2002: Dick’s golf success fuels IPO effort

Dick’s Sporting Goods, which has quietly but quickly become the second-largest, full-line sporting goods retailer in the country, won’t be able to avoid the spotlight much longer. The Pittsburgh-based retailer, which places a heavy emphasis on its golf department, tentatively has scheduled an initial public offering for the week of Oct. 14.

In an amended prospectus filed last week with the Securities and Exchange Commission, Dick’s reported that it had sales of $1.2 billion for the 12 months ended Aug. 2, with net income of $31 million. During the final six months of that period, same-store sales increased 5.4 percent.

Dick’s claims to be the “most profitable full-line sporting goods retailer” among the major publicly held sports chains such as The Sports Authority, Gart Sports and Galyan’s Trading Co. Over the past four fiscal years, sales and net income have grown at compounded annual growth rates of 20 percent and 55 percent, respectively.

Dick’s prospectus also noted that its private-label business, which includes the Walter Hagen apparel line, generated $28.2 million in 2001 sales, up from $9.8 million in 1999, and delivered “significantly higher gross margins” than its branded merchandise.

Hard goods, including golf, account for 61 percent of sales, and Dick’s, led by longtime CEO and avid golfer Ed Stack, has sought to differentiate itself from big-box competitors by placing more emphasis on the category. It also runs an annual Golf-a-thon sale supported by heavy advertising.

“For a sporting goods store, they probably do it as good as anybody,” said Carl Rose, owner of Carl’s Golfland in Bloomfield Hills, Mich., which battles Dick’s in the competitive Detroit market. “Their (golf) departments are as nice as anybody’s, and they seem to have the nicest mix of pro-line, top-line goods. And they seem to devote as much, if not more, space to golf than anybody.”

Aside from carrying pro-line merchandise, Dick’s employs more than 100 PGA professionals, and its golf shops have hitting nets and small putting greens. An executive of a golf specialty chain that competes with Dick’s agreed with much of Rose’s assessment, calling Dick’s “the best of the general sporting goods retailers that we face.”

But this retailer, who requested anonymity, said that he believed Dick’s must bridge a credibility gap with core golfers.

“Their downfall, as we understand it, is that they can’t sell upper price points,” the retailer said. “They’re really concentrated on iron sets under $500.” This retailer also said Dick’s has not done enough to publicize the presence of PGA professionals on its staff or to generate revenues through the sale of in-store lessons. (Dick’s PGA professionals do offer off-site lessons and keep all revenues.)

Dick’s is in the quiet period before the offering and can’t discuss its business or its plans, though in its prospectus it claims that it offers better selection and pricing than specialty stores.

The prospectus sheds light on the finances and plans of a retailer that has long loathed the public spotlight. Dick’s was founded as a bait-and-tackle shop in 1948 in Binghamton, N.Y., by Richard “Dick” Stack, and there were still only two stores when Stack’s son, Ed, became CEO in 1984. Dick’s, now with 134 stores in 24 states, has been expanding rapidly in recent years, opening 125 stores since 1994.

Now based in Pittsburgh, the retailer plans to add 15 stores this year – nine already are completed – and another 15 to 20 next year. It has 30,000-square-foot and 48,000-square-foot store prototypes, and all of its expansion to date has been done with the help of a $170 million revolving credit facility.

Based on a share price of $16.50 – the midpoint of the $15-$18 offering range – Dick’s is valued at about $324 million. The sale of part of the company is expected to raise about $40 million in revenues which will be used in part to pay down debt and fund expansion.

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