stores, distribution centers and corporate headquarters effective April 12, 2020;
8

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


Drawing $1.4 billion from its Credit Facility (as defined in Note 5), which was amended to increase our borrowing capacity by $255.0 million; and
Issuing $575.0 million of convertible senior notes due 2025 (“Convertible Senior Notes”), which added over $500.0 million of net proceeds to the Company’s cash position. See Note 6.
On March 27, 2020, the United States government enacted the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), which among other things, provides various income tax provisions, including but not limited to, modifications for net operating losses, accelerated time frame for refunds associated with prior minimum taxes and modifications of the limitation on business interest (see Note 7 for further discussion). The CARES Act also provides for refundable employee retention tax credits and the deferral of the employer-paid portion of social security taxes. During the first quarter of 2020, employee retention tax credits reduced the Company’s operating expenses by approximately $16.6 million. The Company intends to defer qualified payroll and other tax payments as permitted by the CARES Act.
The Company considered the potential impact that the COVID-19 pandemic would have on the assumptions and estimates used to prepare these quarterly financial statements including, but not limited to, the Company’s inventory valuations, deferred tax valuation allowances, fair value measurements and potential asset impairment charges. These assumptions and estimates may change in the future as new events occur and additional information is obtained. If economic conditions caused by COVID-19 do not recover as currently estimated by management, such future changes may have a material adverse impact on the Company's results of operations, financial position and liquidity.
As a result of actions taken to support its teammates as well as impacts from temporary store closures, the Company incurred approximately $34.0 million of incremental compensation and safety costs. In addition, the Company assessed certain related assets for impairment and write downs, which resulted in $28.0 million of inventory write-downs. There were not any other asset write downs or impairment charges recorded during the quarter ended May 2, 2020 related to the COVID-19 pandemic.
Recently Adopted Accounting Pronouncements
Financial Instruments
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments–Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which introduces new guidance for estimating credit losses on certain types of financial instruments based on expected losses and the timing of the recognition of such losses. The Company adopted ASU 2016-13 during the first quarter of fiscal 2020. The adoption did not have a significant impact on the Company’s financial condition, results of operations, cash flows and disclosures.
Intangible Assets
In August 2018, the FASB issued ASU 2018-15, “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract,” which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The Company adopted Subtopic 350-40 during the first quarter of fiscal 2020 using a prospective approach; the adoption did not have a significant impact on the Company's financial statements.
Recently Issued Accounting Pronouncements
Income Taxes
In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” This update simplifies the accounting for income taxes by removing certain exceptions to the general principles in Accounting Standard Codification (“ASC”) 740 and also clarifies and amends existing guidance to improve consistent application. ASU 2019-12 is effective for annual reporting periods beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Early adoption of the amendments is permitted. Depending on the amendment, adoption may be applied on a retrospective, modified retrospective or prospective basis. The Company is currently evaluating the impact of adoption on the Company’s financial condition, results of operations, cash flows and disclosures, which is not expected to be significant.

9

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


Reference Rate Reform
In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The update provides optional guidance for a limited period of time to ease potential accounting impacts associated with transitioning away from reference rates that are expected to be discontinued, such as the London Interbank Offered Rate (“LIBOR”). The amendments in this ASU can be applied anytime between the first quarter of fiscal 2020 and the fourth quarter of fiscal 2022 and apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued. The impact of Topic 848 on the Company's financial statements and related disclosures is not expected to be significant.

2.  (Loss) Earnings Per Common Share
Basic (loss) earnings per common share is computed based on the weighted average number of shares of common stock outstanding during the period. Diluted (loss) 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 include shares the Company could be obligated to issue from its Convertible Senior Notes and warrants (as defined in Note 6) and stock-based awards, such as stock options and restricted stock.
The computations for basic and diluted (loss) earnings per common share were as follows for the periods presented (in thousands, except per share data): 
 13 Weeks Ended
May 2,
2020
May 4,
2019
Net (loss) income
$(143,422) $57,525  
Weighted average common shares outstanding - basic
83,734  92,887  
Dilutive effect of stock-based awards
  1,501  
Dilutive effect of Convertible Senior Notes and warrants    
Weighted average common shares outstanding - diluted
83,734  94,388  
(Loss) earnings per common share - basic
$(1.71) $0.62  
(Loss) earnings per common share - diluted
$(1.71) $0.61  
Potential dilutive common shares are excluded from the computation of diluted net (loss) income per share if their effect is anti-dilutive. Due to the net loss for the fiscal quarter ended May 2, 2020, approximately 7.8 million stock-based awards were excluded from the calculation of diluted loss per share, as these shares were anti-dilutive. Anti-dilutive shares totaled 3.2 million for the 13 weeks ended May 4, 2019. Additionally, the number of shares that the Company could be obligated to issue upon conversion of our Convertible Senior Notes and warrants were excluded from the current quarter calculation as they were anti-dilutive. See Note 6 for additional information.

3.  Fair Value Measurements
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.
Recurring
The Company measures its deferred compensation plan assets held in trust at fair value on a recurring basis using Level 1 inputs. Such assets consist of investments in various mutual funds made by eligible individuals as part of the Company’s deferred compensation plans. As of May 2, 2020 and February 1, 2020, the fair value of the Company’s deferred compensation plans was $94.7 million and $99.7 million, respectively, as determined by quoted prices in active markets. 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.
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DICK’S SPORTING GOODS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


The Company bases the fair value of its par value $575.0 million Convertible Senior Notes on Level 2 inputs, specifically their quoted price in an inactive market on the last trading day in a reporting period. On May 2, 2020, the fair value of the Convertible Senior Notes was $584.0 million, compared to their carrying value of $398.1 million, which excluded amounts classified within additional paid-in capital and any unamortized discounts. See Note 6 for additional information.
The fair value of cash and cash equivalents, accounts receivable, accounts payable, borrowings under the Credit Facility and certain other liabilities approximated their carrying values due to the short-term nature of these instruments at both May 2, 2020 and February 1, 2020.
Nonrecurring
Assets and liabilities recognized or disclosed at fair value on a nonrecurring basis may include property and equipment, goodwill and other intangible assets, equity and other assets. These assets are required to be assessed for impairment when events or circumstances indicate that the carrying value may not be recoverable, and at least annually for goodwill and indefinite-lived intangible assets. In the event that an impairment is required, the asset is adjusted to fair value, using Level 3 inputs. The Company did not record any impairment charges during the quarter ended May 2, 2020.
4. 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.
In response to the COVID-19 pandemic, the FASB issued interpretive guidance in April 2020, which provides entities the option to elect to account for lease concessions as though the enforceable rights and obligations existed in the original lease. The Company did not elect this option; accordingly, any rent deferrals or concessions that were granted by landlords prior to the end of the quarter were treated as lease modifications and not as variable rent reductions. Since lease modification accounting generally requires recognition of changes in rent payments over the lease term, the Company’s earnings were not materially impacted in the quarter ended May 2, 2020.
Supplemental cash flow information related to operating leases for the 13 weeks ended May 2, 2020 and May 4, 2019 were as follows (in millions):
13 Weeks Ended
May 2,
2020
May 4,
2019
Cash paid for amounts included in the measurement of operating lease liabilities$78.5  $163.9  
Non-cash operating lease assets and liabilities obtained in exchange for new or modified leases
$91.9  $49.4  

5. Revolving Credit Facility
On March 27, 2020, the Company amended its $1.6 billion senior secured revolving credit facility, which matures on June 28, 2024, to increase aggregate commitments to $1.855 billion (the “Credit Facility”). The amended Credit Facility includes the ability to issue letters of credit up to $150.0 million in the aggregate. After giving effect to the amendment, the Credit Facility allows the Company, upon the satisfaction of certain conditions, to request an increase of up to approximately $245.0 million in additional borrowing availability, subject to existing or new lenders agreeing to provide additional revolving commitments. The Credit Facility is secured by a first priority security interest in certain property and assets, including receivables, inventory, deposit accounts, securities accounts and other personal property of the Company and is guaranteed by the Company’s domestic subsidiaries.
The annual interest rates applicable to loans under the Credit Facility are, at the Company’s option, equal to a base rate or an adjusted LIBOR rate plus, in each case, an applicable margin percentage. The March 27, 2020 amendment increased the applicable margins on base rate loans and LIBOR rate loans to the highest level under the existing pricing grid, or from 0.125% to 0.375% for base rate loans and from 1.125% to 1.375% for adjusted LIBOR rate loans. These margin percentages will be in effect until the Company elects to lower the aggregate commitments under the senior secured credit facility so that they no longer exceed $1.6 billion. Other modifications included introducing a LIBOR “floor” of 0.75% for purposes of
11

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


calculating the interest rate on LIBOR based loans and modifying the borrowing base definition so that certain junior liens do not automatically disqualify eligible receivables and inventory from inclusion in the borrowing base. As of May 2, 2020 and February 1, 2020, total remaining borrowing capacity, after subtracting letters of credit, was $213.8 million and $1,359.8 million, respectively.
The Credit Facility contains a covenant that requires the Company to maintain a minimum adjusted availability of 7.5% of its borrowing base. The Credit Facility also contains certain covenants that could, within specific predefined circumstances, limit the Company’s ability to, among other things: incur or guarantee additional indebtedness; pay distributions on, redeem or repurchase capital stock; redeem or repurchase subordinated debt; make certain investments; sell assets; or consolidate, merge or transfer all or substantially all of the Company’s assets. Other than in certain limited conditions, the Company is permitted under the Credit Facility to continue to pay dividends and repurchase shares pursuant to its stock repurchase program.

6. Convertible Senior Notes

Overview
In April 2020, the Company issued in a private offering an aggregate $575.0 million 3.25% Convertible Senior Notes due 2025 in two closing transactions, including the exercise of a $75.0 million over-allotment option. The Company received proceeds from the issuance and sale of the Convertible Senior Notes of $557.7 million, net of $17.3 million of transaction fees and other third-party offering expenses. The Convertible Senior Notes accrue interest at a rate of 3.25% per annum, payable semi-annually in arrears on April 15 and October 15 of each year, beginning on October 15, 2020 and will mature on April 15, 2025, unless earlier repurchased, redeemed or converted.
The Convertible Senior Notes are the Company’s unsecured, unsubordinated obligations and are equal in right of payment with the Company’s existing and future unsecured, unsubordinated indebtedness; senior in right of payment to the Company’s existing and future indebtedness that is expressly subordinated in right of payment to the Convertible Senior Notes; effectively subordinated to the Company’s existing and future secured indebtedness, to the extent of the value of the collateral securing that indebtedness; and structurally subordinated to all existing and future indebtedness and other liabilities, including trade payables, and preferred equity, if any, of the Company’s subsidiaries.
Prior to the close of business on the business day immediately preceding December 2, 2024, noteholders may convert their Convertible Senior Notes into shares of the Company’s common stock at their option only in the following circumstances:
during any calendar quarter commencing after the calendar quarter ending on September 30, 2020, if the last reported sale price per share of the Company’s common stock for each of at least 20 trading days, whether or not consecutive, during the 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter, exceeds 130% of the conversion price then in effect on each applicable trading day;
during the five consecutive business days immediately after any five consecutive trading day period (such five consecutive day trading day period, the “Measurement Period”) if the trading price per $1,000 principal amount of Convertible Senior Notes for each trading day of the Measurement Period was less than 98% of the product of the last reported sale price per share of the Company’s common stock on such trading day and the conversion rate on such trading day;
upon the occurrence of certain corporate events or distributions on the Company’s common stock, including but not limited to a fundamental change; or
if the Company calls all or any Convertible Senior Notes for redemption.
On or after December 2, 2024, until the close of business on the second scheduled trading day immediately before the maturity date of the Notes, noteholders may convert their Convertible Senior Notes at their option at any time, regardless of the foregoing conditions.
The Company may redeem the Convertible Senior Notes at its option at any time on or after April 17, 2023 at a cash redemption price equal to the principal amount of the Convertible Senior Notes to be redeemed, plus accrued and unpaid interest, but only if the last reported sale price per share of the Company’s common stock exceeds 130% of the conversion price on (i) each of at least 20 trading days, whether or not consecutive, during the 30 consecutive trading days ending on, and including, the trading day immediately before the date the Company sends the related redemption notice and (ii) the trading day immediately before the date the Company sends such notice. In addition, calling any Convertible Senior Note for redemption will constitute a Make-Whole Fundamental Change with respect to that Convertible Senior Note, in which case the conversion
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DICK’S SPORTING GOODS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


rate applicable to the conversion of that Convertible Senior Note will be increased in certain circumstances if it is converted after it is called for redemption.
Upon the occurrence of a fundamental change prior to the maturity date of the Convertible Senior Notes, holders of the Convertible Senior Notes may require the Company to repurchase all or a portion of the Convertible Senior Notes for cash at a price equal to 100% of the principal amount of the Convertible Senior Notes to be repurchased, plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date.
The initial conversion rate for the Convertible Senior Notes is 28.2618 shares of the Company’s common stock per $1,000 principal amount of Convertible Senior Notes, which represents an initial conversion price of approximately $35.38 per share. The conversion rate will be subject to customary adjustments upon the occurrence of certain events. In addition, upon the occurrence of a fundamental change prior to the maturity of the Convertible Senior Notes, the Company will, in certain circumstances, increase the conversion rate by a specified number of additional shares for a holder that elects to convert the Convertible Senior Notes in connection with such fundamental change. Upon conversion, the Company may settle the Convertible Senior Notes for cash, shares of the Company’s stock, or a combination thereof, at the Company’s option. The Company intends to settle the principal amount of the Convertible Senior Notes in cash and any conversion premium in shares of its common stock.
Convertible debt instruments that may be settled in cash are required to be separated into liability and equity components. The allocation to the liability component is based on the fair value of a similar instrument that does not contain an equity conversion option. Based on this debt to equity ratio, debt issuance costs are then allocated to the liability and equity components in a similar manner. Accordingly, at issuance the Company allocated $397.0 million to the debt liability and $160.7 million to additional paid in capital.
The difference between the principal amount of the Convertible Senior Notes and the liability component, inclusive of issuance costs, represents the debt discount, which the Company will amortize to interest expense over the term of the Convertible Senior Notes using an effective interest rate of 11.6%. During the fiscal quarter ended May 2, 2020, the Company recognized interest expense of $1.9 million related to the Convertible Senior Notes.
A summary of the gross carrying amount, unamortized debt discount including debt issuance costs, and net carrying value of the liability component of the Convertible Senior Notes are as follows:
13 Weeks Ended
(in millions)May 2, 2020May 4, 2019
Par value$575.0  $  
Debt discount$(176.9) $  
Carrying amount$398.1  $  
Equity component (*)
$160.7  $  
(*) Included in additional paid-in capital on the consolidated balance sheets.
Convertible Note Hedge and Warrant Transactions
In connection with the sale of the Convertible Senior Notes, the Company purchased a bond hedge that is designed to mitigate the potential dilution to shareholders from the conversion of the Convertible Senior Notes. Under the five-year term of the bond hedge, upon a conversion of the bonds the Company will receive shares of common stock based on the extent to which the then-market price exceeds $35.38 per share. The aggregate number of shares that the Company could be obligated to issue upon conversion of the Convertible Senior Notes, and that the Company would receive under the bond hedge, is equal to the number of shares underlying the Convertible Senior Notes at the initial conversion price of $35.38, or approximately 16.3 million shares.
The cost of the bond hedge was partially offset by the Company’s sale of warrants to acquire approximately 16.3 million shares of the Company’s common stock. The warrants are exercisable at a price of at least $52.42 per share and may be settled at the Company’s option through a net share settlement or a net cash settlement.
The bond hedge and warrant transactions effectively increase the conversion price associated with the Convertible Senior Notes during the term of these transactions from 35% to 100%, or from $35.38 to $52.42 per share, thereby reducing the dilutive economic effect to shareholders upon actual conversion. There would be dilution from the conversion of the Convertible Senior Notes to the extent that the then-market price per share of the common stock exceeds $52.42 at the time of conversion.
13

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


The bond hedges and warrants are indexed to, and potentially settled in shares of, the Company’s common stock. The net cost of $55.8 million for the purchase of the bond hedges and sale of the warrants was recorded as a reduction to additional paid-in capital in the consolidated balance sheets.
The Company recorded a deferred tax liability of $42.7 million in connection with the debt discount associated with the Convertible Senior Notes and recorded a deferred tax asset of $42.8 million in connection with the convertible note hedge transactions. The deferred tax liability and deferred tax asset are recorded in deferred income taxes on the consolidated balance sheets.

7. Income Taxes

The Company’s effective tax rate increased to 31.0% for the current quarter from 27.9% for the quarter ended May 4, 2019. The increase is due primarily to the benefit resulting from the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, which allows us to carry-back net operating losses to periods prior to the Tax Cuts and Jobs Act, when the federal statutory tax rate was 35%. This benefit was partially offset by the tax impact of certain share-based payments that vested during the quarter.



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ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
FORWARD-LOOKING STATEMENTS
We caution that any forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995) contained in this Quarterly Report on Form 10-Q or made by our management involve risks and uncertainties and are subject to change based on various important factors, many of which may be beyond our control. Accordingly, our future performance and financial results may differ materially from those expressed or implied in any such forward-looking statements. Investors should not place undue reliance on forward-looking statements as a prediction of actual results. These statements can be identified as those that may predict, forecast, indicate or imply future results, performance or advancements and by forward-looking words such as “believe”, “anticipate”, “expect”, “estimate”, “predict”, “intend”, “plan”, “project”, “goal”, “will”, “will be”, “will continue”, “will result”, “could”, “may”, “might” or any variations of such words or other words with similar meanings. Forward-looking statements address, among other things, the impact to the business due to the coronavirus (COVID-19) pandemic, including store closures, decreased consumer demand and traffic, and supply chain disruptions; that our efforts to increase and maintain liquidity will be sufficient to operate during the disruption caused by COVID-19; our expectation that we will continue to open temporarily closed stores through the remainder of the second quarter and into the third quarter; planned strategic investments and growth strategies, including the continued enhancement of our digital capabilities and eCommerce platform, investments in our eCommerce fulfillment network and corporate information technology capabilities, improvements in the customer experience in both stores and online, and inventory investments in key growth categories; plans to remove hunt merchandise from additional DICK’S Sporting Goods stores and replace with merchandise that is more relevant to the local market; plans to reduce our store growth rate and leverage our real estate portfolio to capitalize on future opportunities in the near and intermediate term as our existing leases come up for renewal; projections of our future profitability and results of operations; plans to open new stores and remodel existing stores; investments in our teammates and their productivity; the impact of the issuance of the Convertible Senior Notes; eliminating non-essential expenses to fund our future strategic investments; the hunt industry remaining under significant pressure; capital expenditures; the temporary suspension of our dividend and share repurchase programs; and borrowings under our credit facility.

The following factors, among others, in some cases have affected and in the future could affect our financial performance and actual results, and could cause actual results for fiscal 2020 and beyond to differ materially from those expressed or implied in any forward-looking statements included in this Quarterly Report on Form 10-Q or otherwise made by our management:
The impact on our business, operations and financial results due to the duration and scope of the COVID-19 pandemic, including whether there is a second wave or periods of increases in the number of COVID-19 cases in areas in which we operate, and the restrictions imposed by federal, state, and local governments in response to the pandemic;
The dependence of our business on consumer discretionary spending;
Intense competition in the sporting goods industry and in retail, including the level of competitive promotional activity;
Store closures and other impacts to our business resulting from civil disturbances;
Disruptions to our eCommerce platform, including interruptions, delays or downtime caused by high volumes of users or transactions; deficiencies in design or implementation; or platform enhancements;
Vendors continuing to sell or increasingly selling their products directly to customers or through broadened or alternative distribution channels;
Negative reactions from our customers or vendors regarding changes to our policies related to the sale of firearms and accessories;
The impact of the strategic review of our hunt business, including Field & Stream;
That our strategic plans and initiatives may initially result in a negative impact on our financial results, or that such plans and initiatives may not achieve the desired results within the anticipated time frame or at all;
Our ability to manage the impact of new tariffs or increased rates on existing tariffs;
Our vendor relationships, disruptions in our or our vendors’ supply chains (including those caused by COVID-19), and increasing product costs, which could be caused by foreign trade issues, currency exchange rate fluctuations, increasing prices for raw materials, foreign political instability or other reasons;
Our ability to predict or effectively react to changes in consumer demand or shopping patterns, including changes due to COVID-19;
Lack of available retail store sites on terms acceptable to us, our ability to leverage the flexibility within our existing real estate portfolio to capitalize on future real estate opportunities over the near and intermediate term as our leases come up for renewal, and other costs and risks relating to a brick and mortar retail store model;
15

Unauthorized disclosure of sensitive or confidential customer information;
Risks associated with our private brand offerings, including product liability and product recalls, specialty concept stores, and GameChanger;
Disruptions or other problems with our information systems;
Our ability to access adequate capital to operate and expand our business and to respond to changing business and economic conditions;
Risks and costs relating to changing laws and regulations affecting our business, including consumer products, firearms and ammunition, tax, foreign trade, labor, data protection and privacy;
Litigation risks for which we may not have sufficient insurance or other coverage;
Our ability to secure and protect our trademarks and other intellectual property and defend claims of intellectual property infringement;
Our ability to protect the reputation of our Company and our brands;
Our ability to attract, train, engage and retain qualified leaders and associates or the loss of Mr. Edward Stack as our Chairman and Chief Executive Officer;
Wage increases, which could adversely affect our financial results;
Disruption at our supply chain facilities or customer support center;
Poor performance of professional sports teams, professional team lockouts or strikes, retirement, serious injury or scandal involving key athletes, and disruptions to or cancellations of sports leagues and major sporting events due to COVID-19;
Weather-related disruptions and the seasonality of our business, as well as the current geographic concentration of DICK’S Sporting Goods stores;
Our pursuit of strategic investments or acquisitions, including the timing and costs of such investments and acquisitions;
We are controlled by our Chairman and Chief Executive Officer and his relatives, whose interests may differ from those of our other stockholders;
Risks related to our indebtedness, including the Convertible Senior Notes;
Our current anti-takeover provisions, which could prevent or delay a change in control of the Company; and
The duration of the temporary suspension of our dividend and stock repurchase programs.
The foregoing and additional risk factors are described in more detail in Item 1A. “Risk Factors” of this Quarterly Report and other reports or filings filed or furnished by us with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the year ended February 1, 2020, filed on March 20, 2020. In addition, we operate in a highly competitive and rapidly changing environment; therefore, new risk factors can arise, and it is not possible for management to predict all such risk factors, nor to assess the impact of all such risk factors on our business or the extent to which any individual risk factor, or combination of risk factors, may cause results to differ materially from those contained in any forward-looking statement. The forward-looking statements included in this Quarterly Report on Form 10-Q are made as of the date hereof. We do not assume any obligation and do not intend to update or revise any forward-looking statements whether as a result of new information, future developments or otherwise except as may be required by securities laws.

OVERVIEW
We are a leading omni-channel sporting goods retailer offering an extensive assortment of authentic, high-quality sports equipment, apparel, footwear and accessories through our teammates, in-store services and unique specialty shop-in-shops. In addition to DICK’S Sporting Goods stores, we own and operate Golf Galaxy and Field & Stream stores as well as GameChanger, a youth sports mobile app for scheduling, communications and live scorekeeping. We also offer our products through a content-rich eCommerce platform that is integrated with our store network and provides athletes 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 specifies, any reference to “year” is to our fiscal year.
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Our profitability is primarily influenced by our number of store locations and selling square footage, the continued integration of eCommerce with brick and mortar stores, the growth in consolidated same store sales, which includes our eCommerce business, the strength of our gross profit margins, and our ability to manage expenses. We have grown from 612 DICK’S Sporting Goods stores as of May 2, 2015 to 726 DICK’S Sporting Goods stores as of May 2, 2020. In recent years, we have reduced the rate at which we open new stores, and we intend to continue this strategy over the next few years in an effort to leverage the significant flexibility within our existing real estate portfolio to capitalize on future real estate opportunities over the near and intermediate term as those leases come up for renewal. We have transitioned to an insourced eCommerce platform, allowing 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 integrate our online presence with our brick and mortar stores, including ship-from-store; buy-online, pick-up in store and multi-channel marketing campaigns. In response to the COVID-19 pandemic, we implemented curbside contactless pickup and return to store at our store locations as an additional alternative for our athletes.
Our eCommerce sales penetration to total net sales increased from approximately 9% in fiscal 2014 to approximately 16% in fiscal 2019. Following our temporary store closures through the end of the first quarter of 2020, eCommerce sales grew 210%, with our new curbside contactless pickup accounting for over 40% of our total online business during this time period. For the first fiscal quarter as a whole, eCommerce sales penetration was approximately 39%, and approximately 90% of our eCommerce sales were generated within brick and mortar store trade areas.
Industry Challenges
The retail industry as a whole is dynamic, and sporting goods retail in particular has faced significant disruption in recent years, as several sporting goods retailers have gone out of business. Vendors have broadened their distribution into department stores and family footwear channels while continuing to grow their direct to consumer business. We have responded to these challenges by reallocating floor space to growing categories while focusing on driving profitable sales, emphasizing a refined merchandise assortment that delivers newness, innovation and exclusivity. We have also made strategic investments in our supply chain, digital capabilities, customer experience, private brands and teammates to support these efforts and have focused on increasing productivity, while eliminating non-essential expenses which has enabled us to fund our future strategic investments.
COVID-19 Update
In March 2020, the World Health Organization declared the novel strain of coronavirus (COVID-19) a pandemic, which continued to spread globally and throughout the United States. Through March 10, 2020, our consolidated same store sales had increased 7.9% compared to the same period of fiscal 2019. Our stores subsequently experienced a significant reduction in customer traffic and demand resulting from the spread of COVID-19. In response to the public health crisis posed by COVID-19, we prioritized the health and safety of our teammates and athletes and temporarily closed our stores to the public after the close of business on March 18, 2020. We also closed our corporate office to comply with mandatory shelter-in-place orders and meet the recommended social distancing guidance, using our business continuity plans to operate our corporate support functions under remote work arrangements.
We continued to serve our athletes through our content-rich eCommerce platform, which experienced accelerated sales growth in the days and weeks following our temporary store closures, and leveraged our store network for ship-from-store and curbside contactless pickup capabilities, which allowed us to sell through inventory in stores and provide service to our athletes who preferred to pick up their merchandise via a contactless process at our store locations. Although our eCommerce sales growth partially offset the sales loss from our temporary store closures, these closures, reduced customer traffic and adjustments to our operations had a material impact on our first quarter financial results.
In response to the impact of COVID-19, we adjusted our operations and took a number of precautionary measures, including, among other things:
Significantly reducing operating expenses and inventory receipts;
Modifying our capital allocation plan for fiscal 2020, including a reduction in planned capital expenditures and temporary suspension of our share repurchase and dividend programs;
Extending payment terms with our vendors;
Negotiating rent deferrals and abatements with our landlords for certain store locations, neither of which had a significant impact on our earnings for the quarter;
Temporarily deferring salaries for our executives, senior leadership, and certain other teammates;
Temporarily suspending for Ed Stack, Chairman and Chief Executive Officer, Lauren Hobart, President and Lee Belitsky, Chief Financial Officer other than to cover benefits;
Suspending payment of cash retainers for members of our Board of Directors;
17

Furloughing a significant number of our teammates at our stores, distribution centers and corporate headquarters effective April 12, 2020;
Drawing $1.4 billion from our revolving credit facility, which was amended to increase our borrowing capacity by $255.0 million; and
Issuing $575.0 million par value convertible senior notes due 2025, which added over $500 million of net proceeds to our cash position.
As disclosed in the “Liquidity and Capital Resources” section herein, as of May 2, 2020, we had total cash and cash equivalents of $1.5 billion and remaining borrowing availability of $213.8 million under our Credit Facility. In addition, there are no debt maturities until fiscal 2024. We believe that the measures we have taken to increase and maintain our liquidity have provided us with sufficient cash flows to operate our business for at least the next 12 months. As a result of actions taken to support our teammates as well as impacts from our temporary store closures, we incurred approximately $34 million of incremental compensation and safety costs and $28 million of inventory write-downs during the quarter ended May 2, 2020.
Beginning in late April 2020, we reopened a number of our stores where permitted by federal, state and local directives. As of the end of May, approximately 80% of our stores were open to the public, and we expect to continue to reopen our temporarily closed stores through the remainder of the second quarter and into the third quarter. Through the first four weeks of the second quarter, our consolidated same store sales have decreased approximately 4.0% compared to the same period of fiscal 2019, and we continue to see higher eCommerce sales, even in those markets where stores have reopened. Additionally, we have added safety and cleaning protocols at our stores, distribution centers and corporate offices. We have recently permitted a small number of teammates to return to our corporate office while maintaining compliance with current social distancing guidelines. Concurrent with the reopening of our stores, we recently restored previously reduced salaries for our teammates, except for our Chief Executive Officer and our President, and we have begun to bring teammates back from furlough.
The ultimate health and economic impact of the COVID-19 pandemic is highly uncertain, including the duration and severity of the COVID-19 outbreak, actions taken to contain its spread as well as its impact to consumer discretionary spending and the pace of economic recovery when the pandemic subsides. Therefore, we currently are not able to estimate the full impact of COVID-19 on our financial condition and future results of operations. In the near term, we expect that this situation will have an adverse effect on our reported results for second fiscal quarter of 2020 and possibly beyond, as we continue to reopen our stores. We will continue to actively monitor the effects that COVID-19 has on our business. A prolonged period of store closures, changes in customer behaviors and reductions of consumer discretionary spending would require us to continue to evaluate our business assumptions and estimates. Such conditions would likely result in lower future net sales and cash flow, which could lead to impairment of our store and other assets, as well as increase the risks associated with excess inventory.
Hunt Restructuring Update
In connection with our previously disclosed strategic review of our hunt business, we removed hunt category merchandise from approximately 135 DICK’S Sporting Goods stores through the end of fiscal 2019 and reallocated the space in these stores to a localized assortment in an effort to drive growth. In the fourth quarter of fiscal 2019, we announced a plan to remove the hunt department from approximately 440 additional DICK’S Sporting Goods stores in fiscal 2020, which would have left the hunt department in approximately 12% of our remaining stores. During the first quarter of fiscal 2020, we removed the hunt department from approximately 170 DICK’S Sporting Goods stores. However, we have delayed our plans to remove the hunt department from other stores in fiscal 2020, as part of our reduction in our planned capital expenditures in response to the COVID-19 pandemic.

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 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 in the “Results of Operations and Other Selected Data” section herein.
Earnings before taxes and the related operating margin – Our management views earnings before taxes and operating margin 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. 
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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, distribution and administrative facilities, costs associated with continued improvement of 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 generate significant cash flows from operating activities in our fourth fiscal quarter in connection with the holiday selling season and sales of cold weather sporting goods and apparel. See further discussion of our cash flows in the “Liquidity and Capital Resources” section herein.
Quality of merchandise offerings – To measure acceptance of its 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.
 
CRITICAL ACCOUNTING POLICIES
As discussed in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the Company’s Annual Report on Form 10-K for the fiscal year ended February 1, 2020, filed with the Securities and Exchange Commission on March 20, 2020, we consider our policies on inventory valuation, business development allowances, goodwill and intangible assets, impairment of long-lived assets, self-insurance reserves and stock-based compensation to be the most critical in understanding the judgments that are involved in preparing our consolidated financial statements. 

RESULTS OF OPERATIONS AND OTHER SELECTED DATA
The decreases in earnings per share, net income and sales for the current quarter as compared to the first quarter of fiscal 2019 were primarily due to the COVID-19 pandemic, which resulted in temporary store closures and reduced customer traffic from March 11, 2020 through the end of the quarter.
Executive Summary 
In the current quarter, we reported a net loss of $143.4 million, or $1.71 per diluted share, compared to net income of $57.5 million, or $0.61 per diluted share, during the first quarter of 2019.
The current quarter net loss included $41.8 million of expenses, net of tax, or $0.50 per diluted share, for teammate compensation and safety costs and inventory write-downs related to COVID-19.
Net income in the first quarter of 2019 included $5.6 million, net of tax, or $0.06 per diluted share, of a non-cash asset impairment charge and an increase to net income of $4.7 million, net of tax, or $0.05 per diluted share, resulting from the settlement of a litigation contingency previously accrued during fiscal 2017.
Net sales decreased 30.6% to $1,333.2 million in the current quarter from $1,920.7 million during the first quarter of 2019.
Consolidated same store sales decreased 29.5% from the first quarter of 2019, which included an increase of approximately 110% in eCommerce sales. Through March 10, 2020, our consolidated same store sales had increased 7.9% compared to the same period of fiscal 2019.
Following our store closures due to COVID-19, eCommerce sales grew 210%, with our new curbside contactless pickup service accounting for over 40% of our total online business during this time period. As a result, eCommerce sales penetration increased to approximately 39% of total net sales during the current quarter compared to approximately 13% of total net sales during the first quarter of 2019.
In addition, during the current quarter we:
Issued $575.0 million par value convertible senior notes due 2025, which added over $500.0 million of net proceeds to our cash position;
Drew $1.4 billion from our Credit Facility, which was amended to increase our borrowing capacity by $255.0 million; and
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Declared and paid a quarterly cash dividend in the amount of $0.3125 per share on our common stock and Class B common stock. We subsequently temporarily suspended our dividend program.