Q4 2021 DICK'S Sporting Goods Inc Earnings Call
Interval on our Investor Relations website.
Second also beginning in Q1, we will adopt new new rules that will impact the accounting of our convertible senior notes due 2025.
Resulting in lower interest expense and higher diluted shares on a GAAP basis.
We do not expect the net effect of these changes to materially impact our GAAP earnings per diluted share.
Given our intent to settle the principal in cash.
And the shares that will.
Be delivered by our bond hedge settlements, we do not expect the notes to have a dilutive effect that settlement.
Accordingly, we believe that reflecting the notes is that more closely reflects the underlying economics of the transaction, which is included in our non-GAAP outlook.
For additional details on this you can refer to our press release that we issued this morning.
Next I want to highlight a new investor presentation that was posted to our Investor Relations website earlier today the.
The intent of this presentation is to serve as a resource to provide current and prospective investors an overview of our company strategy and competitive differentiation.
And lastly for your future scheduling purposes, we are tentatively planning to publish our first quarter 2022 earnings results before the market opens on May 25, 2022, with our subsequent earnings call at 10 am Eastern time.
And with that I will now turn the call over to Ed.
Thanks, Nate good morning, everyone.
We had an exceptionally strong 2021 and delivered record sales and earnings.
Our consolidated same store sales increased 26, 5%.
Which was on top of a nine nine.
<unk>, 9% increase from the prior year.
And three 7% increase in 2019.
Our non-GAAP earnings per diluted share of <unk> $15 70.
<unk> represented a 157% increase over last year, and a 325% increase over 2019.
Our current success is the result of a deliberate multiyear transformational journey.
That is driving sustainable sales and profitability growth.
With an athlete first approach we have built significant competitive advantages across our merchandise assortment brand relationships service model.
In store digital and digital commerce experiences.
We have also invested in our technology capabilities, including data science personalization to advance our omnichannel growth strategy.
Virtually nothing about our business is the same as it was five years ago.
As expected 2021 has been the most transformational year in our company's history.
Among our accomplishments we drove strong growth in our core <unk> business.
Launched <unk> houses sport, a completely new experiential destination, that's redefining sports retail.
We re engineered golf Galaxy and launched the golf Galaxy performance Center.
New immersive experience for Gulf enthusiasm of all levels and finally, we unveiled public clans.
Omnichannel specialty concept to better serve the outdoor athlete.
We are the clear market leader in a fragmented $120 billion industry with strong secular growth trends are.
Our strategies are working.
And we've set our business on a new trajectory for growth.
We will continue to take market share and extend our lead.
We have the best overall management team we've ever had.
And are entering 2022 stronger than ever.
Looking ahead I couldnt be more excited about the future of our business.
Before concluding I'd like to thank all of our teammates for their hard work and unwavering dedication to our business.
I'll now turn the call over to Laura.
Thank you Ed and good morning, everyone.
I want to Echo Ed Thanks to our team for their incredible passion hard work and dedication to our athletes into our business.
<unk> is our people who make us great and none of what has been accomplished this past year would have been possible without our exceptional team.
Now onto our results.
In Q4, we delivered the largest sales quarter in our company's history.
Our record quarterly sales of 335 billion were driven by a consolidated same store sales increase of nearly 6%.
Which was on top of a 19, 3% increase in the same period last year and a five 3% increase in Q4 of 2019.
Our Q4 comps were supported by growth in key categories and increases in both average ticket and transactions as our diverse category and brand portfolio World class Omnichannel platform and strong execution helped us continue to meet robust consumer demand.
Our athlete count counts remained strong and we added another $2 3 million new athletes during the quarter for a total of approximately 8 million new athletes acquired this year.
Our highly differentiated product assortment combined with our granular and disciplined promotion management is enabling us to drive significantly higher merch margin rates.
During the quarter, there were no major store or site wide promotions and we expanded our merchandise margin rate by 476 basis points versus 2020, and by 848 basis points versus 2019.
Led by strong sales and merchandise margin, we achieved non-GAAP EBT margin of nearly 14%.
In total our fourth quarter non-GAAP earnings per diluted share of $3 64 represented a 50% increase over the same period last year and the 176% increase over Q4 of 2019.
As Ed indicated over the past five years, we've been on a transformational journey, that's driving sustainable growth in sales and profitability.
During this time, we meaningfully improved our merchandise assortment, including developing even stronger relationships with our key brand partners to drive greater access to highly differentiated product.
We implemented an enhanced service model and leaned into highly engaging in store experiences.
We focused on our culture and put our teammates athletes and communities at the center of everything we do.
Finally, we invested in technology data science, and our Omnichannel platform and significantly improved our digital marketing and personalization capabilities.
These transformational changes we are driving improved results well before the pandemic and further accelerated our performance over the past two years.
Yes.
<unk> is a growth company and with the recent completion of our $1 5 billion long term investment grade debt issuance, we have ample flexibility to pursue a robust growth agenda.
Entering 2022 with incredible momentum and confidence in our business.
Virtually our entire category portfolio has re baseline, we baseline meaningfully higher versus pre COVID-19 sales levels.
We've gained considerable market share in key categories.
And as the largest U S. Sporting goods retailer, we are well positioned to extend our lead and continue gaining share in a large growing and fragmented industry.
Importantly, our 2022 sales and earnings guidance establishes a new foundation upon which we will build in the years ahead.
Now deep will address our outlook in greater detail within his remarks.
Our focus in 2022 is on enhancing our existing strategies to continue to accelerate our core business and enable long term profitable growth.
First our stores will continue to be the hub of our industry, leading omnichannel experiencing experience serving both our in store athletes and providing over 800 forward points of distribution for digital fulfillment.
During 2021, our stores Comped up 42%, including a 14% increase in Q4.
They enabled over 90% of our total sales and fulfilled approximately 70% of our online flying sales through either ship from store in store pickup our curbside.
In 2022, we will continue to enhance our service model and provide opportunity to try product through experiential elements such as our premium full service footwear decks are hit tracks batting cages soccer shops and golf simulators.
We will also continue to invest in technology to enhance our store fulfillment and in store pickup capabilities and drive profitability of our ecommerce business.
Beyond our stores, we will also continue to improve our digital experience by adding more personalization and making it even easier for athletes to find the best product for them.
Backed by our investments in service data science, and our scorecard program. We will continue to serve our athletes whenever wherever and however, they want instilling confidence in our purchase and inspiring their loyalty.
Next within merchandising.
Our relationships with key brands are stronger than ever and we will build on our momentum and drive growth in important categories, including athletic apparel footwear team sports and golf.
We are rooted in sport and our ability to showcase an entire brand portfolio across our national store footprint and online is highly valued by our strategic partners.
In 2021, we announced a groundbreaking new partnership with Nike to create an unmatched experience for our connected athletes.
We've been encouraged by the athlete response and look forward to continually working with Nike to anticipate and fulfill the evolving needs of the athletes we serve.
Looking ahead, we will continue to make big bets with all of our Big brand partners to deliver an unparalleled athlete experience across our physical and digital properties.
At the same time, we will leverage athlete feedback and insights to drive vertical brand growth in new segments and categories.
As we've discussed on previous calls our vertical brands have become a significant source of strength and growth.
During 2021, our vertical brands eclipsed $1 $7 billion in sales and together represented our largest brands and golf team sports fitness and outdoor equipment.
Finally, we remain very pleased by the early results of our new concepts and experiences, including Dick's House of Sport Golf Galaxy performance Center and public lands.
We're excited to continue to refine and grow these concepts whirlpool and key learnings into our core business.
In closing I want to reiterate reiterate that our record performance in 2021 was the result of our deliberate investments our emphasis on analyzing understanding and meeting the evolving needs of our athletes and the tremendous execution from our team.
We are very confident about the ongoing long term growth potential of our business and believe that no. One is better positioned to lead in the marketplace.
I'll now turn the call over to an update to review our financial results and outlook in more detail.
Thank you Lorne and good morning, everyone.
Let's begin with a brief review of our full year 2021 results.
Consolidated sales increased 28, 3% to $12 two 9 billion.
As Ed noted consolidated same store sales increased a record setting 26, 5%.
This was on top of a nine 9% increase last year and a three 7% increase in 2019.
As a percentage of net sales our online business has grown from 16% in 2019% to 21% in the current year.
Gross profit portfolio was $4 71 billion or $38 three 3% of net sales and improved 650 basis points from last year.
This improvement was driven by merchandise margin rate expansion of 470 basis points and leverage on fixed occupancy cost of 223 basis points.
We also saw lower shipping expense as a percentage of sales.
This was due to sustained strength in our brick and mortar sales and higher brick and mortar sales penetration following last year's temporary store closures.
These items were partially offset by higher freight costs, resulting from global supply chain disruptions and our prioritization of inventory availability.
SG&A expenses were $2, six 6 billion or 21, 67% of net sales and leveraged 231 basis points from last year, primarily due to the significant sales increase.
SG&A dollars increased $366 million, primarily due to current year cost increases to support the growth in sales.
As well as last year's operating expenses reduction following our temporary store closures.
In the prior year SG&A included $152 million of Covid related compensation and safety costs. However, in the current year, we transitioned our hourly teammates to compensation program with a longer term focus, including increasing and accelerating annual merit and higher hourly wages.
Partially reinvesting last year's corporate related costs.
Driven by our strong sales and merchandise margin rate expansion non-GAAP EBT was $2.0 billion to $3 billion.
Our $16 four 7% of net sales and increased 1% to $9 billion or 882 basis points from the same period last year.
In total non-GAAP earnings per diluted share was $15 70.
This compares to a non-GAAP earnings per diluted share of $6 12 last year, a 157% year over year increase in our non-GAAP earnings per diluted share of $3 69 in 2019.
325% increase.
Now moving to our Q4 results. We are pleased to report a consolidated sales increase of seven 3% to $3 35 billion.
As Lauren said this was the largest sales quarter in our history.
Consolidated same store sales increased five 9% on top of a 19, 3% increase in the same period last year and a five 3% increase in Q4 of 2019.
Our strong comps were driven by growth in team sports.
Apparel and footwear as well as a four 8% increase in average ticket and a one 1% increase in transactions.
When compared to 2019 consolidated sales.
Increased 28, 5% driven by balanced growth across our three primary categories outlines apparel and footwear.
Our brick and mortar stores comped up approximately 14% versus 2020 and delivered a 24% sales increase when compared to 2019 with roughly the same square footage.
As expected our e-commerce sales decreased 11% versus last year, which was on top of a 57% increase in Q4 of 2020.
This reflects our deliberate decision to minimize sitewide promotion to better manage our inventory throughout the quarter.
Compared to 2019 and e-commerce sales increased 39%.
And as a percentage of net sales our online business has grown from 25% in 2019% to 27% in current quarter.
E Commerce penetration was 32% last year.
Moving to gross profit.
Gross profit in the fourth quarter was $1 6 billion or 30, 758% of net sales and improved 391 basis points compared to last year.
This improvement was driven by merchandise margin rate expansion of 476 basis points, primarily due to fewer promotions. The result of our increasingly differentiated assortment and disciplined promotional strategies.
In addition, certain categories in the marketplace continued to be supply constrained, which resulted in a reduced promotional environment.
We also saw a favorable sales mix.
As expected these improvements were partially offset by higher freight costs, resulting from global supply chain disruptions and our prioritization of inventory availability.
Compared to 2019 on a non-GAAP basis gross profit as a percentage of net sales improved 898 basis points.
This improvement was driven by merchandize margin rate expansion of 848 basis points due to product promotions and favorable sales mix as well as leverage on fixed occupancy costs, partially offset by higher freight costs.
SG&A expenses were $783 6 million or 20, 338% of net sales.
And leveraged 97 basis points compared to last year, primarily due to increase in sales.
SG&A dollars increased $22 million, primarily due to current year cost increases to support the growth in sales.
In the prior year quarter, SG&A included $47 million of Covid related compensation and safety costs as well as $30 million donation, we made to Dick's Foundation to help Jumpstart youth sports program struggling to make come back in the pandemic.
Most of which was in Q4.
As I mentioned previously in the current year, we transitioned our hourly teammates to compensation programs with a longer term focus partially investing last year's COVID-19 related costs.
Compared to 2019 on a non-GAAP basis SG&A expense as a percentage of net sales Deleveraged 45 basis points, primarily due to the increase in store payroll and operating expenses to support the increase in sales as well as hourly wage rate investments and higher advertising to support our new concepts.
Driven by our strong sales and merchandise margin rate expansion non-GAAP EBT was $468 4 million or 13, 97% of net sales an increase of approximately $170 million or 442 basis points from the same period last year.
Compared to 2019, non-GAAP EBT increased $319 8 million, an 827 basis points as a percentage of net sales.
In total we delivered non-GAAP earnings per diluted share of $3 64.
This compares to non-GAAP earnings per diluted share of $2 43 last year, a 50% increase on a year over year basis, and a non-GAAP earnings per diluted share of $1 32 in 2019, a 176% increase.
On a GAAP basis, our earnings per diluted shares were $3 16.
This included $8 1 million in noncash interest expense as well as $12 6 million additional diluted shares that are designed to be offset by our bond hedge at settlement, but are required in the GAAP diluted share calculation both related to our convertible notes we issued in Q1 2020.
For additional details on this you can refer to the non-GAAP reconciliation table of our press release that we issued this morning.
Now looking to our balance sheet.
In January we were very pleased to complete our inaugural long term investment grade debt transaction.
Raising $1 5 billion of cash through the issuance of our senior unsecured notes.
As a result, we have further strengthened our financial position, providing us the flexibility to continue investing in our business as well as repay the 575 million of convertible senior notes.
We ended Q4 with approximately $2 six 4 billion of cash and cash equivalents and no borrowings on our new $1 6 billion unsecured credit facility.
Our quarter ended inventory.
Inventory levels increased 17, 6% compared to Q4 of last year.
Looking ahead, we continue to aggressively chase product to meet demand and prioritize inventory availability over cost as part of this we expect elevated freight expenses to continue and have included the impact of this within our 2022 outlook.
Turning to our fourth quarter capital allocation.
Net capital expenditures were $64 $7 million, and we paid $35 $7 million in quarterly dividends.
During the quarter, we also repurchased approximately six 8 million shares of our stock for $750 million.
And average price of $110 72.
We have approximately $1 85 billion remaining under our new $2 billion share repurchase program.
For the year, we have returned approximately $1 8 billion to shareholders through the share repurchases and dividends.
Now, let me move to our fiscal 2022 outlook for sales and earnings.
Coming off two consecutive record years in 2020, and 2021, our 2022 expectations provide a new foundation upon which we will build in the years ahead.
As Ed said.
Our strategies are working and they have set us on a new trajectory.
Let us point of view the details of 2022 sales and earnings and capital allocation in detail.
Consolidated same stores.
Validate the same store sales are expected to be in the range of negative 4% to flat with quarterly comps expected to improve sequentially throughout the year.
This is on top of a 26, 5% comp sales increase in 2021, and a nine 9% increase in 2020 on as reported basis.
EBITDA is expected to be in the range of $1 43 billion and $1 6 billion. This includes approximately $55 million of pre tax interest expense associated with our new $1 5 billion long term debt.
At the midpoint EBIT margin is expected to be approximately 12, 5%.
Within this gross margin is expected to decline approximately 250 basis points at the midpoint. This assumes some normalization of promotional landscape higher freight expenses and modest deleverage on fixed expenses.
SG&A expense is expected to deleverage primarily due to hourly wage rate investments as well as investments in advertising talent and technology to fund our growth strategies.
In total.
We anticipate non-GAAP earnings per diluted share could be in the range of $11 72.
With $13.10.
Our earnings guidance is based on 94 million average diluted shares outstanding and an effective tax rate of approximately 23%.
Our capital allocation plan includes net capital expenditure of 340 million to $365 million, which will be concentrated in improvements in our existing stores ongoing investments in technology as well as new store growth.
In terms of returning capital to shareholders.
Today, we announced an increase in our quarterly dividend of 11% to 48, and three quarters <unk> <unk> per share of $1 95 on an annualized basis.
In addition, our plan includes a minimum of $200 million of share repurchases. The effect of which is included in our EPS guidance.
However, we will consider using our expected strong free cash flow to opportunistically repurchase shares beyond the $200 million.
Before concluding I'd like to take a moment to highlight an upcoming change in our disclosures.
Beginning in Q1, 2022, we will be moving away from providing e-commerce sales growth and penetration metrics.
Our athletes are increasingly shopping across multiple channels on the same transaction and it no longer makes sense to try and attribute our sales to a specific channel.
And with EBT margins being similar regardless of an online versus in person transaction the differences, even less relevant from a modeling perspective.
We believe the single view of the consumer and of our business best represents our Omnichannel approach with centers around serving our athletes.
Never wherever and however, they want to shop.
As you know, we previously announced our intent to make this shift in 2020, but delayed as a result of COVID-19 and related temporary store closures.
We will continue to provide consolidated same store sales results with an updated method as Nate described in his introduction.
In closing we are extremely pleased with our 2021 results. We are now looking forward to continuing this success in 2022 and over the longer term.
Yes.
This concludes our prepared comments. Thank you for your interest index Sporting goods. Operator, you may now open the line for questions.
Thank you.
I would like to ask a question. Please press star followed by one on your telephone keypad now if you change your mind. It is star followed by <unk>.
Our first question comes from Scott Goldman of Morgan Stanley . Your line is open. Please go ahead.
Hi, everyone. Good morning, My first question is on.
The new margin base for the company you talked about as being a foundation.
One of the assumptions it sounds like in 'twenty, two is some normalization of promotions or markdowns.
I guess, what if it's more than so.
What are the puts and takes of gross margin are you expecting supply chain eventually to go away and that's why we should feel confident in this new normal for gross margin. Thank you.
I'll take that hi, Simeon Thank you for the question.
From a margin standpoint, we do believe that the vast majority of our merch margin improvements over time are sustainable we.
We do expect some normalization of promotions, but what's really driving that is a complete change in our merchandising assortment such that we now have products that are highly differentiated and not really subject SaaS promotional environment.
And so what if it's more than than we think.
We'll be managing our pricing and our promotions as we do looking everyday at what the right prices to our customers and for our business and we expect to be able to drive significant continued.
Margin gains versus where we were pre pandemic.
And then maybe just a direct follow up is there something around the initial markup is there something around how youre using the circular.
Sure.
You could basically feel confident that you're at this permanently higher level like what is the bottom up reason why we should be confident that we've reached this new normal.
Yes, I mean, I think it's a few key things first of all as I mentioned it is a differentiated product assortment that is not a subject because some of the products are more high heat and desirable products. They are not a subject to a promotional environment, but at the same time. We also have evolved our marketing mix from what used to be a fully print based.
<unk>, where we would have to make decisions on.
Pricing and promotion many weeks before understanding what the market was going to be like to a much more digital and flexible environment now and we also have stepped away from the business of being promotional had a total sitewide storewide level, because we can now be much more personalized and granular in terms of our offers.
With the director customer.
Direct customer messaging. So we absolutely feel there are structural things in our gross margin that are going to set us up to permanently retain this higher level.
Yes.
Okay I'll turn it over thanks, congratulations good luck.
The next question comes from Adrian <unk> of Barclays. Your line is open. Please go ahead.
Good morning, and congrats on another commendable finish to the year.
As to the team.
Lauren My first question is for you is on the Nike partnership with Nike.
As a percent.
I guess Cogs or however, you want to do it.
For 2021.
Can you give us more detail on the partnership.
Kind of as a key distributor and their quote unquote marketplace of the future or is there any additional advertising demand creation budget well the stores look any different any.
Details on that rollout, especially in light of what we've heard from other partners and then Keith.
For you two quick ones. What is your 2022 outlook anticipate in terms of number one the impact on the supply chain of higher oil prices and number two the impact on your target market.
Terms of demand forecasting thank you very much.
Thanks Adrian.
So starting off with the Nike partnership our relationship with Nike is is at an all time high and I would say, it's become incredibly strategic and that we are reinventing together, what the customer experiences we started that over the past several years and most recently with our connect with our connected membership program.
Where consumers can opt in to both <unk> and Nike membership and that unlocks tremendous amount of access to product for them experiences and content and <unk>.
So I do believe we will continue to innovate with Nike spending.
Co marketing as we have and really reinvent the consumer experience I would say that that's true of all of our strategic partners. We have we have many strategic partners. If you look at our co creation model with Adidas and under armour and tremendous strategic partnerships with Callaway and tailor made.
To answer your specific question about Nike and what percentage of sales. They were for this past year. They were 17% of our of our mix.
Yes, good morning, Adrian Thanks for your question I think so maybe I'll answer both questions together when we created our budget on the geopolitical situations are not what they are right now and so we'll continue to watch.
These situations evolve in terms of the demand I'll start with that and then I'll come to the oil prices, we feel strongly about the demand we have seen a sustained level of demand both.
Even in Q4 and all through 2021, when we look at the macro changes we are seeing that those are still very lasting the lifestyle changes that our athletes have made in terms of focus on the health and fitness the greater participation in the outdoor activities as well as casually ration of the workplace that trend has continued to remain elevated.
And what I, what Lauren called out the brand partnerships that we have the allocations that we are getting as well as the the capabilities that we've built internally to be able to do to kind of capture the demand gives us a lot of confidence.
And then on the in terms of the oil prices, we looked at the when we created the budget as you can imagine that was at the beginning of this year we.
We use the market prices as part of our budget expectation and we'll closely monitor the situation as the year evolves in terms of our financial expectations, but we are very optimistic in the guidance that we have given based on the time and place when the budgets are created.
Great. Thank you very much that the black.
Thank you. Thank you.
The next question comes from Paul <unk> of Citi. Your line is open. Please go ahead.
Hey, guys.
So a little bit more about how you are thinking about comp performance in the first half versus second half I think you mentioned sequential improvement each quarter.
We can provide in terms of color around what.
How you guys are planning.
Typically in the March April period, as you anniversary scandalous.
And then just secondly, just curious about category performance in 'twenty, one versus 19, which categories most or all of your 2019 levels and how you're thinking about growth by quarter in 2022.
Let me take the first Natalie can answer the second combined Paul This is <unk> I'll take the first question.
Like I called out in our guidance, we are expecting the comps to sequentially improve I think that the one of the factors you called out which is the stimulus impact the stimulus impact I would say it was was it was much more in March through the May timeframe and so as we as we kind of lap that in Q1 that expectation has been included in our guidance as.
Well as as we looked at the inventory position. We believe that will continue to improve we finished strongly at the end of Q4 of 2021.
However, we are continuing to build our inventory as we go into the into the peak selling season here. So we believe that the inventory position as well as the lapping of the stimulus money from last year is what we have called out that we expect our comps to sequentially improve as we move through the year.
And regarding our category performance in 2021 versus 2019, I think it's really important to note that we have increased our sales in every single category over 20 meaningfully over 2019 with the exception of <unk>, which is a result of our long term strategy, but every single category has reached.
<unk> significantly higher we saw in 2021 incredible strength in what I would say is our core businesses. So team sports athletic apparel athletic footwear and golf I'll, even point out Boston. This past year had a record number of rounds played so.
So we have a lot of confidence in those categories and then in some of the current pandemic surging categories like fitness and bikes, while theres some right sizing going on they are significantly higher than they were in 2019.
Good luck.
Thank you.
The next question comes from Warren Cheng of Evercore. Your line is open. Please go ahead.
Hey, good morning. Good morning, Thanks, guys I just wanted to ask a follow up to <unk> question, and then I just wanted to make sure I'm hearing that correctly. It sounds like you expect some normalization in promotions. This year, but then on the flip side there is going to be elevated freight expense in your gross margin structure, that's potentially going to normalize the other direction. So on a net basis.
Am I hearing correctly that this the guidance you've given this down to 50, that's a rough proxy for kind of a new sustainable gross margin structure going forward.
Yeah. Juan this is nothing but I'll take those questions. So in terms of the freight expenses. What we have called out is that we expect the freight expenses to remain elevated even in 2022. So there is not much of a decline that we're expecting in freight expenses at least as of now we can see.
Not playing out in the marketplace the reduction in the in the gross margin that we have called out is primarily related to the normalization of the promotions environment.
And some deleverage as well on the fixed expenses that the midpoint of the comp guidance that we've given but why don't I do want to also mentioned that Pete mentioned in his opening remarks that we do think across the board. This is a new base from which we can grow in the future.
Our sales and our margin rates.
Okay right right Okay.
Okay that was that was kind of what I was getting at and then my second my follow up question I just wanted to ask about some of your brand partnerships. If we kind of look outside your biggest two or three can you just give us a little sense of how some of those those conversations are going are there smaller brands that you'd highlight as getting more material or in conversations youre, having now that you haven't had before in the past.
Our brand relationships are at an all time high we are having incredibly strategic discussions with every key brand partner, we have in key categories and Thats across athletic apparel athletic footwear team sports.
We are also working with new and emerging brands as we always have and continue to take bets on an emerging players but over across the board I would say some part of the reason for this elevated expectation that we have is our relationships with our brand partners are at an all time high we're getting better allocation and they are narrowing.
<unk> distribution and we are.
Working with them to reinvent the consumer experience.
Great. Thank you and good luck.
Thank you.
The next question comes from Kate Mcshane of Goldman Sachs. Your line is open. Please go ahead.
Hi, good morning, Thanks for taking our question.
A question also centered around the comp build for 2022 wondering if you could talk just a little bit about the big ticket assumptions.
Look versus what you've seen in 'twenty, one how inflation.
<unk> comes into play with your comp guide and then what kind of market share assumptions there and.
And then our second question and you mentioned you have much different assortment than you did five years ago, how much do you think.
The success of the Dicks sporting goods private label brand.
<unk> has been to changing of your assortment and your market share gains. Thank you.
Good morning, Kate This is Dave I'll take the first one in terms of the build for FY 'twenty. Two so maybe I'll begin a little bit with what we saw in Q4. So the vast majority of our Q4 comp was driven by ticket, but actually if you peel that a little bit further what you'll see is that.
There was a strong growth that we saw in transactions in our store and the ticket increase was actually driven by by our decision to be not promotional in the E com and in our stores. So as we look to 2022 and we will constantly continue to evaluate what is the right strategy of balancing kind of the needs are.
The athlete as well as what is the right decision from a marketplace perspective and in terms of you havent given this level of granularity, but I would say that we expect that the tickets will continue to be stronger as we look to 'twenty. Two however transactions will also remain strong as we are seeing a good experience and the traction with our brick and mortar business as <unk>.
All of E com.
Yeah from an assortment standpoint, our vertical brands remain very very strong for over one 7 billion, we're getting very strong growth out of our vertical brands and we continue to use those brands to fill in opportunities across our portfolio brands like DSG, which brings in an opening price point in Korea.
The female athletic female and then burst our new men's apparel brand all fill white space.
I am missing in our portfolio before.
Thank you.
The next question comes from Michael Baker of D. A Davidson. Your line is open. Please go ahead.
Hi, Thanks, I wanted to ask you about.
The new debt, you took and what that means for some for growth initiatives going going forward does it signal more aggressive growth higher Capex I know you gave guidance for next year, which is up a little bit but longer term.
Store count growth et cetera, So you could see.
Sort of talk to that thank you.
Yes, thanks, Michael So the new debt. We just raised we're very pleased we raised $1 5 billion investment grade debt, which just gives us an incredible amount of opportunity to invest in our business.
And Greg So first and foremost we are going to maintain what we would consider an appropriate cash balance and always make sure that we can weather any storm. We're also going to invest heavily in our business be that new store expansion real estate.
The in store experience as well as technology and then lastly of course, we will look to return excess cash flow to shareholders in various ways.
So in terms of our store count growth in our Capex store counts, we are expecting 11, new <expletive> stores.
This coming year actually 11, new stores period for Jackson, seven specialty and 11 remodel stores, including one helps us support and one cost out <unk> performance Center and our Capex will support all of the activities I mentioned before in store and real estate and technology.
Okay. Thanks, that's helpful. One more.
Sure.
If I could.
I don't know if you want to talk about the pace of business throughout the fourth quarter, you came in better than the pre announcement.
And in early January .
Does that imply that January was better than expectations, but what in particular was better than January and then can you talk about how January was planned versus November and December yes, we were very very pleased with our January performance.
As we did indicate what our forecast was in the early weeks of January .
What's happened what happened to drive those results even higher is that we had an improved inventory level versus our expectations just given our really strong promotional management throughout the earlier months in the quarter and then we also had a significant impact of cold weather that drove a lot of outerwear business in January . So we were very pleased overall.
We were pleased with January versus our forecast and also versus two years ago. It performed very very well.
Thank you I appreciate it.
Yes.
The next question comes from Chuck Grom with Gordon Haskett. Your line is open. Please go ahead.
Okay. Thanks, a lot good morning, and congrats on a really great year.
<unk>.
The long term.
And how youre thinking about the algo beyond 'twenty two as you build off the roughly $14 million per store that you're generating today and the.
12, 5% EBT margin that you forecasted for 2012.
Hey, Chuck this is an update.
I'll take that question first of all that we are very excited about the results that we have delivered over the last couple of years, but actually as I had called out the transformation journey. We've been on the last five years and what gives us the confidence as we look to the future are the things that like Lauren called out the changes and improvements at <unk>.
We have made are so foundational to our success over the last few years and that's what gives us confidence as we look to the future as well in terms of an EBT margin.
We have improved our sales over the if you just look at pre pandemic, our sales are up $3 billion.
Earnings even with the midpoint of guidance will be up over $1 billion from their doors. So we are really excited about the results and we feel like we can continue to create 22 is a new foundation and continue to grow our sales and profitability on a long term basis.
Okay very helpful. Thank you and then when you think about cost of sports on public lands.
You talked about Q earnings.
To introduce some of the core business I was wondering if you can maybe provide some examples of some of the recent learnings over the past couple of quarters and what you are applied to the existing store fleet.
Yes, <unk> is a fully experiential destination with a tremendous service model community involvement are.
Different fitting room experience in all of those things we are pulling back into the <unk>.
All of the Dick's stores, when we look at how we want to serve athletes and different experiences that we want to build into you'll see us continuing to grow things of an experiential nature in our stores. So increased soccer shops increased premium footwear decks, but already we've got hit tracks in many of our stores, but most importantly, I think the service model has become really allomap.
<unk> of how we want to serve athletes with.
With public lands, we have really were excited about the learnings that we're getting about the outdoor category and the consumer that we feel is underserved there. We've got brand partnerships that we're very excited about developing which can come back to <unk> and just a general focus on on the outdoor business and Dick's sporting goods.
Great. Thank you.
Okay.
The next question comes from Chris Harris of Jpmorgan. Your line is open. Please go ahead.
Thanks. Good morning. So my first question is have you tried to put a number on how much you thought that inventory constraints impacted fourth quarter comps in total and maybe.
Thoughts on how that could impact, perhaps the first quarter of 'twenty two.
And then I have a follow up.
So we haven't put a number on how much inventory constraints impacted Q4, but I will say for the last two years. There has been inventory challenges supply chain challenges constraints and what I think we've proven with the five 9% comp that we just delivered in Q4 is that despite some inventory constraints we have abroad.
Portfolio, we can offered some substitution when we don't have the exact product that people wanted and that we can manage really while we will expect to do that through any choppiness that's coming.
Through the through the next year.
Got it and then on the capital allocation.
Allocation question, you mentioned, maintaining a higher level of cash on the balance sheet, but.
At this point, you're sitting on gross cash that's more than 20% of your current market cap and you will probably generate another 10% and free cash flow. This year. So I guess to what extent is the $200 million share repurchase guide.
Conservative.
Versus maybe looking to opportunistically collapse that convert structure and if you were able to take the convert structure down how accretive Mike happy to EPS.
Yes.
Yes, so thats great.
Great question.
I don't think the Louisville dispute anything that you've that you called out, but I'd like to be called out in my prepared remarks, the $200 million is a minimum that we called out so as we look to this year, we will evaluate all available options to us whether too.
Due on incremental opportunistic share buyback as well as we'll definitely look into a convert as we've called out and you know that these these notes are callable next year and but still the majority is still further quite a ways away. So we'll continue to evaluate all opportunities available to us.
And at the same time, continuing to maintain an appropriate level of cash on the balance sheet because the uncertainties in the world and are behind us.
Got it thank you best of luck.
Thank you.
The next question comes from Beth Reed of curious Securities. Your line is open. Please go ahead.
Hi, Good morning could you frame for us how youre thinking about gross margin, maybe first half versus second half given it sounds like you don't expect straight to ease all that much even in the back half if I understood that comment correctly.
And then thus far have you seen anything in the environment indicate that perhaps others are starting to ratchet up the promos a bit thank you.
We do not we are not anticipating nor are we seeing right now any sort of an increase of any meaningful proportion in the promotional environment. When we've looked at the year in the second half we have planned for a little bit more of a promotional activity than what we're seeing now, but nothing like what we used to see.
And pre pandemic levels for all the reasons I said before about the differentiated assortment and the fact that we can be much more surgical with our pricing.
And based on your question on the freight.
I would say that the freight expenses will continue to remain volatile we did.
We did prioritize inventory availability over cost in fourth quarter, including afraid of some products. So we'll have to just continue to evaluate that situation and maybe maybe we may see some favorability as we go into the fourth quarter of this year and don't have to repeat those those processes, but that's still much farther away and we'll have to.
Continuing to evaluate.
Thank you.
The next question comes from Seth Basham of Wedbush. Your line is open. Please go ahead.
Thanks, a lot and good morning.
Implied gross margin guidance for 2020 to nearly 36% and it's up about 650 basis points since 2019, and and if Thats the new foundation on which to grow can you help us understand the key building blocks to bridge from 2019 to 2022 and in particular focus on how much you can do.
Driven by better allocations and good relationships with vendors where hygiene products.
So this is not maybe I'll take that question first of all.
We are very pleased with the results that we've delivered over the last several years.
And as Lauren called out vast majority of this margin increase that we have driven as structural.
And the big call out is if you look at the improvements that we have driven vast majority of that improvement in merchandise margin.
And we won't break this out but if you look at it the reason what gives us the confidence is because of the fact that most of this improvement is structural because differentiator and assortment more sophisticated promotion strategy and the other two things that we don't talk as much about but we have seen a huge improvement in our clearance and price optimization work is.
Well to the data and analytics and those are the things that gives us a lot of confidence that as well as the hunt penetration, which has gone down pretty substantially from where it was in 2019. So that's the reason we believe these are structural and will be able to continue to have these benefits going forward. What we did call out an RF by 'twenty two guidance.
Is that we expect some of this some give back to happen.
The promotion as well as the leverage on the fixed expenses.
Got it.
Specifically as it relates to highly product allocation.
Would you care to quantify or say, how big a driver that could end up being improved structural gross margin that you see going forward.
We're not we're not going to quantify it.
We'll go back to what we said over the last five years, our entire portfolio of products has changed and been elevated and that that's all accesses hiking product, which we continue to be very pleased with our allocation.
But also just highly desirable and coveted products.
That is across our footwear and apparel and other categories of our stores. So.
We're very we're very much looking forward to that continuing to help us drive gross margin.
Understood. Thank you very much.
Okay.
The next question comes from Michael <unk> of UBS. Your line is open. Please go ahead.
Good morning, Thanks, a lot for taking my question.
The debate on the stock is not really about what's going to happen to Dick's sporting goods. This year, it's really more about what's going to happen next year in 2023 and beyond.
Youre starting to see some give back of the categories that have done really well during the pandemic and.
An experienced in order demand and maybe that even extend the footwear and apparel given that consumer has been at home and <unk>.
With you there.
Wardrobe to more casual wear while it wouldn't still be down again in 2020.
As we return to normalcy.
Michael Yes.
And we definitely see future significant share gains available to us and all of the key categories. I mean, evidenced by the Q4, we had some pandemic reset of some of those categories like like fitness as I mentioned before but our core categories of athletic apparel Athletic footwear team sports and golf.
We expect to continue to grow due to the assortments due to our strategic partnerships and due to the fact that we are a clear market leader now in 120 billion dollar.
Marketplace that only has opportunity to grow so.
This is a new base for us we believe on the topline and bottom line, we're going to we're going to continue to grow and we're excited for the future.
And then my follow up question is you mentioned you expect some promotion.
To return in the second half of this year have you assumed that you'll get back to site wide storewide promotions as part of that expectation.
That is not outlook, we're moving more toward personalized.
Optimize promotional activity and pricing.
Can't see the future, but that's not on my immediate radar screen right now that we would go back to that.
Thank you very much you can look.
The next question comes from John Kernan of Cowen. Your line is open. Please go ahead.
Excellent good morning, Thanks for taking my question.
Just curious on your view of the levels of in transit inventory out there a lot of the vendors.
Our stock right now.
A lot of in transit inventory.
It's recorded on the balance sheet I'm, just curious how you envision product flows and inventory dynamics changing as we get into the back half of the year.
John This is <unk>.
Yes, I think as of this week.
I would say even on the vertical Brian <unk> had product that was in transit and Theres a little bit of the manifestation of the shutdowns that happened overseas in Q3 and early part of Q4.
And so we'll have to just continue to watch as we called out in our prepared comments.
We feel that the inventory positions will continue to improve as we go through 2022, and we feel that.
The current level of inventories at appropriate, but we'll have to continue to evaluate the situation and the marketplace as it plays out but we're very optimistic about the guidance that we have given as well as the inventory levels and building throughout the year.
Got it.
Maybe just a follow up on wages and SG&A rates in dollars as we go through this year and into next.
Are you on the wage cycle some of your.
Big box peers have been increasing wages pretty systemically, just curious to hear anything about stores and Dcs, where we are in terms of labor costs and labor inflation in the model.
Yes.
First of all I would call. It that we don't look at the wage minimums as the defining criteria. We look much more as to what is the appropriate age we have to pay both in the distribution center in our stores by market to attract the right level of talent and so it's much more of finding the right talent that can provide the right level of experience to our athlete.
But it is definitely elevated than lot of a lot of other retailers that are in the marketplace.
The other thing that I'll call out is we have become an employer of choice.
We saw this even in third and fourth quarter, where a lot of other retailers were having challenges in staffing in our stores we were very fortunate.
The morale of the engagement and the commodity that exist in our stores.
It's phenomenal and Thats been one of the core strength in terms of us continuing to deliver strong results in Q4 as well as in 2021, and we look forward to continuing to maintain that.
Got it thank you.
The final question comes from Sam Poser of Williams trading. Your line is open. Please go ahead.
Thank you.
For taking my questions I have three I'm, just going to do a real quick the Nike dropping numerous accounts over the last year. How do you view that is helping your share gain number to your inventory your inventory.
Like who.
4% versus.
19.
Apart from last year.
What is the optimum inventory how much are you missing right now based on what you think the last quite followed yet.
Able to ask on E. Commerce is your ecommerce business is up 80% from pre Covid levels are we looking at sort of a re basing of this business in that $2.6 billion range and when you think about next year and going forward.
How much of that future of the growth that you anticipate will be driven from your ecommerce business. Given this will be the last time I asked that question.
Yeah.
Hi, Sam Alright, I will take your house in order I hope.
So starting with Nike and their strategy toward.
More differentiated retail and the fact that they are narrowing distribution.
It is certainly something.
A focus on us as a key strategic partner and we reinvent the consumer experience together.
Certainly helps some share gains from an inventory level I think you raised a really good point.
Are we.
We are turning our inventory very very quickly just due to supply our supply chain challenges and inventory challenges and we do hope as we go forward that we will continue to build inventory. This year. So that we can be even more in stock than we are now with E. Commerce, we absolutely expect e-commerce to continue to grow. So you mentioned the base right now.
$2 6 billion and we do think that we should be able to continue to grow that but as we said before in our prepared remarks, the E comm versus store.
Segmentation is a little bit arbitrary and that there are so many people who are who are touching multiple channels in any given purchase but we're very pleased with our omnichannel experience and driving that business.
So let me just one last follow up on the inventory.
Like like what would be up to them right now.
Assuming that's the right product what would be the level that would be optimum at the moment.
With your inventory around like 2.7.
$7 billion at that point yet.
$2 $7 billion range.
Way to think about it.
Yes, Sam this is now maybe I would say yes.
I will put an exact number to what we will say that the inventory has definitely not kept pace with the overall sales growth in 2019, and and we will continue to build our inventory.
Positioned as we go through go through this year, the big areas that I would call out would be.
<unk>.
Building up the inventory in athletic footwear apparel, and we feel strong about the.
The in stocks today, but we feel there is definite opportunities then we'll look to build as we go into the future.
Okay, Thanks, and one last one im sorry the.
How do you put the asphalt from your eyes getting big bigger than your stomach is when you are building for demand going forward given the success.
Understanding you're going to rebase, well above where we were pre COVID-19 , but.
How do you prevent yourself like getting the buyers to start buying too aggressively.
Sure.
And how do you use the learnings you've had to better.
Distantly buy and make sure you don't get out of your 12, which should certainly be happy.
<unk> bye.
Good line or not even by design over the last few years.
Yes, I would say this is one of our absolute core competencies when we look at how to buy and what demand is we certainly don't just look at last year, we look at multiple years of history and underlying trends and I think we've managed it really really well so far better than most in the marketplace. So we there is there is.
Very little risk of us getting too aggressive we are constantly monitoring our open to buy and our investments in chasing where appropriate and managing where we need to pull back.
Thanks, very much continued success. Thanks Pam.
Hey.
This concludes the Q&A portion of this call. So I will hand, it back to Lorne Haver, President and CEO for any closing remarks.
Thank you and thanks, all for your participation I just want to reiterate that ethics, we have been on a transformational journey for the past five years and there are several long term reasons for our business being as strong as it is which we know will continue into the future I want to thank our teammates for everything that they've done to.
Drive our results and thank you all for your interest in Dick's Sporting goods.
This concludes today's call. Thank you for joining you may now disconnect your lines.