Good morning, and welcome to the DICK'S Sporting Goods first quarter 2015 earnings conference call. All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then One on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Anne-Marie Megela, Vice President of Treasury Services and Investor Relations. Please go ahead.
Thank you. Good morning, and thank you for joining us to discuss our first quarter 2015 financial results. Please note that a rebroadcast of today's call will be archived on the investor relations portion of our website, located at dicks.com for approximately 30 days. In addition, as outlined in our press release, the dial-in replay will also be available for approximately 30 days. In order for us to take advantage of the safe harbor rules, I would like to remind you that today's discussion includes some forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which include but are not limited to, our views and expectations concerning our future results. Such statements relate to future events and expectations and involve known and unknown risks and uncertainties. Our actual results or actions may differ materially from those projected in the forward-looking statements.
For a summary of the risk factors that could cause results to differ materially from those expressed in the forward-looking statements, please refer to our periodic reports filed with the SEC, including the company's annual report on Form 10-K for the year ended January 31st, 2015. We disclaim any obligation and do not intend to update these statements except as required by the securities law. We have also included some non-GAAP financial measures in our discussion today. Our presentation of the most directly comparable financial measures calculated in accordance with Generally Accepted Accounting Principles and related reconciliations can be found on the investor relations portion of our website at dicks.com. Leading our call today will be Ed Stack, our Chairman and Chief Executive Officer. Ed will review our first quarter results, key business drivers, and outlook.
After Ed's comments, Andre Hawaux will provide greater detail regarding our results, capital allocation, and guidance for the second quarter and full year 2015. I will now turn the call over to Ed Stack.
Thank you, Anne-Marie, and thanks to all of you for joining us today. As we announced this morning, we generated first quarter earnings per diluted share of $0.53, achieving the high end of our guidance of $0.49-$0.53. First quarter consolidated same-store sales of 1% was within our guided range of between flat to 2%, and on top of a 1.5% comp in the first quarter of 2014. As expected, our first quarter results reflect a slower start to the spring selling season, as we highlighted in our year-end earnings call. Since February, the sales trend has notably improved. DICK'S omni-channel comp sales increased 1.8% in the quarter, with growth across the hard lines, apparel and footwear categories, and supported by an increase in both traffic and ticket. We're pleased with this performance and are encouraged by the improving trends in our golf business.
While Golf Galaxy comps were down 11% and in line with the DICK'S Golf business, both showed significant sequential comp improvement during the quarter as the weather improved, especially in the Northeast. We're seeing the golf recovery continue into the second quarter and expect margin improvement year-over-year in the second quarter. We're also pleased with our women's athletic apparel. A significant amount of research has gone into our women's strategy, which encompasses our product content, merchandise presentation, shopping experience, and marketing. During the quarter, we augmented our women's fitness apparel selection by launching CALIA by Carrie Underwood. This is a higher margin, exclusive private brand offering that serves the athletic female. CALIA is off to a great start, and we believe it will become our number three women's athletic apparel brand by the end of 2016.
On the marketing front, we recently launched our first campaign targeted directly to women. It speaks to all the pressures women are under today, the sacrifices they make for their families and work, and how difficult it is to find those few precious moments for themselves. Finally, in new stores that will be opening up this year, we're redeveloping the shopping environment for the athletic female, including updated dressing rooms and improved merchandising presentation, which effectively pulls the entire women's concept together. Our focus on e-commerce continues to pay off, with e-commerce penetration growing to 8.5% of sales in the first quarter of this year, compared to 7% in the first quarter of 2014. We have significantly outpaced the market and have picked up market share in the online space.
We moved up to number 70 on the Internet Retailer Top 500 list in 2014, we grew at nearly twice the pace of the industry. Additionally, we continue to make progress toward our goal of moving our DICK'S Sporting Goods e-commerce site onto our own exclusive platform by January 2017. This quarter, we completed a key step by successfully relaunching golfgalaxy.com. Later this year, we plan to launch a Field & Stream transactional site. By having two sites on our own platform, we will be able to operate and learn from the multi-tenancy dynamics prior to relaunching dicks.com on the same platform. Finally, we're also excited about our first combo store that is set to open in July in Mobile, Alabama.
This combined store will place a DICK'S and Field & Stream right next to each other, with the interior walls opened up in the middle of the store so customers can cross-shop between chains. As we move forward with this format, the hunt, fish, and camp product will all be in Field & Stream, leaving more room in the DICK'S stores for higher margin, faster-turning categories such as our women's, youth, and team sports businesses. We believe this will be a very compelling shopping experience and plan to have four of these combo stores in place by the end of 2015. Our balance sheet remains strong and both the level and quality of our inventory is well-positioned. DICK'S sales growth outpaced inventory growth exiting the first quarter, with the incremental inventory on our balance sheet supporting the growth of our Field & Stream concept.
We also continue to return capital to shareholders through our quarterly dividends and share repurchases, completing $150 million in share repurchases in the first quarter. As a result of our performance in the first quarter and our expectations for the remainder of the year, we are raising the low end of our full-year guidance to $3.12-$3.20 per diluted share and maintaining our 2015 guidance on a full-year comp sales growth of 1%-3%. This guidance contemplates $150 million of share repurchases executed in the first quarter. Before concluding, I'd like to thank our associates for their many contributions to our progress, as they are the driving force behind our success. All of us are grateful to them for their exceptional loyalty and commitment. I'd now like to turn the call over to Andre.
Thank you, Ed, and good morning, everyone. This morning, I will cover our first quarter results, our balance sheet and capital allocation, and our performance expectations for the remainder of 2015. To begin with, our first quarter financial results, total sales increased 8.8% to approximately $1.6 billion. Consolidated omni-channel same-store sales increased 1% compared to our guidance of flat to 2% same-store sales growth and compared to comps of 1.5% in the first quarter of last year. DICK'S Sporting Goods omni-channel same-store sales increased 1.8%, driven by a 1% increase in sales per transaction and an increase in traffic of 0.8%. In the first quarter of 2015, we continued to grow our omni-channel platform. We opened nine new DICK'S stores, one new Field & Stream store, and we generated 95.4% new store productivity.
As Ed mentioned, we grew our e-commerce business to 8.5% of sales, compared to 7% in the first quarter of 2014. This translates into approximately 32% growth for our e-com business. We also relocated one DICK'S store and one Golf Galaxy store during the quarter. Gross profit for the first quarter was $469 million, or 29.96% of sales, and was down 68 basis points from Q1 of 2014, driven by lower merchandise margin, occupancy deleverage, and an increase in shipping expenses as a percentage of total sales due to our continued growth in e-commerce. As you will recall from our last earnings call, we anticipated a lower merchandise margin in the first quarter as a result of planned promotional activity earlier in the season.
SG&A expenses in the first quarter were $361 million, or 23.05% of sales, and on a non-GAAP basis, leveraged 38 basis points from the first quarter of last year. This was primarily due to lower administrative expenses as a percentage of sales. Now looking to our balance sheet. We ended the first quarter of 2015 with approximately $81 million of cash and cash equivalents and approximately $51 million in borrowings outstanding on our $500 million revolving credit facility, reflective of our share repurchase activity and capital expenditures during the quarter. First quarter in 2015, net capital expenditures were $25 million, or $66 million on a gross basis. Total inventory increased 9.7% for the end of the first quarter of 2015 compared to the end of the first quarter of 2014.
As Ed mentioned in the quarter, our inventory for the DICK'S business grew at a slower pace than sales, and the balance of the inventory growth is to support our Field & Stream expansion. Turning now to our capital allocation strategy. In the first quarter, we paid $17.4 million in dividends and completed share repurchases of $150 million. Since we started our $1 billion authorization at the beginning of 2013, we have repurchased approximately over $605 million of common stock and have approximately $395 million remaining under the authorization. We believe that investing in our business, share repurchases, and dividends all remain key elements of our capital allocation strategy. Turning to our outlook for the remainder of fiscal 2015. We are raising the low end of our full-year earnings guidance and now expect full-year earnings per diluted share of $3.12 to $3.20.
We expect same-store sales to increase 1%-3%, consistent with our prior guidance. Gross margin is expected to increase primarily driven by merchandise margin expansion. SG&A is expected to deleverage as we invest in building our brand, coupled with the expenses related to bringing e-commerce onto our own platform. Year-over-year, pre-opening expenses are expected to remain relatively flat as a percentage of sales. As a result of these dynamics, we expect operating margins to increase slightly year-over-year. Net capital expenditures for the full year 2015 are expected to be approximately $245 million, or about $365 million on a gross basis. In 2015, we expect to open approximately 45 new DICK'S stores, relocate seven DICK'S stores, and relocate one Golf Galaxy store. We also remain focused on scaling our Field & Stream concept and expect to open nine new Field & Stream stores this year.
For the second quarter of 2015, we anticipate earnings per diluted share of $0.73 to $0.76. Consolidated omni-channel same-store sales are expected to be approximately flat to up 2%, compared to a 3.2% increase in our comps in the second quarter of 2014. Non-GAAP operating margin is expected to remain relatively flat due to an expansion in gross margin, offset by SG&A expense deleverage, primarily due to our investments we are making in e-commerce. Our guidance for the second quarter contemplates meaningful World Cup sales comparisons, as well as higher levels of golf clearance in the same period last year. We also expect to open seven new DICK'S stores and one new Field & Stream store in the second quarter. In summary, we continue to successfully grow our business, make the right investments, and deliver shareholder value.
We are focused on driving store productivity, adding stores in new and under-penetrated markets, expanding and insourcing our e-commerce business, and further developing our Field & Stream specialty concept. This will conclude our prepared remarks. Thank you for your interest in DICK'S Sporting Goods. Operator, please open the line for questions.
Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If your question has been addressed, you may withdraw from the queue by pressing star then two. Our first question will come from Christopher Horvers of JPMorgan. Please go ahead.
Thanks, good morning, everybody. I wanted to follow up on your comment, Ed, you said that DICK'S sales growth exceeded inventory growth at the end of the quarter. Inventory growth was at 9.7. Are you suggesting that you're comping 2%-3% at this point in May? Then could you reflect that back against the guidance of a 0%-2%? Does that suggest that the compares get a lot tougher as the quarter progresses?
The number we talked about that the sales grew faster than the inventory is at the end of the first quarter, that our inventory in the DICK'S store was lower than what the sales had gone up in a total basis, and that the differential was really to support the Field & Stream stores.
I got you. That was in the end of the quarter.
Yeah, that was at the end of the as we exited the quarter.
Okay. Understood. Can you talk about how you think about the growth in the golf business longer term, how you're thinking about what the sustainable growth rate is in the store, and how does that compare about how you think about what the sustainable comp rate is in Golf Galaxy long term?
Well, I think the golf business, as we said, it gets sequentially better in the quarter. We hesitate to talk about what's going on in a particular quarter. Based on the golf business, and the Golf Galaxy business is such a small part of our total business. I do think it gets more airtime than it needs. It's a little more than 3% of our total business on an annual basis. As we take a look at our golf business in total for this quarter, I'm not saying that this is how it's going to play out because we got very promotional toward the middle of the quarter around Father's Day. Our golf business right now is significantly better. Relatively down a little bit, but close to being flat.
Margin rates are up 100 basis points this quarter so far, and that's on a much lower cost structure on how we restructured the golf business last year. I don't think the golf business is going to continue to be difficult. I don't think there's a lot of growth in it, although there's some good things happening in the business today, and a lot of it's coming from the PGA TOUR. Some of these young guys that are out there playing, I think, are going to be very helpful to the game. We'll have to wait and see longer term how it plays out. Some of the things happening out on tour are really very good for the game.
Understood. One last question for Andre. Merchandise margins were down pretty significantly in the second quarter. I know you expect them to be up. Any sort of directional commentary of how much we can recapture from last year? Thanks very much.
Certainly, Chris. We're not going to get into that level of granularity for what our merchandise margins are going to increase in the second quarter, but we do have that baked into our guidance, and they will expand in the second quarter of 2015 versus 2014, largely driven by the comments that you made about being promotional last year.
Understood. Thanks.
The next question will come from Seth Sigman of Credit Suisse. Please go ahead.
Thanks. Good morning, guys. Two questions on the outdoor category. I guess first, are we deep enough now into the Field & Stream initiative to get a sense of how those stores are going to comp after that first year of opening? The second piece of that is just in general, just wondering how the hunting business has performed within the core business. Has it stabilized? Is it returning to growth? What's the outlook for that category?
Yeah. I think it's still too early to talk about Field & Stream's comp. We've only got two stores that have been open for a year. Those two stores, we're trying to determine what the right penetration in the market is, so they're significantly cannibalized. We've got the one store that we opened up in Pittsburgh. It had gotten cannibalized by two other stores, one about 30 miles south of Pittsburgh and another one about 60 miles to the east. These stores have a broad draw range, if you will. It's still early to say.
We continue to be excited about what we can do with Field & Stream, and in particular, we're excited about these combo stores that we're doing this year, where we will have a DICK'S and Field & Stream right next to each other and an entryway about halfway through the store punched in. A pretty big entryway, about 30-some feet, that customers will be able to cross-shop. We've got one of these concepts open today in Columbus, Ohio, where there's a DICK'S store right next to a Field & Stream store. There's also a Golf Galaxy store there. Right now, today, you can't shop between the two chains. If you take a look at the volume that we're getting out of that DICK'S and Field & Stream store and combine these, we think this is going to be a really pretty compelling shopping experience.
We'll have four of these opened up by the end of this year, of which one includes the one in eastern Ohio that we're going to punch a hole between the DICK'S store and the Field & Stream store to allow customers to shop between those two stores, which they can't do today.
Okay. The second piece of that was just how the hunting business is performing within the core DICK'S stores and whether it's stabilizing. It's been a troubled category over the last year. Has it returned to growth, and what's your expectations?
It's gotten much better. It's not growing by leaps and bounds yet. I think there's still a bit of a hangover from all of the product that was bought when it ran up so significantly. It's stabilized, and we're very happy with that business right now. We think it will start to grow again, be relatively flat through the rest of this year, and probably start to grow next year.
Okay, thank you. Just one final one. When you think about the store trends outside of golf and hunting, can you talk about maybe some of the performance apparel categories, footwear categories that have outperformed over the last year or so? How are those performing today relative to the 1.8% comp reported for the DICK'S stores?
They're performing better than the 1.8. If you take a look at the athletic apparel business, the footwear business, the team sport business, we're pretty pleased with what's going on in those other areas.
Okay, thank you.
The next question will come from Simeon Gutman of Morgan Stanley. Please go ahead.
Thanks. Good morning. There's a school of thought that if golf and outdoor collectively are less of a drag in the second quarter, if not a zero drag, and I think you implied that for golf and somewhat in outdoor, and that you have footwear and apparel that are still growing healthily. I don't want to put words in your mouth, but somewhere in the mid-single digits. We could have seen comps a little bit higher than what you're guiding to in the second quarter. Granted, you mentioned the World Cup compare. Maybe that was underappreciated. Can you comment if any part of that framework is off, the golf and outdoor, you've kind of suggested.
Footwear and apparel, if they're growing in that range, does that mean the World Cup compare is a couple hundred basis points? Why couldn't we see growth better than that zero to two?
We're starting to see that stabilization in golf. As I said, we're not convinced yet it's going to continue as we got very promotional in the golf business last year in and around Father's Day to try to drive that inventory out of the system, which was pretty successful. We got rid of a lot of inventory, we're going to be under some pressure there. I think the World Cup was probably underappreciated. It was a very meaningful part of our comp business and the World Cup doesn't happen this year. You're not far off from your thoughts on how that impacted our comps.
My second question related to, I guess, the profit dynamics between retail and e-commerce. The e-commerce business was strong as usual, and we've seen with a lot of other companies, they tend to struggle to maintain their margins or even grow with that type of growth because it implies what they're doing in the store is not as great and the cost structure doesn't seem to flex as well. I'm just curious, you have ship from store, and I think that's helping mitigate some of that. Your SG&A per foot has been managed well. Are there other things that you're proactively doing to ensure that margins continue to grow, even if the physical store comp is under pressure and as e-commerce continues to grow fast?
On the e-commerce side, to be able to move to our own platform and not have the GSI platform and the fees associated with GSI will be a significant improvement to our e-commerce business. That's part of the significant investments we're making from an e-commerce standpoint two years ago, last year, this year, and we will move the DICK'S Sporting Goods site to this new platform in 2017. We were really enthusiastic. The relaunch of the Golf Galaxy site is up and successful, and we're pleased with how that's going. We'll have Field & Stream up later this year, and we'll hopefully run the bugs out of this system before we turn on the DICK'S site. Okay, thanks.
The next question will come from Camilo Lyon of Canaccord Genuity. Please go ahead.
Thanks. Good morning. Ed, you mentioned, regarding the DICK'S inventory being below sales, is that a function of being light in any particular category as a result of some of the inventory shipment delays from the West Coast ports, or was that just better inventory management that you saw there?
It was really a bit of both. There were some shipments that were delayed. We got almost caught up at the end of the first quarter, but there were still some shipments that were delayed. There was a bit of that. The vast majority of that has come through much better inventory controls that we implemented this year versus last year.
Would you be able to share what categories you felt you were underexposed?
When you say underexposed?
Underrepresented from the shipments.
There were some shipments that got caught up from a team sports standpoint, baseball, some footwear, apparel. It was primarily in those categories.
Okay. Just on CALIA, I thought it was interesting that you mentioned that you thought that this would be the third biggest brand by the end of the year in women's. Can you just share a little bit as to why you believe that that'll be the third brand? Is it because of the value proposition? Is it the number of SKUs that you have in the line? What's going to take a consumer to shop that brand versus some of the other brands that you have in the store?
Yes. Well, we indicated that it would be number 2 by the end of 2016. No, I mean, number 3 by the end of 2016. Where that's gonna come from is just the performance that we see today. The team has done a wonderful job with this brand. Carrie Underwood has been a terrific partner in promoting this brand. The sales trend that we see that we are on in this category, we're pretty confident it'll be number 3 by the end of 2016.
Is that coming at the expense of the lesser tier brands that you have in the store or some of the more premium brands?
Well, it's coming across the board. This is a bit more of a premium brand product. It's different in the marketplace. Women are looking for something different, and we've provided that with CALIA by Carrie Underwood, and it's coming from a number of different places.
Okay. Just my last question, just to clarify on the golf comment. I think there was a nice overall expectation that profitability would be much better given that you've done a fair amount of work of managing the inventories last year. It sounds like there was an acceleration in the business from a demand perspective. I just wanted to drill down into that a little bit more. Is that a function of interest in the category, would you say, or new products coming to market, or just easier comparisons?
I think it's easier comparisons. I think there's some really good things going on in golf right now. Like I said, the match play was pretty exciting, as was The Players Championship that they had, Rory McIlroy winning this past weekend. I think there's some really good things happening in golf, driven by the tour right now. I think that there's been some pent-up demand. It's way too early to tell. We normally don't give any look into a quarter, but we think that this idea of what's going on with golf seems to be so important to the shareholder base that we thought we'd give you a little peek into what's happening right now. I don't know that it's gonna continue. It's still early on, but we've been pleased in the month of April and then into May so far.
Okay. Just following up on that, the last thing on the margin rate comment you made of golf margin rates being up 100 basis points thus far. I would assume that that margin rate would improve, would accelerate given the incremental discounting that happened later in the quarter last year. Is that a fair assumption? At 100 basis points, will it be something above that for the category if it stays on this path?
No, we're not going to get to that level of granularity and guide to what our golf margins will be, but they're at roughly 100 basis points right now, and we do think that they will be better than they were last year because of less promotional activity this year versus last year.
Got it. Thanks a lot and good luck with the rest of the quarter.
Thank you.
The next question will come from Brian Nagel of Oppenheimer. Please go ahead.
Hi, good morning.
Morning, Brian.
Just hoping to dig maybe a little bit deeper into the weather impact. Clearly, by no means are you the only company talking about some of the weather disruptions here in the fiscal Q1. Maybe a couple questions there. Can we get some color around the performance of stores or regions that were and were not weather impacted? Or maybe, is there a way to estimate what comps in the quarter would've been had the weather been, I don't know if this is even the right word anymore, but normal for the period?
Nobody knows what normal is from that standpoint anymore. To come out and say what they would have been if the weather had been normal, it's tough to describe normal, so I don't really know how we would do that. Where the stores, and we still have a big concentration in the Northeast, in the upper Midwest, and that's where the weather was, as we all know, really the worst. It was difficult. Those were the areas that were impacted the most. With that being said, we were still pretty happy that we were able to generate a 1.8% consolidated comp and come into the high end of our guidance at $0.53 under some pretty difficult conditions. Now, that being said, we've got to continue to go and try to make some of that up in the second quarter.
We're trying to give a realistic to conservative estimate of where we're going here.
Okay. That's fair. We have the comp. Let me ask you this then. Is the comp guidance you laid out for the fiscal second quarter indicative of where the business is trending right now?
We're not going to get to that. I thought we got out of the box a little bit and gave you a little peek into golf for the second quarter. We're not going to get too granular into how we're going in the second quarter. Right now, we're very pleased with what's happening in the second quarter.
Okay, fair enough.
I know that doesn't answer your question, Brian.
It doesn't. I understand where you're coming from. That's fine. Shifting gears a bit, Andre, you talked about merchandise margins and the promotional cadence. Someone asked a question before about margins. I guess the question I have is, if we look at margins going through the balance of this year and recognizing there's maybe a bit of a choppy comparison in the second quarter, given the outsized promotions last year. How should we think overall about your stance towards promotional cadence now as we think about the
As we commented both in our Q4 earnings release, Brian, and also in the first quarter here, we said we plan to be much more promotional in Q1. We saw some opportunities to move inventory, as I mentioned. We did say that on a full year basis, we'll see our margins expand, and you can expect to see that happening in Q2, and our sense is that you'll see that happening in Q3 and Q4 as well. Margin expansions in the balance of the year and on a full year basis, we will make up what we gave back in Q1. That's pretty much what we talked about when we laid out our guidance.
Got it. Okay. Thank you.
Sure.
Our next question will come from Robert Ohmes of Bank of America Merrill Lynch. Please go ahead.
Hi, good morning. This is Raj Shatters on for Robbie. Thanks for taking our questions. Can you guys just remind us which categories there was promotional activity in 1Q, and then sort of what's the outlook for those categories for the rest of the year? That's the first question.
In Q1, we wanted to clean up the balance of our winter merchandise, the cold weather merchandise. We wanted to continue to clean up some of the issues in golf, kind of the areas that you had anticipated. Going forward, in Q2, it'll be primarily just the natural promotion. We're actually seeing Q2 being less promotional this year than we were last year.
Okay. Can you give some color around sort of trends in golf ASPs versus units, and then how you think about last year, very promotional in the second quarter. Did you see a traffic lift from all of the promotions you had in golf, and then how you think about lapping that?
Well, the AURs are up as we indicated we thought they would be based on the promotional environment last year. AURs are up. The units this year versus last year, we're not going to guide to that level of granularity, but we think the AURs will be up and the margin rates will be up.
Last question, just within footwear, can you talk about trends by category, and then are you seeing your allocations improve at all?
We never talk about trends by category specifically. I mean, give you specific numbers, but the basketball business continues to be very good. We expect the cleat business to continue to be good, and our allocations have improved, yes.
All right, great. Thank you.
Sure.
Our next question will come from Paul Swinand of Morningstar. Please go ahead.
Good morning. Usually thank you for all the patience with the questions, but I'm going to ask another golf one.
Gee, what a surprise.
Everybody's trying to guess what the golf impact on the second quarter is. I get a lot of questions on the longer term. The question is really, is there any analysis you've done by customer segment or product category? I know you mentioned some of the new players. What can we say or what analysis have you done on the longer term? Is there a reason to think that this will be a strong category for you? I know in your prepared remarks, you said it was only 3% of the business. It's still a big traffic driver in DICK'S regular stores and e-com as well. I think it's a big opportunity. Again, comments on the longer term and how you think the golf business will develop and still be strong.
I indicated that the Golf Galaxy business is a little more than 3% of the business on a total standpoint. We think that longer term, golf is going to be an okay business. We think that there's other areas that are going to grow at a faster rate than golf. We think golf's an important part of our business, and we're going to stay in the golf business. We see certain categories of golf accelerating. The golf apparel business is really where I think a fair amount of growth will come from. I think the golf equipment business will be stabilized, and it will move up or down a little bit one year to the next. We think that longer term, it'll be a good, solid, profitable business for us.
Any comments by region or maybe by younger players or?
No, not really. The areas of the country, once all the areas of the country are up and playing, there's not a huge difference.
Got it. I wanted to ask a little bit of a similar question on soccer. I know usually in the past you've said, Olympics or some of these events are not really a big mover. I remember last year you did say the World Cup was bigger than you expected. Is soccer going to grow as a percentage of the business, and do you think that that's going to be a place where maybe customers shop at DICK'S and there aren't as many competitive alternatives because you're such a big team sports player?
We think soccer is going to continue to grow. We had indicated that the Olympics are usually not a big driver of sales. The World Cup always has been. This past year, the team did a great job with the World Cup, and it exceeded our expectations. We think soccer is going to continue to grow pretty significantly, and we think that we're positioned in a great place to take a big part of that growth in soccer that's coming.
Just to be clear here, you think it's outpacing the rest of the team sports business?
In general, overall, probably on the long term. This year will be a little bit more difficult because of the World Cup. If you take it on balance throughout the next couple of years, yeah, I think it will outpace the majority of the team sports businesses.
Interesting. Thanks a lot, and best of luck.
Sure. Thanks.
Our next question will come from Stephen Tanal of Goldman Sachs. Please go ahead.
Morning, guys. Thanks a lot for the question. I sort of have to do it, but I am really curious if weather affected the golf business specifically or if you would say that was a factor in the results for Golf Galaxy and for DICK'S core golf.
Well, we try not to hide too much behind the weather, but as I said, we are still a high concentration, an important concentration of our businesses in the Northeast and the Upper Midwest. There is a fair amount of Golf Galaxy stores up there. Yeah, with seven and a half feet of snow sitting up in New England, it impacted the golf business. The courses were late opening up, and it had an impact. That might be one reason why some of the golf business is doing better than it is right now, than it had been because of the pent-up demand early on.
Sure. That seems to make sense. In terms of Field & Stream, you referenced cannibalization, and clearly, some of the stores have opened near one another. I am sort of curious if you could fill us in terms of how you are thinking about the regional growth strategy for that business and how you are planning really where you are going to open the stores. What enters the thought process, and is there any focus regionally, if you will?
Well, as you would expect, we take a look at where the hunters are and where the fishermen are. We take a look at a number of demographics, hunting licenses sold, hunting participation, same with fishing. We have got a lot of DICK'S stores. We know where the better hunt, fish categories are. That is how we are taking a look at this. The majority of them will be in the eastern part of the United States to begin with, and then eastern and a bit more in the Carolinas and north.
As I said, we're really excited about these combo stores where we can put a DICK'S and a Field & Stream right next to each other and reformat the DICK'S store to have some of the higher margin, higher turning items expanded in there that we would like to be able to do and have all the hunt, fish, camp product in Field & Stream still allow people to cross-shop. We think it's going to be a pretty compelling experience. Some of the customers that we have talked with and the research that we've done on this say love the idea, and we'll get a sense in the next few months on how this combo store does.
Okay. Understood, lastly, for Andre, in terms of the gross margin drivers, are you able to quantify that for us in the quarter? Merch margin would be helpful specifically.
Yeah, merch in Q1. I'll give you the merch margin piece, I won't go into elaborate details on all the other elements. I did mention that we de-leveraged occupancy and also the increase in our e-commerce sales drove some of those fees there, shipping expense. The merch margin was down 56 basis points.
Okay. All right. Thanks a lot, guys.
Our next question will come from Eric Tracy of Janney Montgomery Scott. Please go ahead.
Thanks. Good morning. Actually, Andre, real quick, if I could follow up on that gross margin, specifically to the occupancy deleverage and the expenses going towards the e-com in-housing. How should we just think about that sort of order of magnitude going forward and the timing of when potentially could inflect on that, and what is the omni-channel comp needed to ultimately leverage that?
Let me take a step back. There were a couple elements in that question. One is if you take a look at when we think about what does the total sales need to be to leverage occupancy, we've talked to our investors about that number being approximately on a full year basis right around that 10% range. That's what we look for in terms of total sales to leverage occupancy. In terms of the e-commerce discussion, we've really kind of never had that specific discussion other than to say that the goals we have and the profitability of that business gets significantly better for us as we insource the business. We talked about the investments we were making at our analyst meeting this year, which is about $8.5 million in that insourcing project. Those are the details that we've laid out to our investors.
Okay. Then, Ed, a little bit bigger picture strategically, obviously, e-com doing extremely well in terms of building out. Could you speak to how you feel like you're working with the brands to differentiate the products sort of cross-channel? Are there some exclusives that you're getting? Ultimately, this question kind of speaks to potential of cannibalization of the brick and mortar, and it certainly seems like very comfortable with continuing to grow the door base. Any comments on what the ultimate mix of e-com should be relative to brick and mortar?
Well, I think everybody's still trying to figure out what that appropriate mix is. Our e-commerce business continues to grow at a pretty rapid rate. We've talked about that we're opening stores in markets where we have little penetration or no penetration. We've talked about before in San Francisco, we've got roughly two stores in the Bay Area. There's a lot of places in San Francisco, in Houston, and some other places that customers can't shop at DICK'S Sporting Goods store because we don't have one. Those are the places that we're going to open up DICK'S stores.
From an e-com standpoint, we continue to work very closely with our vendors that are trying to help us also drive our e-commerce business, whether that's from broadening the assortment online and shipping directly to the consumer on a direct ship basis from the vendor or working with us on some short-run opportunities, short-run closeout, short-run promotions that there's not enough product to fill all of the DICK'S stores, but we can put it online and be out of it in three, four days a week or so. We continue to work with the brands. We continue to invest heavily from an e-commerce standpoint, and it continues to pay off. As you can see, as sales went up to 8.5% in the first quarter, and last year, our e-commerce business grew at double the rate of the industry.
We've got a relatively, in our category, we've got a pretty robust e-commerce business.
I just would add to what Ed mentioned is I think one of the metrics we've asked our investors to hold us to, so we have very high standards for opening up new brick and mortar, and that 95.4% was pretty indicative of the fact that we are holding ourselves to a high standard when we open up new stores, new brick and mortar because of the e-commerce items that we see in the marketplace.
Fair enough. If I could just switch gears lastly, back to the women's business. CALIA clearly believing that there's a lot of momentum behind that. Does that in any way also speak to, you've got kind of a year plus of building out the shop- in- shops, going after the women's category with some of the more premium brands. Is that in any way a statement on feeling like the product that these brands have in the marketplace maybe isn't resonating with women, or is there something else on the marketing side that needs to take place? Just a little bit more color as to what the learnings are on that front.
No, I wouldn't take that to think that with the brands. I think the brands have brought terrific product to the marketplace. The brands are doing extremely well. I think this is just additive to something new in the marketplace. This marketplace continues to grow. I would not read anything into the brand's performance. Our performance with the brands has been terrific in this category. We expect it to continue that way.
Great. Thank you all.
Our next question will come from Sam Poser of Sterne Agee CRT. Please go ahead.
Thank you for taking my question. Most of them have been answered. I guess just more of a general thought question here. When you're looking at the build-out of Field & Stream, of the increase in the e-commerce business, is there a natural movement from hard lines to soft line goods in the DICK'S Sporting Goods stores? That's really gonna be the longer term story of the margins, from a brick and mortar perspective there?
Well, Sam, yes. We talked about these combo stores. We're taking out the Hunt Fish Camp out of the combo store side of DICK'S and having that exclusively in Field & Stream, making room for these higher margin categories, higher turning categories such as women's, kids, and the team sports area. We've always talked about that one of the components of our margin rate expansion would come from a change in mix more to the soft line side of the business.
Excluding the combo stores, where are we in that evolution?
Well, as we did last year, we took some space out of the fitness area and the golf area and devoted that to these areas we talked about and had great results. We still continue to do that. We're looking to where we can modify space and move more of the higher margin products in there. We're still early on in this and as Field & Stream develops, we will continue to make this move and try to drive more of that outdoor hunt, fish, camp business to Field & Stream and make some more space for these higher margin, higher turning items in DICK'S.
Thank you. One last thing. For instance, if you're in a city where you don't have a joint store but one nearby, would you consider pulling hunt, camp, fish out of DICK'S even though it's not an adjacent store?
That's a conversation we're having. We've come to no conclusion on that yet.
Well, I look forward to hearing about it. Thanks and good luck.
Thanks. Thank you.
The next question will come from Sean McGowan of Needham & Company. Please go ahead.
Thanks, guys. A couple of questions about timing. Ed, can you give us some sense of whether or not that you expect the timing of store openings in the second half of this year to be comparable to last year, with the vast majority being in the third quarter? Andre, in terms of share repurchase, a lot more done in the first quarter of this year than last year. Should we expect the full year total share repurchases to be comparable to last year, do you think?
A couple of things there. You can expect the store openings to be skewed towards that third quarter. We're going to be roughly about the same in the second quarter and the bulk of our store openings on the DICK'S side, those 45 DICK'S stores will be in the third quarter, and that's pretty much the way we've traditionally done that. With respect to what we've told our investors today is, the guidance that we have right now contemplates the $150 million of share buyback that we've done. That's what it's incorporated in our guidance. We may do a little bit more this year, we may not. Right now, the guidance that we've provided you includes that $150 and no more.
Okay. Thank you.
The next question will come from Scot Ciccarelli of RBC Capital Markets. Please go ahead.
Hey, guys. The e-commerce business continues to grow pretty quickly. We've kind of established that. As it matures, can you update us today in terms of how the product mix is different in the e-commerce channel versus the mix at the store level? Specifically, how would the profitability trends look if you didn't have those extra expenses related to the GSI relationship?
Well, the mix is a little bit different online than it is in the stores because we don't sell firearms, we don't sell ammunition, we don't sell some of those categories online. We're not going to give exactly what the difference would be, but it would be meaningfully more profitable without the GSI fees. That's why we're moving in 2017 to move everything onto our own platform. The accretion is pretty meaningful going forward.
I guess my question is, even without the GSI relationship, I think Ed, you had mentioned before you expect the e-commerce business or channel to be more profitable than the retail level. Can you just help us understand how that's going to be possible with the extra shipping costs that are involved there?
I didn't say that it would be more profitable even with GSI. I said we had gotten to about the point where it was relatively the same. The profitability was the same. As we move forward through the year, if we exceed our sales budget, the profitability flow-through from a brick-and-mortar standpoint is better than the profitability flow-through from an e-commerce standpoint because the GSI fees are linear. They are at a % of sales, so it's difficult to leverage those costs. Basically, we pay a % fee on a $50 pair of shoes. We pay the same % fee on a $100 pair of shoes, so you can't leverage those costs. This is getting to be much more profitable.
We think as we eliminate those fees from GSI, do more business, scale our tech, and we'll be able to leverage some of our fixed costs and turn some of our variable costs into fixed costs, which we then can leverage. We feel that it'll be more profitable than the stores a few years down the road.
Okay. I'll follow up later. Thank you.
Sure.
Our next question will come from Michael Lasser of UBS. Please go ahead.
Good morning. Thanks a lot for taking my question. Ed, last quarter, you were helpful in helping us understand what could go right in the first quarter and what could go wrong. I think it helped to frame the hole you're in maybe at the start of the quarter and how much things got better. Can you help provide some more, especially relative to the margin? I think the widespread expectation is that a lot of the 100 basis points-plus margin degradation that you saw in the second quarter of last year would come back as the bulk of that was related to the clearance activity associated with golf.
Yeah. We're not going to give you the guidance of exactly what the margin rate's going to be, but we expect it to be meaningfully higher than it was last year because there'll be a lot less promotional activity. One of the headwinds from a margin rate standpoint that we have the anniversary is the World Cup. The World Cup, as we said, was a meaningful part of our business, and the margin rates on the World Cup were well above the company average.
With that being said, that would suggest that the golf activity clearance was probably well in excess of a 100-basis point drag. Is that something that's going to be permanently in the business now?
No. The drag from a golf standpoint?
Yeah.
Margin rate? The golf margin rates will be higher this year than they were last year.
Okay. I guess, longer term on the margin, we've seen the overall gross margin down for almost 2 years in a row now. Is this just the cost of doing business as you shift more volume online and move some traffic out of your stores, occupancy is going to be this consistent drag, or is there something aside from quarter-to-quarter volatility in the merch margin that can help stabilize that on a line item?
I do think that your point on occupancy de-leverage, that does we have to see our overall, as I mentioned, sales increase reach up around that 10%. That's going to move around quarter-to-quarter. There have been some quarters over the last several years where we have actually positively leveraged occupancy, but we haven't been consistent with that. That's one of the things that we talked about at our analyst meeting, is that we've got to get the brick-and-mortar comps a little bit more consistent as we move forward to be able to leverage that. You are seeing some of the dynamics with our outsized growth in e-commerce, where some of those e-commerce costs right now are not being leveraged as we continue to grow that business.
On the margin rates side, on the flip side of that, we feel that there's merch margin rate expansion due to the mix of products that we're selling and also better inventory controls. We had some inventory issues that we took some markdowns that we needed to do to get rid of inventory last year, we feel that the inventory is in much better shape this year than it was last year. Our clearance inventory is down at the end of the first quarter again versus the end of the first quarter last year. The inventory is in really very good shape, part of the margin rate expansion will come from mitigating markdown pressure on the back end.
Okay. One last one. Just broadly speaking, last year, your comps were above 1% for each quarter throughout the year. I think it was widely viewed that last year was characterized as just a tough year for golf and hunting. Yet this year, the comp was below what you saw in any given quarter last year. Would you attribute that to just overall continued softness in golf? Was the consumer spending environment more difficult this year than it was at any given point last year? Maybe you could reflect on it from that perspective.
Ed, you're talking about the first quarter?
Yeah, the overall comp in the first quarter compared to the overall comp of the last four quarters.
Well, don't underestimate the effect that, as I said, seven feet of snow up in New England and New York and the weather in the upper Midwest had, especially in the month of February and into March. We had a lot of stores that were just closed for days during that timeframe. It got sequentially much better. It's kind of hard to take one quarter and say that that's an issue. We saw a 1.8% on a consolidated comp basis on the DICK'S side was pretty good under the conditions that we operated in in the first quarter.
Okay. Thank you so much.
Sure.
Our final question will come from Michael Baker of Deutsche Bank. Please go ahead.
Thanks. Slid in. A year ago on this call, you told us that golf and the hunt business were 30% of sales. Can you tell us where you are now as you've downsized, and if you could break it out between golf and hunt, that would be helpful. Thanks.
Yeah. We're not going to get to that level of granularity, but I will tell you that the golf and hunt business is less than 30% of the business today, just based on the trend that those categories have and the growth trends we've got in other areas of the business. They are less meaningful this year than they were last year. To kind of combine those and lay those out, we're not going to do that.
Also in the past, you've told us that the drag is from golf and hunt or more, I guess actually the growth in apparel and footwear. Are you going to give us those numbers going forward?
Yeah. Michael, let me give you that right now. Last year, we didn't want to, but we got into this habit of telling you what the business was growing ex the hunt business and ex the golf business because there was tremendous headwinds in those businesses. I'm going to use that same factor for this year. If you excluded those two businesses, both the golf business and the hunt business, our comps at 1.8 comp at DICK'S would've been a 3.8 comp at DICK'S.
Okay. Very helpful. Thank you. Then I'll squeeze in one more. Just clarification, Andre, you said you expect second, third, and fourth quarter, you said margins to be up to make up what you lost in the first quarter. I assume you mean gross margin, not operating margin. Is that right?
Yes. Well, I meant merchandise margin. The question that was asked was around the comparison on the merch margin. Yes.
Okay. That was specific to merchandise margin. Okay. Thank you. Those are my questions.
Ladies and gentlemen, this will conclude our question-and-answer session. I would like to hand the conference back over to Ed Stack for his closing remarks.
I'd like to thank everyone for joining us for our quarterly call, and we'll look forward to talking to everyone at the next call. Thank you.
Ladies and gentlemen, this concludes today's conference call. We thank you for attending. You may now