Q1 2021 Dick's Sporting Goods Inc Earnings Call
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Good day and welcome to the Dick's Sporting goods first quarter earnings call.
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I would now like to turn the conference over to make coach Senior director of Investor Relations. Please go ahead.
Good morning, everyone and thank you for joining us to discuss our first quarter 2021 results on today's call will be Ed stack are executive Chairman and Chief Merchandising Officer, Lauren Hobart, Our President and Chief Executive Officer, and Lee <unk>, Our Chief Financial Officer play.
Playback of todays call will be archived on our Investor Relations website located at investors day, <unk> Dot 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 a reconciliation of any non-GAAP financial measures referenced in today's call.
And finally, a few admin items first a note on our same store store sales reporting practices. Our consolidated same store sales calculation includes stores that we chose to temporarily closed last year as a result of COVID-19.
The method of calculating comp sales of areas across the retail industry.
Including the treatment of temporary store closures as a result of COVID-19.
Accordingly, our method of calculation may not be the same as other retailers.
Next as a reminder, due to the uneven nature of 2020, we planned 2021 off of 2019 baseline.
Accordingly, we will compare 2021 sales and earnings results against both 2019 and 2020.
And lastly for your future scheduling purposes, we are tentatively planning to publish our second quarter 2021 earnings results before the market opens on August 25, 2021, with our subsequent earnings call at 10, a M eastern time.
I'll now turn the call over to Ed.
Thanks, Nate good morning, everyone.
We are extremely pleased to announce yet another quarter of record results as we continued to execute at a very high level and capitalize on incredibly strong consumer demand.
We're in a great Lane right now.
In 2021 will be our boldest and most transformational year on the company's history.
We believe the future of retail is experiential.
Howard by Technology, and a world class Omnichannel operating model.
Importantly.
We are re imagining the athlete experience both across our core business and through new concepts that we have been working on for the past several years, which will collectively propel our growth in the future.
We recently debuted Dick's house of sport and Rochester, New York, It's off to a great start and is on track to become among our highest volume stores on the chain.
We've re imagined virtually everything in the store.
And believe it sets the standard for sport retailing and athlete engagement.
Our partners, who have visited the store all agree there's nothing like it and we hope everyone has the opportunity to see it in person.
Next we are completely reengineering, our golf Galaxy business the.
The game of golf is in great shape, and our golf business has been tremendous.
With golf Galaxy comps significantly outperforming the company average in recent quarters, we're leaning into this strength by investing in our golf Galaxy business, and adding track med technology to enhance the fitting and lesson experience. We are also investing in talent to elevate the in store service model.
And have been a re modeling 18 stores this year.
The new stores, we have remodeled are showing promising results.
Looking ahead, we expect Gulf to have a long runway and we are committed to leveraging this momentum for future growth within our business.
Additionally, we are launching public lands, a complete outdoor omni channel retail concept that will focus on making the outdoor is a place where everyone feels welcome and inspired.
We've been working on public lands for several years and look forward to opening our first 2 stores later this year.
Based on our research we think there is an opportunity in the marketplace and believe this new concept will be a great growth vehicle for us.
Importantly, conservation will play a prominent role on our new public lands catch up and we will champion environmental issues as we speak up to protect the planet and our public lands.
As a member of the outdoor industry. We've also joined forces with other retailers to advocate for conserving 30% of the U S lands on waters by 2030.
We expect to have the same voice and as much impact on these issues as we've had inside the Dick's business, highlighting the youth sports crisis and sensible gun legislation.
We'll be sharing more details about our plans for public lands in the weeks and months ahead.
In closing you can see Dick's.
As a growth company and we will continue to invest in our business to grow our lead as the nation's largest sport retailer.
We see significant growth opportunities within Dick's and golf Galaxy as well as with houses sports and public clients.
We will continue to invest in our vertical brands and with our key partners, including Nike North face Callaway tailor made and others to elevate the athlete experience across the stores and online.
This morning, as Loren and Lee discuss the results of our strategic growth drivers in greater detail.
Shouldn't be more excited about our business and more proud of our team and their unwavering dedication to our business I will now turn the call over to Laura.
Thank you Ed and good morning, everyone as.
As announced earlier this morning, we delivered another exceptionally strong quarter, achieving record first quarter sales in our highest ever quarterly earnings both significantly exceeding our expectations.
Our Q1 consolidated same store sales increased 115% as we anniversaried the majority of our temporary store closures from last year.
The strength of our diverse category portfolio supply chain technology capabilities, and omni channel execution helped us continue to capitalize on strong consumer demand across golf outdoor activities home fitness and active lifestyle.
We also saw a resurgence of our team sports business began to get back out on the field after a year in which many esports activities were delayed or canceled.
Our strong comps were supported by sales growth of over 100% within each of our 3 primary categories of car lines apparel and footwear as well as increases in both average ticket and transactions.
Like others. We also benefited from the recent stimulus checks.
These results combined translates to a 52% sales increase when compared combined alright, when compared to the first quarter of 2019.
From a channel standpoint, our brick and mortar stores generated significant triple digit comps and importantly delivered an approximate 40% sales increase when compared to 2019 with roughly the same square footage.
Our E Commerce sales increased 14%, which was on top of our 110% online sales increase in the same period last year on the vast majority of our stores were closed for over 6 weeks.
This represented nearly a 140% increase when compared to 2019.
Within ecommerce and store pickup and curbside continued to be a meaningful piece of our omnichannel offering increasing approximately 500% when compared to <unk> sales during the first quarter of 2019 and as a percentage of online sales, we saw sequential growth compared to the second half of last year.
These same day services, along with ship from store are fully enabled by our stores, which are the hub of our industry, leading omnichannel experience, both serving our in store athletes and providing over 800 forward points of distribution per digital fulfillment.
During Q1, our stores enabled approximately 90% of our total sales and fulfilled approximately 70% of our online sales to either ship from store in store pickup our curbside.
Throughout the quarter, we remained disciplined in our promotional strategy on cadence and certain categories in the marketplace continued to be supply constrained.
As a result, we expanded our merchandise margin rate by 787 basis points versus 2020, and 312 basis points versus 2019.
This merchandize margin expansion, along with substantial leverage on fixed costs drove a significant improvement in gross margin.
In total our first quarter non-GAAP earnings per diluted share of $3.79, not only represented a 511% increase over Q1.2019, but eclipsed our full year 2019, non-GAAP earnings per diluted share of $3.59.
During the first quarter last year, we recorded a net loss per share of $1.71, as we temporarily closed our stores to promote the safety of our teammates athletes and communities.
Looking ahead, we remain very enthusiastic about our business and we're raising our full year sales and earnings guidance.
Our financial outlook balances this enthusiasm with the uncertainties that still exists, particularly as it relates to the second half of the year.
We will address our outlook in greater detail in his remarks now.
Now, let me provide a few updates on our strategic growth drivers.
First within merchandising are well defined brand strategy drives differentiation on exclusivity within our assortment as we leverage both our key national brand partnerships and are highly profitable and growth from vertical brand portfolio.
During the quarter, our vertical brands continued to be a significant source of strength posting triple digit comps with merchandize margin rate expansion that outperformed the company average.
We saw sustained success in DSG, our largest vertical brand as well as in Korea, Our second largest women's athletic apparel brand.
This year, we invest we're investing to make our vertical brands, even stronger through improved space in store and increased marketing.
In March we augmented our men's athletic apparel collection by launching burst our new premium on <unk>.
Oral brand that serves the modern athletic mail the team has done a great job with versus and it's off to a really strong start.
Next to increase engagement with our athletes, we're taking steps to dial up service in our stores and to make our stores more experiential.
As I mentioned, we've been very pleased with the early results from our first 6 houses support and are excited for the Grand opening of our second location in Nashville next week.
Virtually everything in houses reported new from our engagement and service models to our merchandising standard brands in concept shops, as well as an adjacent outdoor field to host sports events and promote product trial.
These highly experiential stores are exploring the future of retail and they provide us a great opportunity to test and learn.
We will continue to refine and grow the house's support concept, while also rolling the most successful elements into our core Dick's stores.
Beyond house of support we continue to evolve the Dick's athlete experience.
During the quarter, we added more than 30 soccer shops that provide a high level of service from in store stock. Our experts who are specially trained to help athletes finally equipment and they need to excel at the game the.
The soccer shops also feature a variety of updated in store elements, including an elevated cleat shop, an expanded selection of licensed jerseys and soccer trial cages in select locations.
We've been pleased with the initial results and plan to add additional shops throughout the year.
As discussed on prior calls footwear is a key pillar of our merchandising strategy and during the quarter, we converted more than 40 additional stores to premium full service footwear.
Over 50 more stores will be converted by the end of the year, taking this experience to approximately 60% of the Dick's chain.
Lastly, as the number 1 premium golf retailer in the World. We are benefiting from renewed interest in the game participation rates are healthy and energy for the game of golf continues to increase with women Juniors and young adults contributing to the gains growth.
As a result of this robust demand our golf business has been great at both fixed and golf Galaxy with golf Galaxy comps significantly outperforming the company average in recent quarters.
In 2021, we're investing over $20 million to transform our golf Galaxy stores via combination of elevated experience industry, leading technology and unmatched expertise through our certified pega and LPGA professionals.
As part of this we've rolled out track me on technology to over 80% of the chain to enhance the fitting and less of an experience.
We've also completely redesigned nearly 20 stores.
In addition, we enabled online booking up lessons on club fittings and invested in talent and training to elevate our in store service model we.
We supported these efforts to our first golf Galaxy specific brand campaign, better your best across TV, social and in store.
Now moving to our omni channel capabilities, we continue to drive significant improvement in the profitability of our E Commerce channel through fewer promotions leverage of fixed costs and strong athlete adoption of in store pickup and curbside.
We're continuing to enhance the curbside experience with new features like proxy pickup as well as through improved inventory availability and reduced pickup wait time for athletes.
During Q1 over 90% of curbside orders were ready within 15 minutes and upon checking that the store, 50% were delivered to the athletes car in under 2.5 minutes.
Looking ahead, we continue to expect curbside pickup will remain a meaningful piece of our omnichannel offering as our athletes turned to the service for speed and convenience.
Along with Curbside, our scorecard program continues to be a key to our omni channel offering with more than 20 million active members, who drive over 70% of our sales.
We're using data science to drive more personalized marketing and engagement with our athletes, which is resulting in strong retention of the $8.5 million new athletes, we acquired last year.
Speaking of new athletes, we acquired nearly 2 million new athletes this past quarter and relative to our existing athletes. They continue to skew younger and more female representing a great opportunity for future growth.
In closing we are a growth company steeped in technology, and omni channel experience with a bold path forward.
As we continue to execute against our strategic priorities. We are enthusiastic about our business and confident that our investments will strengthen our leadership position within the marketplace.
I had the pleasure of visiting many of our stores. During this first quarter and I would like to thank our teammates across the company for their continued hard work collaborative spirit and passion for serving our athletes on supporting our business.
I will now turn the call over to Lee to review, our financial results and outlook in more detail. Thank.
Thank you Lauren and good morning, everyone, let's begin with a brief review of our first quarter results.
Consolidated sales increased 119% to approximately $2.92 billion.
Including the impact of last year's temporary store closures consolidated same store sales increased 115%. This increase was broad based with each of our 3 primary categories of hard lines of apparel and footwear comping up over 100% transactions increased 90% and average ticket increased 25%.
Compared to 2019.
Consolidated sales increased 52%.
Our brick and mortar stores comped up nearly 190% as we anniversaried last year's temporary store closures and compared to 2019 increased approximately 40% with roughly the same square footage our e-commerce sales increased 14% over last year and increased 139% versus 2019.
As a percentage of total net sales our online business was 20%.
As expected this decrease from the 39% of net sales in 2020, given last year's temporary store closures, but increased compared to the 13% we had in 2019.
Lastly in terms of stimulus while this can be difficult to quantify we recognize that our athletes had more cash spend during the quarter and believe we benefited from this during the first quarter.
Gross profit in the first quarter was $1 <unk> 9 billion or 37, 3% of net sales and improved approximately 2100 basis points compared to last year.
This improvement was driven by leverage on fixed occupancy cost of approximately 1000 basis points from the significant sales increase and merchandise margin rate expansion of 787 basis points, primarily driven by fewer promotions and a favorable sales mix.
Additionally, last year included $28 million of inventory write downs, resulting from our temporary store closures.
Each were subsequently recovered in the second quarter of 2020 due to better than anticipated sales and margin on merchandise new in your end of life upon the reopening of our stores.
The balance of the improvement was driven by lower shipping expense as a percentage of net sales due to higher brick and mortar store sales penetration following last year's temporary store closures.
Compared to 2019 gross profit as a percentage of sales improved by 795 basis points driven by leverage on fixed fixed occupancy costs of 475 basis points due to the significant sales increase in merchandise margin rate expansion of 312 basis points, primarily driven by <unk>.
Fewer promotions.
SG&A expenses were $608.3 million.
Or 28, 4 percentage of net sales and leveraged 940 basis points compared to last year due to the significant sales increase.
SG&A SG&A dollars increased $205.1 million of which $21 million attributable to the expense recognition associated with changes in our deferred compensation plan investment values. This.
This expense is fully offset in other income and has no impact on net earnings the remaining $183 million is primarily due to normalization of expenses following our temporary store closures last year.
To support the increase in sales as well as higher incentive compensation expenses due to our strong first quarter results.
SG&A expenses include $13 million of Covid related safety costs, which in light of the latest CDC guidance. We expect these costs to decline significantly beginning in the second quarter.
Compared to 2019.2019, non-GAAP results SG&A expenses as a percentage of net sales leveraged 446 basis points from the due to the significant sales increase.
SG&A dollars increased $122.3 million due to increases in store payroll and operating expenses to support the increase in sales and hourly wage rate investments.
And COVID-19 related safety costs.
As well as higher incentive compensation expenses.
Driven by our strong sales and gross margin rate expansion, we delivered record quarterly non-GAAP EBT and EBT margin results.
Non-GAAP EBIT was $477.1 million or 16, 3.5% of net sales.
And it increased $684.8 million or approximately 3200 basis points for the same period last year.
More relevantly compared to 2019, non-GAAP EBT increased $396 million or approximately 200 basis points as a percentage of net sales.
In total we delivered non-GAAP earnings per diluted share of $3.79.
This is compared to a net loss per share of $1.71 last year and non-GAAP earnings per diluted share of <unk> 62.
202019, a 511% increase.
On a GAAP basis on our earnings per diluted share were $3.41.
This includes $7.3 million in noncash interest expense as well as $9.2 million additional shares that will be offset by our bond hedge settlement, but are required in the GAAP diluted share calculation. Both are related to the convertible notes we issued in the first quarter of 2020.
For additional details on this you can refer to the non-GAAP reconciliation tables in our press release that we issued this morning.
Now looking to our balance sheet, we're in a strong financial position ending Q1 with approximately $1.86 billion of cash and cash equivalents and no borrowings on our $1.85 billion revolving credit facility.
While our quarter end inventory levels decreased 4% compared to the same period last year, our strong flow of product supported Q1 sales growth in excess of our expectations. Looking ahead. Our inventory is very clean and we can continue to expect a robust product flow.
In terms of supply chain expense, we are seeing elevated costs, which we which we expect to continue but.
But thus far have mitigated this pressure through higher ticket as a result of being less promotional and increasing prices in select categories.
Turning to our first quarter capital allocation net capital expenditures were $57.2 million and we paid $33 million in quarterly dividends during.
During the quarter, we also repurchased just over 1 million shares of our stock for $76.8 million at an average.
Average price of $70.474.59.
And we have approximately $954 million remaining under our share purchase program and our plan for 2021 continues to include a minimum of $200 million of share repurchases.
Now, let me move on to our fiscal 2021 outlook for sales and earnings.
As a result of our significant Q1 results. We are raising our consolidated same store sales guidance and now expect full year comp sales to increase by 8% to 11% compared to our prior expectation of down 2% to up 2% at the midpoint, our updated comp sales guidance.
That's a 22% sales increase versus 2019 compared to our prior expectation of up 11%.
While we have been very pleased with the start of our second quarter and are highly encouraged about the rest of the year beginning in June we will start to anniversary significant comp sales gains from last year. There is also continued uncertainty around when consumer behavior will normalize and what the new normal will be.
And we are limited in our ability to forecast demand, particularly as it relates to the second half.
Given this within our updated outlook, we have maintained our Q3 and Q4 performance expectations in line with our original guidance, which assumes comps will decline in the range of high single to low double digits.
Non-GAAP non-GAAP EBIT is now expected to be in the range of $1.1 billion to $1.1 billion compared to our prior outlook of $550 to $650 million, which at the midpoint and on a non-GAAP basis is up 142% versus 2019 and up 45%.
Versus 2020 at the midpoint non-GAAP EBIT margin is expected to be approximately 10%.
Within this gross margin is expected to increase versus 2019, driven by leverage on leverage on fixed expenses and higher merchandise margins.
When compared to 2020 gross margin is also expected to increase driven by leverage on fixed expenses, while merchandise margins are expected to be approximately flat. This.
This assumes a gradual normalization promotions beginning in the second quarter and modest deleverage on fixed expenses in the second half.
SG&A expense is expected to leverage versus both 2019 and 2020 due to the significant projected increase in full year sales as a reminder, at the beginning of 2021, we transitioned last year's premium pay program to a more lasting compensation program, including increasing and accelerating annual merit increases and higher.
Wage minimums the impact of these programs has been included within our guidance.
In total we are raising our full year non-GAAP earnings per diluted share outlook to a range of $8 to $8.70.
Compared to our prior outlook of $4.40 to $5.20.
At the midpoint and on a non-GAAP basis, our updated EPS guidance is up 126% versus 2019 and up 36% versus 2020.
Our updated earnings guidance is based on 97 million average diluted shares outstanding and an effective tax rate of approximately 24%.
In closing we are extremely pleased with our Q1 results and we remain very enthusiastic about the future of Dick's sporting goods.
This concludes our prepared comments. Thank you for your interest in Dick's Sporting goods and operator, you may now open the line for questions.
Thank you.
We will now begin the question and answer session.
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At this time, we will pause momentarily to assemble our roster.
Yes.
Okay.
Our first question comes from Robbie <unk> with Bank of America. Please go ahead.
Hi, Good morning, Ed we Lauren.
Im sorry, Im still speechless to say congratulations.
Okay.
Dramatic thanks Robyn.
Sure.
Wanted to I think I guess more on I'm going to ask you.
On the day.
<unk> side customers.
Can you remind us what the spend is on them is there like a calculation where as you're building more curbside customers do they spend 2 extra 3 ex normal customers and do they spend that within the stores.
Not in the stores.
And maybe also with I guess, its $10.5 million new customers, you've said, they're younger and more female could you talk about how they're spending with you on can you give us any kind of <unk>.
Numbers do they spend more than historical customers.
Are you, losing some customers as you bring on all these new customers sort of more help on what who is actually coming into the store and how they are spending.
Yes.
Thanks Rami.
In terms of curbside customers on our best customer is our omni channel customer someone who shops in all channels.
And the curbside is so new we don't have specific data on those specific customers versus the general ecommerce customers, but overall when somebody comes into our system and if they shop in a store and they shop online they are.
They are more valuable customer.
In terms of new customers. So you're right, we had $8.5 million last year and 2 million new customers. This year. Our database continues to grow we have over $30 million.
E mails that we can reach out to people with and.
Kate too and personalize our offers to them on our communications to them.
And those athletes are spending more than.
And then last year.
Doing well versus.
Versus existing customers, we're not going to share specifically.
They are doing but we are very pleased with our retention rates are shopping again, they're shopping again within a short window of few week window and and we're in we're very pleased with that.
Got you and then just a quick follow up.
On the guidance I just wanted to clarify what kind of promotional environment are you guys expecting kind of a return to normal in the back half of this year or how should we think about the promotional environment.
We're not anticipating a return to full normal might've seen in 2018 to 2019, but we are anticipating a gradual return of promotions kind of beginning here later in Q2, and then building throughout the back half of the year.
Got it thanks, so much guys congratulations.
Thank you.
Sure.
Our next question comes from Adrienne <unk> with Barclays. Please go ahead.
Good morning, Justin we thought it couldn't get better.
Congrats.
Lauren So my first question for you on.
For those we've talked about that for those who was strengthened during the pandemic youre on a very unique position of being able to accelerate that men Hudson new formats take a little bit more risks than maybe some others and so we're seeing you do that with house of sport.
But youre also doing a variety of other things exclusive high touch in store soccer Soccer shop, and then also lower.
Going lower with overtime warehouse in off price concepts I know, they're very small still in test format, but what are you learning about each particularly at the lower end overtime warehouse.
Selling going on.
Or are you just testing noticed which format will win out.
And then any ideas on kind of the thoughts share strategy. Thank you.
Okay. Thanks Adrian.
So in terms of you're right, we're investing in our business in many many different ways, but the 1 thing I think is important to realize is that many of these initiatives were in place before the pandemic and.
And I'm just continuing on now so that would be including our golf Galaxy investments.
Our house of sport at all a lot of things are cyber shops, a lot of things. We are in the works and just basically pause during the pandemic.
Come out of the pandemic now with with a lot of consumer demand in <unk> and the strategies that we knew made sense before the pandemic, we are even more eager and more excited to get going on them. So we are definitely investing in the business. We're investing in our omni channel experience, we're investing in experiential aspects.
The store is a key with houses for it in things like rock climbing walls.
And the soccer shops in footwear decks and it tracks.
Everywhere at where we can add experience, we're doing that spin.
Specific to warehouse and going going on that is truly just a test we are using it as a clearance vehicle in the Dick's channel and we will have more to come on that but it's just it's a handful of stores right now and it is a test and just in order to keep our clearance moving.
Okay, and then yes.
Okay you did.
A quick 1 for you on.
What percentage, if youre willing to share that with us what percent of team sports and associated accessories, and sort of on an annualized basis and I'm sure that that bumps up in the back to school season. So if you can give us kind of penetration in the third quarter and then lastly, 2 billion close to 2 billion of cash what.
What are your thoughts on what to do with all of that money. Thanks. So much.
Well a couple of things that the team sports has its highest penetration. This is typically in the first quarter and then that's followed by the third quarter is the second highest penetration and then the second and the fourth fourth quarter is lowest penetration. So we did really well with team sports in the first quarter.
And that's in its highest penetration quarter. So we're excited that we are well inventoried coming into the quarter expecting a resurgence and we were able to meet and we were able to meet that demand with respect to the cash that we have on the balance sheet right now.
Over overall, we intend to continue to be conservative on.
On maintaining cash balances. However, we're able to support the investments in new concepts that we have going forward.
To invest in working capital, we have rebuilt our inventories yet, but we are continuing to be fairly aggressive on our inventory buys for the back half of the year, So even though in our guidance we have.
Anticipated sales.
Sales down 10% approximately 10% to last year up 10% to 2019, we're going to be buying to support continued comp sales gains.
Because we don't want to kind of lead to consumer.
And we want to let the consumer led our customer tell us when they're ready to slow down. So we're going to have the inventory and we have the working capital and we have the we have the cash to go to go do that and make those bets.
Ed.
And it talked earlier on in his head Lora network going to continue to invest in our stores and new concepts.
We are maintaining our guidance on buying back $200 million of at least $200 million stock. This year and we expect to continue to make our dividend payments.
As we've increased those over over the last several years. So we have a lot of uses for it but having said that we anticipate continuing to be conservatively capitalized and maintaining.
Sizable cash balance.
Thank you great job.
Thank you.
Our next question comes from Simeon Gutman.
Lin with Morgan Stanley. Please go ahead.
Hey, everyone. Nice results. My first question is on gross margin and I wanted to focus on on 2 elements of it first if you can look at product margins and look at it within category are there any changes that are improving that you could sort of attribute structurally getting better whether the hardline margin is getting better with them.
Itself because of mix or apparel and footwear.
And then and then the other part of it is if you look at the E Commerce business and I realize you look at it all combined multi channel, but any way to quantify.
How much better EBIT margins can be structurally from higher bulk goods from ship from store than pre COVID-19.
So I'll start with the with the last question. So with ecommerce is certainly advantageous for us to have a higher penetration of profit and curbside.
We're up 500% versus 2019 on those areas. The channel is benefiting from that but also benefiting by the fact that we invested in technology. Many years ago and we've created a platform that now what we do get Leverages the sales come in and then our gross margin.
Your second question, which has been extremely strong current at the last few quarters and including this past quarter within categories for gross margin. We are finding across the board. We are not in a promotional environment nor are we certainly.
Leading in any promotional way and so across the board the categories have been improving in gross margin, it's true of hard lines its share of footwear.
Share of apparel. So overall, it's a really really good story and we're very very pleased with e-commerce profitability at the Boston Curbside, the better but even the ship from home business everything is more profitable now as we scale yes.
And I would just add to that due to the strength of demand kind of across our product assortments were not really creating much in way of clearance merchandise.
We don't have looking a little bit of an anchor on air on there.
Merchandise margin rates coming from dealing with clearance that we would typically have and the clearance stores that we've opened have also helped us to more efficiently deal with our clearance inventory. So structurally that's helped us.
With our merchandise margin rates, but strong demand has helped us as well.
Okay, and then my follow up maybe for Ed in for Lauren.
We're trying to be prudent about what we extrapolate for the future given how strong things are right now maybe can we talk about certain things that you think may continue whether its the category stays stronger than things that you've changed whether its product assortment or your platform and I don't know if you throw around at this stage sort of Comping.
Comp again, alright, but this businesses I think the double digit last year announced should it looks like it's on track to do double digit again.
Is that even a scenario that you.
<unk> been joking around once I know, it's early but curious how you think about what sustainable here.
Yes.
So.
Look we're learning every every day as is everybody in terms of what the new consumers going to be and what the new consumer behavior is going to be there is a lot of.
Factors going on right now, including ethylene said stimulus and a whole bunch of other things, but there, but what we've seen for sure is that team sports came back with a vengeance at rightly. So as it had been a year or so since people have played or more and at the same time some of the quote unquote surging categories.
On that quote unquote pandemic related such as golf on fitness.
<unk> are still really really really strong so can we predict the future. We can't we were sort of joking that you guys were going to ask about if we can comp the comp, but we feel really really positive about about the business and what we're seeing about consumer demand as we head into the future.
I think a couple.
I think a couple of things that have changed that we've done.
As our team has done a great job with differentiating products that we have in the store versus our direct competitors. The reason, even some tangential competitors by differentiating product not only from the key brands that we have if you take a look at our footwear assortment and what we've done with the.
Premium full service footwear areas of what we've done with our concept shops from Nike and a few other brands and along with what we've done with our vertical brands.
The team is so differentiated the product out there.
We're really we're really a different retailer than our than our competitors and I think the consumer is realizing that.
Shopping us more and gives us the opportunity from a margin rate standpoint to not being that that promotional environment.
It will be less promotional when and if a promotional environment comes back I think we'll be in less of a promotional.
Aspect of our company because of the differentiated product.
But I can't say enough about how this merchandising team the store team. The marketing team has developed this and 1 other real reasons for our success right now.
Okay. That's helpful. Thank you both.
Okay.
Our next question comes from Paul <unk> with Citi Research. Please go ahead.
Hey, Thanks, guys here, if you could curious if you could give some of the comp metric.
Traffic ticket versus 2019, particularly at the store level.
Be curious to hear about category versus <unk>, 19, just which ones have really taken a large amount of share within within the box and online versus those that are that are down obviously on would be I think the obvious 1 there, but curious if any others are lower and then.
Second on the team sports strength that you saw on the spring how much of that was driven by spring team sports persons false force that just got pushed out of the spring.
Yes, so our traffic and ticket versus 2019 are both positive and.
We're feeling really good about that obviously when you look versus 2020.
Traffic numbers are a little distorted due to the fact that I think we're up significantly our stores were closed but even during fab versus 19.
We have strong double digit growth in both of those.
With regard to the team for us.
It's an interesting thing what's happening on team sports, there's certainly a lot of pent up demand and then Theres also strange phenomenon like there was a mini football season.
January February that you wouldn't have thought would've happened and so.
It's definitely there's been ex excessive amounts of team sport demand in Q1, but I don't think that thats.
I'm guessing, but I don't think its a pull forward of fall sports I think theres still tremendous number of athletes who are going to take the field, who are not equipped jet and football come back in mass and kids are still growing so we feel good about the future of team sports.
Got it thanks, and just on the supply chain side any categories that you're still finding it hard to to chase.
So.
I think this is an important point, but our supply chain group.
It has done an absolutely outstanding job managing through.
15 months of <unk>.
Real challenges from a supply chain standpoint, and Thats been originally it was.
Hard goods fitness and we've talked about that but it's almost.
Almost every aspect of the business.
So we're taking all the time, we're chasing everything but we've gotten really good at it and we have attacked teams on it day in and day out we're working with our vendors, we're picking up product wherever it is and helping get it into our supply chain sooner.
And so I think this has actually become a.
A core capability of ours that we can drive growth with a with a challenged on challenging supply chain.
Got it. Thank you good luck.
Yes.
Yeah.
Our next question comes from Michael Lasser with UBS. Please go ahead.
Good morning, Thanks, a lot for taking my question, so you're pointing to a 10% operating margin. This year. Your prior peak has been a 9% operating margin is at 10% margin the right way that we should be modeling the business moving forward.
So Michael we're going on we're going to have to see how the back half of the year settles out this year.
I think theres still quite a few unknowns about what the new level of demand is that's out there.
In our product categories, we know it's going to be where we're very confident is going to be significantly higher than 2019.
And we've become meaningfully.
More optimistic about that as we get longer and longer into this into this run we're making right now.
But.
We certainly feel better about higher levels of operating margin than we did 3 months ago 6 months ago, but I don't think were ready to guide on what the long term margin.
Outlook is yet until we see kind of a normalization of spending on travel on restaurants and have that effect.
How that affects our categories, but certainly the consumer is saying they want to continue to be outside trying to continue to try to get fit buying athletic apparel athletic footwear, playing golf in I think a lot of those those trends are going to stay with us for some time, but we've got to we've got to.
Let this play out a little bit before we can get the long term view.
And we as Claudio can you frame when you had a 9% operating margin back in 2012, you had a 31, 5% gross margin.
Ecommerce penetration was much lower than how does your merch margin today compare to where it was back then.
And as an unrelated point to that.
You had mentioned that you were very pleased with the started the quarter what does that put the bias.
The upside to for your so your full year guidance.
The strength Youre seeing now continues.
The merchandise margin rates are running higher now than they were at peak.
Because simply because we just don't have any promotions right now and we have very little clearance merchandise to work with and we've never really been in a position where we havent had haven't had to run promotions.
Now that's going to be.
As we go forward, it's going to be a matter of when do promotions returned to what level. We're encouraged by some of the activities in some of our brands has been narrowing distribution product and it's been narrowing it.
<unk> away from some of the players that are typically led promotions in the past. So we're excited about that and what the outlook could be around promotions. There we're encouraged by the.
We are encouraged by the restraint theres been on putting product into.
Various channels as well so product continues to be.
Product levels continue to be pretty thin, which suggests a continuing favorable margins. So merch margin as we look out.
Should continue to be favorable, but right now we're running meaningfully higher than we were at peak.
On the started the quarter, how does it impact fiscal year guidance, we baked some some of the beat from Q2.
Into the guidance the.
The guidance rolls in.
Our first quarter beat versus what our expectations were in a little bit from Q2.
On the low end, it's got a small beat from Q2 at the higher end scale, a little bit of a bigger beat from Q2, but we are flowing through some some increases from the second quarter as well.
That's very helpful. Good luck with the rest of the spring. Thank you.
Thanks, Michael.
Our next question comes from Mike Baker with D. A Davidson. Please go ahead.
Okay. Thanks.
A couple follow ups here.
We know the first quarter, you said, the third and fourth quarter down about 10%.
Can get a pretty big range for the second quarter anywhere from my.
My math down high single digits to up.
Low single digits can you sort of.
Why not just tell us what you think the second quarter will be since you already what the guidance was in the second quarter. Since you already gave us the back half just to make sure everyone's on the same page.
We're not going to.
Not going to give the specific numbers around the second quarter. However, we are very pleased with the start and really in June we start to come up against these significant double digit comp sales gains in coming to father's day in beginning of back to school. So we're going to have to let it play out here as we start to come up against the big gains that we saw on kind of the back.
Half year of the second quarter.
Okay, Okay fair enough.
I also wanted to follow up on on <unk> question just about.
Where you are now versus your prior peak it seems to me that your vendor relationships.
Improved quite a bit just on my math you're a.
Nike is actually a small percent of your business and it was but you are a bigger percentage of.
Nike is north American business, you will I think under armour is cutting back on some other vendors can you just bigger picture maybe just a question for Ed just described.
Howard why your vendor relationships have changed over the past 8 years or 9 years since the past peak.
Well I think our vendor relationships are better than they were back then, but they werent bad backs on either end.
I think that.
On the key people that we we partner with have seen the commitment we've gotten to from a service standpoint, a commitment we've gotten to the.
The environment and the experience.
He comes into our store.
Sure.
They've liked that we've worked with them with that they've given us additional allocation of product, which we have.
We've done a great job our teams have done a great job of merchandising marketing selling.
And I think it's we really look at the key partners that I've mentioned truly as partners and I think partnership can be an overused word, but we really do partner with them they partner with us we.
We understand what they are.
What their objectives are they understand what our objectives are we sit down we have a <unk>.
Conversation, we come to marketplace. That's good for both of US and I think that will continue to move forward.
Our relationships with the brands I think will only continue to get better.
And I think thats good for us and I think it's good for our brands too.
Okay makes sense I'll, just end by saying I'm not looking forward to buying my second carry on football cleats for my son in 5 months, but I guess Scott from me Peter.
I hope that everybody feels the same way you do.
Yes.
Thanks, Okay. Thank you.
Our next question comes from John Kernan with Cowen. Please go ahead.
Yes, let me extend my congratulations on just phenomenal performance and just such a differentiated offering versus all your competitors out there.
Thank you Lee could could you.
Give us any detail on how youre thinking about transactions and tickets for the remaining on the remainder of the year I feel like Theres still tailwind.
Hi, Thank you, obviously transactions was going to be huge in Q1.
I'm curious in terms of how we should think about transactions ticket.
In the overall comp guidance for the remainder of the year.
Well, yes.
I think generally that they're more tailwind behind the ticket side and the transactions are what you will.
Will remain to be played out here, but as we continue to be very promotional.
And not getting back to normal kind of levels of promotion really this year.
On that.
Book bodes well for ticket.
Also we've seen trading up in some areas as well.
Particularly I can golf, where theres, a better inventory supply of new products and there is an cascaded prior year products. The consumer has showed a willingness to trade up.
We expect that trend to continue.
So I think that there is pretty good.
Tailwind around around ticket.
Around promotions lack of clearance.
<unk> up a bit to some better products. So we feel good about that transactions were going to have to let that play out in sealing as folks get back to kind of normalized activity to travel until on while we continue to get the trips.
High level of trips that were getting now into our stores comp sales in stores have been fantastic and we will continue to get the traffic online as well, but I'd say the outlook for outlook for ticket is good the outlook for traffic maybe goods.
We're not that certain per rabbit.
Understood maybe just a quick follow up on private label.
Performance in Q1, I think it was annualizing around $1 billion 3 last year, just the margin profile on that business the topline.
Performance in Q1, and then any initial reads on burst.
Yes, the vertical brands performed fantastically in Q1 in line with the mine with the entire chain on margin did expand somewhat so really great trends on on vertical brands.
And did you say about <unk> was that your last question, yes, yes.
Yes, we're very pleased with <unk> and how it's how it's launched.
And the fact that it is a true white space in our stores, it's not a it's not.
It's an opportunity to get the athletic male and a lifestyle capacity in a way that we weren't serving before so.
I would say everybody on the call should go try it it's amazing.
A really high quality fashion forward product and.
And we're excited about it.
Excellent. Thank you.
Yes.
Our next question comes from Warren Cheng with Evercore ISI. Please go ahead.
Hi, good morning, great quarter.
Just 1 other follow up on Adrian <unk> question about some of the new banners that you're piloting.
See square footage the square footage component on rather than starts to tick up in the near term and also can you just talk a little bit about how the overtime going goings on concepts are tying into the inventory clearance.
Products flow through these channels. So they are moving the needle on gross margin. Thank you.
So first question on the square footage, we do have some net growth in stores coming in the next few years in the long term our strategy is not to significantly expand our square footage, but possibly that we will show up differently within the square footage, we have but we are building new concepts.
There will be some net square footage growth.
Lee I'll turn on to you for the ongoing Don on clearance question, I mean going on going on in clearance and we have a couple.
A couple of different concepts within here, but at.
At this point, there theyre handling clearance product coming from Dick's stores, the Dick's stores have been generating less clearance, but we certainly have enough too.
Give us a good test in these stores. It is moving to gross margin needle to gross margin. The merchandize margins that we're getting out of these stores are considerably higher than when we handle it.
Clearance merchandise within the Dick's store, so we're really pleased with that.
And it's still a test for us we're going to read it for we're going to read it for a while and make a determination, but so far the signs are goods that at a minimum is helping us with clearance in the Dick's stores and maybe there's an opportunity to make some money out of it over the long term, but we're going to test it and see how it works for us.
Got it thank you.
Our next question comes from Christopher <unk> with Jpmorgan. Please go ahead.
Thanks, Good morning, everybody. So following on that sort of use of cash opportunity that you have had are there as you continue to focus on experiences and getting better on E. Commerce are there are there certain capabilities.
That you think would be useful in terms of using some of that cash deployment and <unk>.
Barring that and bringing that those capabilities in house.
So we always are looking to improve our core capabilities and a lot of our investments in capital. This year is exactly that improving our capabilities.
We look opportunistically at M&A as well, if that's what you're getting at but right now we're very focused on building capabilities internally.
And I'll, just say that we've got a really really good relationship at this point with federal Express and meet with them regularly as a talk about different ways to get product to.
And our athletes more quickly.
While we do look at opportunities to bring capabilities in house.
We're really pleased with the partnership we've got with this with the team at Fedex and they've been extremely helpful in coming up with new ideas as well.
Got it that's very helpful and then.
Looking at the merchandise margin improvement.
<unk> relative to <unk>, it did tick down a little bit obviously relative to 2019 that is obviously very strong numbers on that on a 2 year basis. So was that just.
We have more winter clearance more clearance activity in the fourth quarter around winter in and that's the Delta on a 2 year basis versus.
Not <unk> is not a big as big of a clearance quarter.
I understand.
It does come down to mix.
There was more clearance in the fourth quarter of 2019.
In the first quarter is not a big clearance quarter for us.
On it you're on it Chris.
Chris.
Got it thanks, very much have a great spring.
Thank you. Thank you.
Our next question comes from Joe Feldman with Telsey Advisory Group. Please go ahead.
Yes, thanks, guys and again congratulations on the quarter.
So 1 of them on my questions with regards to back to school.
On period.
Are you guys changing your approach this year I mean, presumably it's coming at a time on the child tax credits coming through and that should help families. I would think you guys should be able to capitalize on that so I was wondering if you're thinking about it differently than you have in years past.
Back to school, we think is going to be bank a lot of a lot of opportunity to meet needs. Both on the field and in the classroom for athletic apparel and footwear. So we're leaning into it we have a great marketing campaign planned we've got great product coming in.
We're expecting it to be a strong a strong season.
Call. It last year back to school I would say was smaller than typical because like if you can go back to school and it came later because many of US many schools were delayed for several weeks before they got going so there is a big opportunity between the child tax credit that's coming.
And the smaller and delayed back to school.
Get the third quarter off to a good start.
That's great Thanks, and if I could follow up on more on with.
Sorry to labor.
We keep hearing so much about its been difficult to find labor out there and also we know of wage pressure, but and I know you guys talked about that but can you maybe share some thoughts on on how you or if you're able to get labor as easily as you have in the past and what kind of wage pressure you are thinking about for this year.
Yeah. So.
It's a good question and it's something obviously, we and everybody else is focused on we've gotten ahead of it and a number of different ways and that we are we were out trying to build to peak volume and hire people in advance, but I do think 1 thing that's really important to note is that our teammates between our policies.
And how we've shared some of the upside.
Our earnings over the last year and also how we treated people during the pandemic and tried to bring them back as quickly as possible.
Kept people health insurance paid we really put our team first I personally I can say the company felt like a family in every single way during that time and it was really enjoy the C and I actually do think that that is helping us from a retention standpoint, I think in general we are an employer of choice right now and.
So we certainly are struggling a few markets were struggling but it's not it's not on top line challenge.
That's helpful. Thanks, and good luck with this quarter.
Thank you.
Our next question comes from Scot Ciccarelli with RBC capital markets. Please go ahead.
Good morning, guys. Thanks for fitting me in here. So you guys are obviously, making a lot of changes to the business you talked about the golf the soccer shops, the new store format.
And you've also talked about how you are happy with the early results, but honestly. It seems like everything is really strong right. Now. So do you think you are in a position where you can really evaluate these initiatives properly and whether theyre going to generate the kind of returns you guys are looking for on a more normal environment.
Yes, it's a great question I mean, obviously youre right every category is trending right. Now are most of them are at so obviously things are doing much better than we might have expected, but when we built these initiatives out we didn't expect comps quite like this our sales quite like this we have a we have a productive business model and we're learning.
From these concepts every day in terms of what can be translated back into the Dick's store, both in golf and with the house's parts on all of the experiential concept. So.
I think we can tell on we look versus balance of chain. How things are doing we can tell what's working and what's not.
And these are not.
These are not concepts or programs that we put in place recently or thought about recently as I said these have been a couple of years and the gestation period and we're pretty confident that these are going to work whether it's the the soccer shop, we had done a couple of soccer shops last year.
Right in the middle of the pandemic and knew that soccer was an area that we werent greeted if you take a look at how we are in baseball or football soccer was an area that we trailed and so we're just making some of these investments in these areas to bring us up to parity with some other categories that we are.
We are more top of mind with so.
Okay.
These have all been very thoughtful and I suspect it might be a surprise or 2 here, but we're pretty confident with these on the health of support that we opened up in Rochester is off to a great start. The other also support that we've done in the in Knoxville is a very differentiated experience.
I think they were kind of continued to be very viable as we go forward.
That's all really helpful and then kind of related to that.
All of these changes does increase your cost of doing business there the comp breakeven level.
So is that something we should kind of think about when we think if we assume that will go back to a more historical comp pattern at some point.
We think that these areas have a big growth opportunity, even when we go back to something that would be normal whatever the new normal might be but these are categories that we felt that we were deficient in where had a great opportunity in prior to the pandemic and the pandemic put them on hold.
And we've had the opportunity to continue to refine and test them. During this period so.
Whether it's access to product and when you take a look at the soccer shops that we've done we have access to shoes at price points that we didn't have access to before or decided not to put in and we've tested. These that athlete who is the more enthusiast athlete is it really responded no differently than what we did with baseball prior to the pandemic.
When we re engineered our baseball department and really tried to cater to that enthusiast baseball player, which did great. We've got the same thing that he is going to happen is happening and soccer and we've got.
A couple of other.
Opportunities that we'll be looking at later this year on into next year that we think we can do the same thing with <unk>.
Got it thank you very much guys.
Our next question comes from Chuck Grom with Gordon Haskett. Please go ahead.
Hey, Good morning, just 1 quick 1 from me when you look at sales performance in the quarter and maybe into the month of May by region, particularly in states other farther along in the reopening.
Process Im curious what youre seeing from from a trip frequency.
And overall planning perspective.
I mean, we're seeing strength across the country right now probably seeing a little bit more strength in the.
In the states that were closed for longer like in the northeast and California, but nationwide, we're seeing strength.
Okay, great. Thank you.
Our next question comes from Steven Forbes with Guggenheim. Please go ahead.
Good morning, and extending my congrats as well.
A follow up on on loyalty and customer trends right. If I look through the presentation. Here you can note that 70% or to the $8.5 million new athletes required during the through the digital channel in 2020. So curious if you can sort of discuss how that cohort is engaging with the brand in 'twenty, 1 thus far in terms of channel on and whether the repeat.
Our retention.
Behavior has historically deferred between those acquired through digital versus brick and mortar.
Yeah. That's a great question, what we're finding is that generally speaking people first transaction.
Once acquired is it the same channel that they came in through and we have so many new users in the digital channel that I don't think looking backwards to say.
How that's going to change is going to be very helpful. So on retention is good it's good across all of.
Whichever way they are coming in and they are repeating.
More often than not in the channel where they came in.
Thank you and then just a quick follow up.
Im not sure if the number was disclosed before right, but you call out.
The presentation I think it would be $4 million.
Scorecard gold right, I'm, sorry, 5 million scorecard gold loyalty members $500 or more.
2 questions on that 1 what was that up versus 2019 or any sort of.
Commentary on growth right in that and the gold member base and then also any comment on just the breadth of category participation rate among that group right.
Alright.
Rod is their purchasing behavior in terms of the categories in which you serve.
GAAP scorecard gold program actually 1 other reasons why I think youre noticing on for the first time it isn't it's only a year or 2 all day, we don't have a comp versus 2019.
We started we started I want to say it was 18 months ago or so that we started the program.
And obviously, our best customers yet to spend $500 to get into the program more via credit card member and they've definitely by abroad, a broad range of products.
They are the best of the best.
Thank you best of luck.
Thank you.
Our next question comes from Seth Basham with Wedbush Securities. Please go ahead.
Thanks, a lot on I'll add my congratulations on my question's around fiscal stimulus I know, it's tough to quantify but do you have a sense how much might.
You might have driven your sales growth versus 2019 in the first quarter.
Yes.
Certainly believed that had helped the business, but I wouldn't want to put a number on it.
The business was in good shape going into the stimulus we did get a nice lift when those check started hitting but the business has continued to be strong throughout the first quarter and going into the second quarter as well so.
Okay Alright.
We look at that slowdown implied in your guidance for the second quarter from the first quarter in terms of growth versus 2019 would you say that the biggest driver of that slowdown is stating fiscal stimulus benefits.
I wouldn't say that.
What would it be then if you could give us some recap.
So I would say that first versus 19, our I think our biggest concern is when people start traveling over the summer and their bookings.
Booking vacations and spending in restaurants or go into concerts and things like that whereas the share at olive garden is going to be on I think thats more of our concerns on the stimulus because there is actually some new stimulus coming beginning in July with the child tax credit centers, it's going to start to be distributed on a monthly basis.
Okay.
Okay.
So did you have another question or do we want to go on over the next question.
Next question Sir.
Our next question comes from Brian Mandell with.
Oppenheimer. Please go ahead.
Hi, Good morning, Mike do you want to add my congratulations on a great start the year.
We're getting towards the end so I'll.
I'm going to ask 1 just 1 question it's bit of a follow up with you.
We've talked about you mentioned the forthcoming more difficult comparison.
Telegraph on your guidance Youre smart growth conservatively, assuming a moderation sales strength through the back half of this year. So of course I have it.
As you think about this are you prepared to sort of say just left the business.
We are on against these comparisons as well or are there levers at your disposal that you could potentially pull to help Christian Christian can you talk to these comparisons.
Go ahead, sorry, I got it so yes, there is multiple levers we could pull if we wanted to and we will have to assess it I mean, what we've mentioned we're not we're not promotional right now could we pull that lever, yes, do we want to know.
No.
We're going to watch it we're really monitoring the business versus 2019 trends and and trying not to get caught up in the ups and downs of each of these quarters or do anything irrational as a result of.
On what might be uncomfortable for a short term so yes.
Yes, we have levers, but we are planning to continue with the business as it is.
Great and then maybe just 1 quick follow up my.
A bigger picture standpoint, but clearly the business performed extraordinary well here as the economies reopening are you seeing indications that through the Covid crisis. There was some compared to some competitor fallout within the sporting goods category youre potentially making it.
Use your competitive backdrop with Dick's now.
Yes, I mean theres been obviously.
Some other channels non sporting goods, some competitors have gone out of business and some of the department stores have stopped selling some product, but generally speaking nowhere.
We are the leader in the sporting goods category and remain that way.
So I appreciate congrats again, thank you.
This concludes our question and answer session I would like to turn the conference back over to Lauren Hobart, President and CEO for any closing remarks.
Okay. Thanks, everybody for joining our Q1 call and we will see you next quarter have a great spring.
The conference has now concluded. Thank you for attending today's presentation you may now.