Release Date: September 04, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Dick's Sporting Goods Inc (DKS, Financial) reported a 7.8% increase in sales for Q2 2024, reaching nearly $3.5 billion.
- The company raised its full-year outlook, expecting comp sales growth between 2.5% to 3.5% and EPS between $13.55 to $13.90.
- Strong performance in key categories like footwear and athletic apparel contributed to a 4.5% increase in comparable sales.
- The House of Sport and Field House concepts are performing exceptionally well, driving significant engagement and benefits.
- Digital innovations, including enhanced DICKS.com and mobile app features, have shown strong engagement and contributed to sales growth.
Negative Points
- The company disclosed unauthorized third-party access to its information systems, although it did not disrupt business operations.
- Inventory levels increased by 11% compared to Q2 of last year, which could pose a risk if demand does not meet expectations.
- The company expects a negative impact of approximately $105 million in Q3 due to the calendar shift of the back-to-school season.
- SG&A expenses increased by 4.1%, driven by higher incentive compensation, planned marketing investments, and costs supporting sales growth.
- Pre-opening expenses were $8.9 million, a decrease of $24 million compared to the prior year, indicating potential inefficiencies in store openings.
Q & A Highlights
Q: Lauren, can you go over again why DKS is having success post-COVID, especially in a slowing athleisure environment? What are the top three things DICK'S has done pre-pandemic to post-pandemic that have made it the dominant player in the sporting goods landscape?
A: Our success is due to our long-term strategies working effectively. Firstly, our differentiated product assortment, which includes high-demand items for both performance and lifestyle. Secondly, our enhanced athlete experience, which includes improved service and a reinvented store portfolio with concepts like House of Sport and Field House. Lastly, our strong engagement with athletes, evidenced by increased transactions and ticket sizes, and adding 1.6 million athletes to our database in the quarter.
Q: Navdeep, can you describe the rationale behind the higher inventory levels and how you're managing the associated risks?
A: The higher inventory levels are a strategic investment in differentiated key items and categories expected to drive growth. Our inventory is clean and well-balanced, with clearance inventory significantly down from last year. We have raised our second-half comp and merchandise margin expectations, reflecting our confidence in our assortment.
Q: Are you seeing benefits from product innovation from vendor partners like Nike and Under Armour? How significant is this for DICK'S?
A: Yes, we are excited about the product innovation cycle from our vendor partners. We have long-term strategy sessions with them and see significant innovation coming. This, combined with our own innovations in serving athletes and our access to differentiated products, is a key tailwind for us.
Q: Can you elaborate on the incremental investments in SG&A for the second half of 2024?
A: The investments are focused on our core strategies, including repositioning our portfolio and enhancing our technology capabilities. These investments are balanced against our confidence in our total margin expectations, and we have raised our operating margin expectations by 10 basis points.
Q: How are you maintaining customer engagement with the proliferation of strong brands like HOKA and ON?
A: Our engagement remains high due to our unique ability to provide both performance and lifestyle products. Our marketing campaigns and brand awareness efforts, such as those during the Olympics, have been effective. We also have increased access to high-demand products and our vertical brands are performing well.
Q: How are House of Sport locations performing compared to initial forecasts, especially after the 12-month period?
A: House of Sport locations continue to perform exceptionally well, with athletes traveling further, visiting more frequently, and spending more time in stores. These locations also drive increased traffic and sales per square foot for mall operators, giving us access to prime shopping centers.
Q: Can you discuss the impact of House of Sport conversions on Q2 comps and expectations for the second half?
A: The first half benefited from House of Sport conversions, with a more significant impact in Q1. We expect positive comps in the second half, though the benefit will be lower. The strategy continues to drive strong top-line and bottom-line performance.
Q: How are your private brands like CALIA, VRST, and DSG performing, and what's the outlook for these brands?
A: Our vertical brands are performing very well, filling key white spaces in our portfolio. DSG offers high-function, high-fashion products at opening price points, VRST has seen success with its Limitless Pant, and CALIA continues to meet lifestyle needs. We expect continued growth for these brands.
Q: What are the key categories driving same-store sales momentum?
A: We saw particular strength in footwear and apparel, with growth across many aspects of our business. There were some variations within hardlines, but overall, we are very pleased with the performance.
Q: How are you managing shrink over the back half of the year?
A: We have trued up shrink from last year and expect it to be flat going forward into the second half.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
