Good morning, and welcome to the Dick's Sporting Goods 4th Quarter Earnings Conference Call. All participants will be in listen only mode. Please note this event is being recorded. I would now like to turn the conference over to Nate Gilch, Director of Investor Relations. Please go ahead.
Good morning, everyone, and thank you for joining us to discuss our Q4 2019 results. On today's call will be Ed Stack, our Chairman and Chief Executive Officer Lauren Hobart, our President and 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 approximately 12 months. As a reminder, we will be making forward looking statements, including our 2020 outlook for sales and earnings, which are subject to various risks and uncertainties that could cause our actual results to differ materially from these statements.
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. Today, we will be discussing certain 4th quarter and full year 2019 financial measures on a non GAAP basis. We will also be comparing these non GAAP financial measures to the comparable GAAP financial measures from the prior because there were no non GAAP items excluded during the prior period. We believe this comparison is helpful to evaluate the company's 4th quarter and full year performance relative to last year.
Please refer to our Investor Relations website to find the reconciliation of any non GAAP financial measures referenced in today's call. And finally, for your future scheduling purposes, we are tentatively planning to publish our Q1 2020 earnings release before the market opens on May 27, 2020 with our subsequent earnings call at 10 am Eastern Time. With that, I will now turn
the call over to Ed.
Thanks, Nate. Good morning, everyone. As announced earlier this morning, we had a strong 2019 and we're very pleased to deliver full year non GAAP earnings per diluted share of $3.69 This exceeded the high end of our guided range of $3.50 to $3.60 and represents a 14% increase over last year. For the full year, our consolidated same store sales increased 3.7%, which also exceeded the high end of our guided range of 2.5% to a 3% increase. For the Q4, we delivered a 5.3% increase in consolidated same store sales.
Our strong Q4 comps were supported by increases in both average ticket and transactions as well as growth across each of our 3 primary categories of hardlines, apparel and footwear. On a non GAAP basis, our merchandise margin rate increased 14 basis points in the 4th quarter, reflecting a healthy business. In total, we delivered 4th quarter non GAAP earnings per diluted share of $1.32 which represents a 23% increase over last year. It's clear our strategies are working. Our vendor relationships have never been stronger and we have tremendous momentum with a great foundation to build on for the future.
During 2019, we made meaningful changes across our business, fueling improved comp store sales results. We elevated the athlete experience in our stores through more differentiated and premium product. We improved in stock positions and delivered stronger merchandise presentations. We also made our stores more experiential and reallocated floor space to regionally relevant and growing categories. As we enter 2020, we remain enthusiastic about our business and are pleased with the start to our year.
We will continue to focus on enhanced 2019 strategies. This includes optimizing our inventory and floor space, delivering differentiated merchandising and driving athlete engagement across all channels. Our financial outlook balances this enthusiasm with a degree of caution over the coronavirus and how it may impact our business. Lee will address our outlook in greater detail within his remarks. As I've discussed on previous calls, over the past year, we have been reallocating floor space to remove hunt and replace it with categories and products that can drive growth and better align with the needs of each market.
To date, we have removed the hunt category from 135 Dick's stores and I'm pleased to announce these stores continue to generate positive comp sales in the 4th quarter, a noteworthy accomplishment during the peak hunting season. Building off the success, we'll remove the hunt department from approximately 4 40 additional Dick's stores during the first half of twenty twenty, leaving it in only 12% of our stores. As we do with all parts of our business, we will continue to monitor and evaluate all categories of business and make decisions that best serve our athletes. Additionally, we plan to build on the strong results delivered through our effective merchandising presentations. This strategy has been instrumental in the success of our premium full serve footwear decks among other important categories including apparel and baseball.
In 2020, we plan to gains. We're optimistic that through more premium products, enhanced store experiences and exceptional service, we can better serve our soccer and golf athletes and drive stronger results in these categories. Our largest and most exciting initiative this year will be focused on the female athlete, which Lauren will discuss in more detail. In closing, 2020 is an important year in which we will build on the success to fuel long term growth and further solidify our leadership position. I'd like to thank all our teammates for their hard work and commitment this past year and for their upcoming events efforts in 2020.
I would now like to turn the call over to Lauren.
Thank you, Ed, and good morning, everyone. I want to start by also acknowledging the dedication and efforts of our more than 40,000 talented teammates. We've made it a priority to create an environment where passionate and skilled teammates thrive and where we recognize them for the impact they have on our business. Our strong 2019 results are directly attributable to these talented men and women who are our key differentiator and the catalyst for growth. As Ed discussed, for the Q4, we delivered a 5 0.3% increase in consolidated same store sales, which included positive brick and mortar store comps and strong online growth.
This performance was driven by a 2.4% increase in average ticket and a 2.9% increase in transactions. Beyond our merchandising initiatives and improved in stock positions, our 4th quarter success is a direct reflection of our focus on improving service, experience and marketing across all channels. And in 2020, we will build on these efforts in these areas. As you may remember, nearly 1 year ago, we assembled all of our store teammates across the country to roll out our new service standards. This was a landmark event for our company and a springboard from which we've developed strong momentum in our stores.
This past year, our store teammates demonstrated that we're seeing an improved service and selling culture as we still see many opportunities ahead to delight our athletes. Our stores also contribute tremendously to our e commerce growth through buy online, pick up in store and ship from store as the lines between in store and online are becoming increasingly seamless. During the Q4, we continued to see strong BOPIS growth in our Dick's stores. We also expanded BOPIS to each of our Golf Galaxy stores and we're pleased with the initial response from our athletes. And for this year, office grew more than twice the rate of the 16% sales growth we saw in our overall dedicated e commerce fulfillment centers during the peak holiday period.
These new fulfillment centers, along with our new strategic delivery partnership with FedEx, have continued to reduce delivery times to our athletes. Looking ahead, we will continue to improve our omnichannel experience through faster and more reliable delivery as well as improved functionality and performance of our website. In 2020, this will include providing shorter and more accurate estimated delivery dates earlier in the athlete's shopping funnel, expanding BOPIS to more items and delivering more localized website experiences as well as a faster and more convenient checkout. As part of our multifaceted women's initiative, we will deliver an expanded assortment across several key sports, including basketball, dance, soccer and softball. In addition, our marketing in early 2020 will amplify DICK'S as the go to destination for her.
Last week, we launched our women's campaign featuring a TV spot that showcases the very surprising history of the sports bra and features Brandi Chastain. Additionally, we are celebrating CALIA's 5 year anniversary, which has grown into our 2nd largest women's athletic apparel brand. This year, we're excited to elevate the CALIA brand and assortment through new categories, more premium product, a refreshed store experience and stronger marketing. CALIA is also integral to our broader private brand strategy. Collectively, our private brands represent our 2nd largest brands behind only Nike and drive differentiation and exclusivity within our assortment.
In addition to CALIA, we remain very enthusiastic about DSG, which we launched last year and expect to surpass Field and Stream to become our largest private brand by the end of
the year.
Finally, in support of our pledge to provide access to sports for 1,000,000 additional young athletes, last year, the DICK'S Foundation made grants of approximately $7,000,000 to youth sports programs across the country. Importantly, this funding helped nearly 200,000 underserved kids play sports. Building on this momentum and aligning with our women's initiative, in February, DICK'S and the DICK'S Foundation hosted a Hear For Her Summit in New York City, a focused effort to champion women and girls in sports and fitness. As part of this, we announced our foundation's commitment to young female athletes with a 3 year $5,000,000 grant to the U. S.
Soccer Foundation's United For Girls Initiative. This grant will be used to create safe places to play fund coaching and training opportunities and support soccer programs in underserved communities across the country. In closing, we remain very enthusiastic about our business and confident that the continued execution of our strategies will strengthen our leadership position in the marketplace. I'll now turn the call over to Lee to review our financial results and outlook in more detail.
Thank you, Lauren, and good morning, everyone. In 2019, we had a strong year from both the sales and earnings perspective. Consolidated same store sales increased 3.7% with momentum building throughout the year. Within this, we delivered a 16% increase in our e commerce business and posted positive brick and mortar store comps. On a non GAAP basis, gross profit margin expanded 44 basis points and as part of our focus on increasing productivity, we eliminated over $40,000,000 of expenses across many areas of our business.
We expanded non GAAP EBT margin in the second half of the year and for the full year delivered non GAAP earnings per diluted share of $3.69 a 14% increase over 2018. Now turning to our 4th quarter results, consolidated sales increased 4.7% to approximately $2,610,000,000 Consolidated same store sales increased 5.3 percent driven by growth across each of our 3 primary categories of hard lines, apparel and footwear. We saw continued strength in our stores posting our 3rd consecutive quarter of positive brick and mortar store comps. Our e commerce sales increased 15% and as a percent of total net sales, our online business increased to 25% compared to 23% last year. Notably, we delivered these strong sales results despite the compressed holiday selling season and challenging weather that negatively impacted sales in important cold weather categories.
Additionally, as Ed mentioned, we continue to be pleased with the results of our space optimization efforts. While removal of hunt from the 125 stores contributed to a meaningful sales decline in that category, these stores comped positively overall during the peak hunt selling season. On a non GAAP basis, gross profit in the 4th quarter was $746,200,000 or 28.6 percent of net sales, a 73 basis point improvement compared to last year. This improvement was driven by leverage on occupancy costs of 62 basis points and merchandise margin rate expansion of 14 basis points. As expected, this was partially offset by costs associated with the opening of our 2 new dedicated e commerce fulfillment centers.
Non GAAP SG and A expenses were $598,100,000 or 22.93 percent of net sales, up 77 basis points from the same period last year. 36 basis points are attributable to expense recognition associated with the change in value of our deferred comp plans resulting from the increase in overall equity markets during the Q4. This expense is fully offset in other income and has no impact on earnings. The balance of the deleverage was primarily due to higher marketing expenses related to our successful multi channel holiday campaign as well as higher incentive compensation expenses due to our strong 4th quarter results. Driven by strong sales and gross profit margin, non GAAP EBT was $148,600,000 or 5.7 percent of net sales, up $12,300,000 or 23 basis points from the same period last year.
In total, we delivered 4th quarter non GAAP earnings per diluted share of $1.32 compared to earnings per diluted share of $1.07 last year, which represents a 23% year over year increase. On a GAAP basis, our earnings per diluted share were $0.81 stores in 2020. This includes a $35,700,000 non cash impairment of trademarks and store assets as well as a $13,100,000 write down of hunt inventory in these stores. For additional details on this, you can refer to the non GAAP reconciliation tables of our press release that we issued this morning. Now moving to inventory, as we planned our year end inventory levels increased 21% compared to the end of 2018.
Looking ahead, our inventory is well positioned as a result of our investments in this past year. And for 2020, we expect inventory to grow by a high single digit rate at the end of the Q1 with further moderation at the end of the second and third quarters. And by the end of 2020 we expect inventory levels to be approximately even with 2019. Turning to our Q4 capital allocation, net capital expenditures were $39,000,000 We paid approximately $24,000,000 in quarterly dividends and today announced an increase in our quarterly dividend of $0.3125 per share or $1.25 on an annualized basis. During the quarter, we also repurchased 759,000 shares for $36,100,000 at an average price of $47.53 During the trailing 4 quarters, we've returned over $500,000,000 to shareholders through share repurchases and quarterly dividends.
These activities were funded through cash from operations and borrowings under our revolving credit facility and we have approximately $1,000,000,000 remaining under our share repurchase programs. We ended the 4th quarter with approximately $69,000,000 of cash and cash equivalents $224,000,000 outstanding on our $1,600,000,000 line of credit. Now let me move to our fiscal 2020 outlook for sales and earnings. As Ed mentioned, our outlook balances the enthusiasm we have for our business with the rapidly evolving coronavirus event. As part of this, the low end of our outlook includes some conservatism around supply chain disruption potentially impacting our sales and earnings starting in Q2.
At this time, our outlook does not include an impact from slowing consumer demand should the coronavirus spread considerably in the United States. Additionally, based on what we know today, we are not forecasting any significant impact to sales or earnings in Q1. And we have been pleased with our sales trends so far this year. That said, we are actively managing our supply chain and working closely with our vendor partners to ensure the best possible outcome for our business. All this considered for 2020, we anticipate earnings per diluted share to be in the range of $3.60 to $4 and consolidated same store sales to be approximately flat to up 2%.
EBT margin is expected to be down approximately 30 basis points at the low end of the range and up slightly at the high end when compared to non GAAP EBT margin in 2019. Within this gross margin rate is expected to be approximately flat at the high end, while SG and A and is based on 85,500,000 average diluted shares outstanding, which only includes the expectation of share repurchases to fully offset dilution from stock compensation plans. Net capital expenditures are expected to be in the range of $235,000,000 to $295,000,000 At the high end of the range contemplates improvements in existing stores including stronger merchandise presentations within footwear, soccer and CALEA, as well as hunt space optimization in over 400 stores, as well as technology and store design investments to enhance the fitting and lesson experience in our Golf Galaxy stores. This also includes ongoing investments in technology as well as 9 new Dick's stores, 6 new Golf Galaxy stores and 17 relocations. Before concluding, I'll take just a moment to highlight some upcoming changes to our same store sales reporting practices.
Beginning in Q1, 2020, we will continue to provide consolidated same store sales results while moving away from providing e commerce sales growth and e commerce sales penetration metrics. Our athletes are increasingly shopping across multiple channels and on the same transaction and to attribute the sale to one channel or the other can be quite arbitrary. We believe this single view of the consumer best represents our omni channel approach, which centers around serving our athletes whenever, wherever and however they want to shop. This concludes our prepared comments. Thank you for your interest in Dick's Sporting Goods.
Operator, you may now open the line for questions.
Our first question today will come from Robbie Ohmes of Bank of America Merrill Lynch. Please go
ahead. Hello. This is Alex Perry on for Robbie. Congrats on a great quarter. Just first, can you give us some more color on your plans for the Hump business with your announcement to replace merchandise in 415 stores?
I guess specifically what categories of merchandise are you placing there? And then And
then just last on that, can you give us an update on the And then just last on that, can you give us an update on how those remerchandised stores are performing versus chain average? Thanks.
Sure. So on the categories that we're going to replace the hunt area with depends on the store, depends on what store the market is in and categories that are most important to those stores. But team sports, baseball, reengineering our soccer business are all parts of those categories. We expect to increase in stores our youth apparel and footwear business along with the women's initiative that we've talked about. So depending on what the store is, what part of the country will depend on where we're what we're putting in there.
And we're not going to get to a give you such granular information of how they're performing to the rest of the chain. It was in the key hunt time. So it's difficult to compare those stores with the other stores that have already taken hunt out. But we're very pleased with the response we got. They count positively.
And as I said, we're very pleased or we might be rethinking this whole the whole idea
here. Great. That's very helpful. And then just second, just when you say the coronavirus supply chain disruption impacting the business in the Q2, is there a certain category that is more likely to be disrupted? And then I guess just to offset, do you expect to have your sort of seasonal back to school or fall 'twenty product on hand?
And then I think you alluded to this, but have you seen any impact to traffic trends in the U. S. Yet since the outbreak?
Thanks. We're very pleased with the start of our year as we've indicated. Where some issues in the supply chain may come from, We haven't seen anything significant yet, but it's a pretty fluid situation as you know. So we're trying to be conservative of what that supply chain and all those issues might be. But we haven't seen anything significant yet.
But that doesn't mean that it can't happen because I think everybody is scrambling to see what shape their supply chain is in.
It's very helpful. Best of luck going forward.
Thank you.
Our next question comes from Michael Lasser of UBS. Please go ahead.
Good morning. Thanks a lot for taking my question. And when you mentioned you're pleased with the start to the year, have you seen any variability in your sales by market? So if you look at the Pacific Northwest where some of the concerns have grown a little bit more intense, has that impacted those locations there?
Surprisingly, no.
And separately, when you think about your the shape of the year, and I think Lee mentioned that your gross margin at the high end is expected to be flat. It did appear that you had some extra seasonal clearance inventory to start the year. So how should we think about how the gross margin is going to flow over the course of the year? And from a upside downside perspective, what are you factoring in at the low end in terms of the margin performance for each line?
Just earlier in the year, we're working through some of the hunt clearance in the 400 stores. So that should have kind of a modest impact on unfavorable impact in the first half and we're also have to anniversary the 2 extra distribution centers in the first half of the year as well. So we'll anniversary that as we get into the 3rd Q4. So the gross margin will be, I'd say a little bit more pressure in the first half than in the second half.
And the last question is, as you move away from the hunt category in these 440 stores, how are you going to ensure that the customer doesn't look at Dick's Sporting Goods more like a department store in that you're going to skew much more heavily into the apparel and footwear categories and the differentiation maybe a little bit less than it's been in the past?
Michael, I don't think there's any concern about that whatsoever. We've taken it out of 140 some stores. It's out there are some stores that we opened up, didn't put it in. So there's a couple of 100 stores that we don't have hunt in that we've tested this. And we're going to be focusing on the female athlete.
As we said, the footwear business is very strong, but we've also been very clear on our target for that high school athlete, our baseball business, we're going to restructure our golf business, restructuring our soccer business. So I don't think there will be any confusion that we are in the sports and fitness business as opposed to a department store.
Our next question comes from Kate McShane of Goldman Sachs. Please go ahead.
Hi, thanks. Good morning.
Hi, Kate. You're able to take?
I'm not sure what the shares we were able to take. You can take a look at other people's comps and take a look at our comps, which were among some of the best in retail and what it would have been had we not had some of the headwinds. It's really difficult to put forth what theoretically that may have happened. So if the weather was colder, our outerwear business would have been better, but some other areas of the business might not have been as good. So it's I think our team did a great job managing through the difficult weather pattern Q4 was extremely well received and differentiated and really had us stand out in the marketplace.
And I think all of those things contributed to the terrific results that we had in the Q4. Kate, in addition to that, we made a conscious effort this year to stay in stock in some
of the warmer weather products throughout the chain. So our baseball business, our apparel business, we stayed in better stock in footwear position. So our inventory levels were up, but that improved inventory position allowed us to capitalize on the more favorable warm weather trends, which helped us offset some of the lost cold weather business and it's also positioned us well going into Q1 from an inventory perspective.
Okay, thank you. And then my follow-up question is just about SG and A leverage in 2020. Can you talk a little bit about where that's coming from? And I think in 2019, you did find some areas for cost savings. Are there any opportunities for cost savings in 2020 or is that included in the guidance?
Yes, there are a few big chunks in SG and A. One is we paid we're planning to pay very significant incentive compensation in 2019 and for 2020 our plan is for more normalized incentive compensation. So we've got a pickup there. We also have the kind of the evaluation of deferred comp plans that there was a significant run up in the stock market this year. We had to revalue our deferred comp plans that gets offset and other expenses has no impact on earnings, but we'll pick up leverage on the SG and A line there.
I would say those are the 2 biggest pieces. We're also planning continue with more meaningful expense savings in 2020 as well. So we've got a lot of levers to pull. We've got structural advantages, I would say on the incentive comp side as well.
Thank you.
Our next question comes from Simon Gutman of Morgan Stanley. Please go ahead.
Good morning. My first question is on the top line guide 0 to 2, which seems prudent. And to clarify, it sounds like that's ex corona. In other words, there's no demand impact into the 0% to 2%. And so my question is, in what scenario would you end up doing closer to the low end of that range given all the good things that are happening in the business today?
So Simeon,
we did bake in some
demand reduction related to coronavirus, but it's really related to the supply chain that potentially we may not get some of the products that we had expected to get or we may not get them in a timely basis. So we did pull down the low end of our sales related to supply chain disruption, but we haven't pulled it down assuming that there'd be a widespread kind of demand disruption due to quarantines or isolation or whatever it may be in the U. S.
Got it. That's helpful. Have you quantified or can you quantify what you is it 50 bps of an impact, is it a point?
We haven't quantified it.
No worries. Okay. My follow-up is these investments that you're making to the stores and assortment, you're adding premium product and I think the mix of private label is ticking up slowly. So two questions to that. Is there a naturally higher rate run rate of gross margin?
And is there some way to dimensionalize that? And then moving a little bit more to premium, you're seeing a good response. How do you feel about the balance of value and differentiation in the store?
We feel that we've got the right balance of between value and differentiated and premium product, which is the DSG brand that we introduced last year is that more intro opening price point product at a great value, great style, which as Lauren indicated in her comments has done great, will be our largest private brand after 1 year this year. And then with what we've got in the premium product, whether it's the premium baseball bats, premium baseball gloves, what we're doing from a soccer boot category, we think we've got the ability to service the beginner, intermediate and the enthusiast in these the sports that we're focused on.
Thanks, Ed.
Sure.
Our next question comes from Adrienne Yih of Barclays. Please go ahead.
Good morning. Great quarter. My first question is, at the beginning of the quarter, there was this notion that it would be a highly promotional quarter. I think the kind of midpoint the guidance was on sort of a flat promotional environment to the prior year.
So I
guess I'm curious outside of hunt, how did you manage your cold weather categories with the controlled promotional activity? And then my second question is on the supply chain, how much is direct sourced of your private label? And then as an estimate sort of on the brand side sort of indirectly sourced from China? Thank you very much.
I think one of the ways we're able to manage the promotional environment out there is that we really had differentiated product from many others in the marketplace between not only our private brands, but whether that be some special makeups we got from the brands and how we assorted our business. We managed our inventory quite well there. We've been able to clear some of that merchandise out. We've also taken some go forward product that we will have next year, some basic product and we've packed that away. So we didn't go and promote that.
We'll buy a run. We're in the process of buying around that next year. So that helped the margin rates. And as far as where our brands, what the total amount of business that's sourced from the brands overseas, I don't really know. And they're changing factories all the time and where they want their supply chain to come from.
So I can't answer that question.
Okay. And then just last follow-up. You talked about quarter to date trends or year to date trends being pleased with those. Does that imply similar to the Q4 or higher than the current Q1 comp guidance? Any color there would be very helpful.
Thank you.
I'd just like to stick with where we're pleased with the results that we've got so far this quarter and we're not seeing an impact really from the coronavirus.
Fair enough. Best of luck. Thank you.
Thanks.
Our next question comes from Chris Horvers of JPMorgan. Please go ahead.
Thanks. Good morning, everybody. So I wanted to follow-up on the gross margin. If we assume 10% of sales, you're exiting that in half the stores and then you'd called out a 1700 basis point gap versus the company average from a merch margin perspective. The quick math just about a 70 basis point annualized benefit to merch margin for this change.
Is this in the zip code or is there any assumptions that we're using here that are off base?
So I think you could be heavy on the penetration on the hunt side. That business has come down quite a bit over the last few years.
Got it. Okay. So I guess that understood given that your private label continues to grow, the occupancy dollar savings have been really substantial and you still have a lot of renewals coming up and you have the DC, which should be relatively small to the annual picture. And then you do have the mix shift from hunt. How could gross margin be flat at the high end?
What are you assuming are the offsets that would flatten us out for the year?
So again, we've got to work through some of this hunt inventory that we've got in the 400 stores in the spring season. So we've got that and we have that in our plans. We did take a charge for it, but the way that works, you only take a charge for the stuff that you sell below cost, but selling at depressed margin rates to move through it above cost, you can't take the charge for. So that's going to hit the P and L over the course of the 1st 6 months of the year. So that's a piece and having these extra two facilities for the 1st 6 months of the year is a drag on us, will be a drag as well.
And those are the 2 main pieces. As we get through last fall, season last fall wasn't particularly promotional for us. We even said Q3 was very lightly promotional. Yes, and so we're not up, we're up against a relatively light promotional period in the back half of the year. And similarly, the last part is we've got a fair amount of CapEx coming.
Most of that CapEx is attributable to stores coming up and depreciation expense associated with that CapEx, whether it be around the golf business, the hunt business, CALIA and so on. Most of that depreciation expense falls into the gross margin line and that will hit more heavily in the back half of the year as well.
Excellent. Thanks very much. Have a great spring.
Thanks. Thanks.
Our next question comes from Joe Feldman of Telsey Advisory Group. Please go ahead.
Hi. Thanks for taking the question guys. Good morning. First I wanted to ask, I think, Lauren, you talked about doing some work with the selling culture for 2020. And could you maybe talk a little bit more about that and what you're thinking to help improve the selling culture?
Yes. It's an effort that we did start about a year ago when we rolled out new service standards that really focused on engaging athletes and giving confidence for their purchases. And we also rolled out last year a recognition program that really focused on rewarding people for when they are delivering great service. And this year we intend this is obviously a multi year journey. We have a lot of opportunities still.
So we intend to really redefine several aspects of our service model, specifically women's will be redefined, golf will be redefined, we're elevating footwear and we are working on training and hiring and coaching, so that we just keep improving the momentum that we've seen in the stores.
Got it. Thanks. And then just a follow-up. With such a strong Q4 and it seems like maybe with the warmer weather, you must get a jump on some of these spring sales. Is there a pull forward historically when you have this type of scenario or does the demand kind of sustain itself through the spring as kids are out playing baseball and softball and such?
It's hard to tell. We actually we're very pleased with the start of our year as we indicated. We think some of that could be a pull forward, But that's kind of all baked into our guidance going forward. So we're pleased right now. We don't know what's going to happen with the coronavirus, but as of right now, we're pleased.
Our next question comes from Steve Forbes of Guggenheim Securities. Please go ahead.
Good morning. Maybe just continuing on the hunt related, I guess, liquidation plan, right? Because it sounds like you plan on selling the inventory through the stores in the spring. So I don't know if you can either quantify or give us some color on the anticipated comp and gross margin impact in the first, second quarter? And or maybe if you just want to keep it high level, talk about the decision on why not use a 3rd party liquidator or accelerate the liquidation and move up the pace of the resets, right, as you sort of think about what you're seeing in the 135 stores that you've done so far?
This is a pretty quick move that we're doing this. You've got to sell the inventory down, then you've got to reallocate the space. We think this is pretty quick. And to use a 3rd party, I don't know why we'd use we've got some advice from a 3rd party, but I don't know why we would use a 3rd party when we can liquidate it at a higher price ourselves. We're a pretty good retailer.
And then maybe just a follow-up on that, right? It's still early days maybe with us being able to fully appreciate, right, the return profile of this move, right, using out the space allocation changes. But any sort of comment on maybe the payback period of the space allocation changes and or the return profile associated with them?
We're pleased with the results. We said we went through the peak hunt season in the fall with removing hunt from 125 stores. We comped positively in those stores. Margin rates were also better in those stores as well. And this is just a move that we're looking to make.
I don't think it's 100% driven by the return on investment from what we're putting in there. We want to go into categories that we're committed to that are growing. And the hunt business is a low return business for us and we're looking to move on from that.
The hunt business is if you follow the story, the hunt business is the lowest probably the lowest turning, lowest margin category we have. As we started to go through this a couple of years ago and started to test this, we felt that we knew that we could make a lot more money, turn the inventory faster at a higher margin than what we can do from the gun standpoint. I think we indicated that the hunt business was roughly 1300 basis points or 1400 basis points below the company average. It was 1700 basis points below the company average. And we've indicated that the hunt business has been has declined significantly over the last couple of years.
It declined significantly in the 4th quarter and we still printed a 5.3% comp gain. So it's pretty clear that this is the right decision to make.
Thank you. Sure.
Our next question comes from Seth Sigman of Credit Suisse. Please go ahead.
Hey, guys. Thanks for taking
the question and good morning. I want to first start with the supply chain risk that you highlighted potentially into the Q2. I guess the low end of the comps range considers that. I realize you're not seeing it yet, but in that scenario, based on what you know about how the inventory flows and how the imports flow, would that impact be isolated to the Q2 or would you expect to see some lingering effect into the back half?
So I mean we saw with our own private brands a slowdown of shipments in coming out of China in February And we've seen that pick up pretty meaningfully here in early March. So we think that as we get to the latter part of April, some of the receipt levels will be down in our stores. We don't think it will be significant and that's on our private brands. With regard to our national brands, we've heard from most of the major national brands that they don't see a significant impact, that there's some isolated impacts along the way, but they don't see significant because we have visibility to some slowdowns in shipments in February. But it seems to be our suppliers seem to be coming back online pretty quickly and I would expect that with our brands as suppliers are coming back online pretty quickly there as well.
So I don't see a long term impact in supply chain at this point. So I think that's about all we can say. We're not hearing much from the brands that they we do not they're not indicating that there's a meaningful issue out there with their supply chains.
Okay. That's helpful. Thank you. And then just back on the demand backdrop. Obviously, you're pleased with what you're seeing so far in the year.
You're not assuming there's going to be a demand issue. I guess the question is, if you look back to past case studies when there was some sort of level of uncertainty for the consumer like this, and maybe we've never really seen anything quite like this, but is there something that gives you confidence when you were to flip back historically that, I guess, demand won't drop off at some point over the next couple of weeks or months just given the uncertainty that's out there? Thanks.
We really have no like everyone else, we really have no idea. I don't think we've ever seen anything like this in a very, very long time. So we're like everybody else. We're hoping for the best, but we know that it's very uncertain out there and we can't predict what's going to happen.
Okay. Thank you.
Our next question comes from Warren Chiang of Evercore. Please go ahead.
Hi, good morning. Thanks for taking my question. Your offerings at both the premium end and the value end of the spectrum have really gotten a lot better over the last couple of years. First, are these sales going to existing customers? Or are you seeing new customers come in as a result of the expanded offering?
And then second, following up on Simon's question, how much of a gross margin lift are you getting at the company level as you flip some of the prior Reebok apparel to GSG?
So on the first question regarding new or existing customers, a lot of our strategies actually are either bringing in new customers or adding an occasion to current customers. Both things are happening. In the case of some of the higher end assortment, we think we're getting back customers that perhaps were going elsewhere. In the opening price point products, we did feel that there were gaps in our consumers were coming in and perhaps filling that need at other competitive channels. So it's really both and it's been effective from both perspectives.
The second part of the question?
Differentiation in margin rates between DSG and Reebok?
The DSG margin rate we expect will be a little bit better. We're putting a bit better quality in that product, but there's no royalty payment associated with it. So there's a bit of an offset there. And we've one of the reasons why we think this has done so well is we've built better product and taken some of that royalty payment and put it into the better product, into the marketing of it. So we couldn't be happier with how the team executed and brought to market the DSG brand.
Thanks. That's helpful. And my follow-up was just on question on e comm. Can you talk about the trend you're seeing in basket online as you've improved your website and shipping speed?
That is not a level of detail that we typically provide, but I can just tell you that the e commerce channel is doing great across all metrics.
Great. Thank you.
Our next question comes from Brian Nagel of Oppenheimer. Please go ahead.
Hi, good morning. Thanks for taking my questions. So most of my questions have been asked. A couple, I guess maybe just follow ups. First, with regard to the weather in the Q4, particularly the warmer temperatures.
On balance, was that do you think that was more of a positive or negative?
No, definitely not.
It's not. It was not a positive. Okay. So there was more of a positive. There's been some talk about the crisis leading to the postponement or even, I guess, postponement of the Olympics.
To what extent and some of your vendor partners have talked about this as a potential disruption. To what extent as you look through 2020s, is the are the Olympics expected to be a driver of your business? Is there anything in your guidance? And how would you see it any type of disruption Olympics affecting your business?
There's nothing in our guidance about the Olympics. And the Olympics surprisingly is not a big part of our business. There's some it's a little bit accretive, but if we have the Olympics or don't have the Olympics, you won't see it in our results. Actually, and I've talked about this before, the World Cup is more of an impact on our business than the Olympics does. If this was the World Cup year and we're having the World Cup was going to be canceled that would be a bigger impact to our business than the Olympics.
Got it. Thanks, Ed. Appreciate it. Sure.
Our next question comes from Scot Ciccarelli of RBC. Please go ahead.
Good morning, guys. Scot Ciccarelli. So given the, let's call it, 22% increase in inventory kind of per square foot, How much do you feel you've benefited from on the top line from those higher inventory levels? And secondly or related to that, I guess, what categories is that extra inventory really concentrated in at this point? Thanks.
I think it had a significant impact on our sales and it was focused on what we characterized as the attack categories going forward, which was athletic apparel, athletic footwear, baseball and golf.
And due to the weather trends we had in Q4, those categories were favorably impacted being in a better inventory position helped us in those.
Also helped us with
the
box and just a better brand presentation in the stores.
Yes, that all makes sense. I guess what my question would be is if you're expecting inventory levels to kind of moderate as we move through calendar 2020, what kind of negative impact do we potentially see? Because obviously, you had a big surge in inventory comp throughout the course of the year. And then as you guys just talked about, it obviously helps sales. But as that growth rate of the inventory starts to moderate, I guess I'm wondering what kind of potential adverse impact could we see on sales as we move through 2020?
We don't see any real impact there. We think we get back to appropriate inventory levels. We were very clear last year and toward the end of the previous year that we let our inventories get too low. And we got ourselves back to the appropriate inventory levels where we could service the athlete, whether that was a baseball player, softball player, golfer, runner, and we got back to appropriate levels to be able to service them. So we don't see any meaningful difference from what we've done from a guidance standpoint based on moderating our inventory.
We think it's appropriate to moderate our inventory from a cash position, inventory turnover, margin rates going forward. We're very pleased with what we did. We feel that we'll moderate these through the year and will have no impact on our sales. Right. We still see a lot of opportunities internally as we look at ways to make the inventory more productive.
So even as the inventory levels off, we think we can continue to drive positive comps.
Got it. Okay. Thanks, guys.
Our next question comes from Sam Poser of Susquehanna.
Hey, guys. Sorry. This is Will on for Sam. Just a quick question on private brand. How much of that does it make up of your total revenue now, private brands business?
Around 14%.
And then switching topics, what does the tariff impact look like for FY 'twenty for you guys on gross margin?
We've been able to kind of negotiate our way through a lot of these tariffs and the overall tariff impact on us on our cost has been pretty modest and we don't see it having a meaningful impact on our gross margin rates for next year.
Got you. And then last one, so how much I know you guys have talked a bunch about this, but how much of that inventory how much of your inventory now is comprised of hunt and cold weather?
Hunt and Co, I mean, we've gotten to that granular disclosure. But I mean, our hunt inventory has continued to come down every quarter for the last 8 quarters. Our hunt our outerwear, our cold weather inventory is higher than it was last year as we decided to pack up a fair amount of the go forward merchandise. So merchandise we're going to buy again, black gloves, black ski pants, certain jackets that are going to go forward that are not going to go out of style from a style standpoint or color standpoint. We pack those up and we're buying around those next year.
So some of our receipts will be down in those categories next year.
Our next question comes from Tom Nikic of Wells Fargo. Please go ahead.
Hey, good morning. Thanks for taking my question. So I want to ask, you're obviously pulling Hunt out of the vast majority of your stores. And I think you said, by the time this is done, you'll only have Hunt in about 12% of your stores. I'm just kind of curious like what are those 12% of stores just places where your hunt is so important like you have to keep it in there or why not just kind of exit the category completely?
Well, there are areas there are stores in more rural areas where hunting is an important part of people's lives to feed themselves, if you will. They hunt not just for sport, but they hunt to actually feed their families. And we've taken a look at that and we think that that's important to continue to provide that and it is going to be just primarily hunting product is all that we're going to be carrying there.
Understood. And Lee, a quick question for you. The CapEx is moving up this year, higher than what you've seen in the last couple of years. Is this kind of a sort of one time investment year or would you say that this $330,000,000 to $390,000,000 on a gross basis is kind of a normalized CapEx rate?
We have an elevated level of investment in our stores this year. And in the stores we're investing in our golf departments, our women's business, transitioning our hunt department. So I'd expect that this year's level of investment in stores is higher than what we'll have going forward. And we don't see at this point looking on to the next couple of years any significant needs for fulfillment operations next couple of years. So I would expect this year to be elevated somewhat over what we've got for the next year or 2 after that.
All right. That's helpful. Thanks and best of luck this year.
Our next question comes from Paul Lejuez of Citi Research. Please go ahead.
Thanks guys. Curious if you could share the percent of sales that Hunt represents in the 4 40 additional stores where you'll be removing that category? And how does that compare to what Hunt represented as a percent of sales in the original group of stores where the categories were already removed?
We're not going to get to that level of granularity as we indicated earlier, but I can tell you that it is meaningfully less than it was a year ago, which was meaningfully less than it was the year before. So this is getting to be a much smaller part of our overall mix. And as we indicated in all the stores that we've taken out, they've continued to comp positively.
Got it. And then just given your to comps? Is it neutral? Is it a tailwind? To comps?
Is it neutral? Is it a tailwind? Any quantification you can provide there?
Yes. I would say for this year, it's a slight headwind to comps. However, from an earnings perspective, we think we can we believe that we can cover the majority of that or nearly all that the issue is timing in that we're going through a transition in spring when the hunt business is low and then the transition will happen in the fall where hunt is high. So it's a little bit of an impact on earnings and sales for this year, which are both embedded within our guidance.
But if you take a full year when we're done with all of this, it would be accretive to earnings as we go forward.
So are you able to make up for the gross profit dollars completely, right? It's a little bit of a headwind on comps and you're replacing that higher margin categories or gross profit dollars, is it actually higher as I'm through with this?
Yes, not for this year, but going forward, yes, we believe we can do that.
We have to clean up this inventory this year.
Got you. Thank you. Good luck.
Thank you.
Our next question comes from Peter Benedict of Baird. Please go ahead.
Hey, guys. Thanks for taking me in here. Just a couple. Firstly, just trying to understand kind of the outlook for D and A growth as you think about 2020. I think last year was probably up around 5%, if you adjust for charges and whatnot.
Just trying to see with the stepped up CapEx, how fast do you think D and A is going to grow in 20 20? And kind of similar question on the occupancy, which was down almost 2%, I guess, in the Q4. Is that a good run rate as we think about 2020? That's my first question.
Yes, I'd say D and A probably slightly faster growth rate in D and A and occupancy I think you'll see similar trends to what we've had this year.
Okay, perfect. Thanks. And then I think there was a comment that there were more items that were going to get added to the BOPIS assortment in 2020. Can you give us a sense for maybe orders of magnitude, how much will be available in BOPIS this time a year from now versus today? And then maybe what categories are getting added there?
We're not going to provide that level of detail, but we are focused on expanding our assortment for Vappas and some of these inventory investments will actually help with that as we have more confidence that the product is actually in the store and we can light these things up online for people to pick up that day. We've expanded to Galaxy and we just are putting a huge focus behind buy online, pick up in store in general, but we're not going to share the category levels or the growth rates.
Okay, fair enough. And then just last question, just sort of on the golf business, I know a few years ago, there was an investment that was kind of pulled out of the golf business. It sounds like there's a little bit more that's going to be put back in. So just maybe Ed, talk to us about kind of your thoughts around golf and what you hope to capitalize on here over the next couple of years?
Well, is the golf category has consolidated over the last couple of years, we've seen the golf business accelerate. We're pleased with the golf business. We think there's an opportunity there. We think the smaller independent golf operators are going to continue to have a difficult time and struggle. So there's an opportunity for market share.
We see that Golf, we think is in a really good place right now with the guys on tour. We think that the brands have brought terrific product cycles to the market right now. And with the majority of these investments that we're going to be making are going to be in our specialty channel of Golf Galaxy, which we're very pleased with the results we've been getting out of Golf Galaxy over the last 18 months to 24 months as the Gulf category consolidated.
Got you. That's helpful. Okay. Thanks so much guys.
Our next question comes from Michael Baker of Nomura. Please go ahead.
Hey, thanks. 2 please. Two questions. 1, can you give us the relative size and opportunity of golf and soccer versus baseball? I know baseball is very high.
I know from personal experience, very high ticket for those bats. I don't think there's anything quite like that in soccer, but perhaps golf there is. So the relative opportunity to replicate what you did in baseball in those two categories. And then a quick one at the end. Any impacts from the Patriots not winning the Super Bowl, I.
E, the Chiefs winning the Super Bowl? Thanks.
I don't even know if I'm going to answer the second question. Okay. But from the soccer is not as big as baseball, although there are some big ticket items in soccer that the boots can get very expensive. We've brought in some of the $2.50 to $2.75 soccer boots that are doing very well. So soccer is not as big as baseball.
Golf is bigger than baseball. And if your question was serious about the Patriots and the Chiefs A
little bit. I know the Super Bowls
are Okay. She's a New England guy, I know.
Yes. We were very pleased to have a new winner of the Super Bowl and provide Super Bowl merchandise to a market that hasn't had it in 50 years and Kansas City supported it very well. They were really excited that they won and we were pleased with our results.
And that would be a Q1 event, right, because those sales would come after the close of 4th quarter?
Well, first but then leading up to it, it was part in the Q4 leading up to the Super Bowl, the pre sales before
the game. It wasn't meaningful to the entire quarter comp and won't be.
Our next question comes from Chris Svezia of Wedbush. Please go ahead.
Good morning and thanks for taking my questions. Congrats on the comp. I guess, first, just on the comp guidance for a moment, flat to up to your comments about Q1, you're pleased with how it's running, would assume obviously reasonably positive. I guess what I'm curious about, if you go into the back half of the year, did you have some of your more difficult comps that we've seen in some time? So I guess what's your confidence level or how are you thinking about that comp trajectory as you go into the back half of the year?
Are there enough product drivers initiatives to still drive positive comp in the back half or are you thinking closer to flattish given some of the unknown? Just curious how you're thinking about that.
We haven't we're not giving quarterly guidance, but I think at least we're the first half is going to be we're not going to tell you anything you don't already know. First half is going to be easier than the second half. But I so I'm not going to go out and say that we're going to have comps in every quarter, but we're very confident with our overall guidance.
Okay. I guess follow-up on all this, just on the SG and A side for a moment. I know that you mentioned that there is some material offset from intensive comp, etcetera. Where are you making Just what are the where are the investment areas on the SG and A side for this year? Just what are the where are the investment areas on the SG and A side for this year?
How should we think about that?
Well, we're continuing to invest in store labor. We are maintaining hours notwithstanding the fact that there's some pretty meaningful wage rate inflation in stores which we expect to continue into this year, but we're really working hard to maintain that service experience that we have in the stores. Right now, we're continuing to invest in technology as we've transformed to the agile development methodology that we've got. We've built up our product teams and we're moving quickly to further develop our e commerce business and our in store experiences from a technology perspective. So there's significant investments coming on in those two areas.
But we do have the tailwind coming from incentive comps offset it from deferred comp plans offsetting that as well. So we still feel good about being able to leverage SG and A expense this year.
Okay. Final thing just for me, just to go back to my first question, I guess, let me ask it this way. What are you most encouraged, excited about, whether it's in footwear, apparel, hard lines, as you think about the balance of the year? I know you've got private label initiative and they have women's. Just where do you feel like there's the biggest opportunity to support comp growth as you move through the year in some of those major categories?
We think baseball can still comp. We're excited about continuing to grow our baseball business. We're very excited about what we're doing from a soccer standpoint. We're positive on the athletic apparel piece, athletic footwear. We're ex what's happening in the world today, we're pretty positive about our business across virtually all categories with the exception of the hunt business that we are exiting.
But other than that, we're pretty positive across hardlines apparel and footwear in our business right now.
Got it. Okay. Sounds good. I wish you all the best. Thank you.
Thank you. Thank you.
Our next question comes from Carson Barnes of Consumer Edge. Please go ahead.
Good morning. Thanks for the question. I have 2 both related to Hunt. First, it sounds like the decision to remove Hunt was largely margin related. But can you give any more detail on other data that drove the decision in terms of customer preferences or opportunities in existing categories or new categories?
And then second, with the Field and Stream brand continuing to be a strong brand for you, is that largely a function of fishing and other categories outside of hunt or will you be continuing to carry some hunting clothing and footwear in the stores just not firearms? Thanks.
In stores where we're exiting the hunt business, we'll be exiting the hunt apparel also. As far as category repeat the first question, please.
Sure. Just curious if there was
any additional data other than kind of the margin related data that gave you and that drove the decision to exit hunt, any new categories or that you'll be looking at?
It's just not margin category. The demand for other categories as we look through this was very high. So the demand of what we could do in the baseball business, what we can do in the soccer business, We'll take a look next year at what the next sport is that we're going to take a look at, probably going to be lacrosse, that there's a big demand for product that we aren't able to service these athletes with the space allocated to the hunt area. And as we took a look at this, there's a sales upside we believe and we think there's a margin rate upside to these other categories and they're growing where the hunt business is not growing.
Great. Thanks.
Sure.
Our next question comes from Matt McClintock of Raymond James. Please go ahead.
Hi, yes. Good morning, everyone. Thanks for fitting it in. Just one clarification question, Ed. I think you said, and rightfully so, that you can't keep track of where your manufacturers or your vendors are manufacturing the product.
But for DSG, did you actually talk about where DSG is being manufactured? Thank you.
We've got different places that DSG is being manufactured, different places that other private brands are being manufactured. We're more tied to China on the hard lines than we are on the soft lines. But as Lee said, seen some factories that we're running behind, they're getting up to capacity right now. This is a fluid situation. We look at it virtually every single day.
But we're from a supply chain standpoint, we're confident in the guidance that we provide.
This concludes our question and answer session. I would like to turn the conference back over to Ed Stack for any closing remarks.
I'd like to thank everyone for joining us on our Q4 call and we'll look forward to talking to you again in May when we announce our Q1 results. Thank you.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.