Dicks 2Q17 Earnings Call Notes

Ed Stack – Chairman and CEO

Retail market is currently in flux

“The retail market is currently influx. The environment is highly competitive and dynamic. We continue to believe this disruption translates into opportunity for our business long-term. We like the position we occupy in the sporting goods marketplace. And as this industry continues to consolidate, we believe we will become stronger. Although, sales and earnings did not meet our original expectations, we still reported a significant increase in our bottom line from last year of approximately 17% increase over the same period last year.”

We tried not to be promotional. We didn’t want to be the price leaders.

“We tried to not be promotional. We didn’t want to be the price leaders in the industry. And as things got competitive and somewhat unpredictable, the consumer told us that they felt that we weren’t priced competitively in the marketplace. Part of it has come from the fact that if we have an expensive athletic shoe or a high-priced jacket, we’re not — we weren’t high-priced on that jacket or on that shoe, but it was a high-priced shoe or a high-priced jacket. And we think with the right price guarantee, they’ll feel comfortable that we are at the right price, and that we are competitively priced, but as we go forward with this, we need to make sure that we convince the customer that they should be comfortable shopping with us. And that’s the whole idea around the right price promise. And it’s gotten some — it’s gotten some traction, we’ve got a very positive response from it.”

Irrational pricing is going to be the new normal until the industry consolidates further

“That’s a really good question, and if — I don’t really know, I think that this whole mindset in what’s going on with the business that everybody resetting their business can get more rational. I think there is going to be continued consolidation in this industry. And as we know it’s — when the consolidation starts to happen, price is the first line of defense if you will or the last line of defense. So I think it’s going to continue on. As I said, I think that this pricing — how the market is being priced right now in the promotional opportunity, I think it’s going to be at least for the foreseeable future, it’s going to be the new normal until the industry consolidates further.”

“the definition of loyalty in the retail business for the consumer is the absence of the better alternative.”

“But the promotional aspects are across a number of categories. So there is a hunt category, the athletic apparel category. And with the increase distribution in the athletic apparel category, it’s become more promotional. We didn’t start the promotion, but we can’t sit around and pretend it doesn’t happen. We need to engage in that. And our customers have told us, you need to engage here in today’s marketplace, the higher price than I can find the product someplace else. And I’m a firm believer that the definition of loyalty in the retail business for the consumer is the absence of the better alternative. And we need to make sure that we provide the consumer the best alternative, and that’s what we are going to do. It’s going be a little expensive and it’s going to be a little painful for a short period of time, but it’s what we need to do long-term.”

It’s a perfect storm right now

“It’s a perfect storm right now, we’re not particularly happy that we’re in it but we think we are the one we are one of the few that are very well positioned to come up the other side very strong and continue to be the leaders in this industry and we think it’s there and we think it’ll be great on the back side but it’s going to be painful for a while and we’re fortunate that we’ve got the financial strength in the balance sheet to get through it all without having to raise additional capital.”

Real estate prices are coming down at all but true A mall locations

“we’ve talked about slowing down our store growth not because we’re not happy with our new store performance or new store performance has been very good. We slowed the store growth down because we think real estate prices a couple years from now are going to be less expensive than they are today. We’re starting to we’re seeing that as we renegotiate leases or relocate stores. The rents are coming down in all but the truth A mall so, if you take a look at the true A malls we actually think rents in those malls might actually go up we’re not in a ton of those, we think in and we’ve got long term option so it won’t affect us. But we actually think those rents may go up because they’re going to be in such high demand but some of the secondary locations and we’re destination shop so, we can take that kind of the B Mall location in the rents have continued to come down in those and we think they’re going to continue to come down. We’ve got 25% of our stores over the next three years that are up for renewal and the renewals there are options.”

Dicks Sporting Goods 4Q16 Earnings Call Notes

Ed Stack – Chairman & CEO

Great time to be patient for real estate

“We look at this going forward that now is absolutely the right time to be patient from a real estate standpoint, with all the real estate that’s going to come up on the market. Penney’s announcing stores that they’re closing, Macy’s announcing stores. Some other people that are rumored to be closing stores or — consolidation in this industry is not over. And this is a time that we’re going to be very patient going forward.”

The e-commerce business is probably more profitable than you think

“Still the — so what we expect is as we continue to grow the business that the shipping costs are going to become a bigger piece of the expense structure as the business becomes a bigger piece of the entire business. We’re looking at ways at how we might be able to slow those shipping costs and we’re working through those. But to kind of call out the profitability of e-commerce versus the profitability of the store, we’re not ready to do that. But I will tell you that the e-commerce business is probably more profitable than you think.”

Dick’s Sporting Goods 2Q16 Earnings Call Notes

Dick’s Sporting Goods (DKS) Edward Stack on Q2 2016 Results

Don’t expect to open all the locations that we have designation rights to

“So, as far as accelerating the store growth, we’ve got 30 – we’ve got designation rights on 31 stores. We don’t expect that we are going to open up all 31, we’ve already – there is a few that we know that we are not going to open up, because we couldn’t make the right deal and we’ve walked away from them. But I am not going to give you a lot of detail on that right now, so we are still kind of working through this, but it won’t be 31 stores that we open up. Our store growth next year will probably be a little bit higher than it was this year, because of the TSA stores, but we expect our growth to remain kind of in the same zone that it has been.”

Think that the tailwind of consolidation should last for a while

“– I would think the tailwind is going to last longer than that with these – because not only the fact that these competitors are gone, the fact that they will no longer be opening stores and including in some of our markets we think make – it will be positive also. So there is kind of a double-edged benefit if you will that they left some markets and then they are not going to be opening up in markets that improving on our market share. So we think this is going to last for a while.”

We’re going to go aggressively after market share

“We are not going to go on – I think you probably wouldn’t either if you were sitting in this side of the table, Sam. We are not going to go out and throw a number out there, but I can tell you, we are going to aggressively go after as much of the share as possible. We’ve gone down to the very granular level of where we think categories that we think we have a big opportunity to grab market share.”

Joseph Oliver

Comfortable with our inventory

“Total inventory increased 6.2% which is below our 7.9% sales growth for the quarter. We are very comfortable with our inventory levels and the quality of our merchandize as we transition into the fall selling season. As a reminder, our inventory still includes the winter pack-aways that we discussed with you as we exited 2015.”

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.”

Dicks Sporting Goods 3Q14 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

Weak comps because of golf and hunting

“Our consolidated same-store sales increased 1.1% at the lower end of our guidance of between 1% and 3% due to the continued pressure in golf and hunting.”

Golf comps down 9%

“As we look at our golf business, Golf Galaxy comped down 8.9% and our Dick’s golf business was down a similar magnitude.”

The golf business will probably bottom here soon

“I think the manufacturers have done a very good job of getting their inventory cleaned out; the new product offerings are a little bit more focused than they have been in the past. The conversations we have had about the next iteration of products or product launches after what’s happening this fall and early spring. There is not people rushing to get product out there to drive sales.

I think they’re going to take — everybody’s talked about that the business needs to shrink in order to be more profitable and I think that’s what’s going to happen. So I think the manufacturers are much more disciplined, the retailers are much more disciplined and I think the golf business is going to be an okay business. I don’t think it’s going to be a great business but it’s going to be an okay business and we’ll hit bottom here in the next quarter probably and we think that we’ll see increased profitability going into next year.”

Electronics category has been doing really well

“That whole electronics category around GoPro, the Fitbit, the wearables, we continue to be extremely enthusiastic about and have been performing quite well.'”

Dicks Sporting Goods 1Q14 Earnings Call Notes

A digest of some of the top insights that I’ve gathered from this week’s earnings calls.  Full notes can be found here.

Two issues affecting performance one temporary, one longer lasting

“There were two major issues that significantly affected our business in Q1 offsetting strong performance across many product categories. One issue we believe to be temporary, the other may be longer lasting.”

Hunting soft after big increases last several years because of concerns about legislation

“Our hunting business missed the first quarter plan by approximately $15 million, a comp down high teen to last year. We had anticipated this category to be below last year as did others in the space but we underestimated decline. We all knew the significant increase in sales during the past couple of years was temporary and driven by concerns about legislative action that would broadly change our gun laws.”

Golf was the real issue

“The more concerning and unpredictable issue is the golf business. We anticipate softness, but instead we saw significant decline… We don’t feel we found that bottom yet in the golf sales number. We now expect this trend to continue for the balance of the year”

Three issues with golf: too much inventory, products not resonating with consumers, decline in rounds played

“The issues in golf are threefold. First, there is glut of inventory in the market at both wholesale and retail as a result of lackluster sales over the past 15 months…The second issue is the core golfer doesn’t seem to understand or not yet fully embraced the new technology; our vendors have brought to market…the core golfer has not replaced his equipment and the more casual player is elected to buy closeout products at a lower price. Third, we are continued to be concerned about the structural issues of the decline in rounds played.”

Rest of the business doing pretty well outside of golf and hunting

“If we take out golf and hunt which we know we can’t, our first quarter comps would have been 6.6%”

Plan to aggressively manage inventory

“we plan to aggressively manage our higher than planned inventory level so that as we enter the back half of the year we are well positioned for the holiday season”

Golf industry has real issues

“A couple of the golf manufacturers have come out and talked about what is going on in their golf business. It hasn’t been good. Adidas announced that is tailor-made business was off 34% in the first quarter. That’s a big difference and tailor-made is to the golf business what a couple of the real big athletic guys are to the athletic business. TaylorMade is off 34% — the industry has a real issue.”

If we take out sqft of golf space, we have plenty we can replace it with

“even if we take a little bit of square feet out of the golf business, our average store has from a sales standpoint, maybe 4500 square feet of golf. You can take — even if you to 1000 square feet out of that, we’ve got categories that we would expand such as the women’s business, the youth business, the footwear business, the team sports business. So I don’t think these results in any meaningful reduction in our store size.”

Not going to hide behind weather

“we didn’t call out weather. We — based on the fact that we’ve got some real issues in this industry has some very big issues in the golf business per se, and what was going on in the hunt business, we didn’t — we didn’t want it to look like we were hiding behind the weather and in fact that we did do a very good job in the other categories of business kind of mitigated what that weather was. If the weather had been better with those other categories have been a little the better? It probably would’ve been but we are not — in this case here we are not sitting hiding behind weather. We are just step up and kind of let you know that our golf business is difficult right now and the reasons of what’s going on in hunting this is really golf hunt story.”

Golf is a product issue not a weather issue

“the biggest issue is around some of the new products not doing as well as we had thought. And AUR decline to 16% in drivers is not a weather issue.”

Inventory overstock drives big revenue decline even though unit decline not so severe

“we indicated that there is a glut of inventory which is a real and was significant and took a large 16% while units only down 2%. So if you take you’re a large down 16% and any significant business in the unit goes down 2% that’s a difficult business.”