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Retailer's growth plan boon for Plainfield facility: Dick's Sporting Goods' strategy to expand west will push inventory through local distribution center

July 16, 2007

Dick's Sporting Goods' aggressive nationwide growth plan will mean about 400 new jobs at the retailer's Plainfield distribution center, industry experts said.

Last month, Pittsburgh-based Dick's rolled out a plan to grow from 309 stores to 800 nationwide within seven years. The plan includes growing from zero to 90 stores in California, two to 60 in Texas, and two to 40 in Florida.

"Their expansion plans are so aggressive, they're eventually going to have to open another distribution center, but for now, the brunt of this growth is going to come right out of the [Plainfield] facility," said Robert McGee, editor of Sporting Goods Intelligence, a nationally distributed trade publication based in Pennsylvania.

Dick's-which has annual revenue of $3.1 billion-anticipates growing at least 15 percent annually, not including acquisitions.

Since the Plainfield facility is Dick's farthest distribution center to the west and south, industry experts think it will get the biggest boost from the expansion.

"The Plainfield facility fits perfectly into our footprint and is critical to our growth," said Dick's spokesman Jeff Hennion. "The productivity at that facility has been great and the people we have there are tremendous."

Dick's also has a distribution center in Pittsburgh. Hennion said the retailer would add to its Plainfield and Pittsburgh centers before a third distribution facility would be built. Hennion indicated adding a third center could be years down the road. McGee predicted another facility would be needed two to four years from now.

In the meantime, there's extra capacity in Plainfield.

Dick's spent $35 million last year expanding the facility from 350,000 square feet to 725,000 square feet-bigger than the 601,000-square-foot Pittsburgh facility.

Since December, Dick's has added about 40 employees, and now employs about 350 full-time workers. That's up from 190 when Dick's bought Galyan's three years ago. Plans call to employ 400 by year's end, and more than 700 at capacity.

The facility served 100 stores before the expansion, but now has the capability to serve at least 230. If the facility is expanded further, even more employees could be added, industry analysts said, and given Indiana's central location, that's a distinct possibility.

The Pittsburgh distribution center employs 800 full-time workers.

"Dick's has been preparing for this growth ever since they bought Galyan's," said Rick Nelson, an analyst following Dick's for Chicago-based Stephens Inc. "Yes, they got entry into key markets, but the [Plainfield] distribution center was an awfully important part of that acquisition. People in the industry have been waiting for this growth move, and now here it comes."

Some analysts second-guessed Dick's when it bought Galyan's in 2004. The retailer got Galyan's 47 stores in a cash deal worth $305 million, plus $57 million in assumed debt.

Dick's bought Galyan's stock at $16.75 per share, a 53-percent premium over the $11.10 stock price at the time. Analysts suggested that a 25-percent to 30-percent premium would have been more appropriate.

"I don't think there are many people questioning that acquisition now," McGee said. "The Galyan's infrastructure, the distribution center specifically, has laid the groundwork for the type of overall growth they're experiencing and have planned."

Stephens and other analysts have little doubt Dick's will be successful despite the growth of such competitors as Colorado-based The Sports Authority, Minnesota-based Gander Mountain and Nebraska-based Cabela's.

"We're big proponents of Dick's Sporting Goods," said Jeff Sonnek, a vice president for Virginia-based Friedman Billings Ramsey Group who has been following the company since it went public in 2002. "They're clearly the best in class in their category."

Despite the impending boon, there are still those who think the area would have been better served if Galyan's, which was founded in Plainfield in 1946, would have not sold out to Dick's.

Plainfield, just west of Indianapolis in Hendricks County, lost 300 executive and administrative jobs after Galyan's nearby corporate headquarters closed. That facility is now occupied by Rolls-Royce and Brightpoint Inc. engineering and executive offices.

"I don't think expanding the distribution center comes anywhere close to replacing Galyan's corporate headquarters," said Plainfield Town Manager Rich Carlucci. "We're talking about a lot of executive positions lost, and you can't replace those with distribution jobs."

But analysts pointed out that Galyan's was in a free fall and there was no guarantee the retailer would have survived the increasingly competitive marketplace.

"Galyan's struggled with its product mix, they were too heavy on apparel and fashion, where Dick's made its name with hard-core sports fans and outdoor enthusiasts," Sonnek said.

Just before the sale was announced, Galyan's reported a loss of $4.5 million for the first quarter of 2004.

Galyan's eked out a $3.6 million profit in 2003 compared with $18.7 million in 2002. Most of that profit came from the opening of nine new stores. Same-store sales in 2003 fell nearly 6 percent.

Dick's expansion plan is made possible by its recent strong financial results, Sonnek said. For the recently completed fiscal first quarter, Dick's reported a 90-percent jump in profit to $21.7 million, or 38 cents a share, from the year-earlier period. Sales jumped 28 percent during the period. Its stock is trading at around $58, near its 52-week high and about $23 more than a year ago.

"As this growth plan takes off, and the [Plainfield] facility increases its flow of inventory, I think it will become much more efficient and profitable," Sonnek said. "That facility is incredibly important to their overall plan, and will just become more important."
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