risks, which are difficult to predict with a level of certainty and may be greater than expected, include, among others, risks and costs associated with combining businesses and/or with assimilating acquired companies (including our ability to estimate future integration costs related to the integration of the operations and achieving expected future costs savings from the integration).
OVERVIEW
Dick's is an authentic full-line sporting goods retailer offering a broad assortment of brand name sporting goods equipment, apparel and footwear in a specialty store environment. Unless otherwise specified, any reference to year is to our fiscal year and when used in this Form 10-Q and unless the context otherwise requires, the terms "Dick's," "we," "us," "the Company" and "our" refer to Dick's Sporting Goods, Inc. and its wholly-owned subsidiaries. As of May 2, 2009 we operated 394 Dick's stores in 39 states, 91 Golf Galaxy stores in 31 states and 13 Chick's stores in southern California, with approximately 24.1 million square feet, in 42 states on a consolidated basis, the majority of which are located throughout the eastern half of the United States.
Effective February 1, 2009, the Company amended its e-commerce agreement and began recording e-commerce revenues on a gross basis as the principal party in the transactions compared to its prior recording of these revenues on a net basis pursuant to EITF No. 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent.
Due to the seasonal nature of our business, interim results are not necessarily indicative of results for the entire fiscal year. Our revenue and earnings are typically greater during our fiscal fourth quarter, which includes the majority of the holiday selling season.
The primary factors which historically influenced the Company's profitability and success have been its growth in the number of stores and selling square footage, its positive comparable store sales, and its strong gross profit margins. In the last five years, the Company has grown from 234 stores as of the end of fiscal 2004 to 498 stores as of May 2, 2009, reflecting both organic growth and acquisitions. The Company continues to expand its presence through the opening of new stores, although its rate of growth has decreased from the rate of growth experienced in earlier years, reflecting the current economic conditions.
The 13 weeks ended May 2, 2009, like fiscal 2008, continued to be a difficult operating environment for our industry due to numerous external factors weighing on specialty retail sales. The pressures on the consumer have intensified as unemployment has risen, equity markets have declined, and concerns about the broader economy have grown. These factors, combined with falling home prices and tight credit markets, suggest continued pressure on specialty retail consumers in the near term. The Company continues to see the greatest sales weakness in bigger ticket, discretionary purchases such as golf and exercise equipment, while the lodge business has benefited from higher gun and ammunition sales. However, since the balance of macroeconomic factors that impact the Company's business remains unfavorable, the Company will continue to take a cautious approach to ensure that it is well-positioned to capitalize on opportunities as they develop.
As a result, the Company has implemented numerous strategies to help it manage through these uncertain times, including remaining focused on reducing costs, conserving cash and managing inventories in line with sales trends. The Company has trimmed planned fiscal 2009 capital expenditures to approximately $60 million compared to $115 million in fiscal 2008, net of proceeds from sale leaseback transactions and allowances received from landlords. The Company believes its strong balance sheet, which includes $45.8 million in cash and cash equivalents, $116.3 million in outstanding borrowings under its $440 million Second Amended and Restated Credit Agreement ("Credit Agreement") and an inventory per square foot reduction of 9.7% at May 2, 2009 compared to the same period in fiscal 2008, increases its financial flexibility and further strengthens its ability to successfully manage through this economic crisis. The Company reduced its outstanding borrowings by $5.2 million compared to May 3, 2008, even after the repayment of $172.5 million of the Company's senior convertible notes during the quarter ended May 2, 2009.
The Company expects to continue to generate positive cash flow to fund its operations and to take advantage of growth opportunities. The Company believes its existing Credit Agreement is sufficient to support its ongoing operations and future plans for fiscal 2009.
In order to monitor the Company's success, the Company's senior management monitors certain key performance indicators, including:
• Comparable same store sales performance - For the 13 weeks ended May 2, 2009, the Company's comparable store sales decreased 6.0% compared to a 3.8% decrease during the same period in fiscal 2008. The comparable store sales calculation for the first quarter of fiscal 2009 includes Dick's Sporting Goods stores and Golf Galaxy stores. The comparable store sales calculation for the first quarter of fiscal 2008 includes Dick's Sporting Goods stores

only. The Company believes that its comparable stores sales performance was affected by numerous challenges including a difficult macroeconomic environment, declining consumer confidence resulting in lower than anticipated customer traffic and particularly cautious spending. Although the Company believes it has made noticeable progress in improving its merchandise offerings, the effect of those improvements have been hampered by the macroeconomic environment. The Company's current strategy is to target a general overall trend to return to positive comparable store sales growth; although it recognizes that it continues to be affected by many of these factors. The Company believes that its ability to realize such a general overall positive trend in comparable store sales will prove to be a key factor in achieving its targeted levels of earnings per share and continuing its store expansion program to an ultimate goal of at least 800 Dick's locations across the United States.

• Positive operating cash flow - The Company generated $31.7 million of cash flow from operations in the 13 weeks ended May 2, 2009 while cash flows used by operations totaled $86.1 million during the same period in fiscal 2008. The Company believes that historically, a key strength of its business has been the ability to consistently generate positive cash flow from operations. Strong cash flow generation is critical to the future success of the Company, not only to support the general operating needs of the Company, but also to fund capital expenditures related to new store openings, relocations, expansions and remodels, costs associated with its corporate headquarters and its distribution centers, costs associated with continued improvement of information technology tools and costs associated with potential strategic acquisitions that may arise from time to time. See further discussion of the Company's cash flows in the Liquidity and Capital Resources section of Item 2 herein.

• Quality of merchandise offerings - To monitor and maintain acceptance of its merchandise offerings, the Company monitors sell-throughs, inventory turns, gross margins and markdown rates on a department and style level. This analysis helps the Company manage inventory receipts and markdowns to reduce cash flow requirements and deliver optimal gross margins by improving merchandise flow and establishing appropriate price points to minimize markdowns.

• Cost reduction efforts - The Company implemented numerous initiatives during fiscal 2008 aimed at maintaining tighter expense controls. These initiatives included optimizing the Company's overall advertising costs, costs associated with operating its stores and distribution centers as well as general and administrative costs. The Company has redirected a portion of its advertising costs to enhance consumer penetration by focusing on events, frequency, distribution, media types and sponsorships. The Company has adjusted store staffing levels and operating hours to reflect current and anticipated traffic levels and has focused on energy conservation programs to further lower store operating costs. Staffing adjustments at the Company's distribution centers, including the closure of the Conklin return to vendor facility in March 2009, have been made to reflect anticipated merchandise receipt volumes. The Company has also implemented various administrative cost reduction initiatives, including a freeze on corporate staffing levels other than those necessitated by our back office consolidation of recently acquired businesses, efforts to manage compensation related expenses and reducing travel and entertainment expenses.

• Capital reduction efforts - The Company expects to reduce its net capital spending in fiscal 2009 to a projected target of $60 million compared to $115 million in fiscal 2008. The Company plans to scale back its store expansion program to approximately 20 stores during fiscal 2009. This level of store expansion is significantly lower than historical levels and is largely driven by the current economic conditions. The Company has created a capital appropriations committee to approve all capital expenditures in excess of certain amounts and to group and prioritize all capital projects among required, discretionary and strategic.

CRITICAL ACCOUNTING POLICIES
As discussed in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" section of the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 2009, the Company considers its policies on inventory valuation, vendor allowances, goodwill and intangible assets, impairment of long-lived assets and closed store reserves, business combinations, self-insurance reserves, stock-based compensation and uncertain tax positions to be the most critical in understanding the judgments that are involved in preparing its consolidated financial statements. There have been no changes in the Company's critical accounting policies during the period ended May 2, 2009.
RESULTS OF OPERATIONS AND OTHER SELECTED DATA
Executive Summary
Net income for the current quarter totaled $10.2 million, or $0.09 per diluted share, as compared to net income of $19.6 million, or $0.17 per diluted share for the 13 weeks ended May 3, 2008.
Net sales for the current quarter increased 5% to $959.7 million, due primarily to new store sales and the addition of e-commerce sales, partially offset by a comparable store sales decrease of 6.0%. Golf Galaxy is included in the Company's full

year comparable store sales calculation for fiscal 2009.
As a percentage of net sales, gross profit decreased 232 basis points to 26.09% for the quarter, due primarily to lower merchandise margins that were impacted by clearance activity at Golf Galaxy stores, an increase in promotions at Dick's stores, which resulted in better than anticipated gross margin dollars, and the inventory liquidation at the Chick's stores prior to their conversion to Dick's stores. Gross profit was further impacted by fixed occupancy expenses that de-leveraged due to the larger comparable store sales decline in the current quarter compared to last year's quarter.
We ended the first quarter with $116.3 million of outstanding borrowings on our Credit Agreement. There were no outstanding borrowings as of January 31, 2009. The following represents a reconciliation of beginning and ending stores for the periods indicated:

                                                     13 Weeks Ended                                                             13 Weeks Ended
                                                      May 2, 2009                                                                May 3, 2008
                           Dick's Sporting                                                            Dick's Sporting
                                Goods              Golf Galaxy         Chick's         Total               Goods              Golf Galaxy         Chick's         Total
Beginning stores                        384                  89              14            487                     340                  79              15            434
New                                       9                   1               -             10                       8                   4               -             12
Closed                                    -                   -               -              -                       -                   -               -              -
Converted                                 1                   1              (1 )            1                       -                   -               -              -

Ending stores                           394                  91              13            498                     348                  83              15            446

Relocated stores                          -                   -               -              -                       -                   -               -              -

The following table presents for the periods indicated items in the unaudited consolidated statements of income as a percentage of the Company's net sales, as well as the basis point change in the percentage of net sales from the prior year's period. In addition, other selected data is provided to facilitate a further understanding of our business. These tables should be read in conjunction with the following management's discussion and analysis and the unaudited consolidated financial statements and related notes thereto.

                                                                                                      Basis Point
                                                                                                      Increase /
                                                                                                     (Decrease) in
                                                                                                     Percentage of
                                                                  13 Weeks Ended                       Net Sales
                                                           May 2,               May 3,              from Prior Year
                                                          2009 (1)               2008                2008-2009 (1)
                                                                             (As adjusted,
                                                                              see Note 2)
Net sales (2)                                                 100.00 %               100.00 %                    N/A
Cost of goods sold, including occupancy and
distribution costs (3)                                         73.91                  71.59                      232

Gross profit                                                   26.09                  28.41                     (232 )
Selling, general and administrative expenses (4)               23.56                  24.12                      (56 )
Merger and integration costs (5)                                0.45                      -                       45
Pre-opening expenses (6)                                        0.32                   0.54                      (22 )

Income from operations                                          1.76                   3.75                     (199 )
Gain on sale of asset (7)                                          -                  (0.26 )                     26
Interest expense, net (8)                                       0.17                   0.40                      (23 )

Income before income taxes                                      1.60                   3.61                     (201 )
Provision for income taxes                                      0.53                   1.46                      (93 )

Net income                                                      1.07 %                 2.15 %                   (108 )

Other Data:
Comparable store net sales decrease (9)                         -6.0 %                 -3.8 %
Number of stores at end of period                                498                    446
Total square feet at end of period                        24,143,858             21,594,415

(1) Column does not add due to rounding.

(2) Revenue from retail sales is recognized at the point of sale, net of sales tax. A provision for anticipated merchandise returns is provided through a reduction of sales and cost of sales in the period that the related sales are recorded. Revenue from gift cards and returned merchandise credits (collectively the "cards"), are deferred and recognized upon the

redemption of
the cards.
These cards
have no
expiration
date. Income
from
unredeemed
cards is
recognized in
the unaudited
Consolidated
Statements of
Income in
selling,
general and
administrative
expenses at
the point at
which
redemption
becomes
remote. The
Company
performs an
evaluation of
the aging of
the unredeemed
cards, based
on the elapsed
time from the
date of
original
issuance, to
determine when
redemption is
remote.

(3) Cost of goods sold includes the cost of merchandise, inventory shrinkage and obsolescence, freight, distribution and store occupancy costs. Store occupancy costs include rent, common area maintenance charges, real estate and other asset based taxes, store maintenance, utilities, depreciation, fixture lease expenses and certain insurance expenses.

(4) Selling, general and administrative expenses include store and field support payroll and fringe benefits, advertising, bank card charges, information systems, marketing, legal, accounting, other store expenses, stock-based compensation expense and all expenses associated with operating the Company's corporate headquarters.

(5) Merger and integration costs primarily include duplicative administrative costs, management and advertising expenses associated with the conversions from Chick's stores to Dick's stores and severance.

(6) Pre-opening expenses consist primarily of rent, marketing, payroll and recruiting costs incurred prior to a new or relocated store opening.

(7) Gain on sale of asset resulted from the Company exercising a buyout option on an aircraft lease and subsequently selling the aircraft.

(8) Interest expense, net, results primarily from interest on our senior convertible notes and Credit Agreement.

(9) Comparable store sales begin in a store's 14th full month of operations after its grand opening. Comparable store sales are for stores that opened at least 13 months prior to the beginning of the period noted. Stores that were relocated during the applicable period have been excluded from comparable store sales. Each relocated store is returned to the comparable store base after its 14th full month of operations at that new location.

13 Weeks Ended May 2, 2009 Compared to the 13 Weeks Ended May 3, 2008 Net Income
Net income for the current quarter totaled $10.2 million, or $0.09 per diluted share, as compared to net income of $19.6 million, or $0.17 per diluted share, for the 13 weeks ended May 3, 2008. The decrease was primarily due to a decrease in gross profit, an increase in selling, general and administrative expenses and merger and integration costs incurred by the Company in consolidating Chick's with the Company's pre-existing business. Net Sales
Net sales for the current quarter increased 5% to $959.7 million, due primarily to new store sales and the addition of e-commerce sales, partially offset by a comparable store sales decrease of 6.0%. Golf Galaxy is included in the Company's full year comparable store sales calculation for fiscal 2009. The decrease in comparable store sales is mostly attributable to sales decreases in exercise, other footwear, outerwear and outerwear accessories, athletic apparel and team sports. These sales decreases were partially offset by increases in hunting, guns and athletic footwear.
The comparable store sales decrease was driven primarily by a decrease in transactions of approximately 2.5% and a decrease of approximately 2.1% in average unit retail price at Dick's stores, reflecting declining consumer confidence that resulted in lower traffic and more cautious spending. Every 1% change in comparable store sales would have impacted earnings before income taxes for the 13 weeks ended May 2, 2009 by approximately $3 million. Income from Operations
Income from operations decreased to $16.9 million for the current quarter from . . .