Dicks 1Q16 Earnings Call Notes

DICK’s Sporting Goods’ (DKS) CEO Ed Stack on Q1 2016 Results

The sporting goods landscape is consolidating

“There is lot of activity in the sporting goods landscape right now. The long-awaited consolidation is taking place. Over the past several months, City Sports in Boston is liquidated, Sport Chalet has announced the closing of all of their stores, the Sports Authority is in the midst of liquidating and closing their 400 plus stores and others are evaluating strategic alternatives. Although it’s a mess, it’s a great opportunity for DICK’s Sporting Goods.”

The environment will put pressure on our business but then we’ll pick up market share

“This environment will likely put short-term pressure on our business. There are over 200 stores within five miles of a DICK’s store that are closing and liquidating and over 350 stores within 10 miles of DICK’s location. Once this consolidation works its way through the system, we’re poised to pick-up significant market share.”

The liquidation is short term pain

” we are not going to go chase the mark-down dollars with Sports Authority. So when they’re running x amount of product at 25%, 30%, 40% off, it’s going to be, we’re not going to go chase that. We don’t think that’s the right thing for our brand to do long-term. And we’re really looking at this as some short-term pain, which we’re willing to endure for the long-term benefit of our company and our shareholders.”

TSA will liquidate possibly into the back to school season

“we think that TSA from where we stand, they will liquidate through June, July and August, it may go longer, we don’t know. But even if it goes into August, that goes into an important part of the back-to-school selling season in the third quarter. And we feel that there will be business that will be moved from the third quarter, fourth quarter into these other quarters and people will do some buying upfront.”

Opportunities could come back in the beginning of ’17. The market could get tired of promotions. They’re liquidating 20m sqft of sporting goods

“And we’re just, we just think that there is a possibility that the market could just be tired by the time we get into the, towards the end of the year. And we really feel that there will be an upside to the beginning in ‘17, there may be some upside at the back half of the year which we talked about on the previous quarter call. But we do think that the market could be a little weary of sporting goods promotions as TSA and Sport Chalet liquidate 20 million square feet of sporting goods, that’s a lot.”

$400m of merchandise at cost translates into significantly more at retail

” if you think about this, that’s $400 million at cost, not at retail. So, it’s a much bigger number at retail. And I’m sure you know, as they go through these liquidations, the liquidators have the opportunity to augment that inventory with buys or things that they have from previous liquidations. So, I think it’s pretty significant. And it is $400 million at cost, whatever that number translates to at retail in a very short period of time.”

I think the industry has definitely been over-stored

“I think there is, a number of things. I think the industry has definitely been over-stored. We’re making some big strides with this right now with over 20 million square feet coming out of the marketplace. I think that some of these other companies didn’t have the relationships with the vendors that we do. When you walk into the stores you can see that with the investment that we’ve made in conjunction with Nike and Under Armour and TNF. So, that was a big part of this.”

You can’t fix bad real estate

“The one thing that we’ve always talked about here is you can’t fix bad real-estate. And we’re very, disciplined and we think a lot of this market share is going to come to us. So our business with Under Armour, we expect to go up, our business with Nike, we expect to go up, the same with North Face, Adidas Taylor Made. We expect to increase our business with these guys. And we will not take bad real estate we will not take real-estate at economics that don’t fit our model because you live with that for 10 years, you can’t fix bad real estate. You can make a bad buy from a merchandizing standpoint and you can market down and you can do whatever you need to do with it to get it out of the system. Bad real estate, you got it for 10 years.”

There will be more consolidation

“I think there will be more consolidation. Do we see weaknesses in some of these other competitors? Sure. I don’t think it would be appropriate for me to call it out here. But yes, I think there is. And I think there will be more consolidation going forward.”

We do believe that a balance between stores and e-commerce is the right balance, but trying to figure out what it is

“We really do believe that a balance between stores and e-commerce is the right balance, where that balance is. We’re like everybody else in this industry, trying to figure out where that is. But that’s why we’re going slowly, that’s why we’re very, disciplined from a real-estate standpoint.”