DICK'S Sporting Goods : Earnings Document

Corrected Transcript

22-Aug-2023

Dick's Sporting Goods, Inc. (DKS)

Q2 2023 Earnings Call

	Total Pages: 24
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Dick's Sporting Goods, Inc. (DKS)	Corrected Transcript
Q2 2023 Earnings Call	22-Aug-2023

CORPORATE PARTICIPANTS

Nathaniel A. Gilch	Navdeep Gupta
Senior Director-Investor Relations, Dick's Sporting Goods, Inc.	Executive Vice President & Chief Financial Officer, Dick's Sporting
Lauren R. Hobart	Goods, Inc.
President, Chief Executive Officer & Director, Dick's Sporting Goods,
Inc.

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OTHER PARTICIPANTS

Simeon Ari Gutman	Michael Lasser
Analyst, Morgan Stanley & Co. LLC	Analyst, UBS Securities LLC
Adrienne Yih	Brian Nagel
Analyst, Barclays Capital, Inc.	Analyst, Oppenheimer & Co., Inc.
Robert F. Ohmes	Paul Lejuez
Analyst, BofA Securities, Inc.	Analyst, Citigroup Global Markets, Inc.
Kate McShane	Michael Baker
Analyst, Goldman Sachs & Co. LLC	Analyst, D.A. Davidson & Co.
Christopher Horvers	Justin E. Kleber
Analyst, JPMorgan Securities LLC	Analyst, Robert W. Baird & Co., Inc.
John Kernan	Joseph Isaac Feldman
Analyst, TD Cowen	Analyst, Telsey Advisory Group LLC
Warren Cheng	Chuck Grom
Analyst, Evercore Group LLC	Analyst, Gordon Haskett Research Advisors

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Dick's Sporting Goods, Inc. (DKS)	Corrected Transcript
Q2 2023 Earnings Call	22-Aug-2023

MANAGEMENT DISCUSSION SECTION

Operator: Good morning. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome everyone to the DICK'S Sporting Goods Second Quarter 2023 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. And after the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you.

Nate Gilch, Senior Director of Investor Relations, you may begin your conference.

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Nathaniel A. Gilch

Senior Director-Investor Relations, Dick's Sporting Goods, Inc.

Good morning, everyone, and thank you for joining us to discuss our second quarter 2023 results. On today's call will be Lauren Hobart, our President and Chief Executive Officer; and Navdeep Gupta, our Chief Financial Officer. A playback of today's call will be archived in our Investor Relations website located at investors.DICKS.com for approximately 12 months.

As a reminder, we will be making forward-looking statements, which are subject to various risks and uncertainties that could cause our actual results to differ materially from these statements. Any such statements should be considered in conjunction with cautionary statements in our earnings release and risk factor discussions in our filings with the SEC, including our last annual report on Form 10-K and cautionary statements made during this call.

We assume no obligation to update any of these forward-looking statements or information. Please refer to our Investor Relations website to find the reconciliation of our non-GAAP financial measures referenced in today's call. And finally, for your future scheduling purposes, we are tentatively planning to publish our third quarter 2023 earnings results on November 21, 2023.

With that, I will now turn the call over to Lauren.

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Lauren R. Hobart

President, Chief Executive Officer & Director, Dick's Sporting Goods, Inc.

Thank you, Nate, and good morning, everyone. We are pleased with our strong sales performance for the second quarter. Total sales increased 3.6% to $3.22 billion, and our comp sales increased 1.8% driven by robust transaction growth. We continue to gain market share, demonstrating that athletes throughout the country are increasingly relying on DICK'S to meet their needs.

Within the quarter, sales accelerated significantly in July when the back-to-school season kicked off and when we opened our newest House of Sport location. For the full year, we remain confident in delivering comparable store sales in the range of flat to positive 2%, unchanged from our prior outlook.

With this context, I want to take a moment to address our second quarter profitability and our revised 2023 EPS outlook. While we delivered double-digit EBT margin of 10.1%, our second quarter profitability was short of our expectations. This was primarily due to lower gross margin, which while still significantly above pre-COVID levels, was lower than originally anticipated.

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Dick's Sporting Goods, Inc. (DKS)	Corrected Transcript
Q2 2023 Earnings Call	22-Aug-2023

Two key factors impacted our second quarter gross margin relative to our original expectations. The first was the impact of higher inventory shrink, organized retail crime and theft in general, an increasingly serious issue impacting many retailers. Based on the results from our most recent physical inventory cycle, the impact of theft on our shrink was meaningful to both our Q2 results and our go-forward expectations for the balance of the year. We are doing everything we can to address the problem and keep our stores, teammates and athletes safe.

And second, beyond shrink, we also took decisive action on excess products, particularly in the outdoor category, to allow us to bring in new receipts and ensure our inventory remains vibrant and well-positioned. Keeping our inventory fresh is one of our key operating philosophies, and we're pleased that our inventory was down 5% at the end of the quarter.

Our revised 2023 non-GAAP EPS guidance of $11.50 to $12.30 takes into account our Q2 results as well as our latest views on gross margin for the back half of the year, including higher levels of shrink. It's important to note we remain very confident, but we still expect gross margin to increase for the full year compared to 2022, which includes a significant increase in the back half.

To say our future is bright would be an understatement. The enthusiasm we have for our business and the confidence we have in our long-term growth opportunities have never been stronger. We're making transformative investments so that we're well-positioned to continue gaining share and extending our leadership in a fragmented $140 billion industry. Following our tremendous success over the last several years, we are laser-focused on capitalizing on our most significant growth opportunities.

We're doing extensive work to determine how best to optimize our business going forward to capture that growth. This includes better aligning our talent, organizational design and spending in support of our most critical strategies, while also streamlining our overall structure and costs. Navdeep will share more details about our plans and the associated charges we anticipate related to this business optimization in his remarks.

Innovating within the omni-channel athlete experience is at the heart of our growth strategies, and our newest DICK'S concepts have proven to be tremendously successful and are a key part of our future.

First, DICK'S House of Sport is yielding powerful results. During Q2, we're excited to have opened seven new locations, and earlier this month, we opened two additional locations. I've had the opportunity to visit many of these stores in recent months, and I left each visit proud of our team and inspired by the athlete experience they're providing.

These stores are doing incredibly well, and during July, delivered strong double-digit comp growth compared to their prior combo store locations with the same square footage. With 12 total House of Sport stores now open and plans to open another 10 locations throughout 2024, we continue to expect that by 2027 we will have between 75 to 100 across the country.

In addition to House of Sport, we're excited to continue rolling out our next-generation DICK'S store, which completely revolutionizes our most typical 50,000 square foot format. This store is inspired by our House of Sport concept with a similar elevated assortment and service model, premium experiences and enhanced visual expressions.

Building on the success of our first opening, we've now opened two additional locations, and overall sales have been exceptionally strong. This concept is driving great results, and we're excited to open another eight locations

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Dick's Sporting Goods, Inc. (DKS)	Corrected Transcript
Q2 2023 Earnings Call	22-Aug-2023

by the end of 2023. The 1-2 punch of House of Sport and our new 50,000 square foot prototype is the future of our DICK'S stores.

We're also extremely enthusiastic about our long-term opportunity in golf, both at DICK'S and Golf Galaxy. We're excited to open seven new Golf Galaxy performance centers this year. Beyond this year, we will continue growing our Golf Galaxy footprint with approximately 10 new locations planned for 2024.

In combination with our stores, our digital experience remains an integral part of our success. And we continue to invest in technology to strengthen our athletes' omni-channel experience. This past quarter, we were excited to extend our omni-channel fulfillment model and now offer our integrated white-labelsame-day delivery service on the DICK'S app and on DICKS.com. We also continue to innovate and invest in our rapidly growing and profitable GameChanger business, and we're very proud to have recently announced a multi-year partnership between GameChanger and Major League Baseball.

In conjunction with the reinvention of our omni-channel experience, we continue to drive deep brand engagement. This past quarter, we launched the second iteration of our Sports Change Lives campaign. In partnership with Nike and Jordan, we're spotlighting 10 iconic athletes, including Mike Trout, Alex Morgan and Carmelo Anthony, who share their personal stories of how sports change their lives.

In addition to the athlete stories, we captured exclusive behind-the-scenes content that is available to our DICK'S and Nike connected members on the DICK'S app. We've seen extremely positive athlete sentiment. And to-date, this work has achieved nearly 1.5 billion impressions in our media. The marketing campaign has run in the summer's most relevant sports moments, including the NBA Finals, NHL Stanley Cup Playoffs and the Women's World Cup.

I want to thank all of our teammates across the company for their outstanding efforts and continued commitment to DICK'S Sporting Goods. We have an incredible team here across every area of our business, and they are the most important drivers of our success.

Before concluding, I want to share some final thoughts on DICK'S growth potential. The enthusiasm we have for our business and the confidence we have in our long-term growth opportunities has never been stronger. We're driving positive comp sales and gaining significant share.

Despite moderating our 2023 EBT expectations, we will still deliver double-digit EBT margin this year, which is approximately double our 2019 rate. And based on the powerful results of our new DICK'S concept, House of Sport and our next-generation 50,000 square foot prototype, the long-term growth opportunity we have ahead of us is nothing short of extraordinary. As Ed said, and I quote, we haven't seen growth opportunities like these since we went public in the early 2000s.

With that, I will turn the call over to Navdeep to share our financial results in more detail.

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Navdeep Gupta

Executive Vice President & Chief Financial Officer, Dick's Sporting Goods, Inc.

Thank you, Lauren, and good morning, everyone. Let's begin with a brief review of our second quarter results. We are pleased to report consolidated sales increase of 3.6% to $3.22 billion as we continue to gain market share. Comp sales increased 1.8%, driven by a 2.8% increase in transactions, partially offset by a 1% decline in average ticket. The roughly 180 basis points of non-comp sales growth this quarter was driven by sales at our Warehouse locations and Moosejaw.

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