UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☑QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended November 2, 2019August 1, 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,, PA15108
(Address of Principal Executive Offices)
 
(724) (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 November 22, 2019, Dick’sAugust 21, 2020, DICK’S Sporting Goods, Inc. had 63,595,85265,146,591 shares of common stock, par value $0.01 per share, and 24,291,12323,965,633 shares of Class B common stock, par value $0.01 per share, outstanding.

1

INDEX TO FORM 10-Q
Page Number
Page Number
PART I. FINANCIAL INFORMATION
3
Item 1. Financial Statements
3
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
1517
Item 3. Quantitative and Qualitative Disclosures About Market Risk
2528
Item 4. Controls and Procedures
2528
PART II. OTHER INFORMATION
2530
Item 1. Legal Proceedings
2530
Item 1A. Risk Factors
2530
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
2636
Item 5. Other Information
37
Item 6. Exhibits
2738
INDEX TO EXHIBITS
2738
SIGNATURES
2839

2

PART I.  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS 

DICK’S SPORTING GOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except per share data)
(Unaudited)
 13 Weeks Ended26 Weeks Ended
 August 1,
2020		August 3,
2019		August 1,
2020		August 3,
2019
Net sales$2,713,372 $2,259,212 $4,046,600 $4,179,889 
Cost of goods sold, including occupancy and distribution costs1,776,497 1,582,141 2,890,397 2,939,009 
GROSS PROFIT936,875 677,071 1,156,203 1,240,880 
Selling, general and administrative expenses543,033 521,072 946,254 1,008,230 
Pre-opening expenses2,485 996 4,765 1,574 
INCOME FROM OPERATIONS391,357 155,003 205,184 231,076 
Interest expense14,682 5,550 22,727 8,631 
Other income(14,508)(1,582)(986)(8,320)
INCOME BEFORE INCOME TAXES391,183 151,035 183,443 230,765 
Provision for income taxes114,340 38,501 50,022 60,706 
NET INCOME$276,843 $112,534 $133,421 $170,059 
EARNINGS PER COMMON SHARE:  
Basic$3.29 $1.28 $1.59 $1.88 
Diluted$3.12 $1.26 $1.53 $1.85 
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:  
Basic84,130 88,080 83,932 90,483 
Diluted88,826 89,400 87,360 91,894 
   13 Weeks Ended 39 Weeks Ended
   November 2,
2019		 November 3,
2018		 November 2,
2019		 November 3,
2018
Net sales  $1,962,204
 $1,857,273
 $6,142,093
 $5,944,480
Cost of goods sold, including occupancy and distribution costs  1,381,562
 1,333,719
 4,320,571
 4,201,277
          
GROSS PROFIT  580,642
 523,554
 1,821,522
 1,743,203
          
Selling, general and administrative expenses  531,704
 468,691
 1,539,934
 1,434,344
Pre-opening expenses  3,313
 1,997
 4,887
 6,135
          
INCOME FROM OPERATIONS  45,625
 52,866
 276,701
 302,724
          
Gain on sale of subsidiaries  (33,779) —
 (33,779) —
Interest expense  4,278
 2,606
 12,909
 8,312
Other (income) expense  (2,020) 68
 (10,340) (1,233)
          
INCOME BEFORE INCOME TAXES  77,146
 50,192
 307,911
 295,645
          
Provision for income taxes  19,562
 12,365
 80,268
 78,336
          
NET INCOME  $57,584
 $37,827
 $227,643
 $217,309
          
EARNINGS PER COMMON SHARE:   
  
  
  
Basic  $0.68
 $0.39
 $2.57
 $2.20
Diluted  $0.66
 $0.39
 $2.53
 $2.18
          
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:   
  
  
  
Basic  85,048
 96,677
 88,671
 98,926
Diluted  86,601
 97,890
 90,130
 99,878
          



See accompanying notes to unaudited consolidated financial statements.
3

DICK’S SPORTING GOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in thousands)
(Unaudited)
 13 Weeks Ended 39 Weeks Ended 13 Weeks Ended26 Weeks Ended
 November 2,
2019		 November 3,
2018		 November 2,
2019		 November 3,
2018		 August 1,
2020		August 3,
2019		August 1,
2020		August 3,
2019
NET INCOME $57,584
 $37,827
 $227,643
 $217,309
NET INCOME$276,843 $112,534 $133,421 $170,059 
OTHER COMPREHENSIVE INCOME (LOSS):  
  
    OTHER COMPREHENSIVE INCOME (LOSS):  
Foreign currency translation adjustment, net of tax 6
 2
 4
 (40)Foreign currency translation adjustment, net of tax53 17 (10)(2)
TOTAL OTHER COMPREHENSIVE INCOME (LOSS) 6
 2
 4
 (40)TOTAL OTHER COMPREHENSIVE INCOME (LOSS)53 17 (10)(2)
COMPREHENSIVE INCOME $57,590
 $37,829
 $227,647
 $217,269
COMPREHENSIVE INCOME$276,896 $112,551 $133,411 $170,057 
        
 

See accompanying notes to unaudited consolidated financial statements.


4

DICK’S SPORTING GOODS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands) 
(Unaudited)
 November 2,
2019		 February 2,
2019		 November 3,
2018
ASSETS 
  
  
CURRENT ASSETS: 
  
  
Cash and cash equivalents$87,622
 $113,653
 $92,103
Accounts receivable, net70,463
 37,970
 57,559
Income taxes receivable17,122
 6,135
 10,422
Inventories, net2,573,250
 1,824,696
 2,196,777
Prepaid expenses and other current assets128,458
 139,944
 138,468
Total current assets2,876,915
 2,122,398
 2,495,329
      
Property and equipment, net1,436,975
 1,565,271
 1,578,313
Operating lease assets2,378,399
 —
 —
Intangible assets, net123,855
 130,166
 131,763
Goodwill245,857
 250,476
 250,476
Other assets: 
  
  
Deferred income taxes16,033
 13,243
 11,886
Other128,965
 105,595
 115,991
Total other assets144,998
 118,838
 127,877
TOTAL ASSETS$7,206,999
 $4,187,149
 $4,583,758
      
LIABILITIES AND STOCKHOLDERS' EQUITY 
  
  
CURRENT LIABILITIES: 
  
  
Accounts payable$1,097,564
 $889,908
 $1,028,234
Accrued expenses379,774
 364,342
 350,737
Operating lease liabilities417,912
 —
 —
Income taxes payable2,519
 20,142
 2,078
Deferred revenue and other liabilities183,876
 230,247
 173,032
Total current liabilities2,081,645
 1,504,639
 1,554,081
LONG-TERM LIABILITIES: 
  
  
Revolving credit borrowings719,300
 —
 382,300
Long-term operating lease liabilities2,509,866
 —
 —
Deferred income taxes8,530
 11,776
 14,951
Other long-term liabilities178,756
 766,573
 785,384
Total long-term liabilities3,416,452
 778,349
 1,182,635
COMMITMENTS AND CONTINGENCIES


 


 


STOCKHOLDERS' EQUITY: 
  
  
Common stock597
 693
 703
Class B common stock243
 245
 245
Additional paid-in capital1,240,864
 1,214,287
 1,204,293
Retained earnings2,599,495
 2,455,192
 2,374,336
Accumulated other comprehensive loss(116) (120) (118)
Treasury stock, at cost(2,132,181) (1,766,136) (1,732,417)
Total stockholders' equity1,708,902
 1,904,161
 1,847,042
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$7,206,999
 $4,187,149
 $4,583,758
      

August 1,
2020		February 1,
2020		August 3,
2019
ASSETS  
CURRENT ASSETS:  
Cash and cash equivalents$1,061,141 $69,334 $116,733 
Accounts receivable, net74,790 53,173 64,096 
Income taxes receivable7,223 5,762 4,389 
Inventories, net1,875,152 2,202,275 2,136,797 
Prepaid expenses and other current assets74,946 79,472 144,002 
Total current assets3,093,252 2,410,016 2,466,017 
Property and equipment, net1,348,059 1,415,728 1,479,855 
Operating lease assets2,213,158 2,313,846 2,454,929 
Intangible assets, net92,584 94,768 127,079 
Goodwill245,857 245,857 250,476 
Deferred income taxes21,538 14,412 14,600 
Other138,121 133,933 122,259 
TOTAL ASSETS$7,152,569 $6,628,560 $6,915,215 
LIABILITIES AND STOCKHOLDERS' EQUITY  
CURRENT LIABILITIES:  
Accounts payable$1,094,258 $1,001,589 $906,721 
Accrued expenses462,284 415,501 391,555 
Operating lease liabilities474,769 422,970 410,477 
Income taxes payable55,901 10,455 21,490 
Deferred revenue and other liabilities196,165 225,959 195,148 
Total current liabilities2,283,377 2,076,474 1,925,391 
LONG-TERM LIABILITIES:  
Revolving credit borrowings— 224,100 441,500 
       Convertible senior notes due 2025404,573 — — 
Long-term operating lease liabilities2,373,173 2,453,346 2,604,897 
Deferred income taxes— 9,187 5,926 
Other long-term liabilities161,150 133,855 172,415 
Total long-term liabilities2,938,896 2,820,488 3,224,738 
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:  
Common stock601 593 623 
Class B common stock241 243 245 
Additional paid-in capital1,373,426 1,253,867 1,231,325 
Retained earnings2,724,424 2,645,281 2,565,700 
 Accumulated other comprehensive loss(130)(120)(122)
Treasury stock, at cost(2,168,266)(2,168,266)(2,032,685)
Total stockholders' equity1,930,296 1,731,598 1,765,086 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$7,152,569 $6,628,560 $6,915,215 
See accompanying notes to unaudited consolidated financial statements.
5

DICK’S SPORTING GOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Amounts in thousands, except share data)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 vested745 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 
Exchange of Class B common stock for common stock200 2 (200)(2)— — — — — 
Exercise of stock options28 — — — 939 — — — 939 
Restricted stock vested26 1 — — (1)— — — — 
Minimum tax withholding requirements(8)— — — (294)— — — (294)
Net income— — — — — 276,843 — — 276,843 
Stock-based compensation— — — — 8,214 — — — 8,214 
Foreign currency translation adjustment, net of taxes of $(17)— — — — — — 53 — 53 
Cash dividend declared, $0.3125 per common share— — — — — (27,484)— — (27,484)
BALANCE, August 1, 202060,062 $601 24,091 $241 $1,373,426 $2,724,424 $(130)$(2,168,266)$1,930,296 
             Accumulated    
     Class B Additional   Other    
 Common Stock Common Stock Paid-In Retained Comprehensive Treasury  
 Shares Dollars Shares Dollars Capital Earnings Loss Stock Total
BALANCE, February 2, 201969,304,874
 $693
 24,541,123
 $245
 $1,214,287
 $2,455,192
 $(120) $(1,766,136) $1,904,161
Adjustment for cumulative effect from change in accounting principle (ASU 2016-02)—
 —
 —
 —
 —
 (7,953) —
 —
 (7,953)
Exchange of Class B common stock for common stock50,000
 —
 (50,000) —
 —
 —
 —
 —
 —
Exercise of stock options6,388
 —
 —
 —
 213
 —
 —
 —
 213
Restricted stock vested520,095
 6
 —
 —
 (6) —
 —
 —
 —
Minimum tax withholding requirements(158,021) (1) —
 —
 (5,858) —
 —
 —
 (5,859)
Net income—
 —
 —
 —
 —
 57,525
 —
 —
 57,525
Stock-based compensation—
 —
 —
 —
 11,907
 —
 —
 —
 11,907
Foreign currency translation adjustment, net of taxes of $6—
 —
 —
 —
 —
 —
 (19) —
 (19)
Purchase of shares for treasury(2,968,198) (30) —
 —
 —
 —
 —
 (107,275) (107,305)
Cash dividend declared, $0.275 per common share—
 —
 —
 —
 —
 (26,635) —
 —
 (26,635)
BALANCE, May 4, 201966,755,138
 $668
 24,491,123
 $245
 $1,220,543
 $2,478,129
 $(139) $(1,873,411) $1,826,035
Exercise of stock options2,001
 —
 —
 —
 60
 —
 —
 —
 60
Restricted stock vested20,920
 —
 —
 —
 —
 —
 —
 —
 —
Minimum tax withholding requirements(6,809) —
 —
 —
 (453) —
 —
 —
 (453)
Net income—
 —
 —
 —
 —
 112,534
 —
 —
 112,534
Stock-based compensation—
 —
 —
 —
 11,175
 —
 —
 —
 11,175
Foreign currency translation adjustment, net of taxes of ($5)—
 —
 —
 —
 —
 —
 17
 —
 17
Purchase of shares for treasury(4,485,903) (45) —
 —
 —
 —
 —
 (159,274) (159,319)
Cash dividend declared, $0.275 per common share—
 —
 —
 —
 —
 (24,963) —
 —
 (24,963)
BALANCE, August 3, 201962,285,347
 $623
 24,491,123
 $245
 $1,231,325
 $2,565,700
 $(122) $(2,032,685) $1,765,086
Exchange of Class B common stock for common stock
200,000
 2
 (200,000) (2) —
 —
 —
 —
 —
Exercise of stock options28,875
 —
 —
 —
 887
 —
 —
 —
 887
Restricted stock vested1,055
 —
 —
 —
 —
 —
 —
 —
 —
Minimum tax withholding requirements(232) —
 —
 —
 (8) —
 —
 —
 (8)
Net income—
 —
 —
 —
 —
 57,584
 —
 —
 57,584
Stock-based compensation—
 —
 —
 —
 8,660
 —
 —
 —
 8,660
Foreign currency translation adjustment, net of taxes of ($2)—
 —
 —
 —
 —
 —
 6
 —
 6
Purchase of shares for treasury(2,838,191) (28) —
 —
 —
 —
 —
 (99,496) (99,524)
Cash dividend declared, $0.275 per common share—
 —
 —
 —
 —
 (23,789) —
 —
 (23,789)
BALANCE, November 2, 201959,676,854
 $597
 24,291,123
 $243
 $1,240,864
 $2,599,495
 $(116) $(2,132,181) $1,708,902


See accompanying notes to unaudited consolidated financial statements.




















6


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

       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 stock50 — (50)— — — — — — 
Exercise of stock options6 — — — 213 — — — 213 
Restricted stock vested520 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 
Exercise of stock options2 — — — 60 — — — 60 
Restricted stock vested21 — — — — — — — — 
Minimum tax withholding requirements(7)— — — (453)— — — (453)
Net income— — — — — 112,534 — — 112,534 
Stock-based compensation— — — — 11,175 — — — 11,175 
Foreign currency translation adjustment, net of taxes of $(5)— — — — — — 17 — 17 
Purchase of shares for treasury(4,486)(45)— — — — — (159,274)(159,319)
    Cash dividend declared, $0.275
         per common share
— — — — — (24,963)— — (24,963)
BALANCE, August 3, 201962,285 623 24,491 245 1,231,325 2,565,700 (122)(2,032,685)1,765,086 
             Accumulated    
     Class B Additional   Other    
 Common Stock Common Stock Paid-In Retained Comprehensive Treasury  
 Shares Dollars Shares Dollars Capital Earnings Loss Stock Total
BALANCE, February 3, 201878,317,898
 $783
 24,710,870
 $247
 $1,177,778
 $2,205,651
 $(78) $(1,442,880) $1,941,501
Adjustment for cumulative effect from change in accounting principle (ASU 2014-09)—
 —
 —
 —
 —
 20,488
 —
 —
 20,488
Exchange of Class B common stock for common stock119,912
 1
 (119,912) (1) —
 —
 —
 —
 —
Restricted stock vested399,604
 4
 —
 —
 (4) —
 —
 —
 —
Minimum tax withholding requirements(118,707) (1) —
 —
 (3,918) —
 —
 —
 (3,919)
Net income—
 —
 —
 —
 —
 60,085
 —
 —
 60,085
Stock-based compensation—
 —
 —
 —
 11,666
 —
 —
 —
 11,666
Foreign currency translation adjustment, net of taxes of $7—
 —
 —
 —
 —
 —
 (22) —
 (22)
Purchase of shares for treasury(3,338,000) (33) —
 —
 —
 —
 —
 (107,884) (107,917)
Cash dividend declared, $0.225 per common share—
 —
 —
 —
 —
 (23,672) —
 —
 (23,672)
BALANCE, May 5, 201875,380,707
 $754
 24,590,958
 $246
 $1,185,522
 $2,262,552
 $(100) $(1,550,764) $1,898,210
Exchange of Class B common stock for common stock49,835
 1
 (49,835) (1) —
 —
 —
 —
 —
Restricted stock vested8,398
 —
 —
 —
 —
 —
 —
 —
 —
Minimum tax withholding requirements(2,437) —
 —
 —
 (87) —
 —
 —
 (87)
Net income—
 —
 —
 —
 —
 119,397
 —
 —
 119,397
Stock-based compensation—
 —
 —
 —
 10,440
 —
 —
 —
 10,440
Foreign currency translation adjustment, net of taxes of $6—
 —
 —
 —
 —
 —
 (20) —
 (20)
Purchase of shares for treasury(2,218,200) (23) —
 —
 —
 —
 —
 (73,766) (73,789)
Cash dividend declared, $0.225 per common share—
 —
 —
 —
 —
 (22,925) —
 —
 (22,925)
BALANCE, August 4, 201873,218,303
 $732
 24,541,123
 $245
 $1,195,875
 $2,359,024
 $(120) $(1,624,530) $1,931,226
Restricted stock vested124,249
 1
 —
 —
 (1) —
 —
 —
 —
Minimum tax withholding requirements(34,574) —
 —
 —
 (1,258) —
 —
 —
 (1,258)
Net income—
 —
 —
 —
 —
 37,827
 —
 —
 37,827
Stock-based compensation—
 —
 —
 —
 9,677
 —
 —
 —
 9,677
Foreign currency translation adjustment, net of taxes of $0—
 —
 —
 —
 —
 —
 2
 —
 2
Purchase of shares for treasury(3,058,171) (30) —
 —
 —
 —
 —
 (107,887) (107,917)
Cash dividend declared, $0.225 per common share—
 —
 —
 —
 —
 (22,515) —
 —
 (22,515)
BALANCE, November 3, 201870,249,807
 $703
 24,541,123
 $245
 $1,204,293
 $2,374,336
 $(118) $(1,732,417) $1,847,042

See accompanying notes to unaudited consolidated financial statements.
7

DICK’S SPORTING GOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
39 Weeks Ended26 Weeks Ended
November 2,
2019		 November 3,
2018		 August 1,
2020		August 3,
2019
CASH FLOWS FROM OPERATING ACTIVITIES: 
  
CASH FLOWS FROM OPERATING ACTIVITIES:  
Net income$227,643
 $217,309
Net income$133,421 $170,059 
Adjustments to reconcile net income to net cash (used in) provided by operating activities: 
  
Adjustments to reconcile net income to net cash provided by (used in) operating activities:Adjustments to reconcile net income to net cash provided by (used in) operating activities:  
Depreciation, amortization, and other201,152
 179,437
Depreciation, amortization, and other162,755 157,410 
Amortization of convertible notes discount and issuance costsAmortization of convertible notes discount and issuance costs7,662 — 
Non-cash lease costsNon-cash lease costs28,395 (28,699)
Deferred income taxes(3,438) (726)Deferred income taxes(16,313)(4,609)
Stock-based compensation31,742
 31,783
Stock-based compensation17,449 23,082 
Gain on sale of subsidiaries(33,779) —
Changes in assets and liabilities: 
  
Changes in assets and liabilities:  
Accounts receivable(22,636) (7,218)Accounts receivable(8,402)(26,859)
Inventories(758,016) (466,212)Inventories327,123 (312,101)
Prepaid expenses and other assets3,822
 7,950
Prepaid expenses and other assets7,026 (5,169)
Accounts payable168,259
 234,859
Accounts payable103,379 (10,550)
Accrued expenses11,424
 11,152
Accrued expenses48,497 17,909 
Income taxes payable / receivable(28,610) (14,387)Income taxes payable / receivable43,985 3,094 
Deferred construction allowances25,598
 23,440
Deferred construction allowances30,850 21,961 
Deferred revenue and other liabilities(35,936) (56,859)Deferred revenue and other liabilities(9,120)(32,752)
Net cash (used in) provided by operating activities(212,775) 160,528
Net cash provided by (used in) operating activitiesNet cash provided by (used in) operating activities876,707 (27,224)
CASH FLOWS FROM INVESTING ACTIVITIES: 
  
CASH FLOWS FROM INVESTING ACTIVITIES:  
Capital expenditures(165,703) (135,288) Capital expenditures(94,256)(110,992)
Proceeds from sale of subsidiaries, net of cash sold40,387
 —
Proceeds from sale of other assets4,103
 —
Deposits and purchases of other assets(1,000) —
 Deposits and purchases of other assets— (1,000)
Net cash used in investing activities(122,213) (135,288)Net cash used in investing activities(94,256)(111,992)
CASH FLOWS FROM FINANCING ACTIVITIES: 
  
CASH FLOWS FROM FINANCING ACTIVITIES:  
Revolving credit borrowings1,778,750
 1,723,500
Revolving credit borrowings1,291,700 1,185,850 
Revolving credit repayments(1,059,450) (1,341,200)Revolving credit repayments(1,515,800)(744,350)
Proceeds from issuance of convertible notesProceeds from issuance of convertible notes575,000 — 
Payments for purchase of bond hedgesPayments for purchase of bond hedges(161,057)— 
Proceeds from issuance of warrantsProceeds from issuance of warrants105,225 — 
Transaction costs paid in connection with convertible notes issuanceTransaction costs paid in connection with convertible notes issuance(17,396)— 
Payments on other long-term debt and finance lease obligations(3,965) (3,924) Payments on other long-term debt and finance lease obligations(403)(2,644)
Construction allowance receipts—
 —
Proceeds from exercise of stock options1,160
 —
 Proceeds from exercise of stock options939 273 
Minimum tax withholding requirements(6,320) (5,264)Minimum tax withholding requirements(3,684)(6,312)
Cash paid for treasury stock(366,148) (289,623)Cash paid for treasury stock— (266,624)
Cash dividends paid to stockholders(74,540) (68,139)Cash dividends paid to stockholders(54,448)(51,258)
Increase (decrease) in bank overdraft39,466
 (49,700)
Net cash provided by (used in) financing activities308,953
 (34,350)
(Decrease) increase in bank overdraft(Decrease) increase in bank overdraft(10,710)27,363 
Net cash provided by financing activitiesNet cash provided by financing activities209,366 142,298 
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS4
 (40)EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS(10)(2)
NET DECREASE IN CASH AND CASH EQUIVALENTS(26,031) (9,150)
NET INCREASE IN CASH AND CASH EQUIVALENTSNET INCREASE IN CASH AND CASH EQUIVALENTS991,807 3,080 
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD113,653
 101,253
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD69,334 113,653 
CASH AND CASH EQUIVALENTS, END OF PERIOD$87,622
 $92,103
CASH AND CASH EQUIVALENTS, END OF PERIOD$1,061,141 $116,733 
   
Supplemental disclosure of cash flow information: 
  
Supplemental disclosure of cash flow information:  
Accrued property and equipment$22,905
 $14,308
Accrued property and equipment$30,924 $28,255 
Cash paid for interest$12,427
 $7,185
Cash paid for interest$9,156 $7,865 
Cash paid for income taxes$112,458
 $97,407
Cash paid for income taxes$24,260 $62,780 
 

See accompanying notes to unaudited consolidated financial statements.
8

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

1.  Description of Business and Basis of Presentation
Dick’sDICK’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 ourits dedicated associates,teammates, in-store services and unique specialty shop-in-shops. The Company also owns and operates Golf Galaxy and Field & Stream specialty stores, as well as GameChanger, a youth sports mobile app for scheduling, communications and live scorekeeping. The Company offers its products through a content-richan eCommerce platform that is integrated with its store network and provides customers with the convenience and expertise of a 24-hour storefront. When used in this Quarterly Report on Form 10-Q, unless the context otherwise requires or otherwise specifies, any reference to “year” is to the Company’s fiscal year.
Basis of Presentation and Use of Estimates
The accompanying unaudited consolidated financial statements have been prepared in accordance with the requirements for Quarterly Reports on Form 10-Q and do not include all the disclosures normally required in annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The interim consolidated financial statements are unaudited and have been prepared on the same basis as the annual audited consolidated financial statements. In the opinion of management, such unaudited consolidated financial statements include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the interim financial information. 
The unaudited interim financial information should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended February 2, 20191, 2020 as filed with the Securities and Exchange Commission on March 29, 2019.20, 2020. Operating results for the 13 and 3926 weeks ended November 2, 2019August 1, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending February 1, 2020January 30, 2021 or any other period.
Reclassifications
Certain reclassifications have been made to prior year amounts within the unaudited Consolidated Balance Sheets and Statements of Cash Flows to conform to the current year presentation.

COVID-19 Update
In March 2020, the World Health Organization declared the disease caused by the novel strain of coronavirus (“COVID-19”) a pandemic, which continued to spread globally and throughout the United States. In response to the public health crisis posed by COVID-19, the Company prioritized the health and safety of our 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, using its business continuity plans to operate corporate support functions under remote work arrangements that currently remain in place.
The temporary store closures had a negative impact on the Company’s first quarter results. In response to the potential impacts and uncertainty about the duration of the COVID-19 pandemic, the Company took precautionary measures to increase and maintain its liquidity, which included reductions in planned operating expenses, inventory receipts and planned capital expenditures, negotiating rent deferrals with landlords, increasing the borrowing capacity on its Credit Facility and issuing $575 million of convertible senior notes due 2025 (“Convertible Senior Notes”), which added over $500 million of net proceeds to the Company’s cash position, among other actions. Subsequent to the end of the first fiscal quarter, the Company reopened all of its stores by the end of June, which contributed to a sales increase of approximately 20.1% in the quarter ended August 1, 2020 compared to the quarter ended August 3, 2019. As a result of the Company’s second quarter results and the aforementioned precautionary measures taken to increase and maintain its liquidity, the Company ended the second quarter of fiscal 2020 with $1.1 billion of cash and cash equivalents, with 0 borrowings outstanding on its Credit Facility.
9
DICK’S SPORTING GOODS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


In addition, on March 27, 2020, the United States Congress enacted the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), which among other things, promulgated various income tax provisions, including but not limited to, modifications for net operating losses, an 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 year to date period in fiscal 2020, employee retention tax credits reduced the Company’s operating expenses by approximately $16.6 million. In addition, the Company is deferring qualified payroll and other tax payments as permitted by the CARES Act, which totaled approximately $22.4 million as of August 1, 2020.
The Company continues to consider and assess the potential impact that the COVID-19 pandemic could have on the Company’s operations, including the assumptions and estimates used to prepare its interim financial statements such as 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 the COVID-19 pandemic causes current economic conditions to further deteriorate and negatively impact consumer spending, 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 the impacts of temporary store closures, the Company incurred approximately $42 million and $76 million of incremental compensation and safety costs for the quarterly and year to date periods ended August 1, 2020, respectively. In addition, the quarter ended August 1, 2020 included the recovery of approximately $28 million of inventory write-downs that the Company recorded in the first quarter, due to better than anticipated second quarter sales.
Recently Adopted Accounting Pronouncements
Financial Instruments
In FebruaryJune 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases2016-13, “Financial Instruments–Credit Losses (Topic 842),326): Measurement of Credit Losses on Financial Instruments,” which required an entity to recognize lease assetsintroduces new guidance for estimating credit losses on certain types of financial instruments based on expected losses and lease liabilitiesthe 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 balance sheetCompany’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 disclose key information about an entity’s leasing arrangements.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 2016-02 was2019-12, “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 and interim periods therein, beginning after December 15, 2018. In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases,2021, and ASU 2018-11, Leases (Topic 842), Targeted Improvements, which affected certain aspectsinterim periods within fiscal years beginning after December 15, 2022. Early adoption of the previously issued guidance. Amendments included an additional transition option that allowed entities to apply the new standardamendments is permitted. Depending on the amendment, adoption date and recognizemay be applied on a cumulative effect adjustment to the opening balance of retained earnings, as well as a new practical expedient for lessors. The effective date and transition requirements for ASU 2018-10 and ASU 2018-11 are the same as ASU 2016-02.
On February 3, 2019, the Company adopted ASU 2016-02 and all related amendments using the optional transition method and elected the package of practical expedients permitted under the transition guidance within the new standard. Such election allowed the Company to not reassess whether any expiredretrospective, modified retrospective or existing contracts are or contain leases, not to reassess the lease classification for any expired or existing leases, and not to reassess initial direct costs for any existing leases.prospective basis. The Company also electedis currently evaluating the practical expedient related to land easements. The Company did not electimpact of adoption on the practical expedientCompany’s financial condition, results of hindsight when determining the lease term of existing contracts at the effective date.
The Company has lease agreements with non-lease components that relate to the lease components and elected the practical expedient to account for non-lease components, and the lease components to which they relate, as a single lease component for all classes of underlying assets. The Company also elected to keep short-term leases with an initial term of 12 months or less off the Consolidated Balance Sheet.
Adoption of these standards did not materially affect our consolidated net income oroperations, cash flows but resulted in recognition of lease assets of $2.5 billion and lease liabilities of $3.1 billion as of February 3, 2019. In connection with the adoption, pre-existing liabilities for deferred rent and various lease incentives were reclassified as a component of the lease assets. Accordingly, the Company recorded an $8.0 million adjustmentdisclosures, which is not expected to opening retained earnings, primarily resulting from the impairment of lease assets recognized at adoption. Refer to Note 5 to the unaudited Consolidated Financial Statements for additional information.be significant.

10
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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.
Convertible Instruments
In August 2020, the FASB issued ASU 2020-06, “Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40).” The update simplifies the accounting for convertible debt instruments and convertible preferred stock by reducing the number of accounting models and the number of embedded conversion features that could be recognized separately from the primary contract. ASU 2020-06 also enhances transparency and improves disclosures for convertible instruments and earnings per share guidance. It is effective for annual reporting periods beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. This update permits the use of either the modified retrospective or fully retrospective method of transition. The Company is currently evaluating the timing and impact of the adoption of ASU 2020-06 on the Company's financial statements but anticipates that it will result in a reduction in non-cash interest expense related to the Convertible Senior Notes.

2.  Earnings Per Common Share
Basic earnings per common share is computed based on the weighted average number of shares of common stock outstanding during the period. Diluted earnings per common share is computed based on the weighted average number of shares of common stock outstanding, plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method. Dilutive potential common shares areinclude shares the Company could be obligated to issue from its Convertible Senior Notes and warrants (see Note 6 for further discussion) and stock-based awards, which include outstandingsuch as stock options and restricted stock and warrants.stock.
The computations for basic and diluted earnings per common share were as follows for the periods presented (in thousands, except per share data): 
 13 Weeks Ended26 Weeks Ended
August 1,
2020		August 3,
2019		August 1,
2020		August 3,
2019
Net income$276,843 $112,534 $133,421 $170,059 
Weighted average common shares outstanding - basic84,130 88,080 83,932 90,483 
Dilutive effect of stock-based awards3,577 1,320 2,868 1,411 
Dilutive effect of Convertible Senior Notes and warrants1,119 — 560 — 
Weighted average common shares outstanding - diluted88,826 89,400 87,360 91,894 
Earnings per common share - basic$3.29 $1.28 $1.59 $1.88 
Earnings per common share - diluted$3.12 $1.26 $1.53 $1.85 
  13 Weeks Ended 39 Weeks Ended
  November 2,
2019		 November 3,
2018		 November 2,
2019		 November 3,
2018
Net income $57,584
 $37,827
 $227,643
 $217,309
         
Weighted average common shares outstanding - basic 85,048
 96,677
 88,671
 98,926
Dilutive effect of stock-based awards 1,553
 1,213
 1,459
 952
Weighted average common shares outstanding - diluted 86,601
 97,890
 90,130
 99,878
         
Earnings per common share - basic $0.68
 $0.39
 $2.57
 $2.20
Earnings per common share - diluted $0.66
 $0.39
 $2.53
 $2.18
         
Anti-dilutive stock-based awards excluded from diluted calculation 3,234
 3,065
 3,208
 3,672


Potentially dilutive shares are excluded from the computation of earnings per share if their effect is anti-dilutive. Anti-dilutive options and restricted stock awards excluded from the calculation of earnings per share for the 13 weeks ended August 1, 2020 and August 3, 2019 were 2.8 million and 3.2 million, respectively. Anti-dilutive options and restricted stock excluded from the calculation of earnings per share for the 26 weeks ended August 1, 2020 and August 3, 2019 were 3.1 million and 3.2 million, respectively. Shares to be provided to the Company from its bond hedge purchased concurrently with its issuance of Convertible Senior Notes are anti-dilutive and are not included in its diluted shares.




11
DICK’S SPORTING GOODS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


3.  Fair Value Measurements
Accounting Standard Codification (“ASC”)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 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
Assets measuredThe Company measures its deferred compensation plan assets held in trust at fair value on a recurring basis are set forth in the table below (in thousands):
 Level 1
 November 2,
2019		 February 2,
2019
Assets:   
Deferred compensation plan assets held in trust (1)
$95,799
 $77,324
Total assets$95,799
 $77,324
    

(1) Consistsusing 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.
The fair value As of cash and cash equivalents, accounts receivable, accounts payable, revolving credit borrowings and certain other liabilities approximated book value due to the short-term nature of these instruments at both November 2, 2019August 1, 2020 and February 2, 2019.
The Company uses quoted prices in active markets to determine1, 2020, the fair value of the aforementioned assetsCompany’s deferred compensation plans was $107.2 million and $99.7 million, respectively, as determined to be Level 1 instruments.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)



4. Revenue Recognition
Revenue is recognized upon satisfaction of all contractual performance obligations and transfer of control to the customer and is measured as the amount of consideration to which the Company expects to be entitled in exchange for corresponding goods or services. Substantially all of the Company’s sales are single performance obligation arrangements for retail sale transactions for which the transaction price is equivalent to the stated price of the product or service, net of any stated discounts applicable at a point in time. Each sales transaction results in an implicit contract with the customer to deliver a product or service at the point of sale. Revenue from retail sales is recognized at the point of sale, net of sales tax. Sales tax amounts collected from customers that are assessed by a governmental authority are excluded from revenue. Revenue from eCommerce sales, including vendor-direct sales arrangements, is recognized upon shipment of merchandise. The Company has elected to treat shipping and handling activities occurring subsequent to the transfer of control to the customer to be accounted for as fulfillment costs. A provision for anticipated merchandise returns is provided through a reduction of sales and cost of goods sold in the period that the related sales are recorded.
Deferred gift card revenue
Revenue from gift cards and returned merchandise credits (collectively the “cards”) is deferred and recognized upon the redemption of the cards. The Company’s gift card liability was $121.9 million and $156.5 million as of November 2, 2019 and February 2, 2019, respectively. During the 39 weeks ended November 2, 2019 and November 3, 2018, the Company recognized $6.5 million and $5.1 million of gift card breakage revenue, respectively, and experienced approximately $72.4 million and $72.7 million of gift card redemptions that were included in its gift card liability as of February 2, 2019 and February 3, 2018, respectively. Based on the Company’s historical experience, the vast majority of gift card revenue is recognized within 12 months of deferral.
Customer loyalty program
Loyalty program points are accrued at the estimated retail value per point, net of estimated breakage. The Company estimatesbases the breakagefair value of loyalty points basedits Convertible Senior Notes on historical redemption rates experiencedLevel 2 inputs, specifically their quoted price in an inactive market on the last trading day in a reporting period. On August 1, 2020, the fair value of the Convertible Senior Notes was $866.0 million, compared to their carrying value of $404.6 million, which excluded amounts classified within additional paid-in capital and any unamortized discounts. See Note 6 for additional information.
Due to the loyalty program, for whichshort-term nature of these instruments, the estimated liability was $27.9 millionfair value of cash and $32.4 million, as of November 2, 2019cash equivalents, accounts receivable, accounts payable, borrowings under the Credit Facility and certain other liabilities approximated their carrying values at both August 1, 2020 and February 2, 2019, respectively. During1, 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 39 weekscarrying 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 November 2, 2019 and November 3, 2018, the Company recognized approximately $23.3 million and $26.2 million, respectively, of revenue that was included in the customer loyalty program liability as of February 2, 2019 and February 3, 2018, respectively. Based on the Company’s customer loyalty program policies, the vast majority of program points earned are redeemed or expire within 12 months.
Net Sales by CategoryAugust 1, 2020.
The following table disaggregates the amount of net sales attributable to hardlines, apparel and footwear for the periods presented (in thousands):
  13 Weeks Ended 39 Weeks Ended
  November 2,
2019		 November 3,
2018		 November 2,
2019		 November 3,
2018
Hardlines (1)
 $800,489
 $771,109
 $2,763,156
 $2,742,243
Apparel 684,072
 643,301
 1,940,237
 1,835,844
Footwear 448,616
 412,758
 1,329,782
 1,266,854
Other (2)
 29,027
 30,105
 108,918
 99,539
Total net sales $1,962,204
 $1,857,273
 $6,142,093
 $5,944,480

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

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



5.4. Leases
The Company leases all of its stores, 3 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-yearfive-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 determines whether a contract isdid not elect this option; accordingly, any rent deferrals or contains aconcessions that were granted by landlords during fiscal 2020 were treated as lease at contract inception. Beginningmodifications and not as variable rent reductions. Since lease modification accounting generally requires recognition of changes in fiscal 2019, operating lease assets and operating lease liabilities are recognized at commencement date based on the present value of remaining fixed leaserent payments over the lease term. Asterm, the rate implicitCompany’s earnings were not materially impacted in the lease is not readily determinable in most of the Company’s leases, the Company uses its incremental borrowing rate based on the information available at a lease’s commencement date to determine the present value of lease payments. The Company’s incremental borrowing rate for a lease is the rate of interest it would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms. The operating lease asset also includes any fixed lease payments made and includes lease incentives and incurred initial direct costs.
Operating lease expense for fixed lease payments is recognized on a straight-line basis over the lease term. Variable lease payments are generally expensed as incurred and may include certain index-based changes in rent and other non-fixed payments for services provided by the lessor. The Company’s lease terms may include options to extendquarter or terminate the lease when it is reasonably certain that the Company will exercise that option. The Company’s leases do not contain any material residual guarantees or material restrictive covenants.
The components of lease cost for the 13 and 3926 weeks ended November 2, 2019 were as follows (in thousands):August 1, 2020 by rent deferrals or concessions.
  13 Weeks Ended 39 Weeks Ended
  November 2,
2019		 November 2,
2019
Operating lease cost $147,847
 $443,117
Short-term lease cost 2,121
 5,125
Variable lease cost 30,168
 89,599
Sublease income (1,180) (2,809)
Total lease cost $178,956
 $535,032
12

Supplemental cash flow information related to operating leases for the 3926 weeks ended November 2,August 1, 2020 and August 3, 2019 were as follows (in thousandsmillions):
26 weeks ended
August 1,
2020		August 3,
2019
Cash paid for amounts included in the measurement of operating lease liabilities$265.8 $327.9 
Non-cash operating lease assets and liabilities obtained in exchange for new or modified leases
$143.5 $140.4 
Cash paid for amounts included in the measurement of operating lease liabilities $491,487
Non-cash operating lease assets and liabilities obtained in exchange for new or modified leases

 $174,190

Supplemental balance sheet information related to operating leases as of November 2, 2019 were as follows:          
Weighted average remaining lease term for operating leases6.78 years
Weighted average discount rate for operating leases6.68%

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




Future maturities of operating lease liabilities as of November 2, 2019 were as follows (in thousands):
Fiscal Year  
Remainder of fiscal 2019 $164,583
2020 651,035
2021 616,415
2022 557,709
2023 477,952
2024 381,572
Thereafter 797,059
Total future undiscounted lease payments 3,646,325
Less imputed interest (718,547)
      Total reported lease liability $2,927,778
   


As of November 2, 2019, the Company has entered into operating leases of approximately $148.8 million that have not yet commenced, primarily related to future store locations.
Total future minimum rentals under non-cancellable subleases at November 2, 2019 were $58.9 million.
Disclosures related to periods prior to adoption of Leases (Topic 842)
Future minimum payments determined under the previous accounting standards for operating lease obligations, including committed leases that had not yet commenced, were as follows as of February 2, 2019 (in thousands):
Fiscal Year  
2019 $655,516
2020 619,189
2021 558,633
2022 475,830
2023 392,826
Thereafter 1,033,034
Total $3,735,028
   


Rent expense under these operating leases totaled $133.5 million and $398.1 million for the 13 and 39 weeks ended November 3, 2018, respectively.

6. Debt5. Revolving Credit Facility
On June 28, 2019,March 27, 2020, the Company amended its existing $1.25$1.6 billion senior secured revolving credit facility, to extend the maturity date towhich matures on June 28, 2024, andto increase aggregate commitments to $1.855 billion (the “Credit Facility”). The amended Credit Facility includes the borrowing capacityability to $1.6 billion, including providing forissue letters of credit up to $150.0 million in the form of letters of credit (the “Credit Facility”). Theaggregate. 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 $500.0approximately $245.0 million in additional borrowing availability, subject to existing or new lenders agreeing to provide such 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 margin percentagemargins 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 is 0.125%and from 1.125% to 0.375% and1.375% for adjusted LIBOR rate loans. These margin percentages will be in effect until the Company elects to lower the aggregate commitments under the Credit Facility so that they no longer exceed $1.6 billion. Other modifications included introducing a LIBOR “floor” of 0.75% for purposes of calculating the interest rate on LIBOR based loans is 1.125% to 1.375%, depending onand modifying the Company’s borrowing availability. base definition so that certain junior liens do not automatically disqualify eligible receivables and inventory from inclusion in the borrowing base.
As of November 2, 2019August 1, 2020, there were 0 borrowings outstanding under the Credit Facility. As of August 1, 2020 and February 2, 2019,1, 2020, total remaining borrowing capacity, after subtracting letters of credit, was $864.6$1,450.2 million and $1,233.9$1,359.8 million, respectively.
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DICK’S SPORTING GOODS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)



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.

7. Sale of Subsidiaries6. Convertible Senior Notes
On August 22, 2019,Overview
In April 2020, the Company sold 2issued in a private offering an aggregate $575.0 million 3.25% Convertible Senior Notes due 2025 in two closing transactions, including the exercise of its technology subsidiaries, Blue Sombreroa $75.0 million over-allotment option. The Company received proceeds from the issuance and Affinity Sports, to Stack Sports for $45.0 million, or proceedssale of $40.4the Convertible Senior Notes of $557.6 million, net of $17.4 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.
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DICK’S SPORTING GOODS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


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 5 consecutive business days immediately after any five consecutive trading day period (such five consecutive 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 Convertible Senior 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 sold. 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 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.
Upon issuance of the Convertible Senior Notes in April 2020, the initial conversion rate was 28.2618 shares of the Company’s common stock per $1,000 principal amount of Convertible Senior Notes, which represented an initial conversion price of approximately $35.38 per share. The conversion rate is subject to customary adjustments upon the occurrence of certain events, such as the payment of dividends. 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. As of August 1, 2020, the conversion rate for the Convertible Senior Notes is 28.4788, which represents a conversion price of $35.11 per share. The difference between the initial conversion rate and the conversion rate as of August 1, 2020 is due to dividends that have been declared following the issuance of the Convertible Senior Notes.
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DICK’S SPORTING GOODS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


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 also has the ability to irrevocably elect to settle the Convertible Senior Notes in cash without amending the indentures or the Notes themselves. As of August 1, 2020, 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 $396.9 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 13 and 26 weeks ended August 1, 2020, the Company recognized interest expense of $11.2 million and $13.1 million, respectively, related to the Convertible Senior Notes.
A summary as of August 1, 2020 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 is as follows:
(in millions)
Par value$575.0
Debt discount$(170.4)
Carrying amount$404.6
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 entered intopurchased a long-term strategic partnership agreement pursuantbond hedge designed to which itmitigate 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 servereceive shares of common stock equal to the shares issued under the conversion feature of the Convertible Senior Notes. 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 or approximately 16.4 million shares.
The cost of the bond hedge was partially offset by the Company’s sale of warrants to acquire approximately 16.4 million shares of the Company’s common stock. The warrants were initially exercisable at a price of at least $52.42 per share and are subject to customary adjustments upon the occurrence of certain events, such as the official retailerpayment of Stack Sports. Stack Sports has no affiliationdividends. As of August 1, 2020, the warrants are exercisable at a price of at least $52.02 per share. The difference between the initial and current exercise price is due to dividends that have been declared following the issuance of the warrants.
The bond hedge and warrant transactions effectively increased the conversion price associated with Edward W. Stack, the Company's ChairmanConvertible Senior Notes during the term of these transactions from 35% to 100% at their issuance, 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 the exercise price of the warrants at the time of conversion.
The bond hedges and Chief Executive Officer.warrants are indexed to, and potentially settled in shares of, the Company’s common stock. The sale resulted in a pre-tax gainnet cost of $33.8$55.8 million which is included in gain onfor the purchase of the bond hedges and sale of subsidiariesthe warrants was recorded as a reduction to additional paid-in capital in the consolidated balance sheets.
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DICK’S SPORTING GOODS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


At issuance, the Company recorded a deferred tax liability of $42.7 million related to the Convertible Senior Notes debt discount and a deferred tax asset of $42.8 million related to the convertible note hedge transactions. The deferred tax liability and deferred tax asset are recorded net within deferred income taxes in the unaudited Consolidated Statementsconsolidated balance sheets.

7. Income Taxes
The Company’s effective tax rate increased to 29.2% for the current quarter from 25.5% for the quarter ended August 3, 2019. The Company’s effective tax rate for its first quarter of Income.2020 included an estimated benefit resulting from the 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%. Based upon its second quarter net income, the Company no longer anticipates a net operating loss for fiscal 2020, which is reflected in its effective tax rate for the 13 weeks ended August 1, 2020.

The Company’s effective tax rate increased to 27.3% for the 26 weeks ended August 1, 2020 from 26.3% for the 26 weeks ended August 3, 2019. The increase was due primarily to the tax impact of certain share-based payments that vested in the current year.

8.  Subsequent Event
On NovemberAugust 21, 2019,2020, the Company’sCompany's Board of Directors authorized and declared a quarterly cash dividend in the amount of $0.275$0.3125 per share on the Company’sCompany's common stock and Class B common stock payable on December 31, 2019September 25, 2020 to stockholders of record as of the close of business on December 13, 2019.
September 11, 2020.
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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, current expectations; planned strategic investmentsthe impact of the coronavirus (“COVID-19”) pandemic on the business, including store closures, changes to consumer demand and store traffic, and supply chain disruptions; that our efforts to increase and maintain liquidity will continue to be sufficient to operate during the disruption caused by the COVID-19 pandemic; plans to delay the removal of the hunt department from additional stores in fiscal 2020; plans to reduce our store growth strategies, including the continued enhancement ofrate and leverage our digital capabilities and eCommerce platform, investments in our eCommerce fulfillment network and corporate information technology capabilities, improvementsreal estate portfolio to capitalize on future opportunities in the customer experience in both storesnear and online, and inventory investments in key growth categories; projections ofintermediate term as our future profitability and results of operations; plans to open new stores and remodel existing stores;leases come up for renewal; investments in our teammates and their productivity; the impact of the issuance of the Convertible Senior Notes, entering into the bond hedge and warrant transactions, and our intention to repay the Convertible Senior Notes in cash; eliminating non-essential expenses to fund our future strategic investments; the hunt industry remaining under significant pressure; the effect of changesreduction in corporate income tax laws and tariffs;our planned capital expenditures; the impact of the sale of Blue Sombrerofuture dividends and Affinity Sports; plans to return capital to stockholders through dividends or share repurchases; 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 20192020 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 of the duration and scope of the COVID-19 pandemic on our business, operations and financial results, including whether there are additional waves of infections or periods of increases in the number of COVID-19 cases in areas in which we operate, and the restrictions that might be imposed by federal, state, or local governments in response to the pandemic, including restrictions impacting school closures and remote learning requirements;
▪The dependence of our business on consumer discretionary spending and our business on consumer discretionary spending;
▪Intense competition in the sporting goods industry and in retail, including the level of competitive promotional activity;
▪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 results 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 managepredict or effectively react to changes in consumer demand or shopping patterns, including changes due to the impactCOVID-19 pandemic;
▪Store closures due to the COVID-19 pandemic or civil disturbances;
▪Intense competition in the sporting goods industry and in retail, including the level of new tariffs or increased rates on existing tariffs;competitive promotional activity;
▪Our vendor relationships, disruptions in our or our vendors’ supply chains (including those resulting from the COVID-19 pandemic), 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;
▪Lawsuits or other claims arising from our response to the COVID-19 pandemic;
▪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, and our hunt restructuring strategy;
▪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 predictmanage the impact of new tariffs or effectively reactincreased rates on existing tariffs;
•Lack of available retail store sites on terms acceptable to changes in consumer demandus, 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;
▪Unauthorized disclosure of sensitive or shopping patterns;confidential customer information;
▪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;
▪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;
17

▪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;
▪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, or retirement, serious injury or scandal involving key athletes;
▪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; the integration of acquired businesses or companies being more difficult, time-consuming, or costly than expected; or the investments or acquisitions failing to produce the anticipated benefits within the expected time frame or at all;
▪We are controlled by our Chairman and Chief Executive Officer and his relatives, whose interests may differ from those of our other stockholders;
▪Our current anti-takeover provisions, which could prevent or delay a change in control of the Company; and
▪The issuance of quarterly cash dividends, and our repurchase activity, if any, pursuant to our share repurchase program.
▪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;
▪Disruption or cancellation of organized youth and adult sports programs as a result of the pandemic;
▪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 the COVID-19 pandemic;
▪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 and the related bond hedge and warrant transactions; and
▪Our current anti-takeover provisions, which could prevent or delay a change in control of the Company; and
▪The issuance of quarterly cash dividends, and our repurchase activity, if any, pursuant to our share repurchase program.
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 2, 2019,1, 2020, filed on March 29, 2019.20, 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 dedicated associates,teammates, in-store services and unique specialty shop-in-shops. We alsoIn addition to DICK’S Sporting Goods stores, we own and operate Golf Galaxy and Field & Stream specialty stores, as well as GameChanger, a youth sports mobile app for scheduling, communications and live scorekeeping. We also offer our products through a content-richan eCommerce platform that is integrated with our store network and provides customersathletes 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 theour number of our 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, and the strength of our gross profit margins.margins, and our ability to manage expenses. We have grown from 597 Dick’s619 DICK’S Sporting Goods stores as of NovemberAugust 1, 20142015 to 733 Dick’s726 DICK’S Sporting Goods stores as of November 2, 2019. Recently, weAugust 1, 2020. We have reduced the rate at which we have openedopen new stores andin recent years, a strategy we intend to continue this strategy over the next few years in an effort to allow our continued leverage of the significant flexibility within our existing real estate portfolio to capitalize on future real estate opportunities over the near and intermediate termsterm as those leases come up for renewal.
In recent years, we have transitioned to We deploy an insourced eCommerce platform, allowingwhich allows for continued innovation ofand enhancements to our eCommerce websites and applications, with customer experience enhancements, 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; return-to-storein 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 has increased from approximately 7%9% in fiscal 2014 to approximately 13% for16% in fiscal 2019. Following our temporary store closures through the year-to-date periods ended
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November 1, 2014end of the first quarter of 2020, we experienced strong eCommerce sales performance, which included activity from our new curbside contactless pickup service. This sales trend continued into the second fiscal quarter, even as our stores began to reopen, as eCommerce sales increased 194% compared to the second quarter of fiscal 2019, and November 2, 2019, respectively. Approximately 80%represented approximately 30% of total sales. Through our omni-channel platform, approximately 90% of our eCommerce sales arewere generated within brick and mortar store trade areas.areas, with the majority of these sales fulfilled by our store network.
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. Weak customer demand for firearms and other hunting merchandise across the industry has slowed our growth. Further, trade tensions between the U.S. and China have resulted in either new or increased tariffs on imported products.businesses. 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 andexclusivity. We have also made strategic investments in our supply chain, digital capabilities, customer experience, private brands and teammates to support these efforts. We are alsoefforts and have focused on increasing productivity, andwhile eliminating non-essential expenses which has enabled us to fund our future strategic investments.
As we lookCOVID-19 Update
In March 2020, the World Health Organization declared the disease caused by the COVID-19 pandemic, which continued to spread globally and throughout the United States. In response to the future,public health crisis posed by the COVID-19 pandemic, we are determinedprioritized 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 customer support center, using our business continuity plans to operate our corporate support functions under remote work arrangements, which remain in place.
During the period of store closures, we continued to serve our athletes through our eCommerce platform, which has experienced accelerated sales growth since our temporary store closures. We 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.Additionally, we took precautionary measures to increase and maintain our liquidity, which included reductions in planned operating expenses, inventory receipts and planned capital expenditures, negotiating rent deferrals with landlords, increasing the borrowing capacity on our Credit Facility and issuing par value $575 million convertible senior notes (the “Convertible Senior Notes”), which added over $500 million of net proceeds to our cash position, among other actions.
We began to reopen stores in late April 2020 where it was permitted by state and local directives. As of the end of May, approximately 80% of our stores were open to the public, and all of our stores were open as of the end of June.Consolidated same store sales increased 20.7% during the current quarter compared to the prior year period, due in part to higher demand for health and fitness related merchandise, including socially distant outdoor activities and athletic apparel and footwear.Additionally, we continue to invest inexperience higher eCommerce sales following our businessstore re-openings. eCommerce sales, which include curbside contactless pickup, increased 194% during the current quarter compared to meet the changing needsprior year quarter. More than 75% of our athletesonline sales were fulfilled by our stores, which serve as localized points of distribution. Although the favorable shifts in consumer demand that contributed to our performance during the second quarter have continued into the third quarter, they have been partially offset by softness across key back-to-school categories.
19
We have implemented additional safety and increasing their level of engagement with the Company. We plancleaning protocols at our stores, distribution centers and corporate offices. Additionally, we have provided a 15% pay premium to further enhance our store experience by optimizingand distribution center teammates, which we intend to keep in place for the remainder of the calendar year.As a result of actions taken to prioritize the health and well-being of our merchandise assortment, reallocating floor spaceteammates and athletes, we incurred teammate compensation and safety costs for the 13 weeks and 26 weeks ended August 1, 2020 of approximately $42 million and $76 million, respectively.
While the ongoing COVID-19 pandemic did not adversely affect the results of our second fiscal quarter, the long-term health and economic impact of the COVID-19 pandemic remains uncertain, including the duration and severity of the COVID-19 outbreak, actions that may be taken to regionally relevantcontain its spread, its impact on consumer discretionary spending and growing merchandise categoriesthe longer-term economic recovery when the pandemic subsides. Therefore, we currently are not able to estimate the full impact that the COVID-19 pandemic may have on our financial condition and making our stores more experiential. Our primary areasfuture results of investment during fiscal 2019operations. We will continue to be 1) enhancingactively monitor the athlete experienceeffects that the COVID-19 pandemic has on our business. Another period of store closures or changes in customer behaviors would require us to re-evaluate our stores; 2) improvingcurrent business assumptions and estimates. Such conditions would likely result in lower future net sales and cash flow, which could lead to impairment of our eCommerce fulfillment capabilities;store and 3) implementing technology solutions that improveother assets, as well as increase the athlete experience andrisks associated with excess inventory.
Hunt Restructuring Update
In connection with our teammates’ productivity. We also plan to continue to focus on increasing productivity across the business to help fund these investments.
We are conducting apreviously disclosed strategic review of our huntinghunt business, including Field & Stream. As part of our ongoing review, we removed hunt category merchandise from approximately 135 Dick'sDICK’S Sporting Goods stores through the end of fiscal 2019 and reallocated the space in these stores to a localized assortment of categories and products in an effort to drive growth. In addition,the fourth quarter of fiscal 2019, we exited eight Field & Streamannounced a plan to remove the hunt department from approximately 440 additional DICK’S Sporting Goods stores in fiscal 2020, which would have left the third quarter,hunt department in approximately 12% of our remaining stores. During fiscal 2020, we have removed the hunt department from approximately 200 DICK’S Sporting Goods stores. However, our plans to remove the hunt department from the remaining 240 stores in fiscal 2020 have been delayed as part of our response to the COVID-19 pandemic, which were subleased to Sportsman's Warehouse, Inc. included minimizing store disruptions and reducing capital expenditures in fiscal 2020.
How We Evaluate Our Operations
Senior management focuses on certain key indicators to monitor our performance, including:
▪
▪Consolidated same store sales performance – Our management considers same store sales, which consists of both brick and mortar and eCommerce sales, to be an important indicator of our current performance. Same store sales results are important to leverage our costs, which include occupancy costs, store payroll and other store expenses. Same store sales also have a direct impact on our total net sales, net income, cash and working capital. A store is included in the same store sales calculation during the same fiscal period that it commences its 14th full month of operations. Stores that were permanently closed or relocated during the applicable period have been excluded from same store sales results. Each relocated store is returned to the same store sales base during the fiscal period that it commences its 14th full month of operations. 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. 
▪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.
▪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. 
▪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 and Changes in Financial Condition” 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.
 
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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 2, 2019,1, 2020, filed with the Securities and Exchange Commission on March 29, 2019,20, 2020, we consider our policies on inventory valuation, vendorbusiness development allowances, goodwill and intangible assets, impairment of long-lived assets, and closed store reserves, 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. Other than the adoption of ASU 2016-02,
Leases (Topic 842), on February 3, 2019as discussed in Note 1 of our unaudited Consolidated Financial Statements, there were no significant changes to our critical accounting policies during the period ended November 2, 2019.

RESULTS OF OPERATIONS AND OTHER SELECTED DATA
Executive Summary 
▪Earnings per diluted share of $0.66 in the current quarter increased 69.2% compared to earnings per diluted share of $0.39 during the third quarter of 2018. Net income in the current quarter totaled $57.6 million compared to $37.8 million during the third quarter of 2018.
◦Net income for the current quarter included a gain of $25.0 million, net of tax, or $0.29 per diluted share, related to the sale of two of our technology subsidiaries, a charge of $6.6 million, net of tax, or $0.08 per diluted share, related to our exit from eight Field & Stream stores, and a non-cash impairment charge of $5.6 million, net of tax, or $0.07 per diluted share, to reduce the carrying value of a corporate aircraft that is held for sale to its current fair market value.
▪Earnings per diluted share of $3.12 increased 148% compared to earnings per diluted share of $1.26 during the second quarter of 2019. Net income in the current quarter totaled $276.8 million compared to $112.5 million during the second quarter of 2019.
•Current quarter net income included approximately $14 million of pre-tax expenses, or $0.12 per diluted share, due to the COVID-19 pandemic. This included approximately $42 million of teammate compensation and safety costs, partially offset by the recovery of $28 million of inventory write-downs recorded in the first quarter due to better than anticipated second quarter sales.
•Net income in the current quarter also included $4.9 million of non-cash interest, net of tax, and earnings per diluted share includes 1.1 million shares related to our Convertible Senior Notes. Together, these impacted current quarter earnings per diluted share by $0.09.
•Net sales increased 5.6%20.1% to $1,962.2$2,713.4 million in the current quarter from $1,857.3$2,259.2 million during the thirdsecond quarter of 2018.2019.
◦Consolidated same store sales increased 6.0% from the third quarter of 2018, which included an increase of approximately 13% in eCommerce sales.
◦eCommerce sales penetration increased to approximately 13% of total net sales during the current quarter compared to approximately 12% of total net sales during the third quarter of 2018.
▪Consolidated same store sales increased 20.7% from the second quarter of 2019, which included a period of temporary store closures.
▪Following our store closures due to the COVID-19 pandemic, eCommerce sales growth accelerated. This accelerated growth continued after stores reopened, driven by our new curbside contactless pickup service. As a result, eCommerce sales increased approximately 194% in the current quarter, with eCommerce sales penetration increasing to approximately 30% of total net sales during the current quarter compared to approximately 12% of total net sales during the second quarter of 2019.
•In addition, during the current quarter we:
◦Declared and paid a quarterly cash dividend in the amount of $0.275 per share on our common stock and Class B common stock.
◦Repurchased 2.8 million shares of common stock for a total of $99.5 million under the five-year $1.0 billion share repurchase program that we announced on March 16, 2016.
◦Sold two of our technology subsidiaries, Blue Sombrero and Affinity Sports, to Stack Sports for proceeds of $40.4 million, net of cash sold.
◦Exited eight Field & Stream stores and subleased the facilities to Sportsman’s Warehouse, Inc. as part of our ongoing strategic review of our hunt business.
▪Fully repaid outstanding borrowings on our Credit Facility, ending the quarter with excess borrowing capacity, after subtracting amounts drawn and outstanding letters of credit, of $1,450.2 million; and,
▪Reinstated our temporarily suspended dividend program, which resulted in our declaration and payment of a cash dividend in the amount of $0.3125 per share on our common stock and Class B common stock in June.
•The following table summarizes store openings and permanent store closures for the periods indicated:
26 Weeks Ended 
 August 1, 2020		26 Weeks Ended  
August 3, 2019
 Dick’s Sporting Goods
Specialty Concept Stores (1)
TotalDick’s Sporting Goods
Specialty Concept Stores (1)
Total
Beginning stores726 124 850 729 130 859 
Q1 New stores1 2 3 — 1 1 
Q2 New stores— 3 3 2 2 4 
Closed stores1 3 4 4 — 4 
Ending stores726 126 852 727 133 860 
Relocated stores3 1 4 1 — 1 

(1) Includes our Golf Galaxy, Field & Stream and clearance concept stores. In some markets, we operate DICK’S Sporting Goods stores adjacent to our specialty concept stores on the same property with a pass-through for customers. We refer to this format as a “combo store” and include combo store openings within both the DICK’S Sporting Goods and specialty concept store reconciliations, as applicable.
21

▪The following table summarizes store openings and closings for the periods indicated:
 39 Weeks Ended 
 November 2, 2019		 39 Weeks Ended 
 November 3, 2018
 Dick’s Sporting Goods 
Specialty Concept Stores (1)
 Total Dick’s Sporting Goods 
Specialty Concept Stores (1)
 Total
Beginning stores729
 129
 858
 716
 129
 845
Q1 New stores—
 1
 1
 8
 —
 8
Q2 New stores2
 —
 2
 5
 —
 5
Q3 New stores6
 1
 7
 6
 —
 6
Closed stores (2)
4
 9
 13
 3
 —
 3
Ending stores733
 122
 855
 732
 129
 861
            
Relocated stores3
 2
 5
 4
 1
 5
(1)
Includes our Golf Galaxy and Field & Stream stores. In some markets, we operate Dick’s Sporting Goods stores adjacent to our specialty concept stores on the same property with a pass-through for customers. We refer to this format as a “combo store” and include combo store openings within both the Dick’s Sporting Goods and specialty concept store reconciliations, as applicable.

(2)
Includes the exit from eight Field & Stream stores during the third quarter of 2019.

The following tables presenttable presents selected information from the unaudited Consolidated Statements of Income as a percentage of net sales and the changes in the percentage of net sales from the prior year period, and other data, which is provided to facilitate a further understanding of our business. These tablesThis table should be read in conjunction with Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the accompanying unaudited Consolidated Financial Statements and related notes thereto.
Basis Point Increase / (Decrease) in Percentage of Net Sales from Prior Year 2019-2020
 13 Weeks Ended
 
August 1, 2020 (A)
August 3,
2019 (A)
Net sales (1)
100.00 %100.00 %N/A
Cost of goods sold, including occupancy and distribution costs (2)
65.47 70.03 (456)
Gross profit34.53 29.97 456
Selling, general and administrative expenses (3)
20.01 23.06 (305)
Pre-opening expenses (4)
0.09 0.04 5
Income from operations14.42 6.86 756
Interest expense0.54 0.25 29
Other income(0.53)(0.07)(46)
Income before income taxes14.42 6.69 773
Provision for income taxes4.21 1.70 251
Net income10.20 %4.98 %522
Other Data:   
Consolidated same store sales increase (5)
20.7 %3.2 % 
Number of stores at end of period (6)
852 860  
Total square feet at end of period (6)
41,912,692 42,320,570  


    
Basis Point Increase / (Decrease) in Percentage of Net Sales from Prior Year 2018-2019 (A)
Basis Point Increase / (Decrease) in Percentage of Net Sales from Prior Year 2019-2020 (A)
13 Weeks Ended  26 Weeks Ended
November 2, 2019 (A)
 
November 3,
2018 (A)
 
August 1,
2020 (A)
August 3,
2019
Net sales (1)
100.00% 100.00% N/A
Net sales (1)
100.00 %100.00 %N/A
Cost of goods sold, including occupancy and distribution costs (2)
70.41
 71.81
 (140)
Cost of goods sold, including occupancy and distribution costs (2)
71.43 70.31 112
Gross profit29.59
 28.19
 140Gross profit28.57 29.69 (112)
Selling, general and administrative expenses (3)
27.10
 25.24
 186
Selling, general and administrative expenses (3)
23.38 24.12 (74)
Pre-opening expenses (4)
0.17
 0.11
 6
Pre-opening expenses (4)
0.12 0.04 8
Income from operations2.33
 2.85
 (52)Income from operations5.07 5.53 (46)
Gain on sale of subsidiaries (5)
(1.72) —
 (172)
Interest expense0.22
 0.14
 8Interest expense0.56 0.21 35
Other (income) expense(0.10) —
 (10)
Other incomeOther income(0.02)(0.20)18
Income before income taxes3.93
 2.70
 123Income before income taxes4.53 5.52 (99)
Provision for income taxes1.00
 0.67
 33Provision for income taxes1.24 1.45 (21)
Net income2.93% 2.04% 89Net income3.30 %4.07 %(77)
    
Other Data: 
  
  Other Data:   
Consolidated same store sales increase (decrease)6.0% (6.1%)  
Consolidated same store sales (decrease) increase (5)
Consolidated same store sales (decrease) increase (5)
(2.3 %)1.7 % 
Number of stores at end of period (6)
855
 861
  
Number of stores at end of period (6)
852 860  
Total square feet at end of period (6)
42,101,780
 42,372,767
  
Total square feet at end of period (6)
41,912,692 42,320,570  

22

(A) Column does not add due to rounding.
     
Basis Point Increase / (Decrease) in Percentage of Net Sales from Prior Year 2018-2019 (A)
 39 Weeks Ended 
 
November 2,
2019 (A)
 
November 3,
2018 (A)
 
Net sales (1)
100.00% 100.00% N/A
Cost of goods sold, including occupancy and distribution costs (2)
70.34
 70.68
 (34)
Gross profit29.66
 29.32
 34
Selling, general and administrative expenses (3)
25.07
 24.13
 94
Pre-opening expenses (4)
0.08
 0.10
 (2)
Income from operations4.50
 5.09
 (59)
Gain on sale of subsidiaries (5)
(0.55) —
 (55)
Interest expense0.21
 0.14
 7
Other income(0.17) (0.02) (15)
Income before income taxes5.01
 4.97
 4
Provision for income taxes1.31
 1.32
 (1)
Net income3.71% 3.66% 5
      
Other Data: 
  
  
Consolidated same store sales increase (decrease)3.1% (3.0%)  
Number of stores at end of period (6)
855
 861
  
Total square feet at end of period (6)
42,101,780
 42,372,767
  
(1)Revenue from retail sales is recognized at the point of sale, net of sales tax. Revenue from eCommerce sales, including vendor-direct sales arrangements, is recognized upon shipment of merchandise. A provision for anticipated merchandise returns is provided through a reduction of sales and cost of goods sold in the period that the related sales are recorded. Revenue from gift cards and returned merchandise credits (collectively the “cards”) is deferred and recognized upon the redemption of the cards. The cards have no expiration date.
(2)Cost of goods sold includes: the cost of merchandise (inclusive of vendor allowances, inventory shrinkage and inventory write-downs for the lower of cost and net realizable value); freight; distribution; shipping; and store occupancy costs. We define merchandise margin as net sales less the cost of merchandise sold. Store occupancy costs include rent, common area maintenance charges, real estate and other asset-based taxes, general maintenance, utilities, depreciation and certain insurance expenses.

(A)(3)Selling, general and administrative expenses include store and field support payroll and fringe benefits, advertising, bank card charges, operating costs associated with our internal eCommerce platform, information systems, marketing, legal, accounting, other store expenses and all expenses associated with operating our Customer Support Center.
Column does not add due to rounding.
(1)
Revenue from retail sales is recognized at the point of sale, net of sales tax. Revenue from eCommerce sales, including vendor-direct sales arrangements, is recognized upon shipment of merchandise. A provision for anticipated merchandise returns is provided through a reduction of sales and cost of goods sold in the period that the related sales are recorded. Revenue from gift cards and returned merchandise credits (collectively the “cards”) is deferred and recognized upon the redemption of the cards. The cards have no expiration date.
(2)
Cost of goods sold includes: the cost of merchandise (inclusive of vendor allowances, inventory shrinkage and inventory write-downs for the lower of cost and net realizable value); freight; distribution; shipping; and store occupancy costs. We define merchandise margin as net sales less the cost of merchandise sold. Store occupancy costs include rent, common area maintenance charges, real estate and other asset-based taxes, general maintenance, utilities, depreciation and certain insurance expenses.
(3)
Selling, general and administrative expenses include store and field support payroll and fringe benefits, advertising, bank card charges, operating costs associated with our internal eCommerce platform, information systems, marketing, legal, accounting, other store expenses and all expenses associated with operating our Customer Support Center.
(4)
Pre-opening expenses, which consist primarily of rent, marketing, payroll and recruiting costs, are expensed as incurred. Rent is recognized within pre-opening expense from the date we take possession of a site through the date of store opening.
(5)
Represents the gain recorded in connection with the sale of two technology subsidiaries, Blue Sombrero and Affinity Sports.
(6)
Includes Dick’s Sporting Goods, Golf Galaxy, and Field & Stream stores.

(4)Pre-opening expenses, which consist primarily of rent, marketing, payroll and recruiting costs, are expensed as incurred. Rent is recognized within pre-opening expense from the date we take possession of a site through the date of store opening.
(5)Consolidated same store sales include stores that were temporarily closed during fiscal 2020 as a result of the COVID-19 pandemic. The method of calculating consolidated same store sales varies across the retail industry, including as to the treatment of temporary store closures as a result of the COVID-19 pandemic. Accordingly, our method of calculating this metric may not be the same as other retailers’ methods. For additional information on consolidated same store sales, please see our most recent 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.
(6)Includes our DICK’S Sporting Goods, Golf Galaxy, Field & Stream and clearance concept stores.

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13 Weeks Ended November 2, 2019August 1, 2020 Compared to the 13 Weeks Ended NovemberAugust 3, 20182019
 
Net Sales
Net sales increased 5.6%totaled $2,713.4 million in the current quarter compared to $1,962.2 million from $1,857.3$2,259.2 million for the quarter ended NovemberAugust 3, 2018,2019, an increase of 20.1%. The net sales increase was due primarily to a $108.1$451.0 million, or 6.0%20.7%, increase in consolidated same store sales. This increase was partially offset by a $3.2 million decrease resulting from the closure of eight Field & Stream stores, partially offset by net sales from new stores. The 6.0% increase in consolidated same store sales was broad-based across hardlines, apparel and footwear, and included a 3.3%2.8% increase in transactions and a 2.7%17.9% increase in sales per transaction and reflected an increase oftransaction. Following our store closures due to the COVID-19 pandemic, eCommerce sales growth accelerated. This accelerated growth continued after stores reopened, driven by our new curbside contactless pickup service. As a result, eCommerce sales increased approximately 13%194% in eCommerce sales.the current quarter, with eCommerce sales penetration increasedincreasing to approximately 13%30% of total net sales during the current quarter compared to approximately 12% of total net sales during the prior year quarter.
The increase in consolidated same store sales was broad-based across hardlines, apparel and footwear, which was partially offset by a continued decline in the hunt category. Our removalsecond quarter of hunt category merchandise from approximately 135 Dick’s Sporting Goods stores beginning in late 2018 contributed to the decline in the category during the quarter. However, we reallocated space in these stores to a more compelling localized assortment of categories and products.2019.
Income from Operations 
Income from operations decreasedincreased to $45.6$391.4 million in the current quarter compared to $155.0 million for the quarter ended August 3, 2019.
Gross profit increased 38.4% to $936.9 million in the current quarter from $52.9$677.1 million for the quarter ended NovemberAugust 3, 2018 for the reasons described below.
Gross profit increased 10.9% to $580.6 million in the current quarter from $523.6 million for the quarter ended November 3, 2018 and increased 2019, an increase as a percentage of net sales by 140of 456 basis points due primarily to merchandise margin expansion and occupancy leverage, and improved merchandise margins, partially offset by higher eCommerce shipping and fulfillment costs. Merchandise margins increased 325 basis points, primarily driven by fewer promotions, as well as better than anticipated sales and margin on merchandise nearing end-of-life, which resulted in the recovery of $28 million of inventory write-downs that we recorded in the first quarter. Our occupancy costs, which after the cost of merchandise represents the largest expense item within our cost of goods sold, are generally fixed in nature and fluctuate based on the number of stores that we operate. Occupancy costs decreased $2.3$2.8 million in the current quarter compared to the quarter ended NovemberAugust 3, 20182019 and increased gross profit by 87204 basis points. Merchandise margins increased 60 basis points, primarily driven by fewer promotions and a favorable sales mix, which was impacted in part by our hunt business traditionally having significantly lower merchandise margin rates compared to other categories. These improvements in gross profit were partially offset by an increase inhigher eCommerce shipping and fulfillment costs incurredas a result of the growth and increased penetration of eCommerce sales as compared to the Company’s total net sales, as well as the fixed costs from two dedicated eCommerce fulfillment centers that opened in connection with the openingthird quarter of two new dedicated fulfillment centers.2019. Approximately $10 million of COVID-related compensation and safety costs was included within gross profit.
Selling, general and administrative expenses increased 13.4%4.2% to $531.7$543.0 million in the current quarter from $468.7$521.1 million for the quarter ended NovemberAugust 3, 2018 and increased 186 basis points2019, but decreased as a percentage of net sales. The current quarter included an $8.9 million pre-tax charge associated with our exit from eight Field & Stream stores and a $7.6 million non-cash fixed asset impairment charge to reduce the carrying value of a corporate aircraft held for sale to its fair market value. Apart from the enumerated items, selling, general and administrative expenses increasedsales by 102305 basis points compareddue to the prior year quarter, which was driven primarily by higher incentive compensation expense.
Pre-opening expenses increased to $3.3 million in the current quarter from $2.0increase in net sales. The $21.9 million increase includes approximately $32 million of teammate compensation and safety costs incurred as a result of the COVID-19 pandemic, as well as $12.1 million of expense associated with changes in our deferred compensation plan investment values, for which the quarter ended November 3, 2018. Pre-openingcorresponding change was recognized in other income. These expenses in any period fluctuate depending on the timing and number ofwere partially offset by operating expense reductions following our temporary store openings and relocations. We opened seven new storesclosures.
Interest
Interest expense was $14.7 million in the current quarter compared to six new stores$5.6 million in the prior year quarter. The increase was primarily related to approximately $11.2 million of interest related to the Convertible Senior Notes issued during the first quarter ended November 3, 2018.
Gain on Sale of Subsidiaries
In August 2019, we completed2020, including $6.6 million of non-cash amortization of the sale of Blue Sombrero and Affinity Sports to Stack Sports for net proceeds of $40.4 million. In connection with the sale we recognized a pre-tax gain of $33.8 million. Refer to Note 7 to the unaudited Consolidated Financial Statements for additional information.related debt discount.
Other Income
Other income totaled $2.0$14.5 million in the current quarter compared to approximately $0.1$1.6 million in expense in the prior year quarter. Substantially all of the change is related to changes in our deferred compensation plan investment values, which we account for by recognizing investment income or expense and recording a corresponding charge or reduction to selling, general and administrative costs.
Income Taxes
Our effective tax rate increased to 25.4%29.2% for the current quarter from 24.6%25.5% for the quarter ended NovemberAugust 3, 2018.2019. Our effective tax rate for the first quarter of 2020 included an estimated 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%. Based on our second quarter results, we no longer anticipate a net operating loss for fiscal 2020, which is reflected in our effective tax rate for the 13 weeks ended August 1, 2020.

24

3926 Weeks Ended November 2, 2019August 1, 2020 Compared to the 3926 Weeks Ended NovemberAugust 3, 20182019
Net Sales
Net sales increased 3.3%were $4,046.6 million in the current period, to $6,142.1a 3.2% decrease from net sales of $4,179.9 million from $5,944.5 millionreported for the period ended November 3, 2018,prior year period. The decrease was due primarily to a $176.0 million, or 3.1%, increasethe COVID-19 pandemic, which resulted in temporary store closures during March, April and May. Our consolidated same store sales.sales decreased by $91.6 million, or 2.3%, which included a 16.3% decrease in transactions and a 14.0% increase in sales per transaction. The remaining $21.6$41.7 million sales increasedecrease was primarily attributable to new stores,store closures, partially offset by new stores. Following our temporary store closures. The 3.1% increase closures, eCommerce sales growth accelerated. This accelerated growth continued after stores reopened, driven by our new curbside contactless pickup service. As a result, eCommerce sales increased approximately 154% in consolidated same store sales included a 1.2 % increase in transactions and a 1.9% increase in sales per transaction and reflected an increase of approximately 16% in eCommerce sales.the current period, with eCommerce sales penetration increasedincreasing to approximately 13%33% of total net sales during the current year to date period compared to approximately 11%12% of total net sales during the prior year period. The increase in consolidated same store sales was broad-based across hardlines, apparel and footwear, but was partially offset by a continued decline in the hunt category.
Income from Operations
Income from operations decreased to $276.7$205.2 million in the current period from $302.7$231.1 million for the period ended NovemberAugust 3, 2018 for the reasons described below.2019.
Gross profit increased 4.5%decreased 6.8% to $1,821.5$1,156.2 million for the current period from $1,743.2$1,240.9 million for the period ended NovemberAugust 3, 2018 and increased2019, a decrease as a percentage of net sales by 34of 112 basis points due primarily to occupancy leverage, which washigher eCommerce shipping and fulfillment costs, partially offset by merchandise margin expansion. eCommerce shipping and fulfillment costs decreased gross profit by 152 basis points due primarily to sales growth and a higher penetration of eCommerce shippingsales as well as the fixed costs from two dedicated eCommerce fulfillment costs. centers that were opened in the third quarter of 2019. Merchandise margins increased 42 basis points, which was primarily driven by fewer promotions. Our occupancy costs, which after the cost of merchandise represents therepresent our largest expense item within our cost of goods sold, are generally fixed in nature and fluctuate based on the number of stores that we operate. Occupancy costs decreased $2.7$11.5 million in the current period from the period ended NovemberAugust 3, 20182019 and increaseddecreased gross profit by 4713 basis points. This improvementpoints due to the sales decline. Approximately $14 million of COVID-related compensation and safety costs was partially offset by an increase in eCommerce shipping fulfillment costs resulting from growth and increased penetration of eCommerce sales as compared to our total net sales and costs incurred in opening two new dedicated fulfillment centers.included within gross profit.
Selling, general and administrative expenses increased 7.4%decreased 6.1% to $1,539.9$946.3 million in the current period from $1,434.3$1,008.2 million for the period ended NovemberAugust 3, 2018, and increased2019, a decrease as a percentage of net sales by 94of 74 basis points. The current period ended August 3, 2019 included $7.6 million for a $15.3 million non-cash fixed asset impairment charge to reduce the carrying value of a corporate aircraft held for sale to its fair market value, an $8.9partially offset by a $6.4 million pre-tax charge associated with our exit from eight Field & Stream storessettlement of a previously accrued litigation contingency. The current period included a reduction in selling, general and a $9.1administrative costs of $9.2 million, expenseor 22 basis points, associated with changes in our deferred compensation plan investment values, for which the corresponding investment income was recognized in other income. These expenses wereThe remaining $51.5 million decrease is primarily due to $113.5 million of operating expense reductions following our temporary store closures, partially offset by approximately $62 million of teammate compensation and safety costs incurred as a $6.4result of the COVID-19 pandemic. The teammate compensation and safety costs are net of the $16.6 million favorable settlement of a previously accrued litigation contingency. Apartbenefit from employee retention tax credits provided by the enumerated items, selling, general and administrative expenses increased by 65 basis points compared to the prior year period, whichCARES Act.
Interest Expense
Interest expense was driven primarily by higher incentive compensation expenses, wage inflation in store payroll expense and strategic growth investments.
Pre-opening expenses decreased to $4.9$22.7 million infor the current period from $6.1compared to $8.6 million for the period ended NovemberAugust 3, 2018. Pre-opening expenses in any period fluctuate depending on2019. Substantially all of the timing and numberincrease was due to interest expense of new store openings and relocations. We opened ten new storesapproximately $13.1 million recorded in the current period compared to 19 new stores duringfollowing our issuance of the prior year period.
Gain on SaleConvertible Senior Notes in April 2020, including $7.7 million of Subsidiaries
In August 2019, we completednon-cash amortization of the sale of Blue Sombrero and Affinity Sports to Stack Sports for net proceeds of $40.4 million. In connection with the sale we recognized a pre-tax gain of $33.8 million. Refer to Note 7 to the unaudited Consolidated Financial Statements for additional information.related debt discount.
Other Income
Other income totaled $10.3$1.0 million in the current period compared to $1.2$8.3 million for the period ended NovemberAugust 3, 2018.2019. Substantially all of the change is related to changes in our deferred compensation plan investment values, which we account for by recognizing investment income or expense and recording a corresponding charge or reduction to selling, general and administrative costs.
Income Taxes
Our effective tax rate decreasedincreased to 26.1%27.3% for the current period from 26.5%26.3% for the same period last year. The increase is due primarily to the tax impact of certain share-based payments that vested during the period.

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LIQUIDITY AND CAPITAL RESOURCES
Overview
We have a $1.6 billion senior secured revolving credit facility (the “Credit Facility”), which includes up to $150 million in the form of letters of credit. Under the Credit Facility, which is further described within Note 6 to the unaudited Consolidated Financial Statements, subject to satisfaction of certain conditions, we may request an increase of up to $500 million in additional borrowing availability.
Our liquidity and capital needs have generally been met by net cash provided by operating activities, and supplemented by borrowings under the Credit Facilityour senior secured revolving credit facility (the “Credit Facility”) as seasonally necessary. We generally utilize our Credit Facility for working capital needs based primarily on the seasonal nature of our operating cash flows.flows, as well as to fund share buybacks, dividends and capital expenditures. Historically, our peak borrowing level has occurred early in the fourth quarter as we increase inventory in advance of the holiday selling season.
LiquidityIn response to the COVID-19 pandemic, we took actions to preserve and fortify our liquidity. These included reductions in planned operating expenses, inventory receipts and capital expenditures, negotiating rent deferrals with landlords, exercising the accordion feature within the Credit Facility to provide $255 million of additional borrowing capacity and issuing convertible senior notes that added over $500 million of net proceeds to our cash position. These actions, coupled with our second quarter results, contributed to our ending the current period with $1.1 billion of cash and cash equivalents, with no borrowings outstanding on our Credit Facility.
We believe that we have sufficient cash flows from operations to operate our business for at least the next 12 months, supplemented by funds available under our Credit Facility, if necessary. We may require additional funding should we pursue strategic acquisitions or undertake share repurchases, other investments or store expansion rates in excess of historical levels.
Credit Facility
Following an amendment that we completed on March 27, 2020, we have a $1.855 billion Credit Facility, which includes a maximum amount of $150 million to be issued in the form of letters of credit. Under the terms of the Credit Facility, subject to satisfaction of certain conditions, we may request an increase of up to $245 million in additional borrowing availability. Interest on outstanding borrowings is payable on a monthly basis and accrues, at our option, at a rate equal to a variable base rate or an adjusted LIBOR rate plus, in each case, an applicable margin percentage. As of August 1, 2020, we have total remaining borrowing capacity, after subtracting amounts drawn and outstanding letters of credit, of $1,450.2 million. See Note 5 to the unaudited Consolidated Financial Statements for additional details.
Credit Facility information for the periods ended:
(in millions)August 1,
2020		August 3,
2019
Funds drawn on Credit Facility$1,291.7 $1,185.9 
Number of business days with outstanding balance on Credit Facility97 days125 days
Maximum daily amount outstanding under Credit Facility$1,429.0 $561.2 
(in thousands)November 2,
2019		 November 3,
2018
Funds drawn on Credit Facility$1,778,750
 $1,723,500
Number of business days with outstanding balance on Credit Facility188 days
 190 days
Maximum daily amount outstanding under Credit Facility$719,300
 $382,300

Liquidity information as of the following dates:
(in millions)August 1,
2020		August 3,
2019
Outstanding borrowings under Credit Facility$— $441.5 
Cash and cash equivalents$1,061.1 $116.7 
Remaining borrowing capacity under Credit Facility$1,450.2 $1,142.4 
Outstanding letters of credit under Credit Facility$16.1 $16.1 

Convertible Notes due 2025
As of August 1, 2020, we have an aggregate principal amount of $575 million convertible notes due 2025 (the “Convertible Senior Notes”) outstanding. Cash interest accrues 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. We expect to repay the Convertible Senior Notes principal amount in cash, whether in connection with a conversion of such notes or repayment at maturity.
We anticipate using excess cash, free cash flow and borrowings on our Credit Facility to repay the principal amount of our Convertible Senior Notes in cash to minimize dilution; however, we may need to pursue additional sources of liquidity to repay the Convertible Senior Notes in cash at their maturity date or upon early conversion, as applicable. There can be no assurance as to the availability of capital to fund such repayments, or that if capital is available through additional debt issuances or refinancing of the Convertible Senior Notes, that such capital will be available on terms that are favorable to us. See Note 6 to the unaudited Consolidated Financial Statements for additional details.
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(in thousands)November 2,
2019		 November 3,
2018
Outstanding borrowings under Credit Facility$719,300
 $382,300
Cash and cash equivalents$87,622
 $92,103
Remaining borrowing capacity under Credit Facility$864,569
 $851,569
Outstanding letters of credit under Credit Facility$16,131
 $16,131
    

We intend to allocate capital to invest in future growth, specifically growing and remodeling our store network and eCommerce business to deliver an omni-channel shopping experience, as well as other long-term strategic investments while returning capital to stockholders through share repurchases and dividends. 
Capital expenditures
We anticipate that fiscal 2019Our capital expenditures will approximate $230 million on a gross basis and $200 million on a net basis, which includes tenant allowances provided by landlords. Normal capital requirementsare primarily relate toallocated toward the development of our omni-channel platform, including investments in new and existing stores and eCommerce technology. Approximately two-thirds oftechnology, while we have strived to continuously improve our Dick’s Sporting Goods stores will be up for lease renewal at our option over the next five years, and we plan to leverage the significant flexibility within our existing real estate portfolio to capitalize on future real estate opportunities over the near and intermediate term as those leases come up for renewal. We also anticipate further improvements to our eCommerce fulfillment networksupply chain and corporate information technology capabilities through additional investment.capabilities. For the year to date period, capital expenditures totaled $94.3 million on a gross basis, and tenant allowances provided by landlords were $30.9 million.
Share repurchases
On March 16, 2016, our Board of Directors authorized a five-year share repurchase program of up to $1 billion of our common stock. During the 39 weeks ended November 2, 2019, we repurchased approximately 10.3 million shares of our common stock for $366.1 million. Under the 2016 program, we have repurchased $932.7$968.8 million of common stock and have $67.3$31.2 million remaining under this authorization.
On June 12, 2019, our Board of Directors authorized an additional five-year share repurchase program of up to $1$1.0 billion of our common stock.
We intend to repurchase shares from time-to-time to offset dilution and may pursue additional repurchases of shares under favorable market conditions. Any futuretemporarily suspended our share repurchase programs are subjectin April 2020 in response to authorization bythe impact of the COVID-19 pandemic. We may resume opportunistic share repurchases under our Board of Directors and will be dependent upon future earnings, cash flows, financial requirements and other factors.
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existing authorizations.
Dividends
In June 2020, we reinstated our dividend program, which we had temporarily suspended in April 2020 in response to the impact of the COVID-19 pandemic. During the 3926 weeks ended November 2,August 1, 2020 and August 3, 2019, we paid $74.5$54.4 million and $51.3 million, respectively, of dividends to our stockholders. On November 21, 2019, our Board of Directors authorized and declared a quarterly cash dividend in the amount of $0.275 per share of common stock and Class B common stock payable on December 31, 2019 to stockholders of record as of the close of business on December 13, 2019. The declaration of future dividends and the establishment of the per share amount, record dates and payment dates for any such future dividends are subject to authorization by our Board of Directors and will be dependent upon multiple factors including future earnings, cash flows, financial requirements and other considerations.
We believe cash flows generated by operations and funds available under our Credit Facility will be sufficient to satisfy capital requirements over the next 12 months, including planned inventory investments in key growth categories, capital expenditures, share repurchases, and quarterly dividend payments to our stockholders. We may require additional funding should we pursue strategic acquisitions or undertake share repurchases, other investments or store expansion rates in excess of historical levels.
Cash Flows
Changes in cash and cash equivalents are as follows:
 39 Weeks Ended
(in thousands)November 2,
2019		 November 3,
2018
Net cash (used in) provided by operating activities$(212,775) $160,528
Net cash used in investing activities(122,213) (135,288)
Net cash provided by (used in) financing activities308,953
 (34,350)
Effect of exchange rate changes on cash and cash equivalents4
 (40)
Net decrease in cash and cash equivalents$(26,031) $(9,150)
 26 Weeks Ended
(in millions)August 1,
2020		August 3,
2019
Net cash provided by (used in) operating activities$876.7 $(27.2)
Net cash used in investing activities(94.3)(112.0)
Net cash provided by financing activities209.4 142.3 
Net increase in cash and cash equivalents$991.8 $3.1 
Operating Activities
Operating activities consist primarily of net income, adjusted for certain non-cash items and changes in operating assets and liabilities. Adjustments to net income for non-cash items include depreciation and amortization, deferred income taxes and stock-based compensation expense, as well as gains and losses related to the disposal of assets or subsidiaries. Changes in operating assets and liabilities primarily reflect changes in inventories, accounts payable and income taxes payable or receivable, as well as other working capital changes. 
Cash flows from operating activities decreased $373.3increased $903.9 million for the 3926 weeks ended November 2, 2019August 1, 2020 compared to the same period last yearin the prior year. The increase was due primarily to changes in inventory levels and accounts payable at the end of the current fiscal period, which decreasedincreased operating cash flows by $358.4$753.2 million. These changes were primarily due toreflect last year’s strategic inventory investments in key growth categories including footwear, apparel, baseball and golf. In addition, changesInventory has since decreased approximately 12% as of August 1, 2020 compared to the prior year due to our precautionary reductions in accounts receivable atinventory receipts, which exceeded our 3.2% decrease in sales for the end of the current fiscal period decreasedperiod. The remaining increase in operating cash flows by $15.4 million compared to the same period last year,was primarily due to the timing of collectionscash payments for vendor receivables year-over-year.income taxes and precautionary liquidity measures we took in response to the COVID-19 pandemic, including reductions in operating expenses and deferrals of rent and qualified payroll tax payments as permitted by the CARES Act. Over the next 12 months, we anticipate future operating cash flows to include higher cash payments for income taxes, inventory replenishment and rent payments.
Investing Activities 
Cash used in investing activities decreased $13.1$17.7 million for the 3926 weeks ended November 2, 2019August 1, 2020 compared to the prior year period. The current period receipt of $40.4 million of proceeds from our sale of two technology subsidiaries was partially offset bydue primarily to a $30.4 million increasereduction in grossplanned capital expenditures relating to store enhancements and technology investments. See Note 7in response to the unaudited Consolidated Financial Statements.COVID-19 pandemic. Capital expenditures during the 26 weeks ended August 3, 2019 included incremental investments in our supply chain.
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Financing Activities
Financing activities generally consist primarily of capital return initiatives, including our share repurchase program and cash dividend payments, cash flows generated from stock option exercises and cash activity associated with our Credit Facility. The primary reason for the increaseCurrent year financing inflows, or reductions in cash provided by financing activitiesoutflows, compared to the prior year period was anincluded the issuance of the Convertible Senior Notes and the temporary suspension of share repurchases. These were partially offset by lower net Credit Facility borrowings resulting from the increase in funds drawn on our Credit Facility, which funded strategic inventory investments in key categories.operating cash flows year to date.
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Off-Balance Sheet Arrangements
Our off-balance sheet arrangements as of November 2, 2019August 1, 2020 primarily relate to purchase obligations for marketing commitments, including naming rights, licenses for trademarks, minimum requirements with our third-party eCommerce fulfillment provider and technology-related and other ordinary course commitments. We have excluded these items from the unaudited Consolidated Balance Sheets in accordance with U.S. GAAP. We do not believe that any of these arrangements have, or are reasonably likely to have, a material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or resources.
Contractual Obligations and Other Commercial Commitments 
We are party to many contractual obligations that involve commitments to make payments to third parties in the ordinary course of business. For a description of our contractual obligations and other commercial commitments as of February 2, 2019,1, 2020, see our Annual Report on Form 10-K for the fiscal year ended February 2, 2019,1, 2020, filed with the Securities and Exchange Commission on March 29, 2019. During20, 2020. With the currentexception of the issuance of the Convertible Senior Notes, bond hedge and warrants in the first quarter of fiscal 2020, there were no material changes with respect to these contractual obligations and other commercial commitments outside the ordinary course of business.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ThereExcept as identified below, there have been no material changes in the Company’s market risk exposures from those reported in the Company’s Annual Report on Form 10-K for the fiscal year ended February 2, 2019,1, 2020, filed with the Securities and Exchange Commission on March 29, 2019.20, 2020.
Credit Risk
In April 2020, the Company issued the Convertible Senior Notes due 2025. In connection with the issuance of the Convertible Senior Notes, the Company also entered into five-year convertible bond hedges and five-year separate warrant transactions with several parties (“the counterparties”) and/or certain of their affiliates. Subject to the movement in the Company’s common stock price, the Company could be exposed to credit risk arising out of net settlement of the convertible bond hedges and separate warrant transactions in its favor. Based on the Company’s review of the possible net settlements and the credit strength of the counterparties and their affiliates, the Company believes that it does not have a material exposure to credit risk as a result of these transactions.
 
ITEM 4.  CONTROLS AND PROCEDURES 
As a result of the COVID-19 pandemic, the majority of the Company’s customer support center employees began working remotely in March 2020. These changes to the working environment did not materially affect the Company’s internal controls over financial reporting during the fiscal quarter ended August 1, 2020. The Company continues to monitor, assess, and minimize the impact of the COVID-19 pandemic on its internal controls design and operating effectiveness. During the thirdsecond quarter of fiscal 2019,2020, there were no changes in the Company’s internal controls over financial reporting that materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.
During the quarter, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended. Based upon that evaluation, the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q, November 2, 2019. August 1, 2020. 
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There are inherent limitations in the effectiveness of any control system, including the potential for human error and the circumvention or overriding of the controls and procedures. Additionally, judgments in decision making can be faulty and breakdowns can occur because of simple errors or mistakes. An effective control system can provide only reasonable, not absolute, assurance that the control objectives of the system are adequately met. Accordingly, our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our control system can prevent or detect all errors or fraud. Finally, projections of any evaluation or assessment of effectiveness of a control system to future periods are subject to the risks that, over time, controls may become inadequate because of changes in an entity’s operating environment or deterioration in the degree of compliance with policies and procedures. 

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PART II.  OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS
 
The Company is involved in various proceedings that are incidental to the normal course of its business. As of the date of this Quarterly Report on Form 10-Q, the Company does not expect that any of such proceedings will have a material adverse effect on the Company’s financial position or results of operations.

ITEM 1A.  RISK FACTORS

Except as identified below, there have been no material changes to the risk factors affecting the Company from those disclosed in Part I, Item 1A. “Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended February 2, 2019,1, 2020, filed with the Securities and Exchange Commission on March 29, 2019.20, 2020. The discussion of risk factors sets forth the material risks that could affect the Company’s financial condition and operations.

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The escalating trade tensions betweennovel coronavirus (COVID-19) pandemic has had and is expected to continue to have an adverse effect on our business and results of operations.

In late 2019, COVID-19 was first detected in Wuhan, China. In March 2020, the U.S.World Health Organization declared COVID-19 a global pandemic, and China,governmental authorities around the world implemented various measures to reduce the spread of COVID-19. Many of these measures adversely affected workforces, customers, consumer sentiment, economies, and financial markets, and, along with decreased consumer spending, have led to an economic downturn in many of our markets. After the close of business on March 18, 2020, we temporarily closed our physical stores but continued to operate our eCommerce business, including curbside contactless pickup and ship-from-store. Furthermore, we furloughed a significant number of the workforce at our stores, distribution centers, and corporate headquarters effective April 12, 2020, due to the uncertainty surrounding the length of our store closures. We re-opened all of our stores and returned our teammates from furlough during the second quarter of 2020.

While COVID-19 did not adversely affect the results of the second quarter of 2020, we are unable to predict the long-term impact that the COVID-19 pandemic will have on our business due to a number of uncertainties, including the duration of the COVID-19 pandemic, the long-term health and economic impact of the COVID-19 pandemic, changes in consumer demand and shopping patterns, and the impact of governmental regulations that might be imposed in response to the pandemic. Governmental regulations could, among other things, require that we close our distribution and fulfillment centers or otherwise make it difficult or impossible to operate our eCommerce business. Numerous state and local jurisdictions have imposed, and in the future may impose or re-impose, shelter-in-place orders, quarantines, executive orders and similar government orders and restrictions for their residents to control the spread of COVID-19. Such orders and restrictions have resulted in temporary store closures; work stoppages, slowdowns and delays; school closures and remote learning requirements; travel restrictions; and cancellation of events, among other effects, thereby negatively impacting our business. We may also be adversely impacted by the disruption or cancellation of various professional leagues and sporting events, local sports leagues, and other organized youth and adult sports programs as a result of the pandemic. Another period of store closures, changes in consumer behavior, and health concerns causing a reduction in consumer demand for our products and traffic at our stores would likely have a significant adverse effect on our financial condition and results of operations.

The Company continues to consider and assess the potential impact that the COVID-19 pandemic could have on the Company’s operations, including the imposition ofassumptions and estimates used to prepare its interim financial statements such as 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 increased tariffs on goods imported from China, could have a negativeadditional information is obtained. If economic conditions caused by the COVID-19 pandemic deteriorate and negatively impact on our sales and profitability.
The escalating trade tensions between the U.S. and China has resulted in both countries imposing tariffs on billions of dollars of each other’s goods. If these events continue or further action is taken to limit trade between the two countries, weconsumer spending, such future changes may need to seek alternative suppliers or vendors, raise prices, or make changes to our operations any of which could have a material adverse effectimpact on ourthe Company's results of operations, including salesfinancial position and profitability.liquidity.
If
To the extent the COVID-19 pandemic adversely affects our product costs are adversely affected by foreign trade issues, currency exchange rate fluctuations, increasing prices for raw materials, political instability or other reasons, our salesbusiness and profitabilityfinancial results, it may suffer.
A significant portionalso have the effect of heightening many of the products that we purchase, including those purchased from domestic suppliers, as well as most of our private brand merchandise, is manufactured abroad. Foreign imports subject us to risk relating to changesother risks described in import duties, quotas, the introduction of U.S. taxes on imported goods or the extension of U.S. income taxes on our foreign suppliers’ sales of imported goods through the adoption of destination-based income tax jurisdiction, loss of “most favored nation” status with the U.S., shipment delays“Risk Factors” under Item 1A and shipping port constraints, labor strikes, work stoppages or other disruptions, freight cost increases and economic uncertainties. Furthermore, we could face significantly higher U.S. income and similar taxes with respect to sales of products purchased from foreign suppliers if the U.S. were to adopt a system of taxation, such as a border adjustment tax, under which the cost of imported products was not deductible in determining such products’ tax base. If such a tax system were adopted, we could also face higher prices for products manufactured or produced abroad that we purchase from our domestic suppliers if they were subject to such a tax. In addition, the U.S. government periodically considers other restrictions on the importation of products obtained by our vendors and us.
If any of these or other factors were to cause a disruption of trade from the countries in which our vendors’ supplies or our private brand products’ manufacturers are located, our inventory levels may be reduced or the cost of our products may increase. Additionally, we could be impacted by negative publicity or, in some cases, face potential liability to the extent that any foreign manufacturers from whom we directly or indirectly purchase products utilize labor, environmental, workplace safety and other practices that vary from those commonly accepted in the U.S. Also, the prices charged by foreign manufacturers may be affected by the fluctuation of their local currency against the U.S. dollar and the price of raw materials, which could cause the cost of our products to increase and negatively impact our sales or profitability.
Reference is also made to Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Forward-Looking Statements”Operation” under Item 7 of this Quarterlyour Annual Report on Form 10-Q,10-K for the fiscal year ended February 1, 2020, that we filed with the Securities and Exchange Commission on March 20, 2020 and the risks described herein, including risks relating to change in consumer demand or shopping patterns, our level of indebtedness, our need to generate sufficient cash flows to service our indebtedness, our ability to comply with the covenants contained in the agreements that govern our indebtedness, availability of adequate capital, our ability to execute our strategic plans, our real estate portfolio, disruptions to our supply chain and third-party delivery service providers, our ability to access to adequate quantities of product and materials, tariffs, and regulatory restrictions.
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Intense competition in the sporting goods industry and in retail could limit our growth and reduce our profitability.

The market for sporting goods retailers is highly fragmented and intensely competitive. Our current and prospective competitors include many large companies, some of which have greater market presence (both brick and mortar and online), name recognition and financial, marketing and other resources than we do. Further, the ability of consumers to compare prices in real-time through the use of smartphones and digital technology puts additional pressure on us to maintain competitive pricing. We compete with retailers from multiple categories and in multiple channels, including large formats; traditional and specialty formats; mass merchants; department stores and catalog; internet-based and direct-sell retailers; and vendors that sell directly to customers. We cannot be sure that we will be able to continue to effectively compete in our markets due to the disruptions caused by COVID-19 or that any of our competitors are not in a better position to either respond to the disruptions caused by the COVID-19 pandemic or capitalize on potential displaced market share. An inability to respond to competitive pressures could have a material effect on our results of operations or reputation. Our responses to competitive pressures could also have a material effect on our results or reputation, including as it relates to pricing, quality, assortment, advertising, service, locations, and online and in-store shopping experiences.

If we are unable to predict or effectively react to changes in consumer demand or shopping patterns, we may lose customers and our sales may decline.

Our success depends in part on our ability to anticipate and respond in a timely manner to changing consumer demand, preferences, and shopping patterns, which cannot be predicted with certainty and are subject to continual change and evolution. Our business has become increasingly omni-channel as we strive to deliver a seamless shopping experience to our customers through both online and in-store shopping experiences. For example, we must meet customers’ expectations with respect to, among other things, creating appealing and consistent online experiences; offering differentiated and premium products and regionally relevant products; delivering elevated customer service; and providing desirable in-store experiences, fast and reliable delivery, and convenient return options. Furthermore, consumer preferences and shopping patterns have been impacted significantly by COVID-19, and the ongoing uncertainty surrounding the COVID-19 pandemic poses challenges regarding our ability to anticipate and be proactive with respect to consumer preferences and shopping patterns. Our customers have expectations about how they shop in stores or through eCommerce or more generally engage with businesses across different channels or media (through online and other digital or mobile channels or particular forms of social media), which may vary across demographics and may evolve rapidly.

We often make commitments to purchase products from our vendors several months in advance of the proposed delivery, which may make it more difficult for us to adapt to changes in consumer preferences. Our sales may decline significantly if we misjudge the market for our new merchandise, which may result in significant merchandise markdowns and lower margins, missed opportunities for other products, or inventory write-downs, and could have a negative impact on our reputation and profitability. Changes in consumer shopping habits, including decreases in traffic at retail locations and traditional shopping centers, financial difficulties of other retail tenants and other shopping center vacancy issues, could lead to a decline in our financial condition.

Harm to our reputation could adversely impact our ability to attract and retain customers and employees.

Negative publicity or perceptions involving the Company or our brands, products, vendors, spokespersons, or marketing and other partners may negatively impact our reputation and adversely impact our ability to attract and retain customers and employees. Failure to detect, prevent, or mitigate issues that might give rise to reputational risk or failure to adequately address negative publicity or perceptions could adversely impact our reputation, business, results of operations, and financial condition. Issues that might pose a reputational risk include an inability to provide an omni-channel experience that meets the expectations of consumers; failure of our cyber-security measures to protect against data breaches; product liability, product recalls, and product boycotts; our response to COVID-19, including decisions to open physical stores to the public and the manner in which we operate those stores that have been permitted to reopen; our social media activity; failure to comply with applicable laws and regulations; our policies related to the sale of firearms and accessories; public stances on controversial social or political issues; product sponsorship relationships, including those with celebrity spokespersons, influencers or group affiliations; and any of the other risks enumerated in these risk factors. In addition, our sales could be negatively impacted by negative publicity or perception involving professional sports leagues or individual teams in relation to decisions made by them relating to response to the COVID-19 pandemic. Furthermore, the prevalence of social media may accelerate and increase the potential scope of any negative publicity we or others might receive and could increase the negative impact of these issues on our reputation, business, results of operations, and financial condition.


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An inability to execute our real estate strategy could affect our financial results.

Our financial performance depends on our ability to optimize our store lease portfolio, including opening new stores and relocating existing stores in desirable locations, renewing leases for existing stores, restructuring leases for existing stores to obtain more favorable renewal terms, refreshing and remodeling existing stores, and, if necessary, closing underperforming stores.

There is no assurance that we will be able to locate desirable real estate for new stores or relocations of existing stores, or that an existing store will continue to be profitable in its current location. Additionally, our ability to negotiate favorable lease terms on a new store location or a relocation of an existing store, or in connection with an expiring lease, remodel, consolidation, or closing depends on conditions in the real estate market, competition for desirable properties, our relationships with current and prospective landlords, and other factors that are not within our control. We may incur lease costs that are excessive and cause operating margins to be below acceptable levels if we are unable to negotiate appropriate terms for new leases, relocations or extensions. We may also make term commitments that are too long or too short, without the option to exit early or extend.

If an existing store is not profitable, we might be required to record an impairment charge and we may not be able to terminate the lease associated with the underperforming store. Our leases generally do not allow for termination prior to the end of the lease term without economic consequences. As a result, if we decide to close a store, we are generally required to continue to perform all obligations under the applicable lease, including the payment of rent, for the balance of the lease term and might also incur termination charges. Even if we are able to assign or sublease the closed locations where our lease cannot be terminated, we may remain liable for certain lease obligations if the assignee or sublessee does not perform.

Furthermore, the success of our stores depends on a number of factors including the sustained success of the shopping center where the store is located, consumer demographics, and consumer shopping habits and patterns. Changes in consumer shopping habits and patterns, reduced customer traffic in the shopping centers where our stores are located, financial difficulties of our landlords, anchor tenants or a significant number of other retailers, and shopping center vacancies or closures could impact the profitability of our stores and increase the likelihood that our landlords fail to fulfill their obligations and conditions under our lease agreements. While we have certain remedies and protections under our lease agreements, the loss of business that could result if a shopping center should close or if customer traffic were to significantly decline as a result of lost tenants or improper care of the facilities or due to macroeconomic effects, including the impact of COVID-19, could have a material adverse effect on our financial position, results of operations, and cash flows.

These factors cannot be predicted with complete accuracy and may change over time. There is no assurance that we will be able to reverse any decline in customer traffic or that increases in online sales will offset any decline in store traffic. We may need to respond to declines in customer traffic or conversion rates by increasing markdowns or promotions to attract customers, which could adversely impact our financial results. Failure to secure desirable new store locations and relocation sites, successfully renew or modify existing leases, or effectively manage the profitability of our existing stores could have a material adverse effect on our operations and financial results.

Our business relies on our distribution and fulfillment network and our customer support center. An inability to optimize this network or a disruption to the network, including delays or failures by independent third-party transportation providers, could cause us to lose merchandise, be unable to effectively deliver merchandise to our stores and customers, and could adversely affect our financial condition and results of operations.

We own a distribution center and eCommerce fulfillment center in Conklin, New York and a distribution center in Goodyear, Arizona. We lease distribution centers near Atlanta, Georgia; Plainfield, Indiana; and Smithton, Pennsylvania, and we utilize third-party logistics fulfillment centers near Rialto, California and Louisville, Kentucky. We also own a customer support center in Coraopolis, Pennsylvania that serves as our corporate headquarters. The ability to optimize our distribution and fulfillment network depends on general economic and real estate conditions which are beyond our control.

We may not be able to maintain our existing distribution and fulfillment centers if the cost of the facilities increase or the location of a facility is no longer desirable. In those cases, we may not be able to locate suitable alternative sites or modify or enter into new leases on acceptable terms. Furthermore, we may need to locate new sites for additional eCommerce fulfillment centers to satisfy omni-channel demand. If we cannot locate suitable locations for these fulfillment centers on acceptable terms, we will need to rely on our store network, third-party logistic fulfillment centers, our distribution centers, and vendors to help meet our fulfillment needs.

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An inability to optimize our distribution and fulfillment network, including the expiration of a lease or an unexpected lease termination at one of our facilities (without timely replacement of the applicable facility) or serious disruptions (including natural disasters or closures of distribution and fulfillment centers due to COVID-19) at any of these facilities might impair our ability to adequately stock our stores, process returns of products to vendors and fulfill eCommerce orders at the speed expected by customers, increase costs associated with shipping and delivery, damage a material portion of our inventory, and otherwise negatively affect our operations, sales, profitability, and reputation.

In addition,we rely on independent third-party transportation providers for substantially all of our merchandise shipments, including shipments to our stores and directly to customers through our eCommerce platform. Our use of third-party delivery services for shipments subjects us to risks, including increased fuel prices, which would increase our shipping costs, and labor issues, inclement weather, and disruptions due to COVID-19, which could impact a shipper’s ability to provide delivery services that adequately meet our shipping needs. If we change shipping companies, we could face logistical difficulties that could adversely impact deliveries and we would incur costs and expend resources in connection with such change. Moreover, we may not be able to obtain terms as favorable as those received from the independent third-party transportation providers we currently use, which could have a material adverse impact on our business, operational results, financial position and cash flows.

We are subject to costs and risks associated with a complex regulatory, compliance and legal environment, including increased or changing laws and regulations affecting our business, particularly those relating to the sale of consumer products and firearms and ammunition, and those relating to data protection and privacy.

We operate in a complex regulatory and legal environment that exposes us to compliance and litigation risks that could materially affect our operations and financial results. New laws that have been recently enacted may require considerable resources to ensure timely and ongoing compliance. For example, the California Consumer Privacy Act of 2018 that came into effect in January of 2020 gives new data privacy rights to California residents and requires expenditure of considerable resources to establish the necessary internal infrastructure to allow for the monitoring and other compliance requirements.
In addition, laws at the federal, state or local level may change, sometimes significantly and unexpectedly, as a result of political, economic or social events. Some of the federal, state or local laws and regulations that affect us include those relating to consumer products, product liability and consumer protection; reducing the spread of COVID-19, including local store closure requirements, restrictions on the number of customers permitted in store locations, and enhanced local health and safety protocols for stores that are permitted to operate; eCommerce, data protection and privacy, including data protection laws passed by many states regarding notification to data subjects and/or regulators when there is a security breach of personal data; advertisement and marketing; labor and employment; taxes, including changes to tax rates and new taxes, tariffs, and surcharges; firearms, ammunition, knives, food items or other regulated products; accounting, corporate governance and securities; custom or import; and intellectual property.

In addition to potential damage to our reputation and brand, failure to comply with applicable federal, state and local laws and regulations such as those outlined above may result in our being subject to claims, lawsuits, fines and adverse publicity that could have a material adverse effect on our business, results of operations and financial condition.

We may be subject to various types of litigation and other claims, and our insurance may not be sufficient to cover damages related to those claims.

From time-to-time the Company or its subsidiaries may be involved in lawsuits or other claims arising in the ordinary course of business, including those related to federal or state wage and hour laws, product liability, consumer protection, advertising, employment, intellectual property, tort, privacy and data protection, disputes with landlords and vendors due to the disruptions caused by COVID-19, claims from customers or employees alleging failure to maintain safe premises with respect to protocols relating to COVID-19, and other matters.

We sell firearms and ammunition. These products are associated with an increased risk of injury and related lawsuits with respect to our compliance with Bureau of Alcohol, Tobacco, Firearms and Explosives (“ATF”) and state laws and regulations. Any improper or illegal use by our customers of ammunition or firearms sold by us could have a negative impact on our reputation and business. We may incur losses due to lawsuits, including potential class actions, relating to our performance of background checks on firearms purchases and compliance with other sales laws as mandated by state and federal law and related to our policies on the sale of firearms and ammunition. We may also incur losses from lawsuits relating to the improper use of firearms or ammunition sold by us, including lawsuits by municipalities or other organizations attempting to recover costs from manufacturers and retailers of firearms and ammunition.

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We may incur losses relating to claims filed against us, including costs associated with defending against such claims, and there is risk that any such claims or liabilities will exceed our insurance coverage, or affect our ability to retain adequate liability insurance in the future. Even if a claim is unsuccessful or is not fully pursued, the negative publicity surrounding any such assertions could adversely affect our reputation. Due to the inherent uncertainties of litigation and other claims, we cannot accurately predict the ultimate outcome of any such matters.
Poor performance of professional sports teams within our core regions of operation, as well as league-wide lockoutsor strikes, retirement of or serious injury to key athletes or scandals involving such athletes could adversely affect our financial results.
We sell a significant amount of professional sports team merchandise, the success of which may be subject to fluctuations based on the success or failure of such teams or their key players. Poor performance by the professional sports teams within our core regions of operations; league-wide lockouts or strikes; and disruptions to or cancellations of sports leagues and major sporting events due to COVID-19, could cause our financial results to fluctuate year over year. In addition, to the extent we use individual athletes to market our products and advertise our stores or we sell merchandise branded by one or more athletes, the retirement or injury of such athletes or scandals in which they might be implicated could negatively impact our financial results.
We cannot provide any guaranty of future dividend payments or that we will continue to repurchase our common stock pursuant to our stock repurchase program.
Any determination to pay cash dividends on our common stock in the future will be based upon our financial condition, results of operations, business requirements, and the continuing determination from our Board of Directors that the declaration of dividends is in the best interests of our stockholders and is in compliance with all laws and agreements applicable to the dividend. Furthermore, although our Board of Directors has authorized a five-year $1.0 billion share repurchase program, we are not obligated to make any purchases under the program and we may discontinue it at any time. During the first quarter of 2020, the Company briefly suspended the payment of dividends and stock repurchases to bolster its cash position and maximize flexibility in response to uncertainty caused by the COVID-19 pandemic.
We may not be able to generate sufficient cash to service all of our indebtedness. We may be forced to take certain actions to satisfy our obligations under our indebtedness or we may experience a financial failure.

Our ability to make scheduled payments on or to refinance our debt obligations and the Convertible Senior Notes, will depend on our financial and operating performance, which is incorporated hereinsubject to prevailing economic and competitive conditions and to certain financial, business and other factors beyond our control. We may not be able to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness. If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures, sell assets or operations, seek additional capital or restructure or refinance our indebtedness, including the Convertible Senior Notes. We may not be able to take any of these actions, these actions may not be successful and permit us to meet our scheduled debt service obligations and these actions may not be permitted under the terms of our future debt agreements. In the absence of sufficient operating results and resources, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt service and other obligations. We may not be able to consummate those dispositions or obtain sufficient proceeds from those dispositions to meet our debt service and other obligations then due.
Our indebtedness and liabilities could limit the cash flow available for our operations, expose us to risks that could adversely affect our business, financial condition and results of operations.

Our current and future indebtedness could have negative consequences for our business, results of operations and financial condition by, reference.among other things:
•increasing our vulnerability to adverse economic and industry conditions;
•limiting our ability to obtain additional financing;
•requiring the dedication of a substantial portion of our cash flow from operations to service our indebtedness, which will reduce the amount of cash available for other purposes;
•limiting our flexibility to plan for, or react to, changes in our business;
•diluting the interests of our existing stockholders as a result of issuing shares of our common stock upon conversion of the Convertible Senior Notes; and
•placing us at a possible competitive disadvantage with competitors that are less leveraged than us or have better access to capital.

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As noted above, our business may not generate sufficient funds, and we may otherwise be unable to maintain sufficient cash reserves, to pay amounts due under our indebtedness, including the Convertible Senior Notes, and our cash needs may increase in the future. In addition, our Credit Facility contains, and any future indebtedness that we may incur may contain, restrictive covenants that limit our ability to operate our business, raise capital or make payments under our other indebtedness. If we fail to comply with these covenants or to make payments under our indebtedness when due, then we would be in default under that indebtedness, which could, in turn, result in that and our other indebtedness becoming immediately payable in full.

We may be unable to raise the funds necessary to repurchase the Convertible Senior Notes for cash following a fundamental change, or to pay any cash amounts due upon conversion, and our other indebtedness may limit our ability to repurchase the Convertible Senior Notes or pay cash upon their conversion.

Noteholders may, subject to certain conditions, require us to repurchase their notes following a fundamental change at a cash repurchase price generally equal to 100% of the principal amount of the Convertible Senior Notes to be repurchased, plus accrued and unpaid interest, if any. In addition, upon conversion, we will satisfy part or all of our conversion obligation in cash unless we elect to settle conversions solely in shares of our common stock. We may not have enough available cash or be able to obtain financing at the time we are required to repurchase the Convertible Senior Notes or pay the cash amounts due upon conversion. In addition, applicable law, regulatory authorities and the agreements governing our other indebtedness, including our current Credit Facility, may restrict our ability to repurchase the Convertible Senior Notes or pay the cash amounts due upon conversion. Our inability to satisfy our obligations under the Convertible Senior Notes could harm our reputation and affect the trading price of our common stock.

Our failure to repurchase the Convertible Senior Notes or to pay the cash amounts due upon conversion when required will constitute a default under the Indenture. A default under the Indenture or the occurrence of the fundamental change itself could also lead to a default under agreements governing our other indebtedness, which may result in that other indebtedness becoming immediately payable in full. We may not have sufficient funds to satisfy all amounts due under the other indebtedness and the Convertible Senior Notes.

Provisions in the Convertible Senior Notes and the Indenture could delay or prevent an otherwise beneficial takeover of us.

Certain provisions in the Convertible Senior Notes and the Indenture could make a third party attempt to acquire us more difficult or expensive. For example, if a takeover constitutes a fundamental change, then noteholders will have the right to require us to repurchase their Convertible Senior Notes for cash. In addition, if a takeover constitutes a make-whole fundamental change, then we may be required to temporarily increase the conversion rate. In either case, and in other cases, our obligations under the Convertible Senior Notes and the Indenture could increase the cost of acquiring us or otherwise discourage a third party from acquiring us or removing incumbent management, including in a transaction that noteholders or holders of our common stock may view as favorable.

The convertible note hedge and warrant transactions may affect the value of our common stock.

In connection with the issuance of the Convertible Senior Notes, we entered into privately negotiated convertible note hedge transactions with the hedge counterparties. The convertible note hedge transactions cover, subject to customary anti-dilution adjustments, the number of shares of common stock that initially underlie the Convertible Senior Notes. Concurrently with the entry into the convertible note hedge transactions, we entered into separate, privately negotiated warrant transactions with the hedge counterparties collectively relating to the same number of shares of our common stock, subject to customary anti-dilution adjustments, and for which we will receive premiums to partially offset the cost of entering into the hedge transactions.

The convertible note hedge transactions are intended to reduce the potential dilution with respect to our common stock or offset any potential cash payments we are required to make in excess of the principal amount of converted Convertible Senior Notes, as the case may be, upon any conversion of the Convertible Senior Notes. The warrant transactions could have a dilutive effect with respect to our common stock to the extent that the price per share of our common stock exceeds the strike price of the warrants evidenced by the warrant transactions. In connection with establishing and maintaining their initial hedge positions with respect to the convertible note hedge transactions and the warrant transactions, we understand that the hedge counterparties or their respective affiliates may modify their hedge positions with respect to the convertible note hedge transactions and the warrant transactions from time-to-time by purchasing or selling shares of our common stock or the Convertible Senior Notes in privately negotiated transactions or open-market transactions or by entering into or unwinding various over-the-counter derivative transactions with respect to our common stock.

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The effect, if any, of these activities on the trading price of our common stock will depend on a variety of factors, including market conditions, and is uncertain at this time. Any of these activities could, however, adversely affect the trading price of our common stock.

We are subject to counterparty risk with respect to the convertible note hedge transactions.

The hedge counterparties are financial institutions, and we will be subject to the risk that they might default under certain of the convertible note hedge transactions. Our exposure to the credit risk of the hedge counterparties will not be secured by any collateral. Global economic conditions have from time-to-time resulted in the actual or perceived failure or financial difficulties of many financial institutions. If a hedge counterparty becomes subject to insolvency proceedings, we will become an unsecured creditor in those proceedings with a claim equal to our exposure at that time under our transactions with that hedge counterparty. Our exposure will depend on many factors, but, generally, the increase in our exposure will be correlated to the increase in the market price and in the volatility of our common stock. In addition, upon a default by a hedge counterparty, we may suffer adverse tax consequences and more dilution than we currently anticipate with respect to our common stock. We can provide no assurances as to the financial stability or viability of any hedge counterparty.

Conversion of the Convertible Senior Notes or exercise of the warrants evidenced by the warrant transactions may dilute the ownership interest of existing stockholders, including noteholders who have previously converted their notes.

At our election, we may settle Convertible Senior Notes tendered for conversion entirely or partly in shares of our common stock. Furthermore, the warrants evidenced by the warrant transactions are expected to be settled on a net-share basis. As a result, the conversion of some or all of the Convertible Senior Notes or the exercise of some or all of such warrants may dilute the ownership interests of existing stockholders. Any sales in the public market of the common stock issuable upon such conversion of the Convertible Senior Notes or such exercise of the warrants could adversely affect prevailing market prices of our common stock. In addition, the existence of the Convertible Senior Notes may encourage short selling by market participants because the conversion of the Convertible Senior Notes could depress the price of our common stock.

 
ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table sets forth repurchases of our common stock during the thirdsecond quarter of 2020:
Period
Total Number of Shares Purchased (a)
Average Price Paid Per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (b)
Dollar Value of Shares That May Yet be Purchased Under the Plans or Programs (b)
May 3, 2020 to May 30, 20202,769 $27.21 — $1,031,207,525 
May 31, 2020 to July 4, 20205,342 $34.09 — $1,031,207,525 
July 5, 2020 to August 1, 2020790 $46.25 — $1,031,207,525 
Total8,901 $33.03 —  

(a)Includes shares withheld from employees to satisfy minimum tax withholding obligations associated with the vesting of restricted stock during the period.
(b)Shares repurchased as part of our previously announced five-year $1.0 billion share repurchase program authorized by the Board of Directors on March 16, 2016. On June 12, 2019, our Board of Directors authorized an additional five-year share repurchase program of up to $1.0 billion of our common stock. The 2016 program will remain available for purchases until it is exhausted or expires, after which time we may repurchase shares under the 2019 program.
:

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Period 
Total Number of Shares Purchased (a)
 Average Price Paid Per Share 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (b)
 
Dollar Value of Shares That May Yet be Purchased Under the Plans or Programs (b)
August 4, 2019 to August 31, 2019 1,407,100
 $33.41
 1,407,100
 $1,119,807,896
September 1, 2019 to October 5, 2019 1,132,412
 $36.19
 1,132,180
 $1,078,829,226
October 6, 2019 to November 2, 2019 298,911
 $38.57
 298,911
 $1,067,300,614
Total 2,838,423
 $35.07
 2,838,191
  

(a)
Includes shares withheld from employees to satisfy minimum tax withholding obligations associated with the vesting of restricted stock during the period.
(b)
Shares repurchased as part of our previously announced five-year $1.0 billion share repurchase program authorized by the Board of Directors on March 16, 2016. On June 12, 2019, our Board of Directors authorized an additional five-year share repurchase program of up to $1.0 billion of our common stock. The 2016 program will remain available for purchases until it is exhausted or expires after which time we may repurchase shares under the 2019 program.

ITEM 5.  OTHER INFORMATION
On March 19, 2020, the Company announced temporary reductions to the base salaries of its executives and other salaried teammates as a precautionary measure during the volatile and uncertain period surrounding the initial days of the COVID-19 pandemic. After re-opening its stores and returning teammates from furlough, the Company (i) restored the salaries of all teammates who experienced temporary reductions as part of the Company’s COVID-19 response, (ii) provided an additional one-time payment to those teammates whose salaries were temporarily reduced in an amount equal to their salary reduction, and (iii) implemented the Company’s standard annual base salary increases that typically become effective in April of each year, with any such increases being retroactively applied to April.
The Company restored the salaries of Edward Stack, Chief Executive Officer, and Lauren Hobart, President, on August 21, 2020, and restored the salaries of Lee J. Belitsky, Chief Financial Officer; Donald J. Germano, Executive Vice President – Stores; and Navdeep Gupta, Senior Vice President – Finance and Chief Accounting Officer, on June 7, 2020. The Company also approved on August 21, 2020, a one-time payment to each of these executives equaling the amount by which their salaries had been reduced during 2020. Ms. Hobart and Messrs. Belitsky, Germano, and Gupta also will receive salary increases of 3.2%, 12.9%, 2.5%, and 12.5%, respectively, with retroactive effectiveness as of April 12, 2020.
The Company also ended the temporary suspension of the retainer fees for its Board of Directors, and board members will receive the full amount of the 2020 cash retainer to which directors are entitled under the Company’s director compensation program.

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ITEM 6.  EXHIBITS

The following exhibits are filed or furnished (as noted) as part of this Quarterly Report on Form 10-Q.


Exhibit NumberDescription of ExhibitMethod of Filing
31.1
Certification of Edward W. Stack, Chairman and Chief Executive Officer, dated as of NovemberAugust 26, 20192020 and made pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002Filed herewith
31.2
Certification of Lee J. Belitsky, Executive Vice President - Chief Financial Officer, dated as of NovemberAugust 26, 20192020 and made pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002Filed herewith
32.1
Certification of Edward W. Stack, Chairman and Chief Executive Officer, dated as of NovemberAugust 26, 20192020 and made pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002Furnished herewith
32.2
Certification of Lee J. Belitsky, Executive Vice President - Chief Financial Officer, dated as of NovemberAugust 26, 20192020 and made pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002Furnished herewith
101.INSXBRL Instance Document - The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.Filed herewith
101.SCHXBRL Taxonomy Extension Schema DocumentFiled herewith
101.CALXBRL Taxonomy Calculation Linkbase DocumentFiled herewith
101.DEFXBRL Taxonomy Definition Linkbase DocumentFiled herewith
101.LABXBRL Taxonomy Label Linkbase DocumentFiled herewith
101.PREXBRL Taxonomy Presentation Linkbase DocumentFiled herewith
104Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101).Filed herewith

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SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Quarterly Report on Form 10-Q to be signed on NovemberAugust 26, 20192020 on its behalf by the undersigned, thereunto duly authorized.

DICK’S SPORTING GOODS, INC.
DICK’S SPORTING GOODS, INC.By:
By:/s/ EDWARD W. STACK
Edward W. Stack
Chairman and Chief Executive Officer
By:/s/ LEE J. BELITSKY
Lee J. Belitsky
Executive Vice President – Chief Financial Officer
(principal financial officer)

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