Mar 6, 2012
Executives
Edward W. Stack – Chairman and Chief Executive Officer Joseph H.
Schmidt – President and Chief Operating Officer Timothy E. Kullman – Executive Vice President, Finance, Administration and Chief Financial Officer Anne-Marie Megela – Director, Investor Relations
Analysts
Matthew Fassler – Goldman Sachs & Company Michael Lasser – UBS Michael Baker – Deutsche Bank Research Sean P. Naughton – Piper Jaffray Peter Benedict – Robert W.
Baird & Company, Inc. Dan Wewer – Raymond James & Associates Paul Swinand – Morningstar, Inc.
Christopher Horvers – J.P. Morgan N.
Richard Nelson – Stephens, Inc. Sean McGowan – Needham & Company
Operator
Good morning and welcome to the Dick's Sporting Goods fourth quarter and full year earnings conference call. All participants will be in listen-only mode.
(Operator Instructions) Please note this event is being recorded. I would now like to turn the conference over to Anne-Marie Megela, Director of Investor Relations.
Please go ahead.
Anne-Marie Megela
Thank you. Good morning and thank you for joining us to discuss our fourth quarter and full year 2011 financial results.
Please note that a rebroadcast of today's call will be archived on the Investor Relations portion of our website, located at www.dickssportinggoods.com, for approximately thirty days. In addition, as outlined in our press release, the dial-in replay will be available for approximately thirty days.
In order for us to take advantage of the safe harbor rules, I would like to remind you that today's discussion includes some forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which includes but are not limited to our views and expectations concerning our future results. Such statements relate to future events and expectations and involved known and unknown risk and uncertainty.
Our actual results or actions may differ materially from those projected in the forward-looking statements. For a summary of risk factors that could cause results to differ materially from those expressed in the forward-looking statements, please refer to our periodic reports filed with the SEC, including the company's annual report on From 10(k) for the year ended January 29, 2011.
We disclaim any obligation and do not intend to update these statements except as required by the securities law. We've also included some non-GAAP financial measures in our discussion today.
Our presentation of the most directly comparable financial measures, calculated in accordance with generally accepted accounting principles and related reconciliations can be found on the Investor Relations portion of our website at dickssportinggoods.com. Leading our call today will be Ed Stack, Chairman and Chief Executive Officer.
Ed will review our fourth quarter and full year financial and operating results, 2012 guidance, and discuss our growth strategy. Following this Joe Schmidt, our President and Chief Operating Officer will outline our store and e-commerce development program.
After Joe's comments, Tim Kullman, our Executive Vice President of Finance and Administration and Chief Financial Officer, will provide greater detail regarding our financial results. I'll now turn it over to Ed Stack.
Edward W. Stack
Thank you Anne-Marie, and thanks to all of you for joining us today. In the fourth quarter, we generated a 6.1% increase in sales over the fourth quarter of 2010, expanded our operating margins by 112 basis points, and generated record earnings of $0.88 per diluted share, a 16% increase over the non-GAAP earnings per diluted share of $0.76 in the fourth quarter of last year.
All of this was accomplished even with an abnormally warm winter season. Additionally, in the quarter, we maintained an exceptionally strong balance sheet with our cash balance growing $188 million over last year.
We initiated our first-ever dividend, and we announced a 12-month share repurchase program. The 6.1% increase in sales for the fourth quarter was driven by the growth of our store network by 0.1% increase in consolidated same-store sales, on top of a 9.3% increase in the fourth quarter of last year.
Same-store sales in the fourth quarter 2011 for Dick's Sporting Goods were down 2.5%. Golf Galaxy same-store sales were up 9%.
And e-commerce sales were up 52%. The 2.5% same-store sales decline at Dick's was primarily driven by lower sales and cold weather accessories, cold weather apparel and boots due to the unseasonably warm weather.
Partially offsetting this decline was continued strength in athletic apparel and footwear. On the inventory front, we ended the year with an increase in inventory per square foot of 6.2%.
A little more than half of this increase was due to the lower-than-anticipated sales of cold weather related product. Also contributing to the higher inventory level was an increase in baseball inventory, due in large part to the anticipated pick-up in sales from the recent VAT regulation change.
We pulled forward spring cleats and an increase in inventory for our e-commerce business as we anticipate growing sales momentum. Importantly, clearance inventory per square foot was down 2.1% at the end of 2012 compared to 2011.
We continue to make progress in advancing our three growth drivers, which are to expand our store base, strengthen our e-commerce business, and continue to develop our margin rate accelerators. As to store expansion, we've opened new Dick's Sporting Goods stores at the rate of 8.1% in 2011.
In 2012, we expect to open approximately 40 Dick's Sporting Goods stores, reflecting a slightly higher growth rate. Looking at the longer-term, we believe we have the potential to open more than 400 additional stores over the next several years, giving us approximately 900 total stores in the United States.
Turning to our e-commerce business, which represented approximately 4% of total sales in fiscal 2011, we're making remarkable progress. Same-store sales from an e-commerce standpoint increased 52% over the fourth quarter of last year.
We are on track to implement new capabilities that will improve the profitability of this business. As I've mentioned in previous calls, we also have an opportunity to generate further margin expansion through multiple avenues, including private brand and private label product, which we believe can boost growth to approximately 20% of our business over the next number of years, as well as product mix and effective inventory management, both of which were leading contributors to the 68 basis points in merchandise margin improvement in 2011 over 2010.
We expect first quarter 2012 consolidated earnings per diluted share to increase by 20% to 27%, to between $0.36 and $0.38, compared with non-GAAP consolidated earnings per diluted share of $0.30 for the same period in 2011. We expect consolidated same-store sales to be 3% to 4% on top of the 2.1% increase last year.
For the full year 2012, we expect consolidated earnings per diluted share to increase by 18% to 19%, to between $2.38 and $2.41 a share, which includes approximately $0.03 coming from the 53rd week this year, as compared to non-GAAP earnings per diluted share of $2.02 in 2011. We anticipate our consolidated same-store sales will increase between 2% and 3%.
In summary, we generated record earnings in the fourth quarter of 2011, while investing in future growth, continuing to build on a strong balance sheet, and delivering value to our shareholders through the initiation of a dividend and share repurchase program. In 2012, we anticipate generating further profitable growth with continued investments in our business.
Before I conclude, I want to express my sincere gratitude to our employees who deserve the credit for our 2011 accomplishments. In a service-driven business like ours, having dedicated associates who truly support the corporate mission and are committed to excellent is a distinct advantage, one that we're deeply proud of.
I want to thank each member of our team for living Dick's brand and for their commitment to fueling our progress. I'd now like to turn the call over to Joe.
Joseph H. Schmidt
Thanks, Ed. In the fourth quarter of 2011, we opened six new stores, bringing our new store count in 2011 to 36.
At the end of the year, we operated 480 Dick's Sporting Goods stores with 26.3 million square feet, and 81 Golf Galaxy stores with 1.3 million square feet. Within our stores, we have 131 shared service footwear decks, 105 Nike Fieldhouse concept shops, 45 Under Armour All American shops, and 3 Under Armour Blue Chip shops.
We continue to be pleased with the performance of the new Dick's Sporting Goods stores, posting new store productivity of 94.2% in the fourth quarter. This compares with 111% in the fourth quarter of 2010.
The detailed calculation of new store productivity can be found in the table section of the press release we issued this morning. Looking to 2012, we will continue to grow and enhance our store base, and e-commerce business, while investing in our distribution network.
We plan to open approximately 40 new stores, of which approximately half would be in new markets and half would be in existing markets. We will also relocate four stores, which are at the end of their leases, to preferred locations that we have secured.
We are initiating a comprehensive a store redesign project in 2012. Because we plan to develop the redesigned store layout this year, we are postponing our store remodeling program in order to focus on the project.
We will implement our new store design in new and remodeled stores in 2013. In our e-commerce business, we are building on our momentum as we plan to pilot 'ship from store' in the next year and 'in-store pickup' in 2013.
Both are intended to provide customers with more and better buying options, as well as leveraging our inventory investment, improving our fulfillment time, and our in-stock positions. We are also investing in the functionality of the site to improve the customer experience.
To support these advancements and the growth of our e-com business, we entered 2012 with a meaningfully larger team, with recent additions of talent in site merchandising, website development and analytics. We are progressing as planned with our fourth distribution center, which is scheduled to be completed in January of 2013.
With this new 600,000 square-foot facility, which will be located in Arizona, our combined DC network will be able to support a total of 750 stores. I will now turn the call over to Tim to review our financial performance in greater detail.
Timothy E. Kullman
Thanks, Joe. Sales for fourth quarter of 2011 increased by 6.1% to $1.6 billion compared with the same period a year ago.
Consolidated same-store sales increased 0.1%. Dick's Sporting Goods same-store sales decreased 2.5%, Golf Galaxy increased 9%, and the e-commerce business increased 52%.
The decline in the same-store sales in Dick's Sporting Goods stores was driven by a 1.9% increase in sales per transaction, offset by a 4.4% decline in traffic. We believe the decline in traffic was due directly to the unseasonably warm winter.
Consolidated gross profit of $512.8 million was 31.82% of sales, or 25 basis points higher than the fourth quarter of 2010. This increase was driven primarily by an increase in merchandise margin of 27 basis points and occupancy leverage of approximately 40 basis points, offset by freight and distribution deleverage.
Merchandise margin increased as a percentage of sales primarily due to effective inventory management, while freight and distribution cost increased as a percentage of total sales due to the growing e-commerce business. SG&A expenses in the fourth quarter of 2011 were $326.6 million, representing 20.26% of sales compared with 21.88% of sales in last year's fourth quarter.
This leverage of 152 basis points was primarily due to the $10.8 million settlement made in the fourth quarter of 2010 for a wage-and-hour class-action lawsuit, as well as lower legal fees and employee incentive pay in the fourth quarter of 2011 as compared to the fourth quarter of 2010. Moving to the balance sheet, we ended the fourth quarter of 2011 with $734 million in cash and cash equivalents, with no outstanding borrowings under our $500 million revolving credit facility.
Last year, we ended fourth quarter with $546 million in cash and cash equivalents, and no outstanding borrowings under our facility. Net capital expenditures were $36 million in the fourth quarter of 2011, or $54 million on a gross basis, compared with the net capital expenditures of $26 million or $42 million on a gross basis in the fourth quarter of last year.
On January 12th, we announced a 12-month share repurchase plan. By quarter-end, which was January 28th, we repurchased 30,600 shares of our common stock at an average cost of $40 per share for a total cost of approximately $1.2 million.
Now, looking at our guidance. For the first quarter of 2012, we anticipate same-store sales to increase approximately 3% to 4%, and earnings per diluted share to grow by 20% to 27% in the range of $0.36 to $0.38 per share from $0.30 per share in the first quarter of last year.
Operating margin expansion in the first quarter of 2012 is expected to be driven by both an increase in the gross profit margin rate and expense leverage. Our gross profit margin rate in the first quarter is expected to increase at about the same level as seen in the fourth quarter of 2011.
The gross profit margin expansion is expected to be driven primarily by occupancy leverage, with merchandise margin being relatively flat. First quarter merchandise margins are expected to be impacted as a result of anticipated clearance activity as we clear some cold weather related merchandise.
We also anticipate seeing more of an influence from inflation, with merchandise cost increasing in a low single-digit range. However, we expect to offset these cost increase by judiciously increasing retails.
SG&A as a percentage of sales is expected to decline as compared to the first quarter of 2011, primarily through advertising leverage. Diluted shares outstanding are expected to be approximately 126 million, compared to 125 million shares in the first quarter of last year.
For the full year 2012, we anticipated consolidated same-store sales to increase 2% to 3%, and earnings per diluted share to grow by approximately 18% to 19% or in the range of $2.38 to $2.41, as compared to non-GAAP earnings per diluted share of $2.02 in 2011. Fiscal 2012 includes a 53rd week, which we believe will add $0.03 to earnings per diluted share, and is contemplated in our guidance of $2.38 to $2.41.
Operating margin expansion in 2012 is expected to be driven by both an increase in gross profit margin rate and expense leverage. Gross profit margin rate is expected to increase year-over-year, primarily driven by merchandise margins and occupancy leverage.
Over the course of the year, merchandise margins are expected to rebound in the second quarter and build momentum in the second half of the year. SG&A as a percentage of sales is expected to decline as compared to 2011, primarily due to lower advertising and store expenses relative to sales year-over-year.
This decline is expected to be partially offset by planned investments in e-commerce and systems implementations. While the execution of the share repurchase plan -- with the execution of the share repurchase plan, diluted shares outstanding are expected to be approximately $126 for full year, similar to the outstanding shares in 2011.
As Ed mentioned, inventory per square foot increased 6.2% at the end of 2011 compared to the end of 2010. A little more than half of this increase was related to cold weather merchandise.
We plan to manage through this inventory in 2012 in the following manner. One, stacking up some of the inventory that we believe that we can offer in the fall of this year.
Two, returning some inventory to vendors. And three, selling the remaining inventory through promotional pricing.
As a result of these actions, we expect inventory levels to grow no more than our growth in total sales over the course of the year. Also, we believe the margin impact for some clearance activity will be contained within the first quarter.
Now, let's review anticipated quarterly financial trends in 2012. We expect that in the first, second and fourth quarters, earnings per diluted share will grow at a pace equal to or greater than the annual expected EPS growth of 18% to 19%.
In the third quarter, we believe the EPS growth will be in the high single-digits due to the following considerations. First, preopening expenses are anticipated to be higher in the third quarter of 2012, as compared to the same quarter in 2011, since there are more new store openings planned in the third and fourth quarter of 2012 as compared to 2011.
Second, we will be hosting our annual Dick's Sporting Goods Open in the third quarter this year. Typically, this tournament is a second quarter event.
However, due to the flood damage to the En-Joie Golf Club caused from Tropical Storm Lee, the opening has been rescheduled to give the course more time to recover. As a result, the related expenses of the Open will shift from the second quarter to the third quarter.
And lastly, we will not be anniversarying a favorable tax benefit of approximately $0.01 per share, which we enjoyed in the third quarter of last year. One other housekeeping item to consider is the related start-up costs of our new distribution center.
We will account for such within gross profit and are expected to have an EPS impact of $0.02 per share in 2012, with most of the expenses being incurred in the fourth quarter. Turning to CapEx.
Net capital expenditures for the full year are expected to be approximately $190 million, or $241 million on a gross basis. Net capital expenditures for 2011 were $154 million, or $202 million on a gross basis.
The anticipated increase in capital expenditures from 2011 to 2012 is primarily a result of the new distribution center and, to a lesser degree, investments in new stores, vendor shops, system enhancements and e-commerce. All things considered, including unfavorable weather for much of the year, 2011 proved to be another successful growth year for us.
Our sales increase, our gross profit and merchandize margin improvements, and our SG&A leverage, all contributed to EPS growth of 24%. We also continue to strengthen our balance sheet and fortify a distinct competitive advantage with the increase to our cash balance.
When evaluating our outlook for 2012, consider the importance of being able to generate significant earnings growth, while simultaneously making investments in the business, such as e-commerce enhancements, systems development, and our new distribution center. We make these investments with the objective to continue to grow profitability and return well into the future.
We are well positioned as we enter 2012, and we have consistently demonstrated our ability to provide increasing value to our shareholders year after year. This concludes our prepared remarks.
We'd be happy to answer any questions you may have at this time.
Operator
Ladies and gentlemen, we will now begin the question-and-answer session. (Operator Instructions) And our first question this morning will come from Matthew Fassler of Goldman Sachs.
Please go ahead.
Matthew Fassler – Goldman Sachs & Company
Thanks a lot. Good morning.
A couple questions. First of all, given the outsized increase in e-commerce and the accelerated increased importance of this business to you, can you talk about the impact that the economics of e-commerce is having on your margin structure today?
And as that business grows, and particularly as the way you do e-commerce, business changes, how you would expect that margin impact to evolve?
Edward W. Stack
It's still a relatively small part of the business, Matt, at -- in the fourth quarter, it was only 4%. But the margin impact is -- our margin rates on e-commerce are quickly getting closer to what they are in the traditional stores, as we've changed the mix of the business.
So we don't see the margin rate as a significant issue. And as we go forward, we actually expect to continue to move it up, and it will get to be -- the margin rate, we expect, would be close to what the stores are relatively soon, in the next year or 18 months.
Matthew Fassler – Goldman Sachs & Company
And how has the mix of e-commerce business been changing?
Edward W. Stack
More apparel, more footwear, less of the fitness business, and the mix of product there in apparel and footwear is, I'm sure you know, higher than the margin rate of a fitness product.
Matthew Fassler – Goldman Sachs & Company
And as you develop capabilities like ship to store and store pickup, is that what will facilitate the margin improvement or is it ongoing mix changes?
Edward W. Stack
It will be a combination of the two, but we anticipate the mix continuing to change.
Matthew Fassler – Goldman Sachs & Company
Got it. And then, my second question is a bit of a look back to the quarter.
So you originally got it to a flat to one comp. And you didn't really miss that original guidance despite the weather, and the inventory ended presumably a little bit higher than you would have thought.
So I guess the question is what kind of comp did you buy to when you entered the quarter, and how should we then think about your positioning for the first quarter related to that?
Edward W. Stack
Well, as we said, a little more than half of it came with cold weather merchandise that didn't sell as well. The other part -- a big part of this is that we moved in spring receipts, and a big part of that around baseball and the bats.
So the high school -- everybody from -- that plays high school baseball has to use a BBCOR bat this year. Although California instituted this last year, everybody else instituted it this year.
So everybody who plays high school baseball, if they did not get a BBCOR bat last year, they have to get a bat this year. So we brought those receipts in pretty significantly to make sure that we could take full advantage of that business.
Matthew Fassler – Goldman Sachs & Company
And what did that do to your baseball business in California in 2011?
Edward W. Stack
It had a meaningful impact, positive impact on our baseball business in California. And these bats are high AUR, so it really helps drive that business.
Matthew Fassler – Goldman Sachs & Company
Great, thank you so much.
Operator
… from Michael Lasser of UBS. Please go ahead.
Michael Lasser – UBS
Good morning. Thanks a lot for taking my question.
So the 4.4% traffic decline in the fourth quarter, I think you attributed all of that to the unseasonably warm weather. Were you able to piece out whether some of the e-commerce business also had an impact, where maybe there was some channel shift going on?
Edward W. Stack
Well, I think that there was some channel shift. But again, at 4% of the total business, it's not significant right, but there's certainly come of that.
And our cold weather business online was meaningfully better than our cold weather business in the stores. But we think the vast majority of that traffic issue that we had was driven by the cold weather, and not something that we think is fundamental to the business going forward.
Michael Lasser – UBS
Okay. And how do you think about the number of store openings this year, and where you can get to over the next couple of years, just on a run rate basis?
Edward W. Stack
We indicated we can get to -- we anticipate opening approximately 40 Dick's Sporting Goods stores this year. We would anticipate that we would be in that same zone in 2013 also.
Michael Lasser – UBS
Is there any motivation to push it a little higher, just given some of the competitive forces that are going on?
Edward W. Stack
Well, we'd love to -- we can definitely go faster. It's just -- the real estate development business has not bounced back as robustly as we would need to take that up higher.
If there were more shopping centers being built and other retailers opening stores, then we could certainly move that quicker. There is nothing structural in our business that impedes us from opening up faster.
It's just getting the right quality real estate is the issue. And we don't want to open up new stores just to open up new stores.
We need to make sure that we open up the right stores.
Michael Lasser – UBS
Last question on our end. Ed, how has the initial response to some of the pricing actions been received by consumers?
Have you -- has the elasticity been in line with what you've expected.
Edward W. Stack
It has. We haven't seen other -- I won't give you specifics.
But other than a few specific products, where prices have moved up in the first quarter, have we seen an issue. But their very few and far between.
We're not seeing any concerns at all right now.
Michael Lasser – UBS
Okay, thanks a lot, and good luck with the rest of the year.
Edward W. Stack
Thank you.
Operator
Our next question will come from Michael Baker of Deutsche Bank. Please go ahead.
Michael Baker – Deutsche Bank Research
Thanks. Couple of questions.
One, can you just talk to us about the kind of lift that you're seeing in some of these stores, in the stores that you're doing the Fieldhouse, the Under Armour's and even the shared footwear model? And more importantly, what are your expectations for growth from a number of those in 2012 and beyond?
And if you could share with us, as well, some of the plans around the North Face stores. Thanks.
Edward W. Stack
So we will continue to grow these concepts, the Fieldhouse, the Under Armour concept shops, and the North Face. So they will continue to grow at a relatively rapid rate, and we can give you those approximate numbers here.
But what has happened from a sales standpoint, for competitive reasons, we're not going to give those specifics. I can tell you that it's been a very helpful driver of our comps and it's been a helpful driver of the margin rate expansion, as those categories have been -- are higher margin rate categories and they've become a bigger part of our mix.
Michael Baker – Deutsche Bank Research
Okay, yeah, that makes sense. And share, if you could tell us how many we should expect this year roughly.
Maybe I can get that from you offline or later in the call.
Edward W. Stack
That'd be fine. We'll do that.
I don't have that number right off the top of my head, and I don't want to give you a wrong number.
Michael Baker – Deutsche Bank Research
Yeah, sure.
Edward W. Stack
We're making a pretty meaningful investment along with our vendor partners in these projects.
Michael Baker – Deutsche Bank Research
Great. Two other questions real quick, if I could.
One, on the remodel, I'm intrigued as to what your remodel had been in the past? How many had you been doing?
And what you saw there that you liked or didn't like to cause you to sort of pull back on that and try to reposition it for 2013?
Edward W. Stack
Michael, in the last couple of years, two years ago, we remodeled 12 stores. This past year we remodeled stores.
And it's really nothing that we didn't like. It's just so much of what we're working on that has us pretty enthusiastic about wanting to hold on these until we really get this vetted out and open all of the remodeled stores next year with this concept.
So we didn't want to commit to a lot of capital dollars to a format that we think is going to be greatly improved for 2013.
Michael Baker – Deutsche Bank Research
So then, once you start rolling out in 2013, is there something that you think -- you thought a significantly higher number of stores rather than a handful, it sounds like, you've done in these last two years?
Edward W. Stack
I wouldn't look to -- refer to be anything meaningfully different than it has been over the last couple of years.
Michael Baker – Deutsche Bank Research
Okay, okay, thanks. I'll turn it over to some of my colleagues for their questions.
Thanks.
Operator
Our next question will come from Sean Naughton of Piper Jaffray. Please go ahead.
Sean P. Naughton – Piper Jaffray
Thanks for taking my question. My question has to deal with the NFL switching over from Reebok to Nike.
When should we anticipate that potentially going into your stores? And historically, have you seen any lift from this type of a change?
And obviously, the Olympics are coming this year. Does that impact your business at all from a top line perspective?
Edward W. Stack
From an NFL standpoint, well, this doesn't happen very often. But we think that what Nike is doing, we think it will be positive with the new jerseys.
So that will certainly have a positive effect on our business. We anticipate to start to see some of these in the store certainly around April, end of April, around Draft Day.
It will be pretty meaningful as they start training camp. And then as we kick-off the NFL season, we think it will be certainly helpful to our business.
As far as the Olympics go, we've never seen the Olympics have a real big impact on our business. Whether it be the Summer Olympics or the Winter Olympics, it's just never a real impact to our business.
The World Cup really has a more meaningful impact to our business than the Olympics do.
Sean P. Naughton – Piper Jaffray
Okay, got it. And then on the inventory side, it sounds like you're looking to get that under control a little bit better as we move through the year.
How should we think about the inventory per store metric? When do you think that will be down in front of the future comp rate here in the next couple of quarters?
Edward W. Stack
Well, as Tim said, some of this product we're going to pack up, we'll just buy less of it next year. Black ski gloves [indiscernible] workwear was brown when I was a kid and it will be brown when my kids grow up.
So there are certain products that we don't need to go liquidate because they're going to be the same as they are next year. So both products we will keep in our inventory, and they really won't flow through the whole inventory cycle until into the third and fourth quarter of next year.
But as we said, our clearance inventory is down 2.1% over last year. We don't feel that we have an inventory issue.
There was a big part of that inventory increase that has come from pulling forward spring receipts such as the BBCOR product that I talked about, some other cleats. Based on what was going to happen with BBCOR bats and kids coming in to buy those, we moved other baseball receipts up to make sure that we could take full advantage of outfitting those young kids, those high school kids as they get ready to play the high school baseball season.
Sean P. Naughton – Piper Jaffray
That's great. And then lastly on the inventory, how would you describe where we are in terms of your inventory management systems?
Have we capitalized on most of the low-hanging fruit here, or is there still a lot of merchandise margin to potentially to be gained here? Thanks.
Edward W. Stack
I think there's two things. So I think we've ridden the early to mid-innings on inventory management.
I think that from an inventory management standpoint, we will still see margin rate expansion through inventory management. And as we get -- as we work through and have more efficient inventory management, it will create some additional capital in the company too as we turn the inventory quicker.
Sean P. Naughton – Piper Jaffray
Great. That's the lock here in the first quarter.
Thanks.
Edward W. Stack
Thank you.
Operator
And our next question this morning will come from Peter Benedict of Robert W. Baird.
Please go ahead.
Peter Benedict – Robert W. Baird & Company, Inc.
Thanks guys. First question just following up on Mike's question, can you give us a sense of maybe what the cost benefit is in the P&L this year of putting aside that remodel plan for this year?
And then I have a couple of follow-ups.
Timothy E. Kullman
I think that what you need to look at the program is the remodels give us a slight benefit in year one, and it's future benefit. So in terms of the capital expenditure without the capital on these stores, we have less depreciation.
But you have to look at the total CapEx budget in terms of -- we're still going to have somewhat higher CapEx than we had last year, so don't look for a meaningful improvement on the depreciation side because we aren't doing the remodels.
Peter Benedict – Robert W. Baird & Company, Inc.
Okay, good. That's helpful, thank you.
And then on the e-commerce business, what growth rates in assumed in that 2% to 3% comp plan you have for the overall business? And then, as you think about the capabilities that you have and that you want, I know you're working on a number of things, any plans or desires or possibilities of using cash to accelerate maybe the acquisition of some of these capabilities?
And if so, in what areas do you want to move forward faster on that? Thanks.
Edward W. Stack
As we take a look at the comp assumptions from a competitive standpoint, we're not going to lay that you, but understand, whatever that comp assumption is, if 4% of the business, it's not meaningful to our total comp sales number. So the vast majority of our comp sales are coming out of the Dick's Sporting Goods stores, followed by the Golf Galaxy stores.
And then trailing from a sales standpoint is the e-commerce business. So as we talked a little bit last year, I wouldn't get terribly excited about our e-commerce business to have a meaningful impact on our business today.
We're really enthusiastic about this. We think as a few years go by, this can be a really important part of our business.
And it's important on how we're building it, and we're building it profitably. But it's not going to have a big impact on our business right now.
Peter Benedict – Robert W. Baird & Company, Inc.
Fair enough. And then anything in terms of the capabilities for the business that you could go out and acquire in order to accelerate the growth?
It's obviously good right now, but just what's your thinking on that?
Edward W. Stack
From time-to-time, we'll take a look at acquisition possibilities. And if we see something that we think will be helpful to business, and if we think it's something that will be accretive to the business in a very short period of time, right off the bat we'll take a look at that.
Peter Benedict – Robert W. Baird & Company, Inc.
Okay, that's helpful. And then lastly, just over to the Golf business.
Obviously, it's been warm weather, good expectations hopefully for the spring here. Can you talk about the new product flow this season, how we're doing as we cycle some of the successes from last year?
Edward W. Stack
Yeah, there was some of the new technology that's out this year, whether it be new R11S Driver, whether it be TaylorMade's RocketBallz, who have been just terrific, the RocketBallz Driver, Fairway Woods and Hybrids, that's really been as good as the R11S was last year. Some other people are out with some very good products, the new Callaway products have done very well.
The Adams products have done very well. We're very pleased with what's going on with Nike with their golf ball right now.
So all in all, we're cautiously optimistic about the gold business.
Peter Benedict – Robert W. Baird & Company, Inc.
All right, terrific, thank you very much.
Edward W. Stack
Sure.
Operator
The next question will come from Dan Wewer of Raymond James.
Dan Wewer – Raymond James & Associates
Yeah, so following up on Peter's question, recognizing that the winter months are not that important for the golf category, that's Galaxy up 9%, short improvement, does that simply reflect the warmer, drier weather completing the round's play during the fourth quarter, or have you implemented changes at your Golf Galaxy that kicked in during the winter months.
Edward W. Stack
Well, we've certainly implemented some changes. Our store group has done a great job from a conversion standpoint.
IPTs -- units per transaction, they've done a terrific job there. And then the weather, how the weather hurt the winter business certainly helped the golf business.
So that's a combination of both of those things. The group, especially in the Golf Galaxy category, which are Gold Galaxy comps, were higher than the Dick's comps from a golf standpoint.
But the group just did a great job executing their business, and we're really proud of them.
Dan Wewer – Raymond James & Associates
And then one other question on e-commerce. Are you finding any categories that are not as successful?
For example, footwear where sizing is critical and there's an inherently higher return rate. Is that a category that may not be as successful in e-commerce as others?
Edward W. Stack
No. Actually our footwear category has been one of the best categories we've had.
It's been great.
Dan Wewer – Raymond James & Associates
And can you remind me how you view a policy on product returns, if the customer chooses the wrong size?
Edward W. Stack
There is a free return on any miss sized product or customer returns. And they're also welcome to -- they can bring that back to the store too.
Dan Wewer – Raymond James & Associates
Sure. Okay, thank you.
Operator
Our next question will come from Paul Swinand of Morningstar. Please go ahead.
Paul Swinand – Morningstar, Inc.
Good morning. Thanks for taking my questions.
Just wanted to follow-up on some of the comments about the store base and the limitations there. When you've announced the higher opportunity for the total store base, you're still seeing the lower rents, and that's obviously showing up in your guidance.
But year-over-year as you're in the marketplace, the rents and the economics of the store is still good but it's the structural layout of the other stores around you that are limiting you. Is that my understanding correct?
Edward W. Stack
Well, I'm not sure how you phrase it the structural layout of the other stores. There is not nearly as many shopping centers being built as there were three or four years ago.
And they're not being built for a couple of reasons, whether it be financing concerns and the amount of equity that developers need to put into projects today, whether it be that other retailers aren't opening stores. There's not as many retailers opening stores, therefore they can't get the centers filled.
But right now, there is just not as many shopping centers being built. That's the primary issue as why our growth rate is at 40 stores versus 55 or 60.
There is nothing structural inside of our business that would keep us from opening 50 or 60 Dick's Sporting Goods stores on an annual basis. Before we think it was greater, back in 2008 were opening up 45 stores a year.
Paul Swinand – Morningstar, Inc.
Understood. But obviously, the existing real estate you're saying is you've kind of exhausted those or you're using as much as you can of the existing real estate?
Even though the economics are good, you're saying a lot of them just aren't desirable.
Edward W. Stack
Correct. So there are some of those -- there's still a lot of real estate out there but it's not real estate that we want to be in, whether it's the wrong size, it's the wrong configuration, whether it's the wrong location, the wrong co-tenants.
We've got a very disciplined real estate policy here. And one of the things that we won't compromise is our real estate selection process.
Paul Swinand – Morningstar, Inc.
Understood. But then, when you are seeing rents in the 40 going forward for 2012, it is at good or better rates, just the market is pretty low.
So could we assume that you're still getting leverage for more than just next year on your occupancy?
Edward W. Stack
Well, we're not going to go forward and provide guidance for 2013 going forward. Real estate prices are still attractive, but they're stabilizing.
And as the law of supply and demand, as some of this real estate gets used up, then prices would stabilize. They are still below levels that we were seeing in 2007 and 2008.
But the panic from a real estate standpoint is over.
Paul Swinand – Morningstar, Inc.
Okay, great. Thanks for that.
And you guys will never be tricked into giving guidance, but I had to give that a try. So real quick follow-up on e-commerce, are some of the drivers or the categories actually more inventory intensive?
So even though we naturally think of, they're being leveraged to e-commerce because of their centralized inventory, we think of fishing lowers or even the colors and the styles available on some footwear. Are there some natural inventory increases that go as the category that lend themselves to e-commerce actually grow proportionate to the business?
Edward W. Stack
To some extent, yeah, you would think that. But there is nothing meaningfully that from an AUR standpoint that's going to drive a significant inventory increase that would have an impact on our inventory turns and our use of working capital.
Paul Swinand – Morningstar, Inc.
Okay, great, thank you.
Operator
Our next question will come from Chris Horvers of J.P. Morgan.
Please go ahead.
Christopher Horvers – J.P. Morgan
Thanks and good morning. Following up on the new store prototype or the store redesign program, what's the average store size you're thinking about in 2012?
And with this new redesign, will it be the foundation or new stores as well, and do you see an opportunity to perhaps get into a smaller box?
Edward W. Stack
Chris, I think you can expect that the new store design will be very similar to the box size that we currently deploy. So 50,000 is if you're thinking about that.
As you think of smaller stores, or even larger stores, it's really a market issue that drives our store size. If we think the market allows for a larger box, then certainly we'll take a look at that opportunity.
And in some of these smaller markets where we've had some pretty good success, we'll continue to look at opportunities for some small box sizes as well.
Christopher Horvers – J.P. Morgan
And then, there's been some turnover in the past nine months or so at your largest competitor. Are you seeing anything, any changes from them in market in terms of their merchandising or advertising or promotions?
Edward W. Stack
No, we really haven't. A little bit they've changed -- they've modified the format of their Sunday insert, but we haven't seen a big difference in kind of fundamentally what they're doing.
Their stores look the same. Their merchandise is the same.
Their pricing strategy is the same. They've been pretty consistent.
Christopher Horvers – J.P. Morgan
And then on the merchandise margin side, did clearance actually impact your margins in the fourth quarter? And Tim, you mentioned that over the year that margin profile accelerates.
Presumably that's related to the systems investment. So just perhaps you could talk about what systems are being put in and how much did the systems contribute to that 10% margin target in the next two years?
Timothy E. Kullman
Well, I think Chris, we certainly had some impact in the fourth quarter to your thesis upfront on the clearance inventory. As we indicated in the comments that we made, we will continue to have some impact in Q1, but it will all be constrained to Q1.
Going forward, as we implement price optimization, size impact optimization, space allocation, all of those are geared towards better inventory management, as well as gross margin enhancement. So as we go forward in our three to five year IT implementation roadmap, we will see consistent increases in merchandise margin based on adding some science to the art of the processes in order for us to continue to see that benefit ongoing.
Christopher Horvers – J.P. Morgan
And then my final question is in terms of the BBCOR rule, can you talk about perhaps how much baseball is in the mix in the first quarter? And if you're maybe not willing to quantify that exactly, where is it in terms of the pecking order in the first quarter from a category perspective.
Edward W. Stack
Well, for competitive reasons, as you can imagine, we're not going to lay out exactly how much our baseball business is. But in that first quarter and into the second quarter, it's a pretty important part of our business.
I'm going to say it's going to be in the top 30% of our business. Well, it's an important part of our business.
Now, don't misquote me and say that it's 30% of our business. It's kind of in that top third of our business from an important standpoint.
Christopher Horvers – J.P. Morgan
Fair enough. Thank you.
Operator
Our next question will come from Rick Nelson of Stephens. Please go ahead.
N. Richard Nelson – Stephens, Inc.
Thank you and good morning. I'd like to ask you about the building cash position.
You've got no debt. How do you rank the alternatives at this point and how you think about acquisitions?
And absent acquisitions, where do you see the cash balance if you hit your earnings targets for the current year?
Edward W. Stack
Well, I think as we've said in prior discussions when we had been asked the question on cash that we always look at the traditional alternatives first, which would be, one, reinvest in the business. And as you saw last year and the first quarter of this year, we did initiate a dividend to start that return of capital to shareholders.
We also implemented this 12-month share repurchase program to also augment our return of capital to shareholders. So right now, that is the plan for the current year.
The dividend is ongoing. So as we see other opportunities in the business, whether it's e-commerce type entities or other specialty entities that might make sense for us and help drive sales and profitability, we would certainly take a look at those potential opportunities.
N. Richard Nelson – Stephens, Inc.
And where do you see the cash balance, absent those acquisitions or stock buybacks?
Edward W. Stack
Probably -- well, absent the stock buyback?
N. Richard Nelson – Stephens, Inc.
Yeah.
Edward W. Stack
Above the year-end 2011 levels.
N. Richard Nelson – Stephens, Inc.
Okay. Also a question on private label.
You mentioned your goal is 20% over the next few years. Where do you sit today with private label proportion of sales?
Edward W. Stack
Just over 15.
N. Richard Nelson – Stephens, Inc.
Great, thanks a lot.
Edward W. Stack
Sure, thanks.
Operator
Our next question will come from Sean McGowan of Needham & Company. Please go ahead.
Sean McGowan – Needham & Company
Hi guys, thanks. First, general subject is visibility.
You seem to have a higher degree if visibility in the early part of the year, particularly the first quarter, relative to your sales expectations or guidance for the full year. To what extent -- is that you're actually seeing something that has visibility early or just being conservative for the full year?
Is there anything that you see slowing down and making it tougher in the second half of the year?
Edward W. Stack
We see kind of what's going on. So the BBCOR bat is going to help.
We continue to be excited about the golf business. As we get further into the back half of the year, we are so weather -- as we've shown, we're somewhat weather-sensitive in that fourth quarter.
And you just need to be -- we need to be conservative into that fourth quarter. We don't have visibility until we kind of see how the weather plays out.
Sean McGowan – Needham & Company
Okay. So if we get a more normal fourth quarter, we can revisit that later in the year.
Question on golf. Am I correct in assuming that there's no plan for new golf stores this year?
Edward W. Stack
We're looking at that. I would expect -- we're in some negotiations right and I would expect that we would open up somewhere as between three and five gold stores this year.
Sean McGowan – Needham & Company
Okay.
Edward W. Stack
So we don't have anything finalized yet. We're just in final negotiations.
Sean McGowan – Needham & Company
And that would not count in your store opening -- the store opening that you had in the release was just the Dick's Sporting Goods stores, right?
Edward W. Stack
Correct. We're very confident of those Dick's Sporting Goods stores.
The Golf Galaxy ones, as I've said, we're looking at several. We would expect to get three to five, but we're not far enough along in the negotiations to commit to it.
Sean McGowan – Needham & Company
Last question on golf. To what extent might you have seen some weather-related pulling of some sales that might otherwise have occurred in the first quarter, that's actually getting pulled into the fourth quarter?
Do you think that's a possibility?
Edward W. Stack
I think that's a bit of a possibility, but I don't think that's significant. Our first quarter started in February and we had some nicer weather in February that certainly helped.
But I don't think the fourth quarter had an awful lot to do with it. A lot of what was sold in the fourth quarter were commodity-type businesses.
A lot of these new launches didn't start until the first quarter. So TaylorMade launching the RocketBallz.
They launched them on February 3rd. We've got the new Nike launches with the VRS drivers, Callaway with their new Razor Fit.
All of these launches happened in the first quarter.
Sean McGowan – Needham & Company
Thanks a lot.
Operator
Our next question will come from [indiscernible] of Bancamerica. Please go ahead.
Unidentified Analyst
Hi, good morning. This is [indiscernible].
Thanks for taking my question.
Edward W. Stack
Sure.
Unidentified Analyst
Just on the same-store sales guidance of 3% to 4% for the first quarter, I was hoping if you could just give a little color around the drivers and maybe some specifics to what's really working, kind of moving into spring here. You already mentioned baseball and gold are strong.
And then maybe a little bit of color on the product launch schedule and the pipeline you're seeing from key vendors for 2012. It looks like Nike is going to be launching some interesting products for the back half.
Edward W. Stack
Well, the drivers that are driving the first quarter, we have talked about. So that's a bit of golf.
It's the baseball around BBCOR bats. The athletic footwear business was great in the fourth quarter.
We expect that to continue with kind of the lightweight, minimalistic running shoes. The apparel business, Nike and Under Armour have both done a great job with apparel coming out.
So it's pretty well balanced around the store. If I were to say there was one area of the business that we expect is going to continue to be difficult is going to be the fitness products.
But the balance of it is going to be pretty balanced throughout the store.
Unidentified Analyst
And then in terms of -- can you just give a little more color around the [redesign] [ph] efforts. You talked in the past about expanding the program 2012.
I was just wondering if you can give an update on the opportunity there and if there's any initiatives coming for this year?
Edward W. Stack
Yeah, we continue with this program. It's been very successful.
We've seen very positive impacts on our taco business. Our hunting business this past fourth quarter was pretty good.
So we're seeing this as continuing to be an important part of our business.
Unidentified Analyst
Thank you. Great, thank you.
Edward W. Stack
Thanks.
Anne-Marie Megela
Operator? Do we have any more questions?
Operator
At this time, I'm showing no more questions in the queue. I'd like to turn the conference back over to Ed Stack for any closing comments.
Edward W. Stack
Thank you. Again, I'd like to thank everyone for joining us for our fourth quarter earnings call.
And we look forward to seeing everyone after the first quarter. Thank you.
Operator
The conference has now concluded. Thank you for attending today's presentation.
You may now disconnect.