Q1 2020 Dick's Sporting Goods Inc Earnings Call
[music].
Good day.
Welcome to the Dick's Sporting goods first quarter 2020, <unk> earnings conference call and webcast.
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Now, let's turn the conference over to need Gilts Senior director of Investor Relations. Please go ahead Sir.
Good morning, everyone. Thank you for joining us to discuss our first quarter 2020 results on today's call will be at stack, our chairman and Chief Executive Officer, Lauren Hobart, our president and legal entity, our Chief Financial Officer.
Playback of today's call will be archived on our Investor Relations website located at investors Dot Dick's dotcom for approximately 12 months.
As a reminder, we'll 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 statement to earnings release in risk factor discussions in our filings with the SEC, including our last annual report on form 10.
Okay 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 a reconciliation of any non-GAAP financial measures referenced in today's call and finally, a couple of admin items.
First a note on our same store sales reporting practices recall last quarter, we announced our intent to move away from providing E commerce sales growth in ecommerce penetration metrics beginning in Q1.
Given the circumstances circumstances surrounding our temporary store closures, we're continuing to provide these metrics this quarter and we'll revisit this decision for Q2.
And second for your future scheduling purposes, we are tentatively planning to publish our second quarter 2020 earnings release before the market opens on August 26, 2020, with our subscriber earnings call at 10 am Eastern time.
With that I'll now turn the call over to Ed.
Thanks, Dave.
Good morning, everyone.
Let me start by saying on behalf of all of US here Dick's Sporting goods, we hope each of you and your families.
It's are safe and healthy.
We would all agree that this has been a difficult year, so far for our country.
Our Hearts go out to all of those impacted by Copel 19, and the civil unrest going on across America.
These events of shined, a spotlight on the deep rooted in long standing issues around racial and justice and inequality in the country.
All of this is happening while our world is still grappling with the dramatic and continuous change as a result of the Corona virus pandemic.
Virtually every business segment, including the retail industry and Dick's Sporting goods has been affected.
Organize sports at all levels of come to a standstill.
Gyms, and fitness centers were closed across the country, forcing everyone to build new fitness habits and routines.
Throughout this evolving landscape, we anchored to our corporate values on the premise that doing the right thing is the ultimate path to success.
Our company has a long tradition of promoting the safety and welfare of our teammates athletes and communities at our response to the current health crisis was no exception.
This is why a march 18th we supported a nationwide efforts to minimize the spread of the virus and temporarily close our stores to the public.
Take care of our teammates we invested $34 million in the first quarter across a number of compensation safety measures.
Beginning in mid March through the balance of the first quarter from a business standpoint, we focus nearly exclusively on managing for liquidity to ensure we came through this crisis and a strong financial position.
We acted quickly and decisively to reduce differ and eliminate cash outflows.
And we maximize cash inflows through our ecommerce business.
To fortify our balance sheet and provide maximum financial flexibility, we exercised the accordion feature on our revolving credit facility.
To increase our borrowing capacity to $1.855 billion.
And we issued convertible senior notes that added over $500 million of net proceeds store cash position.
As a result of these actions I'm pleased to report at the ended the first quarter with cash and cash equivalents of approximately 1.5 billion.
And we feel very good about our liquidity.
Throughout the store closures, we continued to serve our athletes online and through our mobile apps.
Our ecommerce sales for tremendous increasing more than 200% since we closed our stores through related to the first quarter and notably contributing to our strong liquidity position.
Importantly, these strong headline results have continued into the second quarter.
Even in those markets, where our stores of reopened.
A key part of this success on line is our new curbside pickup service.
Under Lawrence leadership, our stores ecommerce and technology teams came together and launched this new initiative across most of the country within a matter of days.
Florida will cover this in greater detail during her remarks.
As for our stores beginning in mid April.
We started to reopen were permitted in accordance with federal state and local guidelines.
As the end of May is at the end of May approximately 80% of our stores of reopened to the public.
And we've been pleased with the early results.
Although the business environment of 2020 remains uncertain.
Sporting goods is in a position of strength.
We believe coming out of this crisis health and fitness will become even more important to the customer.
As the leader in sporting goods retail sector, our relationships with key brands have never been stronger.
And we are in a great place to support this demand.
Our experienced management team has a history of successfully navigating difficult market cycles.
And remains fully committed to managing our business with a long term view.
Perhaps most importantly, our balance sheet is strong and due to the actions we've taken the pandemic first hit we have enhance liquidity to emerge from this crisis in even a stronger competitive position.
Now with the confidence in our liquidity and our stores reopening we can turn our attention to gaining market share for the remainder of 2020 of positioning our business for profitable growth in 2021.
Finally, I would like to thank our teammates.
Through these difficult times I'm, especially proud of how they came through and came together to support one another and the company as a whole.
I would now like turn the call overlord.
Thank you add and good morning, everyone I want to start by also thanking our teammates for their hard work and dedication over the past several months, we've been incredibly impressed with how you committed to serve our athletes and continue to serve community you've done a tremendous job responding to the constantly changing landscape.
Due March 10th our consolidated same store sales increased 7.9%, which was a clear indication that our strategies were working.
Shortly thereafter, our strong sales trends abruptly changed as a spread of the virus accelerate Ed and on March 18th we closed our stores to the public.
For the quarter, our online sales increased 110%, including curbside contact with pickup.
Strength in E Commerce increased significantly after we closed our stores as online sales grew 210% since then through the ended the quarter.
We continue to leverage our store network for ship from store and curbside pickup while also fulfilling orders VR E commerce fulfillment centers and distribution centers as well as directly from our vendors.
Importantly, our vast fulfillment network seamlessly supported the significant increase in E commerce volume and our ability to leverage. These many thought methods helped us to continue to reduce shipping times to our athlete.
We executed our new Curbside initiative within days as our stores E Commerce and technology teams quickly helped us pivot our business and ensure that we were able to provide our athletes with a safe and convenient way to pick up their orders, while reducing shipping and packaging expenses.
This is a great reflection of our culture, and our nimble operating model and a huge credit goes out to those teams.
The athlete response has been overwhelmingly positive curbside sales were up 1000% since it launched through the ended the quarter. When you compare it to bypass sales in the prior year and curbside accounted for over 40% of our total E Commerce sales during this time period.
We believe this experience will continue to be a big opportunity for us as we move forward.
Now, let me turn to the stores by the end of the first quarter, we opened approximately 20% of our stores and as of the end of May approximately 80% of our stores that we opened we expect to continue opening our remaining story throughout the rest of Q2 and into Q3.
As we reopened the health and safety of our teammates an athlete is our highest priority and we're following the guidelines from the centers for disease control and prevention as well as federal state and local authorities.
As part of these efforts, we've enhanced our sanitizing protocols and our acquiring faced coverings be worn by all teammates.
We're also requiring our teammates sonatide that their hands or regular regularly or where club.
Next we're communicating supporting and enabling social distancing.
This includes using floor decals throughout the store and plexiglas screens at checkout as well as limiting the number of people in the store where applicable by local ordinance.
And lastly, we're taking steps to minimize contact including continuing to offer curbside pickup.
These actions are being supported by teaming an athlete communication tools aimed at reinforcing healthy habits. In addition to wellness protocol to ensure teammates are working only one healthy.
As Ed mentioned to date, we've been very pleased with the early results in our stores that have reopened where we've seen a progressive recovery in sales and traffic.
In fact, since we opening many stores have comp positive on a brick and mortar basis.
Even more our online sales, including curbside pickup have remained very strong even in those markets, where we have we opened our stores.
Where regaining momentum and through the first four weeks of Q2 with 44% of our stores remaining closed on average our consolidated same store sales have decreased only 4%.
As part of this E commerce sales have increased momentum and our over 250%.
In closing, we believe our teammates and athlete plus new expectations related to their working shopping experiences and we're certain that the actions, we're taking to build trust and to create confidence in these new experiences will pay off for the long term.
Along with that I remain very enthusiastic about the future of Dick's sporting goods.
I'll now turn the call over to lead to review our financial results in more detail.
Thank you Lauren and good morning, everyone.
Let's begin with a brief review of our first quarter results.
Consolidated sales decreased 30.6% to approximately $1.33 billion.
Consolidated same store sales decreased 29.5% driven by a 38.7% decrease in transactions and was partially offset by a 9.2% increase in average ticket.
We saw declines in each of our three primary categories Hardlines apparel and footwear.
As Lauren mentioned prior to the impact of Cobot 19, we're very pleased with our comp sales performance and through March 10th our consolidated same store sales increased 7.9% a continuation of that strong comp trends, we delivered to the second half of 2019.
Shortly thereafter, we saw a significant reduction in customer traffic and demand due to the continued spread to the virus and we closed all of our stores.
We were able to partially offset the negative sales impact from our store closures through a significant acceleration in our ecommerce business, including curbside curbside contact was pickup to the quarter, our ecommerce sales grew 110%.
And as a percent of total net sales our online business increased to 39% compared to 13% last year.
Gross profit in the first quarter was 219.3 million or 16.45% if net sales a 1200 90 basis point decline compared to the same period last year.
Within gross profit.
We saw deleverage on fixed occupancy costs of 526 basis points.
Due to the sales decline it's important to note that while we have successfully negotiated payment term deferrals and rent abatements. This didn't materially affect the PNM in Q1 as deferrals don't change the total cash payments and abatements, our spread over the remaining like sublease.
We also saw lower merchandise margins, which decreased by 475 basis points and were primarily driven by stare by sales mix higher promotions, particularly early in the quarter and a $28 million write down of inventory, resulting from our temporary store closures.
Finally.
We saw higher shipping expenses and ecommerce fulfillment costs as a result of our meaningfully higher ecommerce sales growth as well to fixed costs associated with our two new dedicated ecommerce fulfillment centers that opened in the third quarter last year.
As DNA expenses were 403.2 million or 30.24% of net sales up 494 basis points from last year's non-GAAP results.
Yes, again that was due to sales decline.
However, as gene $8 decreased $83 million compared to last year. This includes approximately $90 million reduction in expenses. Following our temporary store closures and was partially offset by $31 million of incremental teammate compensation and safety costs.
Within the $90 million reduction in expenses included $21 million of income associated with changes in the company's deferred comp plan for investment values.
For which the corresponding investment loss was recognized in other expense.
In total we recorded a loss per diluted share of $1.71 compared to a non-GAAP earnings per diluted share of 62 cents last year.
Since the rapid rise of Cobot 19 cases in mid March we acted quickly and decisively to preserve cash and fortify our balance sheet.
Collectively these actions have bolstered our cash and cash equivalents to approximately $1.5 billion at the end of the first quarter and we had $214 million of additional borrowing capacity on our line of credit.
Let's walk through the details.
First we meaningfully reduced cash expenses across the business, including marketing travel contractors and within payroll to salary reductions and furloughs of a significant number of our teammates across our stores distribution centers and customer support center.
Concurrent with the reopening of the majority of our stores last week, we restored previously we do salaries for our teammates.
Except for certain executives and have started bringing team mates back from furlough.
We have also had very productive discussions with our vendors to reduce inventory receipts and extended payment terms. Likewise, we have had similarly productive discussions with landlords about deferring and abating rent payments.
Additionally, we completed the issuance of $575 million of 3.25% convertible senior notes due in 2025, which includes a full exercise of the $75 million overallotment option.
These nodes provide for an initial conversion option once our stock price reaches 35038 cents per share and thus solution with typically occur when our stock price exceeds this threshold.
However in conjunction with the notes issuance, we entered into stock hedge transactions to reduce the dilution.
To reduce dilution from shares issuable upon conversion of the notes.
The hedge transactions will provide economic dilution protection upon maturity to notes if our stock is trading at or between $35 from 38 cents and $52.42. The aggregate net proceeds from the issuance and the sale of notes were approximately 558 million.
Or approximately 502 million net of note hedge.
Due to current accounting rules, we have discounted the value of the notes on the balance sheet to $398 million as at the end of the first quarter.
This discount will be amortized as noncash interest expense, resulting in a total annualized interest rate of 11.6% on the discounted value of the notes.
We also exercised the accordion feature on our revolving credit facility to increase our borrowing capacity from $1.6 billion to 1.855 billion and ended the first quarter with approximately $1.4 billion outstanding.
Finally, we made meaningful modifications to our 2020 capital allocation plan. This includes significant reductions to our planned capital expenditures.
We also temporarily suspended our quarterly dividend as well as our share repurchase program.
As our business continues to stabilize we may resume opportunistic share repurchases under our current authorizations.
For the first quarter net capital expenditures were 51 million and we pay $28 million in quarterly dividends, which was declared prior to the suspension.
We did not repurchase any shares.
Our quarter end inventory levels decreased 2% compared to the end of the same period last year and working alongside our brands, we acted decisively to reduce differ and cancel plan receipts to align with our new sales forecast.
For the rest of 2020, where conservatively planning our inventory receipts. However, we have plenty of liquidity as well as strong relationships with our vendors, yes, if we need to Opportunistically chase product.
With respect to our outlook Theres, a high degree of uncertainty surrounding the scale and duration of several key external factors, including the cobot 19 pandemic stay at home orders and economic stimulus as well as employment and consumer confidence and the potential impact on our business.
Given this uncertainty we do not believe it is appropriate to provide a 2020 outlook for sales and earnings at this time.
Notwithstanding this uncertainty we move forward with confidence we have ample liquidity and I'm pleased with our market position as well as our Q2 sales trends.
This concludes our prepared comments. Thank you for your interest in Dick's Sporting goods and operator, you may now open the lines for questions.
Thank you we will now begin the question and answer session.
I'd like to ask the question. Please press star one was.
My question has already been addressed we would like to remove your sold from Chu. Please press Star then too.
Today's first question cultural Robby Ohmes with bank of the Securities. Please go ahead.
Good morning, everyone. Thanks for taking my question I think the question everybody wants to ask is it could we get a little more color on the.
First four weeks, it's great that you gave us the.
Down for comps, but.
How how should we think about getting there in terms of.
Depending on.
Maybe some color on how the reopen stores if you just isolate those.
How are they performing and also how does E commerce.
And curbside contact list pick up.
Change when you when you reopen stores any anymore color you can you give on those four weeks would be great. When I've a follow up question.
So Robbie I think on a couple of things. The the stores that have opened are doing very well is Lawrence said many of them most of it.
Our comping positively so we're really pleased with that and.
The curbside pickup, Florida, you can talk about that but that's still going really well, yes, no. The penetration of course type pickup continues on and.
Probably I think the way to think about it is we were down 4%, we add Adam 40 per 44% of our stores.
On average close during that period and so you do the math you can say that we're very pleased with how the stores are performing when they reopen.
Good.
Should we assume that closed stores or quit stores that are still closed are comping kind of similar to what you put up for the first quarter or.
Both.
We're now recording any brick and mortar sales in it but we are continuing to do curbside pickup curbside pickup or including within our ecommerce sales.
The stores are doing very well Robby.
They're in their comping positively the majority of them that we've opened up.
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And then the ecommerce business is still doing very well I wouldn't want to get ahead of yourselves to think the with 40% of the stores closed we're comping positively from to stores that are open or making up for those stores that are closed that's not the case, they're doing extremely well we couldn't be more pleased with how they're comping, but the curb side.
I'd pick up in the ecommerce business continues to be very strong even in the markets, where we reopened.
Got it that's very helpful in and just a follow up question just the the.
How should we think about potential further write downs going forward and.
Yes.
Ed maybe.
You know how should we think about you know different seasons were moving into the second quarter here, how could that be different from the first quarter in terms of categories that may or may not pressure you like team sports.
Yeah team sports is the one that we're most concerned about.
From a go forward sales standpoint depends it we don't know if the kids are going to play football. This this fall or if they're going to play if we're going to play soccer. This fall some of the.
Because those are primarily schools sports.
Especially on the football side baseball starting to open up in some markets, which are more of a municipal.
Leaks in the travel weeks and.
We're baseball has opened up its doing very well, but team sports is where we're most concerned have kind of the least amount of visibility as to what's going to happen going forward.
Got it Thats really helpful. Best of luck, guys and congrats on getting that curbside pickup going thats really amazing execution.
Thanks, Rob Thank you.
Our next question today controlled Kate Mcshane with Goldman Sachs. Please go ahead.
Hi, Good morning, Thanks for taking my question on morning Kate.
So first question I had was just add in term does that change in product demand, how that's changed over time I assume there's a lot of.
Fitness type equipment being sold during the shelter in place, but in the last four weeks just wondering if you're seeing any strength.
In other categories, you mentioned baseball wondered if there was any other trends that were emerging and then my second question is just about how you're thinking when it comes in back half the year end what level of promotions he could possibly expect because of flatware entering into thank you.
Locate the trends have changed a little bit you're right. The the fitness business was really a very big part of the business.
When we win the stores closed in the pandemic first hit and Thats still pretty good we were struggling to keep.
In stock in that product, although we've got some product on the road, we think we're going to be be fine. The bike business was very good.
But because of the businesses that have started to pick up the footwear business is very good the.
The apparel business is very good the golf business has been very good sense of golf courses got opened up.
Okay.
So all in all its been it's been pretty good.
The what baseball where they have started to play baseball has been very has been very good there is still not playing baseball in a lot of different places we're starting to see we've got a good look into the baseball business is from our game changer, App and we're starting to see a lot more baseball games being played in scored.
On a weekly basis thats growing at a pretty rapid rate, so we're pretty confident going forward, but.
Theres still a lot of places, where they're not playing baseball yet, but overall the forward business apparel business golf business.
In the outdoor business still continues to be very good.
The second question about the level of promotions in the back Oh, yes.
Yes.
I don't know yet none of us do.
We think it will probably be a tad more promotional because people have inventory to.
To to get rid of but.
We're.
Our inventories and very good is very good position I mean, I think a lot of people are surprised to see our inventory actually down 2% in the at the end of the quarters. So we're in a pretty good position I think it will be a little bit more promotional but I don't think it's going to be.
I don't think it's going to be too bad.
Thank you.
Our next question today comes from Michael Lasser with CBS. Please go ahead.
Good morning, Thanks for taking my question. So it has has been situation permanently changed.
Dick's sporting goods margin structure.
And as part of that can you comment on what the puts and takes are going to be in into the second half that we should factor as we're modeling that visits.
So Michael Ansley, I I think we respect to the market with the margin structure.
I gather you're talking about operating margins.
If we continue these trends where we're getting the.
Brick and mortar sales back up and running and eight and they're getting back up and running well you know the the profitability of that channel is strong and our ecommerce business has continued to grow it hasn't been terribly promotional frankly on the in E Commerce channel and we've increased the curbside contact was pickup which which eliminates the.
The shipping and packaging expense and if we're if we're able to maintain.
Hi penetration of that the.
The profitability of our E commerce business should improve as well so it all depends how it's going to mix am I thinking in aggregate, it's a good picture for profitability going forward.
For a total profits what it does to the profit margin line, it's really going to depend on how it mixes out.
Between E comm and brick and mortar stores, but if we can keep those brick and mortar stores rolling along.
You know with respectable comps our profit picture should be pretty solid going forward in the merchandising margin rates from an E. Com standpoint are actually running ahead right now.
So just to clarify few those points are then merch margin rates running ahead in part because of this lack of promotions in do you expect that promotions will resume at some point. This is a pretty unique period also yeah. If you don't see.
If this resurgence in the brick and mortar business is more temporary can you frame what the impact from the mix shift to E. Commerce is going to be it looks like there was about 300 basis points of drag from.
Increased shipping costs.
In the quarter, how much of that with this is kind of temporary and then also as part of that can can you frame out how are you thinking about occupancy youre going to be.
Benefiting from a very radically different landscape from a real estate perspective.
Shouldn't that help you be leveraged occupancy costs at a much will call things.
Leverage point element in the past.
So with regard to ecommerce.
Yeah. So we do have some drag on the on the gross margin due to the additional shipping costs, but I don't expect the E com penetration to remain at 39% to the business as it was in Q1.
If we get our brick and mortar sales back any comp stays at 39% that we'll we'll all be happy in up from there, but I don't expect as going to stay that high and I think that that even though we had significant savings from curbside pickup.
It couldn't impact you couldn't offset the full impact going to 39% penetration.
From a gross margin perspective with regard to.
Lisa.
Occupancy expense I think you will there will be opportunities.
Continue to be opportunities to drive down our occupancy expenses to reduce our rent expense. We do have north of 100 leases coming up for renewal each year and we're aggressively renegotiating those leases as we go forward.
And we expect to continue to have opportunities there.
Mike I would say for an I. I'd just add.
I think in its omni channel World, which we clearly lift in for the last 10 weeks were the only way consumer marketplace placed an order was online and the source became a huge part of the fulfillment.
They always were but even a bigger part of our fulfillment in our demand driving we really need to rethink.
What a sale is and what the profitability of and flow through it all.
All the way through the PML because said the stores are such an integral part of what the E. Commerce delivered over the last 10 weeks, it's very very merged at this point.
Now with and without the stores, we don't we don't have the curbside pickup yes. So.
That's that's a.
Becoming a.
Growing consideration and how much real estate we need.
Thank you very much a good luck.
Yes.
Your next question comes from Chris Horvers with JP Morgan. Please go ahead.
Thanks, Good morning, everybody.
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First a question follow up on the gross margin you mentioned, some I think promotions earlier in the quarter.
Think that was only had strong comps. So you can just give a little color there of what drove that that pressure and then I have a follow up.
I think shortened shortly after.
We closed the stores.
We're in a scenario, where nobody knew what was going to happen how long stores, we're going to be closed it was going to be weeks months nobody knows.
So we were pretty aggressive with promotions online in those those first couple of weeks.
After we closed and we were also still clearing out a little bit of the.
Winter merchandise early in the quarter, because we didnt have much cold weather. So we were clearing through some of that remaining that remaining winter merchandise in stores, even before we closed.
Makes sense, so actually as you look forward on on the U.S.J. line can you just share some color in terms of how we think about the savings going forward.
Got.
And our you, bringing our you when as you opened a store do you bring back all the fertile owed employees of those stores are you sort of cascading them and Thats a business builds backup how are you thinking about the marketing expense.
In the second and third quarter as well in any other color would be appreciated.
This is the sales have been strong.
In the stores as Weve opened them. So we're bringing back the the lions share of the furloughed associates in the stores as they open we are taking on store by store basis, because they're not all.
Outperforming equally.
But we do have we had in Q1 and into Q2, some extra expenses in the store we have continued with.
Our hero pay program, where we are increasing temporarily increasing the hourly pay in sourcing distribution centers by 15%.
Thats going to continue for a little while we have determined yet when when we're going to that's going to end.
We are we do have extra payroll going into cleaning <unk> sanitizing stores wiping things down.
Wife enough shopping carts and so on so there's actually some extra payroll in the stores right now as we get through co bid. So I would expect that as the stores open we would incur additional payroll expense for a while in the stores versus what we have in the past.
And we experience at the end of Q1, as we started to open the stores and.
We will experience as well as well into Q2.
With regard to admin admin expenses.
We have open positions right now will be cautious as to hiring back to those open positions until we really see what's happening with the business and we noted that weve restored as of the fourth week of may be restored the pay reductions.
Two will almost always associates, except for a few of the senior executives.
The company as we got to the point, we had 70, 80% stores open we restored their pay.
So we still have some meaningful savings coming travel and contractors and.
You know.
Yes.
We do have extra expenses were incurring as well.
And that and then just lastly are you at this point.
Planning marketing down and the second quarter and then similarly on just from a promotional perspective, you exited clean. So are you just waiting to see what happens in the environment, but at this point given the strength in sales Mclean, how clean the inventory is is that sort of the the promotional is probably.
A positive so far.
Yes, its Loren Starr put the marketing we definitely we were we cut back significantly with the when the cobot add stores with the stores were closed and we have we upped it and we're actually feeling very bullish on the back half of the year in terms of the spend and generating the consumer demand. So so we are turning on the marketing.
Obviously within reason and doing it in a based approach.
And then as you mentioned about the inventory so were.
Hi, I feel great about our inventory position, we're we're chasing inventory, we're actually buying some off price inventory from the some of the brands that have.
For whatever reason.
They have available.
So we're.
We're we're really happy with our inventory position, we're happy with.
Kind of our margin rates going forward and what we have visibility to margin rates on a go forward basis were.
We're cautiously optimistic.
Okay. Thanks, very much best of luck.
Your.
Next question comes from Andrew We with Barclays. Please go ahead.
Good morning.
On the performance and I guess one of my first question is pretty tepid fix is one of the few retailers. It was still looking to open stores, albeit at a slower paced I'm wondering how this current crisis sort of impacts that and as a follow on to that you were very present with your.
Digital and that's been since 2017.
For the next evolutionary sort is in IP investments, whether that's contact let's check out I think you're thinking about kind of the future store. Thank you.
So a new stores, we've slowed the growth down a little bit we pushed some of the stores that were going to open this year into.
Into next year, and we'll assess the marketplace and we'll assess what's going on from real estate standpoint on a go forward basis as far as a high tech investments, we continue to invest in technology, we continue to invest in.
What we're going to do from a cut from a curbside pickup.
Footwear app that we're talking about so we've got the well we continued to invest from a technology standpoint, and Lauren you've got a couple of other things yeah, I think aging you're absolutely right that the investments over the past few years, which really where and to enable us to scale productively with all came told that came to a very positive fruition over the past several weeks.
And the new consumer environment has definitely accelerated at some of our pushes for innovation, we will be a we were looking at the entire customer experience the entire customer journey, how to provide more contact list experiences.
Even in the store when people are shopping whether whether that's our shoe run our app that we've tried right now where people can sort of self south.
Help themselves.
But first providing a ton of different opportunities there.
Mobile will be a big piece for us going forward. So if anything it's incredibly energized our innovation efforts on our technology teams behind that the changing landscape.
Let me, we all know healthy.
So we also improved our delivery performance during the quarter versus last year. So notwithstanding.
The big increase sales that we had we took about a half day off of our average delivery time from the same period last year. So we continue to make commitments there.
And then Lee just.
Quick one for you how should we think about I know this is a big question Q2 sales and everything else that its sustainability did they try and people are talking about kind of summer vacation more staycation more outdoors.
It feels like there's things that are driving may perform at some of those drivers are unlike some bad thing or some of the one time pent up demand it seems like they they could get stronger as we go into the summer. So just wondering how we should think about some of the drivers of early bag.
Thanks.
Yes, it's hard to say, how it's going to play out that they could get stronger but could be some it was pulled forward as well costs. The kids are out of school and people are working from home. So they may have got into some of the summer purchases early.
So it's a little hard to say on the summer trends.
You know, how it's going to play out.
Okay fair enough, thanks, very much better what.
Okay. Thank you.
Our next question today comes from Simeon Gutman with Morgan Stanley. Please go ahead.
Thanks, Good morning, everyone. I. My first question I want to ask you add there was a comment about market share in the press release I think it was it was a couple of years back when sports authority workflows and you made it clear message about going after share.
I guess first it did it ours is a clear that you didn't gain in Q1.
And then in the in the comment that you made in the release are you approaching this next few quarters.
Similar mall in a similar way to do you looked at the 2016 2017 and any read across to how the business should be managed from a financial perspective.
Well, we're going we think we've got.
We've got great relationships with our vendors, we think our inventories in terrific shape.
The trajectory that we work on from basically Q2 of last year through even Q1 of this year before we close the stores and the trend that we see that we're picking up with the stores that are opening we're pretty confident from the changes that we made from a merchandising standpoint, where our where our brand is in the eyes of the consumer.
That we continue to pick up market share.
And I believe that we're going to continue to pick up market share.
Excuse me, we put ourselves in a great financial position to be able to go out of aggressively byproduct of price right now we've put ourselves in a position that we don't have to cut back on our marketing effort. We can go in from a marketing standpoint, and drive consumers into our store, whether it's in the brick and mortar stores.
Whether it's from an highlights standpoint to curbside pickup or whether it's a more traditional online business. So and we've made some big changes to the merchandise that we carry we've made some big changes to how we are approaching things in the store from a service standpoint, we've made some big changes into how we're marketing our business and I think if you take.
Well look at last year.
And in what our comp sales were purses, others, we picked up market share and we feel that we are continuing that trend, especially as the stores third to reopen.
Yeah, I just want to add on to that.
A moment that comparing it to 2016 17, and TSH feels a little.
Different from how we're thinking about it now which is that it's not about our brick and mortar competitors going under its it's about gaining market share.
And we and gaining new customers and engaging customers try our online business you had never tried it before sell it.
It's just it's a different compare I just wanted to point that out it's not.
It's different than it's actually very exciting.
Yeah. Thanks, and then my follow up this really is something that Lee and lawn commented on the merging of the two channels and I know, it's harder to look at profitability separately.
My question is in what's going to be if you. If you look at the business a year from now.
Are we closer to our we much closer to an equilibrium equilibrium in profitability between the two channels and again I appreciate it's harder to look at them separate.
But I think in getting through sustainable profitable growth I don't know if that is a prerequisite or not.
I think it does get to be re closer, especially because we're seeing.
The curbside pickup not slow down in our stores continue to comp positively. So as they is ecommerce picks up from a curbside standpoint as Lee in Florida, Both said it gets to be more profitable because with all the shipping and packaging changes.
Okay. Thanks, then.
Sure.
And our next question comes from Sam Poser with Susquehanna. Please go ahead.
Hi, Good morning, this is where on for Sam.
So my first question is on E Commerce, and I realize you guys are not guiding here, but.
How big do you think the E commerce business can be the Sherman do you think it could be it 2 billion.
2 billion plus business this year.
Well, we'll have to said reward and we're not guiding snapping back, but we're really pleased with the momentum we've gotten hoping to keep it up.
And we suspect weekend, but.
We're not going to go out on a limit tell you what we think numbers are right now.
Well, we'll let you know at the end of the fourth quarter.
Fair enough fair enough.
How much do I think I know you said you know stores are comping positive.
Now to go beyond where it.
And you know.
How much you think of E commerce business is cannibalizing stores.
Right now very little look a lot of the whole lot of ecommerce pickup we've got our from new customers.
And that ticket secondly, I guess, how many how many customers in one Q do you think that.
You guys required and were put into loyalty program.
Yeah, we're not going to get to that level of granularity right now, but there is a meaningful amount of.
The customers that we served from an E com standpoint, whether it be.
Pickup.
Curbside pickup or a more traditional ecommerce customer there was a meaningful number of new customers that you picked up.
Gotcha. Thank you I'll pass along.
Thank you.
Our next question comes from Seth Sigman with Credit Suisse. Please go ahead.
Hey, good morning, Thanks for taking the question I wanted to follow up on a quarter to date performing stores. It has reopened the positive results that you're seeing.
Is it sort of like an initial surge and then the trend steps back down or have you seen some level consistency or even an acceleration through this period in those stores that have reopen and then.
Sort of unrelated but the point on team sports that is obviously a risk ahead. There is some uncertainty anyway for you guys. The size up the exposure and what could be the impact from some limitations in the back half of the year. Thanks.
From a comp and from a source standpoint, I'd say, it's been consistent.
And we think as we start to get in some additional product some fitness product and bike product in both product that's been really very good could could accelerate but it's been pretty it's been pretty consistent and in the fourth quarter back half of the year, we're not going to get into talking about that we're not providing any guidance.
We'll have to wait and see what happens I mean is there a second wave is a you know some of the issues facing the country today that they continue.
So it's really it's really difficult to get out that far.
Okay Fair enough just a follow up on the online business can you guys give us the percent of online sales that actually touched the store today, whether that ship from store will pick up and how that compares to maybe a year ago clearly the models evolving here and then just regarding pick up any more color on the types of categories that are being picked up and if it's different than.
The typical mix.
Thanks.
That.
So.
Okay.
So so again the meaningful kind of majority of the sales are come out of our stores whether it be curbside.
Or ship from store.
Mix.
Fortunately it it's a little bit more skewed towards some of the bigger bulkier items that are more expensive to ship and that's kind of favorable from an earnings perspective to do that from stores.
It continues to increase its been more than half for some time that that's tough to stores in some way our E commerce business, obviously with the surgeon curbside that increased.
Got it okay. Thank you.
Our next question today Central Mike Baker with Nomura. Please go ahead.
Hi can you talk about a if you think the stimulus health and I guess, a part of that question would be any more color on sort of the pace of business through April.
We can sort of back into what the last several and a half weeks comped out, but I'm sure. They weren't a consistent across that period. My guess is like a lot of other retailers use you saw things progressed through.
The end of March and into April.
Helped by the stimulus or whether or whatever the case may be but if you could provide some color on that that would be helpful.
Yes, the ecommerce business has been building and.
As we.
Have opened stores, obviously, our store our stores sales have been building.
Some of that is.
Is timed in connection with when these stimulus checks arrived but assuming those checks arrived.
Going on a month ago in the business continues to be continues to be good now, but stimulus checks probably helped it's hard to measure it.
But we're still encouraged with where the businesses now.
Okay. That's helpful.
A couple other follow ups are you said you're buying off price right. Now is that block that you think can you get that product in the stores. This season or does some of that get packed away.
The majority of it will be in the store. This season, we made to have some buys that we might packaway.
To use for next year, but the vast majority of it will be in stores this year.
Okay interesting and then one more sort of follow up a as it relates to inventory.
I don't know if you're prepared to answer this but as you're putting in inventory now and as you said there is still a lot of uncertainty out there I mean, how do you think about the risk of building inventory right now and particularly as we get into back to school and in some schools might not be going back in a normal fashion in September.
And I could alfalfa licensed apparel is is there risk. There. If you know, we don't have college football or or or world series or those types of things.
We're making the best decisions weekend with the information that we've got in we are being a we're probably being more cautious than we are aggressive.
There are certain third theres certain categories that we think are going to be very good and we're aggressive.
So as an example, we continue to be very aggressive in the fitness category, we continue to be very aggressive in the bike category.
We'll be very aggressive in the in the athletic footwear category, especially around running is a people coming out of this pandemic or if they are really starting to realize that one of the great ways to be healthy is to be in shape and to be stronger and we think we're in a great lean to to help service that consumer who's looking to do that so.
We're going to be very aggressive in some areas and from a license standpoint around the college football in the and some of the pro sports depending on how things play out we're not nearly as aggressive so we're trying to make the right decisions based on the information we have and I guess at some places were being aggressive and other places we're pulling back.
Thanks makes perfect sense, a fingers crossed for a return to somebody a the sports that the particularly college football in my opinion. Thanks [laughter].
Our next question today comes from SCOTUS Rowley with RBC capital markets. Please go ahead.
Hi, guys, Scott, It's got sick really another store footprint question and I I think we all understand you can't have curbside pickup without your stores, but but because the growth in E com and curbside potentially push you to re evaluate the specific role of each of your stores in other words. So they all have to be same size same configurations.
That are that they are today.
We we don't see any change in what we're we're looking at from a store standpoint, we talked to.
Most recently about how we are trying to.
Reduce space allocation, how we're trying to continue to focus on the the team sport athlete in although that that team sport athlete that baseball player football player soccer player.
May be constrained right now that's not going to be in perpetuity that there will be back in if it's not this fall or or next spring. They will be back. So we think thats an important part of our business as we continue to make changes to our footwear department and broaden the.
The products that we carry in footwear were what we're doing in athletic apparel or in our in our.
And our.
Women's business me in right now our largest.
Our second and third largest brands and women's athletic apparel, our ROE CLIA in the new DSG, Brad So you know.
We don't think that there is there's a big change in one of the things with curbside, we need to have the product and make that people want curbside. They want to pick it up that day and in order to have the inventory available to them, we need to have the store so.
It may not be very popular with people that don't.
Truly understand our business, but we're very comfortable with the with our store configuration right now.
Got it and then just it just a follow up I I just wanted to clarify something I think we said had sales actually continued to accelerate as we've moved further away from the distribution of that stimulus funds is that what the in France was like.
Well the ecommerce we talked about the E commerce business in May.
Being being up north of 250% was 210% you know in the back half of Q1.
Got it Okay appreciate guys. Thanks.
Our next question comes from Peter Benedict with Baird. Please go ahead.
Hi, guys two questions first just on that.
You can you give an update on the status of your couldn't have clearance and exit the that'd be material impact on that product margin number.
In one Q and related to that kind of that that outdoor theme that's out there in the marketplace just any other areas of the store, where you're seeing that play out.
It's my first question.
Yes, so on the space allocation, we slowed that down right now based on the capital we cut back on our Capex budget pretty significantly so thats been slow down a little bit as far as the outdoor categories. Those outdoor categories continued to be.
To be pretty good.
We continue to come positively in those areas.
Okay, and just pivoting over to SGN, a just a follow up on those.
Two questions one I mean, as we as we think about yesterday was down 17% the first quarter year over year sounds like you're adding back store employees, you're you're bringing back some marketing how should we think about as gene a in the second quarter as you sit here today would you still expected to be down year over year.
And then that 34 million of cobot expense that kind of hit us today in the first quarter.
Call it $20 million to $23 million monthly run rate does that just continue through two Q and in the back half a year or other parts of that that start to start to come off. Thanks.
I mean, there are parts of that they come off because we're not paying people aren't working anymore. We have three weeks of paying people weren't working.
So so that piece comes off.
At least in the stores.
And we're returning people from furlough, but.
As I said earlier.
Earlier, we are going to have increased expenses associated with running stores, because we've largely had to bring back.
Pretty much most are not all of our store associates, because the sales trends have been pretty solid there.
And we have extra expenses for for for the hourly workers up 15% and extra hours, we've gotten the stores to do regular cleaning as well so.
We will continue to have some savings from people that are folks that are still furloughed at this point, we'll have some savings from lower expenses.
In may and and we're not we're not.
We're not aggressively hiring back open positions right now so we'll have some savings associated with that but we're going to have some extra costs too.
Okay. Thanks Lee.
And our next question comes from Pom niche Wells Fargo. Please go ahead.
Hey, good morning, everyone. Thanks for question.
I wanted to ask all over the last couple of years, you made a lot of investment.
And the in store experience batting cages.
And in store service levels with new requirements around food safety, social distancing et cetera.
That create any sort of impediment.
But in some of those experiences that you.
Worked to add to the store.
Hi, Tom Yeah. So when we first at close the stores than right prior to that we pretty much shut down all of those experiential elements in store appia batting cages or the golf senior leaders, but we have now been working very hard over the last several weeks to figure out ways to continue those experiences in.
Safe manner.
Turned back on cost savings, where we are able to do.
Do it in a way that we believe it's very safe for both our teammates on our athletes and same with the baseball simulator. So we actually have adapted fairly well and there seems to be consumer demand to to keep those experiences going.
Alright sounds good and Lee on a question for you I'm obviously.
Sure up some of the liquidity you did the convertible debt raise and you also borrowed quite a bit on the revolver.
Is there a way we should think about the pace.
Yes, maybe paying down that revolving data.
Up there's like a certain.
Milestone you want to reach our before you start paying down that bad or anything like that but just your balance sheet leverage perspective.
Would be.
What would be appreciated.
Yes, what we're in the process of paying down that revolver debt.
As we go through I think the the worse of our concerns of many concerns around the liquidity crisis that could it possibly occurred from mid March through through mid April seem to be behind us our business is coming back our relationships. There banks are really good so.
We're in the process of bringing that down.
Got it okay, well, thanks very much the philosophy.
Our next question today comes from Jim Duffy its Stifel. Please go ahead.
Thanks for taking my questions.
I'm curbside pickup what two trends show you with respect to consumers patients for inventory to be delivered to the store is conversion much higher up the inventories lit up as immediately available in store versus available in a few days are weak.
Yeah right now the availability that we are presenting his availability that is available in store.
I'm, sorry immediately yes, that's available to pick up immediately.
So there the patients it has not been a factor we actually think Thats upsides, what we can actually havent, what we would call it delayed buy online pick up in store experience, but but we are that's something we're working on right now.
And just as the patients for the entire.
Border or the process. The whole thing has been taking on average less than 30 minutes and usually closer to 15 minutes to fulfill some patients is important but what I think we're over delivering.
That's great and then question as it relates to the second half of the year lot of enthusiasm around reopening right now speaking with the vendors most have been conservative with respect to planned inventory roots perceived in all categories and the second half.
We don't know what back to school is going to mean put it will get cold and there will be a Christmas or are you concerned that you may not have enough inventory for holidays is that.
Part of the thought process at this juncture.
I think we're we're concerned if we'll have enough of the right inventory will then have to kind of go to some second choices and move some market share but.
Right now we feel.
Pretty confident we're in a were pretty good shape.
Theres some categories and some vendors we'd like to have some additional inventory.
From that we're moving market share too and we'll see how that goes but right now we feel pretty good.
Thank you best of luck.
Thank you.
And ladies and gentlemen, we have farm for one final question Ancillaries final question comes from Joe Feldman with Telsey Advisory Group. Please go ahead.
Oh, Hey, guys. Thanks for taking the question I wanted to ask a bit more about the consumer I know it was asked before about the stimulus checks but.
Well what are you seeing from the consumer I mean, obviously it seems like Theres an appetite for for.
Certain parts of the the sporting goods.
But is there are you seeing any differences like is there a trade down within categories are people.
Shifting upwards or or any anything that would give you any insight into how the consumers is feeling is it just really the once were passcode at 19 things will start to free up and get better.
I don't think we see anything meaningfully different from a trading up or trading down.
Some of our some categories. The average unit retails actually going up such as footwear, but that that's really got to Afirma do with the mix that we that we have and.
There's mix differences as we said we think the fitness business.
The boat business.
The bike business anything that has to do with the outdoors is.
It is really continues to do extremely well and we think that will continue going forward.
And then actually that it was good segue there with regard to the footwear category itself, you've mentioned running a couple times is that really what's driving it right. Now. We're you know how does versus basketball or versus style. I know you guys have made a little more investment on that front.
Just any color on that would be helpful.
Yeah. The lifestyle business continues to do extremely well and so we continue to be enthusiastic about that but we continue to be really enthusiastic about the running category. Because his people is it started to open up and people are getting out and even a little bit before that when people could get out and social distance.
We're out running there were out walking they were out walking and running and that's silhouette. We think is going to continue to be very good for people trying to get out in.
And get out in the in the the fresh air in getting a little bit better shape of either walking we're running and we don't think that that's going to change anytime soon.
That's great Werner thank rank your weren't great position to take advantage of that.
Makes sense, yeah, no the footwear deck looks a lot better it's great.
Good luck with border guys. Thank you.
Thank you.
And ladies and gentlemen. This includes a question answer session I'd turn the conference back over to Ed stack for any final remarks.
I'd like to thank everyone for their interest in Dick's Sporting goods, and we'll look forward to seeing everybody at our next conference call. Thank you be say sensing. Thank you. Sir todays conference has now concluded you may now disconnect your lines have a wonderful day.
Okay.