DICK’S SPORTING GOODS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (type 10-Ok)

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The following discussion and analysis should be read in conjunction with our
Consolidated Financial Statements and related notes appearing elsewhere in this
Annual Report on Form 10-K. This Annual Report on Form 10-K contains
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. See “Forward-Looking Statements” and Part I,
Item 1A. “Risk Factors”.

Business Overview

We are a leading omni-channel sporting goods retailer offering an extensive
assortment of authentic, high-quality sports equipment, apparel, footwear and
accessories. In addition to DICK’S Sporting Goods stores, we own and operate
Golf Galaxy, Field & Stream, Public Lands, and Going Going Gone! stores, and
offer our products both online and through our mobile apps. We also own and
operate DICK’S House of Sport and Golf Galaxy Performance Center, as well as
GameChanger, a youth sports mobile app for video streaming, scorekeeping,
scheduling and communications. When used in this Annual Report on Form 10-K,
unless the context otherwise requires or specifies, any reference to “year” is
to our fiscal year.

Our profitability is primarily influenced by the growth in consolidated same
store sales, the strength of our gross margins derived from our omni-channel
platform and our ability to manage expenses. We have grown from 676 DICK’S
Sporting Goods stores at the end of fiscal 2016 to 730 DICK’S Sporting Goods
stores at the end of fiscal 2021. Our current real estate strategy has resulted
in a reduction in the rate at which we open new DICK’S Sporting Goods stores in
recent years. We intend to continue this strategy over the next few years, which
will allow us to continue to leverage the significant flexibility within our
existing real estate portfolio to capitalize on future real estate opportunities
as leases come up for renewal. We expect that our future real estate strategy
will include growth in new retail concepts and experiential store prototypes. We
deploy an in-house eCommerce platform, which allows for continued innovation and
enhancements to our eCommerce websites and applications, new releases of our
mobile and tablet apps, and the development of omni-channel capabilities that
further integrate our online presence with our brick and mortar stores to
increase athlete engagement, including ship-from-store, buy-online, pick-up in
store or curbside and multi-channel marketing campaigns.

Our eCommerce sales penetration to total net sales increased from approximately
12% in fiscal 2016 to approximately 16% in fiscal 2019. Our eCommerce sales
growth further accelerated during the COVID-19 pandemic. Compared to fiscal
2019, eCommerce sales increased 81% in fiscal 2021, and eCommerce penetration
grew to 21% of total net sales. Approximately 70% of online sales during fiscal
2021 were fulfilled directly by our stores, which serve as localized points of
distribution, and our stores enabled over 90% of fiscal 2021 sales through
online fulfillment and in-person sales.

COVID-19 Update

Following temporary store closures in the spring of fiscal 2020 due to the
COVID-19 pandemic, our differentiated product assortment, supply chain,
technological capabilities and omni-channel platform enabled us to capitalize on
strong consumer demand as net sales increased 40.5% in fiscal 2021 compared to
fiscal 2019. In response to the pandemic, we implemented additional safety and
cleaning protocols at our stores, distribution centers and corporate offices, as
well as provided a temporary 15% pay premium program to our store and
distribution center teammates through the end of fiscal 2020, resulting in $175
million in COVID-related costs. Following the conclusion of our temporary 15%
pay premium program, in fiscal 2021 we transitioned these teammates to
compensation programs with a longer-term focus, including accelerated annual
merit increases and higher wages. Other COVID-related costs decreased
significantly beginning in the second quarter of 2021 in consideration of
guidance from the Centers for Disease Control and Prevention, resulting in total
COVID-related costs of $15 million in fiscal 2021.

The effect that the COVID-19 pandemic may have on our future business remains
uncertain, including the long-term economic outlook, inflation and its impact on
consumer discretionary spending behavior when the pandemic ends. Additionally,
COVID-19 has disrupted global supply chains, including factory closures and port
congestion that have resulted in longer transit times and rising container and
transportation costs, which we expect will continue to remain elevated in the
near term. Although we have successfully managed these challenges thus far, our
ability to continue to replenish our inventory to meet current levels of
consumer demand could be impacted by further delays or disruptions to the flow
of products from our key vendor partners and our vertical brand sources. Our
fiscal 2022 outlook contemplates this uncertainty, and we plan to continue to
actively manage any impacts of COVID-19 on our business.

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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 at the new
location. See further discussion of our consolidated same store sales within the
“Results of Operations” section herein.

•Earnings before taxes and the related operating margin – Our management views
operating margin and earnings before taxes 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, which include investments in new and existing stores and our eCommerce
channel, distribution and administrative facilities, continuous improvements to
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 experience lower operating
cash flows in our third fiscal quarter due to inventory purchases in advance of
the holiday selling season, which normalizes in our fourth fiscal quarter. See
discussion of our fiscal 2021 cash flows compared to fiscal 2020 in the
“Liquidity and Capital Resources” section herein.

•Quality of merchandise offerings – To measure acceptance of our 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.

Due to temporary store closures and other actions taken in fiscal 2020 in
response to the emergence of the COVID-19 pandemic, our fiscal 2021 operating
plan was based on our 2019 results. Accordingly, we have also included
comparative results from fiscal 2019 in our discussion of results of operations
for fiscal 2021.

Executive Summary

•Net sales increased 28.3% to $12.29 billion in fiscal 2021 from $9.58 billion
in fiscal 2020 and increased 40.5% from $8.75 billion in fiscal 2019.

•Consolidated same store sales increased 26.5% from fiscal 2020, which was on
top of a 9.9% consolidated same store sales increase last year. Fiscal 2019
consolidated same store sales increased 3.7%.

•eCommerce sales increased 81% in the current year compared to fiscal 2019, a 9%
decrease compared to fiscal 2020.

•We reported net income of $1.52 billion, or $13.87 per diluted share in fiscal
2021, compared to $530.3 million, or $5.72 per diluted share, during fiscal
2020. Net income was $297.5 million, or $3.34 per diluted share, in fiscal 2019.

•Net income in the current year included $22.8 million of non-cash interest
expense, net of tax, related to our convertible senior notes due 2025 (the
“Convertible Senior Notes”) and earnings per diluted share included 11.3 million
shares from these notes that are designed to be offset at conversion by our bond
hedge, which together decreased earnings per diluted share by $1.83.

•Net income in fiscal 2020 included $16.0 million of non-cash interest expense,
net of tax, related to our Convertible Senior Notes and earnings per diluted
share included 3.5 million shares from these notes that are designed to be
offset at conversion by our bond hedge, which together decreased earnings per
diluted share by $0.40.

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•In fiscal 2021 and fiscal 2020, net income included approximately $15 million
and $175 million of pre-tax expenses, or $0.10 and $1.40 per diluted share, net
of tax, respectively, of teammate compensation and safety costs resulting from
the COVID-19 pandemic.

•In addition, during fiscal 2021, we:

•Declared and paid $603.0 million in dividends, including quarterly dividends
and a special dividend in the amount of $5.50 per share, on our common stock and
Class B common stock. The quarterly dividend of $0.4375 per share we paid in the
third and fourth quarters represented a 21% increase over our previous quarterly
dividend per share;

•Repurchased 10.79 million shares of common stock under our share repurchase
program for a total cost of $1.18 billion; and

•Issued $1.5 billion of senior unsecured notes and concurrently replaced our
revolving credit facility with a new unsecured $1.6 billion revolving credit
facility (the “Credit Facility”) as part of our inaugural long-term investment
grade debt issuance, ending fiscal 2021 with $2.6 billion of cash and cash
equivalents and no borrowings under our Credit Facility.

•The following table summarizes store openings and closings in fiscal 2021 and
fiscal 2020:

Fiscal 2021 Fiscal 2020
DICK’S Sporting Specialty Concept Specialty Concept
Goods (2) Stores (1) Total DICK’S Sporting Goods Stores (1) Total
Beginning stores 728 126 854 726 124 850

New stores 6 8 14 7 10 17
Closed stores (3) 4 3 7 5 8 13
Ending stores 730 131 861 728 126 854

Relocated stores 11 1 12 12 3 15

(1)Includes our Golf Galaxy, Field & Stream, Public Lands and Going Going Gone!
stores, and excludes temporary Warehouse Sale store locations. 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 our athletes. 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 two new DICK’S House of Sport store prototypes which were
relocations of former DICK’S Sporting Goods stores.

(3)Includes our closure and sublease of four Field & Stream stores in fiscal
2020.

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Results of Operations

The following table presents, for the fiscal years indicated, selected items in
the Consolidated Statements of Income as a percentage of our net sales, as well
as the basis point change in percentage of net sales from fiscal 2021 to fiscal
2020 and 2019:

Basis Point Change Basis Point Change
Fiscal Year in Percentage of in Percentage of
Net Sales from Net Sales from Two
Prior Year 2020 – Years Ago
2021 2020 (A) 2019 (A) 2021(A) 2019 – 2021 (A)
Net sales (1) 100.00 % 100.00 % 100.00 % N/A N/A
Cost of goods sold, including occupancy
and distribution costs (2) 61.67 68.17 70.81 (650) (914)
Gross profit 38.33 31.83 29.19 650 914
Selling, general and administrative
expenses (3) 21.67 23.98 24.84 (231) (317)
Pre-opening expenses (4) 0.11 0.11 0.06 – 5
Income from operations 16.55 7.74 4.29 881 1,226

(Gain) loss on sale of subsidiaries (5) – – (0.39) – 39
Interest expense 0.47 0.51 0.19 (4) 28
Other (income) expense (0.14) (0.20) (0.18) 6 4
Income before income taxes 16.22 7.43 4.66 879 1,156
Provision for income taxes 3.86 1.89 1.26 197 260
Net income 12.36 % 5.53 % 3.40 % 683 896

Other Data:
Consolidated same store sales change (6) 26.5 % 9.9 % 3.7 %
Number of stores at end of period (7) 861 854 850
Total square feet at end of period (in
millions) (7) 42.4 42.0 41.8

(A) 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
or 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
the store opens.

(5) Represents the gain recorded in connection with our sale of two technology
subsidiaries, Blue Sombrero and Affinity Sports, in fiscal 2019.

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(6) 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.

(7) Includes our DICK’S Sporting Goods, Golf Galaxy, Field & Stream, Public
Lands and Going Going Gone! stores. Excludes temporary locations.

Note – As retailers vary in how they record costs of operating their stores and
supply chain between cost of goods sold and selling, general and administrative
expenses, our gross profit rate and selling, general and administrative expenses
rate may not be comparable to other retailers. For additional information
regarding the types of costs classified within cost of goods sold, selling,
general and administrative expenses or any other financial statement line items
presented herein, refer to Note 1-Basis of Presentation and Summary of
Significant Accounting Policies included in Part IV. Item 15. Exhibits and
Financial Statement Schedules of this Annual Report on Form 10-K.

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A discussion regarding our financial condition and results of operations for the
year ended January 29, 2022 (Fiscal 2021) compared to the year ended January 30,
2021 (Fiscal 2020) is presented below. A discussion regarding our financial
condition and results of operations for the year ended January 30, 2021 (Fiscal
2020) compared to the year ended February 1, 2020 (Fiscal 2019) can be found
under Item 7 of Part II of our Annual Report on Form 10-K for the fiscal year
ended January 30, 2021, filed with the SEC on March 24, 2021.

Fiscal 2021 Compared to Fiscal 2020

Net Sales

Net sales were $12.29 billion in fiscal 2021, a 28.3% increase from net sales of
$9.58 billion in fiscal 2020, due primarily to a consolidated same store sales
increase of $2.45 billion, or 26.5%, after giving effect to last year’s
temporary store closures resulting from the COVID-19 pandemic. The remaining
$261.6 million increase in net sales was primarily attributable to new and
relocated stores. The increase in consolidated same store sales was driven by
balanced growth across hardlines, apparel and footwear, and included an 18.8%
increase in transactions and a 7.7% increase in sales per transaction.
Additionally, our consolidated same store sales increase included an increase in
brick and mortar sales of over 42%, while eCommerce sales decreased
approximately 9% compared to the prior year, as both channels were impacted by
last year’s temporary store closures.

Compared to fiscal 2019, net sales increased approximately 40.5%. This included
a 32.6% increase in brick and mortar sales and an 81% increase in eCommerce
sales. eCommerce sales penetration as a percentage of net sales increased to
approximately 21% in the current year compared to approximately 16% during
fiscal 2019. As expected, eCommerce sales penetration decreased in the current
year from 30% of net sales in fiscal 2020.

Income from Operations

Income from operations increased to $2,034.5 million in fiscal 2021 from $741.5
million in fiscal 2020 and $375.6 million in fiscal 2019.

Gross profit increased 54.5% to $4,711.9 million in fiscal 2021 from $3,050.7
million in fiscal 2020 and increased as a percentage of net sales by 650 basis
points due primarily to higher merchandise margin and occupancy leverage.
Merchandise margin increased 407 basis points, which was driven by our
differentiated product assortment and disciplined promotional strategy, as well
as a favorable sales mix. In addition, merchandise cost increases resulting from
higher supply chain and input costs were partially offset by selective price
increases during the year. Occupancy costs, which after the cost of merchandise
represents the largest item within our cost of goods sold, are generally fixed
on a per store basis and fluctuate based on the number of stores that we
operate. Our occupancy costs increased $14.2 million compared to fiscal 2020,
but increased gross profit as a percentage of net sales by approximately 223
basis points due to the increase in net sales. The remaining increase in gross
profit as a percentage of net sales included lower eCommerce shipping expense
due primarily to a lower penetration of eCommerce sales compared to the prior
year, partially offset by increased freight expenses due to continuing global
supply chain disruptions following the start of the COVID-19 pandemic. Gross
profit included approximately $23 million of COVID-related compensation and
safety costs in fiscal 2020.

Compared to fiscal 2019, gross profit increased approximately 914 basis points
as a percentage of net sales, driven primarily by merchandise margin expansion
of 626 basis points due to fewer promotions and a write-down of inventory
related to the restructuring of our hunt business in fiscal 2019, and occupancy
leverage of 336 basis points. These improvements were partially offset by higher
freight costs due to the aforementioned global supply chain disruptions.

Selling, general and administrative expenses increased 15.9% to $2,664.1 million
in the current year from $2,298.5 million in fiscal 2020, but decreased as a
percentage of net sales by 231 basis points due primarily to leverage from the
increase in sales. The $365.6 million increase was due primarily to current year
cost increases to support the growth in net sales, last year’s operating expense
reductions following our temporary store closures and higher incentive
compensation expense, partially offset by lower contributions to The DICK’S
Sporting Goods Foundation, as fiscal 2020 included a $30 million contribution to
help jump-start youth sports programs struggling to return from the COVID-19
pandemic. Selling, general and administrative expenses included approximately
$15 million and $152 million of COVID-related costs in fiscal 2021 and fiscal
2020, respectively. Prior year COVID-related costs were net of a $17 million
benefit from employee retention tax credits provided by the Coronavirus Aid,
Relief and Economic Security Act and included a temporary 15% pay premium
program. In the current year, we transitioned store teammates to compensation
programs with a longer-term focus, including increasing and accelerating annual
merit increases and higher hourly wages, partially offsetting the year-over-year
decrease in COVID-related costs.

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Compared to fiscal 2019, selling, general and administrative expenses decreased
as a percentage of net sales by 317 basis points due primarily to leverage from
the increase in net sales, while increasing 22.6% from $2,173.7 million in
fiscal 2019. The $490.4 million increase in selling, general and administrative
expenses was due primarily to higher payroll and operating expenses incurred to
support the increase in net sales, hourly wage rate investments and higher
incentive compensation expense. Fiscal 2019 included hunt restructuring charges
due to our removal of that department from 440 DICK’S Sporting Goods stores and
our exit from eight Field & Stream stores, a non-cash asset impairment and the
favorable settlement of a litigation contingency.

Interest Expense

Interest expense increased to $57.8 million in fiscal 2021 compared to $48.8
million in fiscal 2020, due primarily to a full year of interest expense on our
Convertible Senior Notes, which were issued in April 2020. Interest expense
included non-cash debt discount amortization related to our Convertible Senior
Notes of $30.8 million in the current year and $21.6 million in the prior year.

Other Income

Other income decreased to $17.8 million in fiscal 2021 compared to $19.1 million
in fiscal 2020. Other income primarily relates 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 decreased to 23.8% in the current year from 25.5% in
fiscal 2020. The current year effective tax rate was favorably impacted by the
vesting of employee equity awards at a higher share price than awards that
vested in the prior year.

Liquidity and Capital Resources

Our cash on hand at January 29, 2022 was $2.6 billion, which was further
strengthened as a result of our issuance of $1.5 billion investment-grade senior
notes. We believe that we have sufficient cash flows from operations and cash on
hand to operate our business for at least the next 12 months, supplemented by
funds available under our new unsecured $1.6 billion Credit Facility, if
necessary. We may require additional funding should we pursue strategic
acquisitions, settle all or a portion of the Convertible Senior Notes, undertake
share repurchases, pursue other investments or engage in store expansion rates
in excess of historical levels. We had no revolving credit facility borrowings
at any point during fiscal 2021.

The following sections describe the potential short and long term impacts to our
liquidity and capital requirements.

Leases

We lease all of our stores, three of our distribution centers and certain
equipment under non-cancellable operating leases that expire at various dates
through 2033. Over two-thirds of 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. See Part IV. Item 15. Exhibits
and Financial Statement Schedules, Note 7-Leases for additional details.

Revolving Credit Facility

We have available to us a $1.6 billion Credit Facility, which includes a maximum
amount of $75 million to be issued in the form of letters of credit. As of
January 29, 2022, there were no borrowings outstanding under the Credit
Facility, and we have total remaining borrowing capacity, after adjusting for
$16.1 million of standby letters of credit, of $1.58 billion. See Part IV. Item
15. Exhibits and Financial Statement Schedules, Note 8-Revolving Credit Facility
for additional details.

Senior Notes

As of January 29, 2022, we have $750 million principal amount of senior notes
due 2032 (the “2032 Notes”) and $750 million of senior notes due 2052
outstanding (the “2052 Notes” and together with the 2032 Notes, the “Senior
Notes”). Cash interest accrues at a rate of 3.15% per year on the 2032 Notes and
4.10% per year on the 2052 Notes, each of which are payable semi-annually in
arrears on January 15 and July 15. See Part IV. Item 15. Exhibits and Financial
Statement Schedules, Note 9-Senior Notes for additional details.

As of January 29, 2022, the Senior Notes were assigned long-term credit ratings
by Moody’s and Standard & Poor’s rating agencies of Baa3 and BBB, respectively.

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Convertible Senior Notes

As of January 29, 2022, we have $575 million principal amount of Convertible
Senior Notes outstanding. Cash interest accrues at a rate of 3.25% per year,
payable semi-annually in arrears on April 15 and October 15. We currently
anticipate that we will repay the principal amount of the Convertible Senior
Notes in cash to minimize dilution, whether in connection with an early
conversion of the Convertible Senior Notes or repayment at maturity in April
2025, using excess cash, free cash flow and borrowings on our Credit Facility.

At January 29, 2022, the stock price conditions under which the Convertible
Senior Notes could be convertible at the holders’ option were met. However, the
Company has not received any material conversion requests through the filing
date of this Annual Report on Form 10-K. There can be no assurance as to the
availability of capital to fund such repayments, or to the extent that 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 Part IV. Item 15. Exhibits and Financial Statement Schedules, Note
10-Convertible Senior Notes for additional details.

Capital Expenditures

Our capital expenditures are primarily allocated toward the development of our
omni-channel platform, including investments in new and existing stores and
eCommerce technology, while we have also invested in our supply chain and
corporate technology capabilities. In fiscal 2021, capital expenditures totaled
$308.3 million on a gross basis and $268.1 million on a net basis, which
includes tenant allowances provided by landlords.

We anticipate that fiscal 2022 capital expenditures will be in a range of $340
to $365 million, net of tenant allowances provided by landlords. We expect our
expenditures to be concentrated on improvements within our existing stores and
new store development, as well as on continued investments in technology to
enhance our store fulfillment and in-store pickup capabilities.

Share Repurchases

From time-to-time, we may opportunistically repurchase shares of our common
stock under favorable market conditions. In fiscal 2021, we repurchased
approximately 10.79 million shares of our common stock for $1.18 billion. We
currently operate under a $2.0 billion share repurchase program that was
authorized by the Board of Directors in December 2021. As of January 29, 2022,
the available amount remaining under the December 2021 authorization was $1.85
billion.

Any future share repurchase programs are subject to the authorization by our
Board of Directors and will be dependent upon future earnings, cash flows,
financial requirements and other factors.

Dividends

In fiscal 2021, we paid $603.0 million of dividends to our shareholders, which
included a special dividend in the amount of $5.50 per share. On March 7, 2022,
our Board of Directors declared an 11% increase in our quarterly cash dividend
compared to the previous quarterly per share amount. The dividend of $0.4875 per
share of common stock and Class B common stock is payable on March 25, 2022 to
stockholders of record as of the close of business on March 18, 2022.

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 are dependent upon multiple
factors, including future earnings, cash flows, financial requirements and other
considerations.

Supply Chain Financing

We have entered into supply chain financing arrangements with several financial
institutions, whereby suppliers have the opportunity to settle outstanding
payment obligations early at a discount. In turn, we settle invoices with the
financial institutions in accordance with the original supplier payment terms.
Our rights and obligations to our suppliers, including amounts due and scheduled
payment terms, are not impacted. Our liability associated with the funded
participation in the arrangements, which is presented within accounts payable on
the Consolidated Balance Sheet, was $76.0 million and $67.5 million as of
January 29, 2022 and January 30, 2021, respectively.

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Cash Flows

Changes in cash and cash equivalents for the last three fiscal years are as
follows (in millions):

Fiscal Year Ended
January 29, January 30, February 1,
2022 2021 2020
Net cash provided by operating activities $ 1,616.9 $ 1,552.8 $ 404.6
Net cash used in investing activities (344.0) (224.2) (129.3)
Net cash (used in) provided by financing activities (287.7) 260.0 (319.6)
Effect of exchange rate changes on cash and cash
equivalents (0.1) 0.1 –

Net increase (decrease) in cash and cash equivalents $ 985.1

$ 1,588.7 $ (44.3)

Operating Activities

Cash flows provided by operating activities increased $64.1 million in fiscal
2021 compared to fiscal 2020. The increase was primarily due to higher earnings,
partially offset by higher cash payments for inventory and accounts payable to
replenish inventory following a 11.3% inventory decrease in fiscal 2020, which
included precautionary reductions in inventory receipts in response to the
COVID-19 pandemic, supply chain constraints and a 9.5% sales increase in fiscal
2020 compared to fiscal 2019. The remaining year-over-year decrease in operating
cash flows was primarily due to our fiscal 2020 deferrals of rent payments in
response to the COVID-19 pandemic that we paid in fiscal 2021 and qualified
payroll tax deferrals and related payments as permitted by the CARES Act.

Investing Activities

Cash used in investing activities for fiscal 2021 was $344.0 million, an
increase of $119.8 million compared to the prior year. Gross capital
expenditures increased $84.2 million, which included investments to enhance the
athlete experience in our existing stores, including merchandise presentation,
improving the fitting and lesson experience in our golf business, and store
remodel and facility investments. Cash used in investing activities in fiscal
2021 also reflected $45.4 million of deposits and other investing activities,
which included progress payments for the purchase of corporate aircraft.

Financing Activities

Financing activities have historically consisted of capital return initiatives,
including share repurchases and cash dividend payments, cash flows generated
from stock option exercises and cash activity associated with our Credit
Facility, or other financing sources. Cash flows used in financing activities
for fiscal 2021 included over $1.1 billion in share repurchases and the payment
of a special dividend of $5.50 per share, which was partially offset by our
issuance of the Senior Notes that provided net proceeds of approximately $1.5
billion. Prior year cash flows provided by financing activities included
precautionary measures we took in response to the COVID-19 pandemic during
fiscal 2020, which included activities related to the issuance of the
Convertible Senior Notes and the temporary suspension of share repurchases.

Critical Accounting Policies and Use of Estimates

Our significant accounting policies are described in Part IV. Item 15. Exhibits
and Financial Statement Schedules, Note 1-Basis of Presentation and Summary of
Significant Accounting Policies. Critical accounting policies are those that we
believe are both 1) most important to the portrayal of our financial condition
and results of operations and 2) require our most difficult, subjective or
complex judgments, often as a result of the need to make estimates about the
effect of matters that are inherently uncertain. Judgments and uncertainties
affecting the application of such policies may result in materially different
amounts being reported under different conditions or using different
assumptions.

We consider the following policies to be the most critical in understanding the
judgments that are involved in preparing our consolidated financial statements.

Inventory Valuation

We value inventory using the lower of weighted average cost and net realizable
value, which is generally based on the selling price expectations of the
merchandise. We regularly review inventories to determine if the carrying value
of the inventory exceeds net realizable value and, when determined necessary,
record a reserve to reduce the carrying value to net realizable value. Changes
in customer merchandise preference, current and anticipated demand, consumer
spending, weather patterns, economic conditions, business trends or
merchandising strategies could cause our inventory to be exposed to obsolescence
or slow-moving merchandise.

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Shrink expense is accrued as a percentage of merchandise sales based on
historical shrink trends. We perform physical inventories at our stores and
distribution centers throughout the year. The shrink reserve represents the
cumulative loss estimate for each of our locations since the last physical
inventory date through the reporting date. Estimates by location and in the
aggregate are impacted by internal and external factors and may vary
significantly from actual results.

Business Development Allowances

Business development allowances include allowances, rebates and cooperative
advertising funds received from vendors. These funds are determined for each
fiscal year and the majority are based on various quantitative contract terms.
Amounts we expect to receive from vendors for the purchase of merchandise
inventories (“vendor allowances”) are recognized as a reduction of cost of goods
sold as the merchandise is sold. Amounts that represent a reimbursement of costs
incurred, such as cooperative advertising, are recorded as a reduction to the
related expense in the period that the expense is incurred. We record estimates
of earned allowances based on the latest projected purchase volumes and
advertising forecasts.

Goodwill and Intangible Assets

Goodwill, indefinite-lived and other finite-lived intangible assets are reviewed
for impairment on an annual basis, or whenever circumstances indicate that a
decline in value may have occurred. Our evaluation for impairment requires
accounting judgments and financial estimates in determining the fair value of
the reporting unit or asset. If these judgments or estimates change in the
future, we may be required to record impairment charges for these assets.

Our goodwill impairment test compares the fair value of each reporting unit to
its carrying value. We determine the fair value of our reporting units using a
combination of an income approach and a market approach. Estimates may differ
from actual results due to, among other things, economic conditions, changes to
our business models, or changes in operating performance. Significant
differences between these estimates and actual results could result in future
impairment charges and could materially affect our future financial results. If
the fair value of the reporting unit exceeds the carrying value of the net
assets assigned to that reporting unit, goodwill is not impaired. If the
carrying value of the net assets assigned to the reporting unit exceeds the fair
value of the reporting unit, an impairment charge is recorded to reduce the
carrying value of the reporting unit to its fair value. As of January 29, 2022,
we had no reporting units at risk of impairment.

Similar to our test for impairment of goodwill, the impairment test for
indefinite-lived intangible assets involves comparing their estimated fair
values to their carrying values. We estimate the fair value of indefinite-lived
intangible assets, which are comprised almost entirely of trademarks and trade
names, based on an income approach using the relief-from-royalty method, which
assumes that, in lieu of ownership, a third-party would be willing to pay a
royalty in order to derive a benefit from these types of assets. This approach
is dependent on a number of factors, including estimates of future sales
projections and growth, royalty rates in the category of intellectual property,
discount rates and other variables. If actual results are not consistent with
our estimates and assumptions used in estimating fair value, we may be exposed
to material losses. We recognize an impairment charge when the estimated fair
value of the intangible asset is less than its carrying value. We recorded no
such impairments in fiscal 2021 or 2020.

Impairment of Long-Lived Assets

We review long-lived assets whenever events and circumstances indicate that the
carrying value of these assets may not be recoverable based on estimated
undiscounted future cash flows. Assets are reviewed at the lowest level for
which independent cash flows can be identified, which is typically the store
level. We use an income approach to determine the fair value of individual store
locations, which requires discounting projected future cash flows over each
store’s remaining lease term. When determining the stream of projected future
cash flows associated with an individual store location, we make assumptions
about key store variables that incorporate local market conditions, including
sales growth rates, gross margin and controllable expenses, such as store
payroll. An impairment loss is recognized when the carrying amount of the store
location is not recoverable and exceeds its fair value.

Self-Insurance

We are self-insured for certain losses related to health, workers’ compensation
and general liability insurance, although we maintain stop-loss coverage with
third-party insurers to limit our liability exposure. Liabilities associated
with these losses are estimated in part by considering historical claim
experience, industry factors, severity factors and other actuarial assumptions.

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Stock-Based Compensation

We account for stock-based compensation in accordance with fair value
recognition provisions. We use the Black-Scholes pricing model to estimate fair
value of our stock options, which requires the input of multiple assumptions,
such as the length of time employees will retain their vested stock options
before exercising them (“expected term”), the volatility of our common stock
price over the expected term and the expected dividend yield. In addition, we
estimate the number of awards that will ultimately not complete their vesting
requirements (“forfeitures”) and recognize expense for those stock awards
expected to vest. Changes in the assumptions can materially affect the estimate
of fair value of stock-based compensation and consequently, the related amount
recognized on the Consolidated Statements of Income.

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