Good morning, and welcome to the Dick's Sporting Goods Second Quarter Earnings Conference Call. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Nate Gilch, Senior Director of Investor Relations, please go ahead.
Good morning, everyone, and thank you for joining us to discuss our 2nd Quarter 2021 Results. On today's call will be Ed Stack, our Executive Chairman Lauren Hobart, our President and Chief Executive Officer Lee Belitsky, our Chief Financial Officer. A playback of today's call will be archived on our Investor Relations website located at investors. Dicks.com for As a reminder, we will be making forward looking statements, which are subject to various risks and uncertainties that could cause our actual results 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 ks 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 sales reporting practices. Our consolidated same store sales calculation includes stores that we temporarily closed last year as a result of COVID-nineteen. The method of calculating comp sales varies across the retail industry, including the treatment of temporary store closures because of COVID-nineteen.
Accordingly, our method of calculation might not be the same as other retailers. Max, as a reminder, due to the The nature of 2020, we plan 2021 off of the 2019 baseline. Accordingly, we will compare 2021 sales and earnings results against both 2019 2020. And lastly, for your future scheduling purposes, we We are tentatively planning to publish our Q3 2021 earnings results before the market opens on November 23, 2021 with
Extremely pleased to announce another quarter of record results as the strength of our diverse category portfolio, our omni channel offerings And our elevated athlete experience helped us continue to capitalize on strong consumer demand. We're in a great lane right now. I couldn't be more proud of our team and their unwavering dedication to our business. We said 2021 was going to be the most transformational year in our And so far, it certainly has been. The investments we've made in technology, infrastructure, space allocation And our team over the past 4 plus years are now paying off.
We'll continue to invest in our future And reimagine the athlete experience in our core business and with new concepts. As part of this, we've driven strong growth at Dick's And successfully launched Dick's House of Sport, a completely new experiential destination that's redefining sports retail. Our first public land store focused on the active outdoor category will open tomorrow and the reengineering of our Golf Galaxy business is performing As we look to the balance of the year and into 2022, we will remain focused on our core strategies And strategic growth drivers as we continue to elevate the athlete experience. We're confident and optimistic in the sales and earnings trajectory of our business. I'll now turn the call over to Lauren.
Thank you, Ed, and good morning, everyone. As we announced earlier this morning, in Q2, We delivered the strongest quarter in our company's history, achieving record quarterly sales and earnings, both exceeding our expectations significantly. Our Q2 consolidated same store sales increased 19.2% on top of a 20.7% Increase in the same period last year. Driven by strong sales and gross margin, we achieved an unprecedented non GAAP EBT margin of over 20 In total, our 2nd quarter non GAAP earnings per diluted share of $5.08 Represented a 58% increase over the same period last year and a 303% increase over Q2 2019. Today, we also announced several enhancements to our 2021 capital allocation plan.
First, we are very pleased to announce A special dividend of $5.50 per share. We also increased our quarterly dividend by 21% To $0.4375 per share or $1.75 on an annualized basis. And we doubled Our planned share repurchase to a minimum of $400,000,000 This additional cash return to our shareholders demonstrates the confidence we have in our business, The strength of our balance sheet and a commitment to efficiently deploy our cash. Now back to our results. Our strong Q2 comps were supported by double digit sales growth across each of our 3 primary categories, hardlines, apparel and footwear, as well as increases in both average ticket and transactions.
We are also seeing strong retention of the 8,500,000 new We acquired last year and we added 2,000,000 new athletes during this quarter. As we discussed previously, To increase engagement with our athletes, we are enhancing the experience across our entire omnichannel ecosystem. In our stores, we are dedicated to serving our athletes with new and elevated service standards. To enable this, We are investing in significant training, leveraging technology solutions and deploying new processes to heighten our We continue to make Dick's a great place to work As we know, a great teammate experience is critical to delivering a fantastic athlete experience. We are also making our stores more experiential.
During Q2, we converted approximately 25 Additional Dick's stores to premium full service footwear and we added 50 new elevated soccer shops. These strategies are working and continue Set us apart within the marketplace. During the quarter, our brick and mortar stores comped up nearly 40% versus last year And delivered a 36% sales increase when compared to 2019. Additionally, our first two Dick's House of Support Stores in Rochester, New York and Knoxville, Tennessee are off to a very strong start and have exceeded our expectations. The energy and enthusiasm with which athletes and communities have responded to these highly experiential concepts has been incredible.
Looking ahead, we will continue to refine and grow House of Sport, while rolling its most successful elements into our core Dick's stores. Importantly, our stores continue to be the hub of our industry leading omnichannel experience, serving both our in store athletes And providing over 800 forward points of distribution for digital fulfillment. During Q2, our stores enabled over 90% of our total sales and they fulfilled more than 70% of our online sales either through ship from store, in store pickup or curbside. Turning now to our robust e commerce business. During the quarter, we were pleased to deliver online sales growth of over 100% when compared to 2019.
As planned, this represented a 28% decline versus last year As we anniversaried a nearly 200 percent online sales increase in Q2 2020, which included a period of temporary store closures. Most importantly, we continue to drive significant improvement in the profitability of our e commerce channel By leveraging fixed costs, sustaining athlete adoption of in store pickup and curbside, as well as fewer and targeted promotions. In addition, we continue to improve our online shopping experience. This includes our strategy to lead with mobile, Which for the first half of twenty twenty one represented over 50% of our online sales, as well as faster delivery times Added enhanced shopping and checkout experience. Within merchandising, our strategic partnerships with Key national brands have never been stronger and as the largest sporting goods retailer in the country, these partners continue to provide us with exclusive And differentiated products in the marketplace.
At the same time, our highly profitable and growing vertical brand portfolio, Including DSG and CALIA continues to gain meaningful traction with our athletes and provide additional exclusivity within our assortment. During the Q2, our vertical brands posted double digit comps with merchandise margin rate expansion that outperformed the company average. We've also been quite pleased with the early performance of 1st, our new premium men's apparel brands. Our increasingly differentiated product assortment combined with our disciplined promotional strategy and cadence Is driving significantly higher merchandise margin rates. During the quarter, we expanded our merchandise margin rate by 3 2020 and 636 basis points versus 2019.
Next, the golf industry continues to grow and as the number one Premium golf retailer in the world, our golf business has been tremendous at both Zix and Golf Galaxy. We've leaned into our leadership position, particularly in Golf Galaxy, where we've rolled out industry leading TrackMan technology to enhance the fitting and lesson in over 80% of our stores. Based on the positive response we've seen, we will expand Trackman to all remaining stores during Q3. We've also invested in talent and elevated the in store service model to become trusted advisors for golf enthusiasts of all levels. Furthermore, we completely redesigned nearly 20 stores.
And this weekend, our 1st Golf Galaxy Performance Center, The next generation Golf Galaxy prototype will open outside of Boston. We were there with the store team last week and it looks absolutely fantastic. We've continued to support these efforts through our Bulk Galaxy brand campaign, Better Your Best across TV, social and in store media. In addition to focusing on driving growth in the core DICK'S and Golf Galaxy businesses, we are also investing in new concepts. Tomorrow morning, we are really excited to open the doors to our 1st Public Land store here in Pittsburgh.
We see a real opportunity to reinvent the outdoor And we believe public lands can be a great growth vehicle for us, while also supporting the local community through conservation, access and equity based initiatives. Looking ahead, we remain very enthusiastic about our business and we're raising our full year sales and earnings guidance for the 2nd time this year. Our updated financial outlook balances our enthusiasm with the uncertainties that still exist, particularly as it relates COVID related supply chain disruption and its potential impact on our second half results. Lee will address our outlook in greater detail within his remarks. This is a very exciting time for Dick's Sporting Goods and to show our appreciation to our teammates, we recently increased wages for all hourly I would like to thank all our teammates across the company for their incredible passion, their hard work And their dedication to our athletes and our business.
Before concluding, I want to spend a moment highlighting our 2020 purpose playbook, Which we published last month. The perfect playbook outlines the progress we made last year in 3 critical sustainability areas: We are committed to investing in our future by reimagining the athlete experience in our core businesses, while also building exciting new growth concepts. Our business is on a great trajectory and I want to again thank our teammates for their tremendous efforts in helping us drive these results. Before I turn the call over to Lee to review our financial results and outlook in more detail, I'd like to discuss the executive transition that we announced last week. As you learned, this will be Lee's final call as CFO.
As part of a long term succession plan, Navdeep Gupta, our Senior Vice President of Finance and Chief Accounting Officer has been appointed to Chief Financial Officer effective October 1. Wally will continue as Executive Vice President, Overseeing several key areas of our business, including supply chain, real estate, construction and game changer. Lee is a trusted partner and advisor to me, Ed and the full leadership team. And I want to thank him for his years of dedicated service We know many of you have also had the pleasure of working with Najeeb over the last few years, We look forward to welcoming him on to next quarter's call. And with that, Lee, I will turn it over to you.
Okay. Thank you, Lauren, for those Kind words and good morning everyone. Let's begin with a brief review of our second quarter results. Consolidated sales 20.7 percent to approximately $3,270,000,000 Consolidated same store sales increased 19.2% On top of a 20.7% increase in the same period last year. Our strong comps were driven by double digit sales growth Across each of our 3 primary categories of hardlines, apparel and footwear, as well as a 7.1% increase in average ticket And a 12.1% increase in transactions.
When compared to 2019, consolidated sales increased 45%. Our brick and mortar stores comped up nearly 40% versus 2020 and delivered a 36% Sales increased when compared to 2019 with roughly the same square footage. Our e commerce sales increased 111% when compared to 2019. As planned, this represented a 28% decline versus last year as we anniversaried a 194% online sales increase in Q2 'twenty that included a period of temporary store closures. As a percent of total net sales, our online business has grown from 12% in 2019 to 18% in the current quarter.
E commerce penetration was 30% last year. Gross profit in the second quarter was $1,310,000,000 With 39.91 percent of net sales and it improved 5 38 basis points compared to last year. This improvement was driven by merchandise margin rate expansion of 310 basis points and leverage on fixed occupancy costs of 164 basis points From the significant sales increase. The increase in merchandise margin was primarily driven by fewer promotions Due to our increasingly differentiated assortment and disciplined promotional strategy and cadence as certain categories in the marketplace continue to be supply constrained. In addition, we were able to pass through selective price increases to cover higher supply chain and input costs and saw a favorable sales mix.
This quarter's merchandise margin expansion was partially offset by last year's recovery of $28,000,000 of inventory write downs That we initially recorded in the Q1 of 2020 due to better than anticipated sales and margin on merchandise nearing the end of life in the 2nd quarter last year. Beyond merchandise margin expansion and occupancy leverage, we also saw lower shipping expenses percent of sales. This was due to higher brick and mortar sales penetration following last year's temporary store closures and sustained strength And our brick and mortar store sales. Compared to 2019, gross profit as a percent of net sales improved 9.94 basis points, Driven by merchandise margin rate expansion of 636 basis points due to fewer promotions as well as leveraged On fixed occupancy costs of 3 68 basis points. SG and A expenses were 640,300,000 We're 19.55 percent of net sales and they leveraged 46 basis points compared to last year due to the significant sales increase.
SG and A dollars increased $97,200,000 primarily due to current year cost increases to support increase in Sales as well as last year's operating expense reductions following our temporary store closures. COVID related safety costs were immaterial during The Q2 compared to $42,000,000 last year of which $32,000,000 was in SG and A. Compared to 2019, SG and A expenses as a percent of sales leveraged 3 51 basis points from the significant sales increase. SG and A dollars increased 119% due to increases in store payroll and operating expenses to support the increase in sales, Hourly wage rate investments and higher incentive compensation expenses. Driven by our strong sales and gross margin rate We delivered record quarterly non GAAP EBT and EBT margin results.
Non GAAP EBT was 664 point $2,000,000 or 20.28 percent of net sales and an increase $266,500,000 or 5 62 basis points from the same period last year. Compared to 2019, non GAAP EBT increased $513,200,000 or 13.59 basis points as a percent of net sales. In total, we delivered record quarterly non GAAP earnings per diluted share of $5.08 This compares to non GAAP Earnings per diluted share of $3.21 last year, a 58% year over year increase and non GAAP earnings per diluted share of 1.2 6 in 2019, a 303% increase. On a GAAP basis, our earnings per diluted share were 4.53 This included $7,700,000 in non cash interest expense as well as $10,700,000 additional shares That are designed to be offset by our bond hedge settlement, but are required in the GAAP diluted share calculation, both related to the convertible notes that we issued in Q1 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 Q2 with approximately $2,240,000,000 of cash And cash equivalents and no borrowings on our $1,850,000,000 revolving credit facility. Our quarter end inventory levels increased 7.2 Compared to the end of the same period last year and despite the industry wide supply chain challenges our strong flow of product supported record quarterly sales that were ahead of our Looking ahead, our inventory is very clean and we continue to aggressively chase product to meet demand. We are prioritizing supply chain continuity over costs and expect elevated freight expenses to continue through at least the balance 2021 and have included the impact within our updated outlook. Turning to our 2nd quarter capital allocation, Net capital expenses were $92,000,000 and we paid $31,000,000 in quarterly dividends. We also repurchased 808,000 shares of our stock for $75,800,000 at an average price of $93.84 and we have approximately $879,000,000 remaining under our Returning capital to shareholders is an important component of our capital allocation strategy And today, we announced several enhancements to our 2021 plan.
First, we announced a special dividend of $5.50 per share, which will return $475,000,000 to shareholders and will be funded from our cash on hand. Next, we also announced a 21% increase in our quarterly dividend to $43.75 per share or $1.75 on an annualized basis. This is the second increase to our quarterly dividend this calendar year and looking ahead, the Board will continue to Our dividend on an annual basis. Finally, our plan now includes a minimum $400,000,000 in share repurchases Compared to our prior expectation of at least $200,000,000 We also continue to remain firmly committed to investing in the profitable growth of our business And our 2021 plan includes net capital expenditures of $300,000,000 to $325,000,000 Now let me move on to our fiscal 2021 outlook for sales and earnings. As a result of our significant Q2 results And a strong start to the Q3 and back to school season, we are raising our consolidated same store sales guidance and now expect full year comp sales to increase by to 20% compared to our prior expectation of up 8% to 11%.
This is on Top of a 9.9% increase in consolidated same store sales last year. At the midpoint, our updated comp Sales guidance represents a 33% sales increase versus 2019 compared to our prior expectation of up 22%. While recent trends continue to track positively, we are high and we are highly encouraged by consumer demand over the rest of the year, Our sales outlook balances this enthusiasm with the impact from the global supply chain challenges impacting product flow and availability And it could affect our ability to capture the kind of upside sales we've had so far this year. Non GAAP EBT It's now expected to be in the range of $1,610,000,000 to $1,670,000,000 compared to our prior outlook of $1,020,000,000 to 1,110,000,000 which is the midpoint and on a non GAAP basis is up 2 73% versus 2019 And up 124% versus 2020. Non GAAP EBT margin is expected to be approximately 14%.
Within this, gross margin is expected to increase versus both 2019 2020 driven by higher merchandise margins and leverage on fixed expenses. This assumes higher supply chain costs, a selective reintroduction of holiday promotions and modest deleverage on Fixed expenses for the second half of the year. SG and A is expected to leverage versus both 2019 2020 due to the significant Projected increase in full year sales. As Lauren mentioned, we recently increased wages for all hourly store and distribution center teammates. These latest increases follow the hourly compensation investments we made at the beginning of the year as we transitioned these teammates To compensation programs longer term focus and from the 15% temporary pay premiums last year.
Investing in our people is a top priority and helps physician Dick's as an employer of choice amidst the challenging labor market. The impact of these wage rate investments has been included within our guidance. In addition, we are raising our full year non GAAP earnings per diluted share outlook to a range of $12.45 to $12.95 compared to our prior outlook of $8 to $8.70 At the midpoint and on a non GAAP basis, our updated earnings per share guidance is up 2 Guidance is based on 98,500,000 average diluted shares outstanding and an effective tax rate of approximately 24%. Before concluding, while we will not be providing specific long term guidance this morning, I want to briefly Key investor questions around sales and margin sustainability. We're now more than 12 months into the significant Top line strength following the reopening of our stores last year.
A portion of this strength was driven by stimulus payments, but more importantly, we We've seen a fundamental shift in consumer behavior. The importance of health and fitness has accelerated, participation in outdoor activities has increased There's been a far greater propensity for athletic apparel and athletic lifestyle product. These new habits and behaviors have largely continued into 2021 And looking ahead, we believe these trends have staying power. More specifically, we are optimistic in key categories like golf, team sports, apparel and footwear, which we believe can offset potential sales risk in smaller categories like home fitness and outdoor equipment. We're also optimistic about longer term EBT margin driven by a number of permanent changes versus pre COVID levels, which we expect to more than offset rising labor Supply chain costs.
These changes include expansion of exclusive and differentiated products from key vendor partners, which are less susceptible to broader promotional pressures, more granular management of promotions driven by enhanced data science capabilities And fewer promotions resulting from a significant reduction in print media and a corresponding shift to digital marketing and personalization, Improved clearance strategies to drive higher margins on end of life product, growth of our vertical brands with margins 600 basis points to 800 basis points above the national brands and significantly reduced hunt exposure with margins over 1,000 basis points below the company average. Continued opportunities to reduce rent expense as approximately 2 thirds of our store leases are up for renewal over the next 5 years. And lastly, significantly higher profitability of our e commerce channel through fewer and more targeted promotions, better leverage of fixed cost And strong athlete adoption of curbside pickup. Because of these factors and other efficiencies, the profitability of our online business is now in line with total company EBT margin. In closing, we are extremely pleased with our Q2 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. Operator, you may now open the line for questions.
Thank you. We will now begin the question and And the first question will come from Simeon Gutman with Morgan Stanley. Please go ahead.
Hey, good morning, everyone. Nice results and congratulations to Lee and Navdeep. I guess this one is For the team, Lee, you kind of preempted this at the end of your prepared remarks, but thinking about demand for sporting goods, Does the industry do you think it continues to grow and compound this new order level? Or do we go through a digestion period? And can you talk About maybe some of the high ticket durables and the trends you're seeing there, because I think there's a lot of fear that those fall off and then the handoff to Team Sports and Footwear Apparel just can't offset it from a ticket perspective.
So curious how you think about demand for the next couple of years?
Thanks, Simeon. Yes, we are looking at all of what you would maybe call the COVID categories, the surging COVID categories, And they have rebaselines for all intents and purposes. They are significantly higher than 2019. And so while there are some ups and downs Looking versus some peaks and valleys last year, overall, the consumer demand for those categories has stayed really, really strong. And then at the same time, team sports have come back in math and back to school has started off strong as Lee mentioned.
So it really is It's just we are at a different level than we were prior to the pandemic and nothing the high ticket from those Hardline categories is not offsetting the growth as you can see.
Yes. And maybe related to that and I didn't want to make this my follow-up, so Sneaking 2 is, are you seeing the traffic to the business accelerate, especially in some of those, let's say, lower ticket areas, so that This is sustainable via higher traffic. And then the second question I was going to ask was on the cyclicality of gross margin and not getting carried away in the moment Because we're in a unique environment, but is there a valid case that you should have a tighter band of gross margin going forward?
So yes, we are seeing traffic accelerate significantly. We're also seeing AUR accelerate. So overall, that's Across the board and the whole business is strong from a traffic standpoint. In terms of what I think you're asking about gross margin and should there be Tighter bands going forward, we are very confident in our gross margin and the expansion that we've had is both somewhat a result of Some of the issues that have come up this past year with supply chain and scarcity, but more importantly, it has to do with Our differentiated assortment, the fact that distribution has narrowed, the fact that we've gotten very, very Adapt at having a very disciplined promotional strategy with much more flexibility. So as Lee mentioned, we used to have a lot of Media that required us to be very promotional before we would even know what the marketplace was going to do because we have to release things weeks in advance.
Now We can just adapt to the marketplace and that enables us to be more personalized, to use data to drive the right level of promotion. So I think There's a lot of optimism in our gross margin going forward.
Thank you very much.
And the next question will come from Kate Shane with Goldman Sachs, please go ahead.
Hi, thanks. Good morning. Thanks for taking our questions. I think in the prepared remarks, Lee, that you mentioned e commerce profitability sounds like it's now in line with the company average, But it also sounds like there's more runway to improve that further. Can you talk about what your expectations are for operating margins as e commerce profitability Continues to improve.
Well, I really don't want to give forward guidance on it. We're very pleased with the operating margin. And As you look at it now as with e commerce orders as we ship to customers home, we have extra expenses, but at the same time we're leveraging Our store infrastructure do fulfillment. So we save on the fulfillment costs. We don't have to open new distribution centers to service it and so on.
So we're pleased with the profitability of it. We continue to work on our data science to get inventory closer to the customers, so we can accelerate Our transit times and reduced costs there, but I really don't want to give guidance like beyond this year right now, We're really pleased with getting that profitability in line with the chain at this point.
Okay. Thank you. And then my follow-up question is, You mentioned again that trends into Q3 and back to school has been strong. Is there any more detail you can give on what you've seen so far, if It's being driven more by team sports and the return to sports or is there just a general lift across all of the back to school categories as we Get back to normal.
Yes, Kate, I think it's yes and yes. The whole business has been strong and trending
The next question comes from Robbie Ohmes with Bank of America Merrill Lynch. Please go ahead.
Hey, good morning guys. Terrific quarter. Maybe, Lauren, I was hoping you could talk about what your data is saying about the I guess it's over 10,000,000 new customers you guys are speaking to. What is it saying about how they behave Versus prior existing customers. And what I'm trying to get at is, this the 45% growth, I think it would be considered still way above on a 2 year basis sort of what the industry grew versus 2019.
Can you also maybe tie that into where you think these the market share may be coming from as well?
Yes. Thanks, Robbie. The growth in our athlete database has been incredibly strong as you mentioned. So it was 8,500,000 new Last year in 2,000,000 this past quarter. And what we've been most pleased about is that even though there's business kind of influx So as the numerator grew, we still were getting a lot of people into the funnel and very, very excited about that.
So they weren't just 1 and done. We have an extensive data science, as we mentioned, capability, a personalized marketing capability, And we are actively keeping those trying to keep those people in our ecosystem and it does seem to be working. I mean, another little Pivot, I think where you're going is that with curbside adoption, the omnichannel athlete does have other options and those that curbside profitability It's just as strong as brick and mortar profitably. We're very excited about that. And those customers do tend to be more profitable, but make higher sales, And then just an online customer.
So it's a great customer and an omnichannel customer in any channel is the best of all.
Got you. That's really helpful. And then just a quick follow-up for, there's a lot of discussion out there right now about holiday and who's going to get product On time and you need to get it shipped by November or whatever. Just any commentary on just how you guys feel about Making sure you're going to have what you need for holiday this year maybe versus others?
Yes. The supply chain obviously has been a challenge now for Over 16 months and it will continue to be so and Southeast Asia has its challenges as we all know. But we have first of all, consumer demand as we've Talked about it is still very, very strong, so that keeps us excited about the holiday season. And then we are investing very aggressively with Both our partners and directly on our vertical brands to get product here so that we can serve our athletes. We are air freighting where possible.
We're partnering Vendors and picking things up at their distribution centers where needed. And I think the one thing our team has really excelled in this past year is just the Flexibility of how to manage through some of these puts and takes because it takes about every category over the past 16 months has had some disruption. I am very confident that For this holiday season, we will have products for athletes and they've actually shown us that they will substitute when necessary. So if they come in for Specific brand, a specific product, if we have product in life products, they're willing to do that. So that's where our diverse Category portfolio and brand portfolio really helps us out.
That sounds great. Congrats.
Thank you. The next question is from Chris Horvath with JPMorgan. Please go ahead.
Thanks. Good morning, everybody. Can you provide some additional color in terms of the phasing on the back half on comps and margins overall? I know you don't Provide specific, but you are assuming some moderation. Does that sort of moderation accelerate into the 4th quarter?
And then you made a comment about some additional promotionality. That doesn't sound like that's something happening until the Q4. So any Phasing commentary, please.
Hi, Chris. So just a couple of comments on the back half of the year. We have taken up our guidance for the back half of the year considerably from what we thought the back half would be last quarter when we spoke. So we took the we've taken the guidance up from the high point of our sales at our last earnings call. We To the midpoint now, we've taken sales up by about $400,000,000 We've taken the EBT up by about $200,000,000 And we've taken our operating margins up by about 3.30 basis points versus the last guide that we gave.
Taken earnings per share up for the back half, the implicit guidance by about 150 basis points. And that's from the high point of the guidance To the midpoint, the high point last time to the midpoint, the guidance this time. So we've taken the back half of the year up considerably. But within that, we have previously implicit guidance was we'd be kind of low double digit negative comps. We're now saying Low single digit, low mid single to mid digit negative comps.
So we've We've taken that up considerably. We've reduced our expectations around promotions for the back half of the year. We previously had said we thought that promotions would be normalizing in the back half of the year. We've gone to selectively adding back promotions in the back half. We don't really see a normalization of margins.
And as a result of that, we've taken sales of $400,000,000 and taken EBT up $200,000,000 And within that we're covering additional supply chain costs and we're covering some additional hourly wage rate increases as well. So we feel very good about the business going forward. Again, we are balancing our optimism for continued strong demand With what could be some supply chain constraints going forward, so I think it will be a little harder to get the kind of upside that we've got the first half of the year, but we're going to have enough product Out there to satisfy our athletes as they come into the store and shop for Christmas season this year.
Got it. That's helpful. And then The 2 year CAGR was about 20% in the second quarter, just modestly off that A 23% CAGR in the Q1. So can you talk about maybe how that 2 year play down on a monthly basis? Did you see a child tax credit bump in July?
I know there were some easier 1 year trends in July August on back to school, but What did you see on a cadence basis? And is that 20% 2 year holding so far in August?
So I think May was very, very strong keeping in mind that we were up against 15% of our stores being closed. June July were slightly lower, but very stable and steady and we're not going to get into this quarter at this point.
Got it. Thanks very much. Best of luck.
Yes. Thank you.
And the next question is from Warren Chiang with Evercore ISI. Please go ahead.
Hi, good morning. Congrats on the quarter and congrats also to Lee in Navdeep. So if I look at the Q2 versus the Q3 performance last year, the comp performance is pretty similar in those two quarters. Was the performance of the pandemic impacted categories pretty similar? Or are there certain pieces of the business Where the compares are going to get harder as we go from the second quarter to the second half?
I think it was pretty Comparable, the comps were about even. The same businesses were relatively strong in the second and third quarter last year as well. Some of the back to school categories weren't as strong as last year as they typically would be because of delayed or kids not going back to school at all. So So we have a little softer compare on back to school categories and maybe some tougher comparison some of the outdoor categories coming into the Q3 this year. But we're really pleased with the start to the Q3.
Yes. Warren, I would just add, I think the point that Lee made in his prepared remarks is really important that Any of the shifting going on within various categories, it's more than offset by other things that are Countering that. So we feel very, very positive.
Got it. Thank you. And my follow-up is just On the price increases that you've taken, can you give us detail just on the timing of those increases, where you're taking them And what the customer response has been? And then just how these price increases might work into your strategy and algorithm going forward?
Well, we've taken certain price increases primarily in hardlines categories over the course of the year this year. There hasn't been like a Specific schedule for them, but they've been kind of I'd say on a one off depending on when we're seeing the cost increases. So, and we'll continue to do that. If we get cost increases and the demand is there from our customers, we'll continue to raise some of those Price is necessary, but there's not like a schedule for it.
Great. Thank you.
Okay. The next question is from John Kernan with Cowen. Please go ahead.
Excellent. Thanks for taking my question. And Lee, congrats. It's just Quite a high note to go out on.
Thank you.
Could we talk about merch margin up 200 basis For the full year last year, it's obviously up huge in the first half of this year based on your guidance. It should be up anywhere from 300 basis Points for the full year this year. How much of this is a structural change in the way you promote, The way you buy inventory, some of the mix shifts from private label, how much of this merch margin do you think is structural Some of the cyclical tailwinds from stimulus and a lot of people adopting outdoor and athletic activities recently.
Yes. Most of it is structural. There's absolutely been some lack of promotion in the marketplace, but our March margin has been result of a multi year strategy that really elevate our assortment, differentiate our assortment, get out of print media and into digital media, so we could be more surgical. So we do feel that the changes are mostly structural.
Got it. A quick follow-up just on The relationship with the brands across a lot of different categories, whether it's Nike and Adidas and others in Softline, YETI, Callaway and Hardline, there's others to list too. Just Talking about the improved relationships with a lot of your brands, the better product allocations and also the benefit of increasing private label, it sounds like You're gaining even more confidence in the scalability of private label as well. Thanks.
Yes, John. The relationship with the brands, as you say, is It's always been strong, but it's even stronger perhaps as they become more focused on strategic partners and And that's elevated our relationships. We've always had a top to top relationship. We're speaking even more frequently and planning the future with our Key brand partners. At the same time, we are driving vertical brands growth with and we're filling in some white space in And I'm feeling really great about the sales and margin of those areas.
Overall, the brands are in great place and our relationship with them is
And a lot of this also ties to the investments that we continue to make in our stores We are elevating the presentation of these brands within our stores and making those investments in footwear and apparel to bring their brands to life. We've got a significant CapEx budget. A lot of it is dedicated to stores and store presentation along the way and the brands are really happy With how we bring them to life within our stores.
And then just on the private label, The scalability of some of those brands?
We believe that there's a lot of scale Still out there in the apparel space, a little bit in footwear. There's still a lot of room for growth.
Yes. I just would call out, I mentioned it in my remarks, But we did just launch the Burst brand, which is a new lifestyle men's apparel brand. That is absolutely fantastic and we're just starting off with that, but it's Great. I would encourage people to go look at that and try it out. It's really, really a fantastic product.
So that's another reason to be confident in scalability. And Kalia and DSG continue to do great.
Excellent. Thank you.
Thank you.
The next question will be from Paul Lejuez With Citi, please go ahead.
Hey, guys. Thanks. When you look at your recent sales performance first half of the year, how much Do you attribute to the overall market seeing a big uplift versus you taking market And if there are specific categories that you think you've taken market share, just would be curious to hear more about which those are? Thanks.
Well, there are certainly tailwinds within our sector right now and all the players within the sporting goods space are doing well. But looking at it from a 2 year stack perspective, having thrown up 40% 2 year stack and 45% sales increase over the 2 years, I don't think there's anybody else in our space that's really close to that. So we're definitely taking market share. It's hard to say Where we're taking it, we believe it's in apparel, it's in footwear, certainly in team sports. So we're pleased and we believe it's in the golf space So we're really pleased with the big categories that we've got out there in the store that we are taking market In addition to the industry being strong.
Got it. And then just a follow-up on the supply chain. Just curious what you're seeing now? Where are you light And inventory, where would you prefer to be more heavily invested? And where do you anticipate you might run into some of the challenges on the supply chain?
Thanks.
I mean, we have pockets of low inventory, lower inventory than we'd like kind of across the store, a little bit in golf and apparel, Primarily also in footwear, but the customer over the past 15, 18 months or so has proven that they're willing to substitute. If we don't have exactly the right kind of hoodie that they might be looking for, they'll switch to another style of hoodie or another brand. We're turning the inventory a lot faster. So we're not too concerned about that. Going forward, we feel better about our in stock positions for Q3 than Q4.
There's a little less clarity around Q4 right now. But that will remain to play out really here over the next 90 days or so.
Got it. Thank you. Good luck, guys.
Thank you.
The next question comes from Michael Lasser with UBS. Please go ahead.
Good morning. Thanks a lot for taking my question. Lee and Navdeep, congratulations on your new role. Lee, in your prepared remarks, you said our sales outlook balance The enthusiasm with the impact from the global supply chain challenges impacting product phone availability and it could affect our ability to capture the kind of sales Upside we've had so far this year. So does that mean if even if you saw demand that would drive, Call it 20% comp for the next couple of quarters, you would only do, I don't know, 15% because you wouldn't have the inventory To meet that the demand, is that the right ballpark for the number?
Yes. I don't think, Michael, we have Exactly the kind of clarity to get that specific around what the guide may be. We certainly improved our guidance for the back half of the year. It was Low negative double digits and we're now low single to middle digits mid single digits, Excuse me. We have been able to beat that guidance that we've given throughout the year this year and expect that if the demand continues to be there, which We believe it will.
We could beat that. But getting to the plus 20 kind of comp, we've seen the last couple of quarters could be more challenging as we get into the back half of the year based upon what could be happening with the product flow, particularly looking into Q4. But there's a long way to go between now and then. We're still working very hard with our brands to get us the right product. We believe that demand is going to continue to be very strong, and we've just kind of let it play out a little bit.
And we're chasing As hard as we can and we're doing all that we can to get the product into our stores, onto our websites, so that we can satisfy Christmas demand, but it's hard to say exactly what that means. We have been a little bit more we have been conservative on our guidance, But we think appropriately so given some of the potential constraints that are out there.
Understood. My follow-up question is at this point the market is really focused on what your earnings stream is going to look like for 2022 and recognizing You're resistant to provide forward guidance to that degree. Can you provide some actual backward guidance? Meaning, to the And that we want to base our earnings expectations off of 2019. Given all these very lucrative margin drivers that you outlined, If you applied those to your gross margin in 2019, what would it have looked like knowing what you know now?
Is it reasonable for us to believe that in 2019 had all these factors been there, you would have had 31% or 32% gross margin at that point?
Yes, I can't answer that one specifically right now, Michael, but it would be substantially better than 2019. Okay.
Thank you very much and good luck.
Thank you. Thank you.
The next question is from Joe Feldman with Telsey Advisory Group. Please go ahead.
Great. Thanks guys and again congratulations on the strong quarter. Wanted to ask a little bit about House of Sport. And how many do you kind of want to have? I know this is like a flagship format that it's not going to be everywhere.
But should we think about A handful a year or 10 a year and will there be more relocations? And the other thing as part of it, you mentioned elements that you've liked so far that you Bring to the existing stores and I was just wondering if you could maybe give us an example or 2 of things that you're excited about that Could be transferable to the rest of the chain.
Yes. Thanks, Joe. The house sport is doing amazing, as we And while we have 2 locations now, we have a third one under construction. We are actively looking for other opportunities, But it is still a very new concept. So we're going to watch it and continue to learn and continue to talk to partners and see just how many we want to have.
So we don't I have a firm answer to that other than we're very excited by the early results and are continuing to pursue both other opportunities. And then also, as you mentioned, bringing Some of the core benefits back into the core Dick's stores. So some examples of some of the elements of how to support that would Potentially be brought back into Dick's. One of them is the entire fitting room experience. There is a much more elevated Model in the fitting rooms where people are bringing outfits and helping people outfit themselves, that's something that we're looking to try in the Dick's store, The idea of having stylists do that, there's an incredibly strong service model throughout the entire store and then there's just experiential aspects So there's a field that is outside field that is completely booked there.
So there's a rock climbing wall That is full every single minute of the day that you can sign up. And so it just it makes us more bullish on looking into Perhaps not those 2 at every location. Those are large investments in large space requirements, but More experience seems to be working really well. Yes, I'll just
add to that. We've been really pleased with the amount of golf business we can drive From within the House of Sports Store, we're always concerned about how much golf business can we do outside of a specialty golf store. But with the experiences we've built into the Dick's stores, The golf business has been really been outstanding there. We may try to incorporate some of that golf those golf elements
I have one more, which is just there's a really nice merchandising strategy in the health of sport of combination of hard line, Offline, so that when you walk around the store, you're getting holistic solutions and that's something else that we're really looking into for the Dick's stores.
That's terrific. Thank you for sharing all that. And then the other question I had was With regard to the wages, I know we're going to see wage pressure probably just in the future, but can you share like is it what the average Wage rate did go up and is that kind of the new standard that we should expect? And also are you finding it difficult To get employees, we're starting to hear that from a lot of companies as well that or even when you have them, having them show up on time is not the easiest these days.
Yes. So we have had 2 kind of across the board wage increases this year. 1 went into effect back in February, another one in August. Across the board for our hourly teammates, I would say, overall, Upper single digits to low double digit kind of wage increases depending on the position in total across the Lauren will speak to this, but we think we are an employer of choice right now and we have been able to get the people we want. Part of that is due to the fact we're paying folks fairly and we're doing well as a business.
So we're able to share Some of the profitability we have with our teammates across the board that are making it all happen for us. Going forward, I would expect we'll continue to see some more wage inflation. Labor markets are tight right now, I don't really see much of a change in that going into next year, but we're pleased with where we are. And Lauren?
Yes. And to the second part of your question about difficulty hiring and employees showing up on time, I do think we, to Lee's point, we are an employer Of choice in many ways and that's partly because it's fun to work at Dick's Sporting Goods. We have great management team, but it also has to do with how The family of Dick's teammates came together during the pandemic. And so there's just there was a lot of caring, a lot of taking care of people, a lot of Open discussions and so the team is as pumped as I've ever seen them and that energy is contagious. And so I think we There's obviously pockets where we can't hire exactly how many people we want, but that's not a widespread problem for us.
Got it. Thank you and good luck with this quarter. Thanks.
Thank you.
The next question will be from Chuck Grom with Gordon Haskett. Please go ahead.
Hey, good morning. Great results. In your slide deck, you call out 20,000,000 members in the scorecard, but I think 140,000,000 members In your database, given the higher salvage with scorecard members, I'm just curious what the strategy is to continue to convert even more to the loyalty program?
Yes. We are capturing data from every single athlete who transact with us in every way. So we are always working to try to get People to convert to Scorecard, but even when they're not, we've said our active database member is over 30,000,000 Active email addresses that we can speak with even if they don't join the program. But the way we're working to get them into the program because there's obviously benefits for them and benefits for us in And so loyalty and engagement is with member benefits. So we have a gold program now where They can get triple point stays and special services and we're making it much easier throughout the entire Both online and in store to see and activate your points, so that if you're a logged in user, you are going to have a lot of benefits.
That's going to continue as we roll out our new mobile app this summer and people will be finding the benefit of ScoreCard just keeps getting bigger and bigger. So we'll be growing that
Okay. That's helpful. And then my follow-up is on sales productivity. On a per square foot basis, it looks like you're going to end the year around 2.75 Buck's up from around 210 in 2019. And I think everybody knows it's hard to handicap what's going to happen next year.
But I'm curious when you Look at your best stores, what are they in sales productivity? And I guess ultimately, what do you think the ceiling could be as you continue to drive better productivity through the store?
Well, again, I don't want to guide to new sales per square foot going forward. We've obviously seen a big increase in it. Our best stores are certainly upwards of $400 a foot. So we have the capability of getting that high, but you always have your best stores and your sources aren't as good. Averaging out to $275,000,000 We think we can continue to get better than that, but I don't want to give specific guidance to it at this point.
Okay. Thanks a
lot. The next question is from Adrienne Yih with Barclays. Please go ahead.
Great. Thank you very much. And I think I said this last time that, I mean, this is an incredibly tough backdrop to navigate in and you guys are doing it so well. So Lee, thanks for getting us through last year. So my question, Both of them have been answered, but mine is actually more philosophical in nature.
It looks like you've accelerated almost 2
to 3 years of market share gains
in the Past call 18 months. I'm wondering what the next kind of long range plan outlook might be. I might be premature in asking this, but International Markets, I know, Ed, we've talked a little bit about that in the past. So that's my first question. And then my second one is for Lee.
I mean the return of capital to shareholders is astounding this quarter. I don't think anyone else is doing this. So on a normalized basis, how should we think about the payout ratio? Thank you very much. And again, great job.
Well, a few things. I believe we're still focused on Domestic expansion, we have some new concepts we're looking at. We're really excited about the kind of business we're driving in House of Sport. We have a long way to go with our e commerce business Well, we're really pleased with the profitability there and the sales growth over the last couple of years, but we still think we're just scratching the surface there. And we'll continue to invest in experiences within our Dick's stores.
And I think we've shown with the 40% comp over last year and up upper 30s over 2 years ago in the brick and mortar comp that our brick and mortar stores are here to stay. But we do have a lot of For expansion within the United States and we're going to continue to be focused for at least the next couple of years Within the U. S. Going forward. With regard to return to capital to shareholders, it's a little hard to figure what the normalization of it will be going forward.
Really pleased to be able to do the special dividend. Our free cash flow as a percent of sales has been outstanding lately and that's Really opening up the possibility for more return to shareholders. We continue to look at potential acquisition candidates that are out there, but we've been candidly we've been looking at it for We haven't found the right partners out there and we're not going to just jump into a transaction just because we have a lot of cash and a lot of liquidity. So We're going to invest in the business, invest in the new concepts, invest in technology and our e commerce business. And as we continue to generate cash flow, We'll continue to return to shareholders going forward.
Yes. Adrienne, I just want to echo what Lee is saying. We have so much market Share opportunity in the United States and at Zix and Galaxy, we're opening our new public lands concept. We feel incredibly lucky to have So much opportunity right in front of us.
Fantastic. Thanks so much. Best of luck.
Okay. Thank you.
Thank you.
And the next question comes from Sam Poser with Williams Trading. Please go ahead.
Thank you guys So much for taking my question. I just have a couple. 1, are you seeing with certain vendors price increases On existing orders getting into holiday?
No. Our orders our outstanding Are staying the same price. We're not getting price increases on existing orders.
And then as we think about I have 2 more. As we think about going into Spring, 2022, what are you doing to make sure because I mean a lot of the issues that seem to be happening In Asia right now are look like they're going to impact very late Q4 into spring into early next year For order flow, how are you working with the vendors to do that? And in general, What are they doing to try to keep you whole during this time because it just sounds like it's exceptionally difficult situation?
Well, Sam, this is a rapidly evolving space right now With COVID issues in Southeast Asia, right now, we're working very closely with our vendor partners and with our private And factories to try to figure out the most expeditious way of getting product to the U. S. As we said, we think there'll be Higher supply chain costs through the balance of the year and really into next year, but we will do what we need to do to get Get the product in here to satisfy our customers along the way. So you're right, some of the things we're seeing right now Could affect supply chain going into Q1, and we're actively working on that with our vendor partners to try to mitigate that exposure.
And this also means that you're going to I would assume continue to narrow your focus on the product that you're carrying. And given that there are likely to be Some product shortages, that would be very good, let's just put it that way, for your merch margins Between product availability and the mix moving into next year, am I thinking about that properly?
I think so. We're not really seeing we're seeing pretty light inventories going into next year and the The inventory is less pressure is going to be from a promotional perspective, particularly if demand remains strong, which we believe it will.
Thanks very much. Continued success.
Thank you.
And our final question today will be from Mike Baker with D. A. Davidson. Please go ahead.
Okay, thanks. Believe it or not, I still have a couple after all those questions. One, I just wanted to ask you about the golf Business specifically, rounds played flattened out a little bit in June. I think they were up slightly and comparisons get tougher. We know we're up against tough comparisons in the golf business.
How are we thinking about that in the back half? Is there a risk that, that business does slow Against tough comparisons, particularly as people are sort of able to get out and do other things that they weren't able to do as much last summer and last fall.
So Mike, we're looking really looking at the golf business compared to double LY, because there were very unusual spikes Last year in the business, but we've seen we've continued to see consistent growth in the golf business versus LLY and No change in trend versus where it was 2 years ago. So rounds may be going up or down a little bit, but we're really pleased with the return of Team sports and more people vacationing over the summer than they were last year that the golf business has remained very strong for us.
Okay. Okay, that's encouraging. And then one more, people have asked us a couple of different ways, but your gross margins on a Last 12 month basis right now around 36 or so, a little south of 36. It's up 500 basis Some of that is because of having fewer markdowns. We get that a lot of it is structural changes that you've done, but every vendor said the same thing that industry that inventory is Tied and there's not a lot of markdowns, etcetera.
Presumably, some of that will come back at some point. So can you ballpark how much of that 500, 600 basis point improvement over the last couple of years is due to having less clearance and I think it will it's probably healthy if it comes back a little bit. So how much generally are markdowns as an impact to your gross margins? Thanks.
Yes. As Lauren said earlier on, we think that most of it, most is really permanent in nature due to changes we've made in the business and narrowing of distribution channels by our vendors along the way We believe we'll be able to hold on to Moses. Of course, we're going to at some point going to have to add back some promotions. We don't know exactly when that will be, but we're expecting it. But we believe most of the improvement we can hold on to.
So again, just maybe we're just not comfortable putting numbers to it, but when you say most, is that 400 of the 600 base Is it 500, just trying to think
about it. Yes.
I
I would like to turn the conference back over to Lauren Hobart for any closing remarks.
Well, thanks, everybody, for your interest in Dick's Sporting Goods. I want to send Thank you to our teammates who I know are listening for their amazing efforts, and we will see you next quarter. Thank you.
And thank you. The conference This has now concluded. Thank you for attending today's presentation. You may now disconnect.