Good morning, and welcome to the Dick's Sporting Goods Second Quarter Earnings Conference Call. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Steve West, Vice President of Investor Relations.
Please go ahead, sir.
Good morning, everyone, and thank you for joining us to discuss Dick's Q2 2018 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. Today's call will be archived for approximately 30 days on our Investor Relations website located at investors. Dicks.com. As a reminder, we'll be making forward looking statements, 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 discussion in our filings with the SEC, including our last annual report on Form 10 ks and cautionary statements made during this call. We assume no obligation to update any of these forward looking statements or information. Please refer to our investor website atdix.com to find the reconciliation of non GAAP financial measures referenced in today's call. And finally, for your scheduling purposes, we are tentatively planning to publish our Q3 2018 earnings release before the market opens on November 28, 2018, with our subsequent earnings call at 10 a. M.
Eastern Time. With that, I will now turn the call over to Ed.
Thank you, Steve. Good morning, everyone. This morning, we reported 2nd quarter earnings per diluted share of 1.20 dollars Revenue grew 1% to approximately $2,180,000,000 Adjusted for the calendar shift due to the 53rd week, our consolidated same store sales declined 4% and our e commerce business increased 12%. As a percent of total net sales, the online business increased to approximately 11% compared to approximately 9% in the same period last year. We also delivered double digit growth in private brands and athletic apparel excluding Under Armour.
However, as expected, sales were impacted by strategic decisions we made regarding the slow growth, low margin hunt and electronics business, which accounted for nearly half of our comp decline. In addition, we experienced significant declines in Under Armour sales as a result of their decision to expand distribution. Notwithstanding these challenges, the health of our core business is relatively strong and we're confident sales trends will improve next year as these headwinds are expected to subside. I'd like to point out that the operating margin of the hunt and electronics categories are approximately 1700 basis points lower than the company average. Therefore, while decisions regarding these slow growth low margin categories are impacting sales, they have limited impact on our ability to generate earnings.
As we focus on driving profitable sales, we had another very good quarter on the margin front. Merchandise margin expanded 141 basis points, primarily driven by improved product cycles, fewer promotions and a favorable merchandising mix. The stronger merchandise margin drove an improvement in gross margin, which increased 74 basis points. While the retail landscape remains highly dynamic, we remain committed to driving profitable sales while making improvements across our business. From a merchandising perspective, we continue to refine our assortment with a focus on key items and better in stock positions.
Our efforts are paying off in tangible ways as we grew revenue by 1%, while our inventory declined 6.4%. We remain pleased with the improved product we're seeing for many of our key partners and private brands and are optimistic about the pipeline as we look to the second half of the year and into 2019. We also continue to be enthusiastic about the product improvements we're seeing from Under Armour, particularly the innovation they're delivering with the HOVR shoe as well as foundational core products such as cold gear and compression. Our private brand remains strong delivering double digit growth again this quarter. In addition to allocating premium floor space to our own brands, we have also expanded our existing brands to new categories.
For example, in CALIA, we went after swim in a big way and are very pleased with the success of that product. Additionally, our team sports license agreement with Adidas has significantly expanded into American Football, which is exclusive to Dick's. Driving exclusivity is a priority and we expect the momentum in this business to continue as we deliver growth through our existing new brands, including our new Alpine Design Outdoor brand that just launched this Q3. We continue to believe we can grow our private brand business to $2,000,000,000 over time. As we refine our assortment, we're adapting our product offering to better align with the categories that our athletes demand, reallocating valuable floor space to growth categories and brands that are outperforming.
This includes our private brands as well as elevating the assortment with key partners such as Nike, Adidas, Callaway, Brooks, New Balance and Yeti. Additionally, as the hunt industry continues to face headwinds, we're evaluating our strategy for this category across all banners. This includes optimizing that assortment and reallocating the floor space to categories that drive profitable sales growth. Later this quarter, we will remove virtually all of the hunt products from 10 Dick's stores with a category was significantly underperforming and replace it with product and in store experience that are most relevant to our athletes in those markets. Some examples include an elevated outerwear and licensed shop assortment and more experiential elements such as the HitTrax batting cages in our baseball area.
We are executing our strategies to better navigate the dynamic retail environment and ensure the long term success of Dick's Sporting Goods. We remain extremely confident and are upbeat about the future of our company. In closing, I would like to thank our associates for their hard work and dedication to this company. And now I'd like to turn the call over to Lauren.
Thank you, Ed, and good morning, everyone. As I outlined on our last call, we are focused on delivering our 3 key strategic initiatives to provide the best omni channel experience for all athletes. I'd like to highlight some of the great progress that we've made on each of our strategic pillars during the quarter. The first pillar of our strategy is the relentless improvement of our core execution to deliver the best shopping experience in retail. Improving convenience for our athletes is a top priority and we are continuing with our rapid data driven testing approach to deliver key improvements to the omnichannel shopping experience.
Last quarter, I discussed our new BOPIS Locker test at the front of select DICK'S stores. Initial results were very encouraging and we quickly expanded that test from 3 stores to 10. Positive results included significantly higher satisfaction for our online athletes, the surprise for us was a much improved satisfaction scores from our in store athletes as well as they benefited from shorter wait times and improved service levels. This rapid testing approach continued through the Q2 and we are now testing curbside pickup in select stores as well. Looking ahead, offering these types of services to improve convenience and remove friction for our athletes is critical to maintaining Dick's as a leading omni channel retailer.
We see significant opportunity to drive continued improvements. Additionally, from a product standpoint, we are delivering a much stronger, more curated assortment with a greater focus on key items. We've narrowed and removed complexity from our assortment, which has allowed us to add more depth behind key items and significant business drivers. This increased depth is leading to stronger in stock positions, which is resulting in an improved customer experience. This brings me to the 2nd pillar of our strategy, which is leveraging the power of our expertise to guide and inform athletes.
In addition to the refinements we've made to our assortment, we're improving the in store presentation to provide our athletes with a clear point of view of what's important through what we're strike points. With this elevated presentation, the athlete is drawn to these key items making our stores easier to shop. We have been extremely pleased with how the athlete has responded and the increased depth and elevated presentation of these strike points is resulting in strong double digit sales growth on many of those key items. We're also partnering with our vendors to elevate our collective voices as we did recently with the Play Like You Ally campaign that we co launched with Nike, which received over 20,000,000 views in its 1st week. The early reads on this elevated presentation and marketing have been very encouraging and it's clear that athletes are responding to our strong point of view.
These joint efforts with our vendor partners illustrate the strength of our relationships and we continue to look for ways to better leverage our partnerships to drive growth in our business. Additionally, we are leveraging our ScoreCard and Team Sports HQ databases to deliver customized marketing to our athletes. This includes personalized offers as well as content tailored to athletes preferred sports and interests. Our teams are beginning consolidate this data into an even more robust combined data set, which will allow us to deliver even greater personalization in the future. Finally, on the ScoreCard loyalty program, we're continuing the expansion of the gold tier through 2018.
This new gold tier will better reward our most loyal athletes with perks such as early access to new product launches, special Triple Point Days, free Select Pro Services, elevated in store experiences and exclusive events in partnership with local communities. Our 3rd strategic pillar is improving productivity. Across the organization, we are laser focused on lowering costs and eliminating unnecessary spending to reinvest in strategic growth initiatives. We've reduced expenses within our stores and at our support center by improving efficiency through workforce productivity initiatives. Moving forward, we will continue to make critical investments in the customer experience, the store environment and in our supply chain as well as in key growth areas such as e commerce, our private brands and team sports HQ.
At the same time, we'll be highly disciplined in how we invest our time, resources and capital and look for opportunities to drive efficiencies across the business. In closing, we see tremendous opportunity as we continue to execute our strategy to drive competitive advantage and strengthen our leadership position. 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, everybody. I'd like to start with a brief overview of our Q2 results. Consolidated sales increased 1% to approximately 2,180,000,000 dollars This included a benefit from the calendar shift of $50,000,000 or $0.08 in earnings per diluted share. Our adjusted consolidated same store sales declined 7%. Transactions declined by 4.7% driven partially by continued decline in our hunt business and fewer promotions and average ticket increased by 0.7% due primarily to a less promotional environment.
During the quarter, our best performing categories included outdoor apparel and fitness equipment. License sales also comped positively benefiting from the World Cup Soccer tournament. Additionally, we continue to drive double digit growth in our private brands, which significantly outpaced the company average driven by continued strength in CALIA and our new brands. As Ed mentioned, athletic apparel comps excluding Under Armour grew by double digits. Finally, athletic footwear and golf were also areas of relative strength for the quarter.
And overall, we are really very pleased with our apparel business for the quarter. Despite these strengths, however, sales were negatively impacted by the strategic decisions we made regarding the hunt and electronics businesses, which contributed to nearly half the comp decline as well as weakness in outdoor equipment. The positive takeaway is we are benefiting from a margin rate perspective. As Ed mentioned, the operating margin of the hunt and electronics category is approximately 1700 basis points lower than the company average. Therefore, we need to only recover about 60% of the lost hunt and electronics sales to generate the same levels of gross profit dollars.
This leads me to margins. Gross profit for the 2nd quarter was $659,300,000 or 30.28 percent of sales, a 74 basis point improvement versus last year. Within gross margin, merchandise margin increased 141 basis points, primarily driven by improved product, narrower inventory assortments, fewer promotions and a favorable merchandise mix. Partially offsetting improved merchandise margin were higher freight and shipping costs as well as modest deleverage and occupancy expense. SG and A expenses were and $95,300,000 for the quarter or 22.75 percent of sales, deleveraging 128 basis points versus non GAAP SG and A of 21.47 percent last year.
This deleverage was driven predominantly by higher incentive compensation accruals and continued investments in our growth initiatives to support our long term strategy. In total, we delivered 2nd quarter earnings per diluted share of 1.20 dollars Now looking to our balance sheet, we ended the 2nd quarter with approximately $124,000,000 of cash and cash equivalents and $108,000,000 outstanding on our revolving credit facility. Additionally, our inventory levels were down 6.4% in the quarter. Turning to our Q2 capital allocation, net capital expenditures were $40,000,000 We repurchased approximately 2,200,000 shares for $74,000,000 at an average price of $33.27 Additionally, we paid approximately $22,000,000 in quarterly dividends during the quarter. As previously announced, we are investing in our 1st company operated regional e commerce fulfillment center in Binghamton, New York area, which can serve customers in our concentrated markets in the Northeast within one business day.
This fulfillment center will utilize robotics to increase the facility's throughput and make it much more efficient than our current in store fulfillment processes. We expect the facility open in the Q3 of 2019. Additionally, we plan to open a smaller regional e commerce fulfillment center for the Western region of the U. S. Which will also come online late in 2019.
We expect these new fulfillment centers to reduce delivery time to our customers, allow us to scale quickly and be more efficient as we continue to grow our e commerce business. Our continued investments in the long term optimization of our e commerce business are paying off. Our e commerce business comped up 12% in the quarter or 31% on a 2 year stack. Additionally, we are very pleased with the current operating margin in e commerce and its improving trajectory We are We are now expecting full year comp sales to decline by 3% to 4% compared to our previous guidance of flat to low negative single digits. However, we are raising our full year earnings per share guidance to $3.02 to $3.20 due primarily to better than expected merchandise margins.
With respect to gross margin, I'd like to address a common question regarding the notion of easy earnings comps in the back half of the year. While it certainly appears less difficult given the significant margin declines we saw in the second half of last year, Recall that due to the calendar shift, our sales and margins benefited in the first half of the year and we expect a subsequent negative impact in the second half of the year. That said, we expect to continue to benefit from the positive mix impact due to the decline in our hunt and electronics sales as well as more rational promotional environment, improved product and clean inventories. Therefore, we now expect gross margins to be approximately flat for the year versus our prior guidance of slight decline. We expect gross margin expansion to continue in the Q3.
However, we expect it to decline in the Q4 due to the shift in calendar. This concludes our prepared comments. Thank you for your interest in Dick's Sporting Goods. Operator, you may now open the line for questions.
Thank And our first question today will come from Simeon Gutman of Morgan Stanley.
Thanks guys. Good morning. I wanted
to ask and I don't
know good morning, Ed. I don't know if we can shed light on Under Armour some more, but I wanted to ask to clarify if they've increased their channel distribution or there's a mix shift that's occurring meaning they're just growing quicker elsewhere? And then connected to that, this was math that we put out at the early part of the year. We said, look, if Under Armour was down another 10% with your business this year, it could be hurting you by as much as 90 basis points. Curious if you'd comment on that math?
So I'm not sure about the math, but it's our Under Armour business has been difficult. It was based on their the change in distribution, which I understand why they did it. But they had a significant change in their distribution strategy and that has impacted our Under Armour business. We're in the process of replacing that business and also looking at how we can grow the Under Armour business going forward. We're pretty excited about their pipeline beginning in 2019 of things that we're that we think we can start to replace some of that Under Armour business.
Okay. And connected to that, I think Lee mentioned the transaction number, but I think that was all in. Can you share a transaction number if you exclude Hunt and Electronics? And I don't think you can exclude Under Armour from that, but if we try to strip out the noise here trying to gauge the underlying trend in the business?
Well, we can't. But if you take a look at that, our comps without those are up 1%. And when you think about it, the concern with our negative comp and I can understand that, but it's really focused on 3 things that are changing. 1 business we are exiting, which is the electronics business. We're downplaying the hunt business based on what's going on, not only from what our policy on firearms, but just the industry is challenged.
And we are repositioning a third with Under Armour and we're pretty excited about what we can do with Under Armour as we kind of move into 2019. The other ones are businesses that are going to we're like I said, exiting or significantly downplaying. So without those three areas, our business is really good. We're really excited about it. The athletic apparel business comps double digits.
We're happy with our footwear business, our golf business. The outdoor category was we weren't really happy with that. But other than that, we're really excited about our business.
Perfect. And then just lastly, same topic on comp. Maybe can you just remind us what the calendar does to the comp for the back half? And I'm looking at the implied back half comp based on what you've done in the first half. It looks like it gets it could contemplate the world getting a little bit worse, but I think that might just be the shift.
Yes, it is the shift as we see it. We picked up $0.18 a share in the spring season and we expect that we will give back those $0.18 a share in the fall due to the calendar shift. In addition to that, last year we had 53 weeks. So we had a 15 we had a 14 week 4th quarter, which also accounted for about $0.09 a share in addition to that. So we've got a calendar shift and we've got an extra week in last year's Q4 to go against.
Okay. Thanks guys. Good luck.
The next question comes from Michael Lasser of UBS.
Good morning. Thanks a lot for taking my question. Ed, I think you just said that if you exclude Hunt and Electronics to end Under Armour, your business was up 1%. Is that versus the down 4% that you reported?
That's correct.
So you said that On a comp basis. Yes. The hunt and electronics business accounted for half of the comp decline. So that's 200 basis points. So that means that Under Armour counted for another 300 basis points of decline in the second quarter?
That's the math. Okay.
You also and I think this was in Lee's remarks talked about less promotional activity. So you're kind of going through and making the decision to become less promotional. At the time, your margins are getting better and arguably you could use some of that firepower to draw in traffic when maybe some of your competitors are not doing as well. So why are you making that strategic decision, particularly at a time when the consumer is in a pretty healthy spot and we're seeing really good trends across a lot of other types of retailers?
Well, the margin rate, as we said, is being it's a less promotional environment out there. We have access to more better product from a footwear standpoint than we had before with Nike product, Adidas product. And there's a mix shift here with we talked about the gun and electronics business being 1700 basis points below the company average. So as we downplay that and move business to other areas, there's an impact, positive impact to margin rate from a mix standpoint. I think that we also
don't want to be in the business of kind of training the customer to wait for promotions on our side and get back to having the strong brand driving the sales for us. So we got pretty promotional last year. We're trying to pull back a little bit from that.
And the marketplace is doing that. I mean if you take a look at we said that our athletic apparel comps were double digits if we exclude UA. And those double digits are at higher margin rates. There's better product. I talked before that we see better product innovation and product line this year and into next year.
So there's no reason to promote it. And our comps are being the negative comps are being driven by those three components of our business. And we don't want to promote and give away product in the other areas as we try to transition these three categories.
That's understandable. I guess the question would be, you expressed some confidence that next year your comp trends will improve once you no longer see a drag from these issues, but where do you get the confidence that something else another category might start to be an issue?
Well, you never know. We're not seeing that right now. We had been seeing the gun and electronics piece coming for some time. I mean, right after the election, you go back and take a look at others in this industry that were public or the manufacturers and the quarter or so after the election, those businesses started to have a problem. So we've seen this coming in the gun piece and the electronics piece is just a low margin business that we don't feel that we're well equipped to focus on that and we think we can focus on other areas of the business that can drive more profitable sales.
And we think we can drive more shareholder value in the long term through more profitable sales as opposed to trying to chase after a couple of categories that are 1700 basis points below the company margin rate.
You so
much and good luck.
Sure. Thank you.
Our next question comes from Robbie Ohmes of Bank of America Merrill Lynch.
Hey, thanks for taking my questions.
Hey, Robbie.
Hey, guys. One follow-up, just the timing of the Under Armour drag going away, should we sort of view the second quarter as the biggest drag from the changes with Under Armour? And so is it the Q1 of next year that we could see Under Armour going back to being a comp contributor?
Yes. I would say the Q1 of next year is when it will be much less of a drag. We don't think it will be an issue in beginning in Q1 of next year. Like I said, we're somewhat we're quite confident on some of the things that they're doing. The HOVR shoe is great.
We've kind of moving back into some of the core foundational product in Under Armour. We're excited about that. So I think the Q1 next year, we're feeling a lot better.
And the other question I had, I think you guys said average ticket was up 0.7%. And I was just given the less promotional environment, is it mix that's holding it back from being up more or is it or is average ticket in apparel and footwear not up significantly? Any color on that you can give us?
Well, when you take that the hunt business down, I mean a firearm is $300 $400 $500 $800 $800 When you start taking a look at the average ticket in firearms, that's pretty high. And that business, we are downplaying that and we're taking that as we said, we're taking that out of 10 stores this fall, repositioning the floor space to higher profitable areas that we think we can get sales growth out of such as the license category, we're going very aggressively after the baseball category and our private brands.
So it's
fair to say the apparel and footwear average ticket was up much more than 0.7% in the 2nd quarter?
Yes.
Terrific. Thanks so much, Ed.
Sure. Thanks.
And next we have a question from Christopher Horvers of JPMorgan.
Thanks. Good morning, guys. Good morning. So, as we think about the back half, if we assume that declines in hunt and electronics business persist, but the comp headwind from these businesses roughly double? And is there any differentiation between the 3rd and 4th quarters considering the peak of hunt I think in 3Q, but then electronics really starting to fall off in 4Q.
So how are you thinking about that headwind and the differentiation between 3Q and 4Q?
Well, I wouldn't plug in your model that the peak of the hunt business is in Q3. A lot of the big game hunting seasons open up in November in areas where we're really highly concentrated. So Q4 is a very big hunt piece of our business and it's been a good gift item in the Q4 also.
So with that does the headwind I mean from a mix perspective, does this headwind roughly double to nearly 400 basis points in these two categories in the back half?
So there is more we haven't quantified. There is some more risk on the overall comps from the hunt business in the back half of the year. However, we feel good about the apparel and footwear businesses going into the back half of the year as well. We're in a much better position with Adidas and Nike going into the fall in terms of their our in stocks with those
brands. And we've got that all baked into the guidance, which is why we took the guidance to the sales guidance to where we took it. So it's all baked in there. All right.
Understood. So it's basically it sounds like you're thinking the apparel and footwear business is showing acceleration and then in 4Q you have this easier gross margin easier ecom comparison on the website functioning last year and the holidays. Yes. Yes. And so in terms of as you think about the gross margin in the 4th quarter, you mentioned it's expected to be down.
Can you talk us through that? I mean, I understand you have the 53rd week and there's leverage on occupancy and then there's the shift headwind from a sales perspective. But by the same token, your merch margins like they look like they were down 100 basis points. So any discussion there to help us think through why the gross margins are down in the Q4?
Well, we're losing a week of sales to leverage fixed costs. So we had 14 weeks last year versus 13 weeks this year when you look at it in its totality. So that's one factor. And with the shifted calendar overall, there is like a double impact. 1 is losing a week and the second is the shift puts more of the business behind after Christmas.
So that causes a loss in the businesses, a loss in sales as well. So that's why we've been reporting the comps on a shifted basis. So you get a reasonable basis for that. But it's really leveraging a fixed cost both in our supply chain and in our occupancy costs.
It's virtually all based on the shift.
Yes. Thanks. Okay. So then the last question is, when you think about the shift and understanding the impact of sales, but is there a big impact on the SG and A line? Because at least relative to our model, the SG and A came in about $15,000,000 below expectation.
Is that despite higher incentive comp headwinds? So is that just is that corporate discipline or is that more having to do with the sales shift?
That's not a shift. That's more disciplined spending on the upside.
Understood. Thanks very much. Best of luck.
Thanks.
The next question comes from Camilo Lyon of Canaccord Genuity.
Thank you. Good morning, everyone.
Good morning. Just go back to
the Under Armour discussion since it's been such a drag for you. I'm curious, you mentioned in a prior question that going into next year, you don't expect it to be much of a drag, which doesn't suggest you expect it to grow, just that it's much less of a detractor to comp growth. As you think about as you see the product pipeline over the next 9 to 12 months and know that that going away. How do you why do you think that there is going to be an improvement in the brand for you? Is there a dramatic shift in the segmentation that you're seeing from a pricing perspective or a quality perspective?
Just trying to understand the finer points around the confidence intervals that you have around the product improvement going forward?
So a couple of things. I think the product that they've got will be they're working from a segmentation standpoint. We worked with them on exclusive product that would be available to us and how we're focusing on that. One of the product lines we're going to expand, it's exclusive to us and at Under Armour's own stores and website is the product around the rock. We're going to take, I mean, he's a hot commodity right now.
Everybody loves him. This is one of the areas that this is exclusive to us that we'll be expanding. We're excited about their HOVR shoe and we're excited about the products that will be put in more of a premium authentic athletic environment as opposed to more of a discount mid tier distribution. So we're time will tell, but we're excited about it and we're working very closely with them and we're great partners and we think we're going to between us, we're going to get this figured out.
Got it. And so just to be clear, it sounds like the you don't expect it to grow next year, at least as you can see right now, just that it will be a slower decline of your business?
I didn't say I didn't think it would grow. I didn't say that I'm not going to comment on the growth of it. I will tell you that we're quite excited about there will be a significant change in direction of Under Armour.
Got you. I was just trying to understand the much less of a drag comment that you made earlier. Okay, great. And then just a question on the ecom business. It looks like the growth rate decelerated a little bit.
Was there something that happened in the quarter that would explain the deceleration from the robust growth in the Q1?
Yes. The Q1, we had mentioned that we benefited significantly from the fact that a year ago we brought our platform in house. And as a result of that, we had a lot of work to do to kind of get the marketing back up. We had to get SEO back up. So we had easy compares in Q1 that helped to drive a very strong comp for us in Q1 of this year.
On a quarter to quarter basis, the e comm business remain penetrated at 11% of our sales in Q1 and 11% of our sales in Q2. So the deceleration was
more of the result of
a spike in Q1 that was due to an overlap issue.
Okay. So is that the right kind of growth rate to think about going forward or mix penetration?
We're not going to comment. We're not going to give guidance of exactly what the e commerce piece is going to be, but we're very comfortable with the growth rate we had in the second quarter.
Okay. Thanks a lot guys and good luck in the back half.
Sure. Thanks. Thank you.
The next question comes from Matt Fassler of Goldman Sachs.
Thanks a lot and good morning. Good morning, Matt. Two questions. Two questions for you. First of all, as you think about the promotional backdrop, would you say that the environment broadly across categories diminishing the need to be promotional.
Are there certain areas that remain hot where you've essentially decided to step back and not to play? And that would be other of course than hunting where I know the decision is a bit more strategic.
Yes. No, it's pretty rational out there. The industry is consolidated and it's gotten more rational. And one of the ways that we're able to become less promotional is the exclusive products that we're carrying in the store right now, whether they're some exclusive products from Nike or Adidas or our own private brands. And so we're able to sell those at full price.
They're differentiated in the marketplace. The consumer finds a value in them and we're able to we don't need to discount them to push them out the door.
Got you. And then the second question relates to the inventory decline, which obviously is quite impressive relative to the sales number. Can you talk about how much of that decline again relates to the categories that you called out where you've decided to pull back specifically hunting electronics. I'm not sure how much you've also pulled back on your Under Armour inventory commitments and perhaps what the inventories look like in categories where you're comping?
Yes. We're not going to get to that level of detail, Matt, but we're pleased with the inventory being a little more than 6%. We've been much more our buying group has done a much better job of buying product this year than maybe last year we've made some improvements in what Lauren talked about these key items to make sure that we're in stock and the key items sell it at a faster rate at a higher margin. And so we've just done the team's done a better job from a merchandising standpoint in the second quarter than in the past.
Okay. Thanks so much, Ed. Appreciate it.
Sure. Thanks, Matt.
The next question comes from Mike Baker of Deutsche Bank. Mr. Baker, your line is open.
Is it possible to talk
about that?
Hi, sorry. Hi.
Sorry, I was on mute. Can you talk about your market share? Even when you add back those 3 categories, your sales are up 1% on a comp basis and that includes a lot of private label. Anyway, it's the strongest consumer environment it's been, water and retail is saying in decades, certainly years.
Is the sporting goods space just growing slower than other areas of
the economy? Or do you feel like you're losing share maybe to some of your vendors? Can you just talk about that dynamic? Thanks.
Sure. I think our market share is stable. If you take a look at what some of the others in the industry have reported in sporting goods, I think we're doing really well, especially when you take out those three areas. Our comps in athletic apparel being up double digits, ex the one issue, I think is pretty positive. And so we're pretty comfortable with our market share.
We think that we've got the ability to go garner more market share with what we're doing reformatting the store with these strike points that Lauren talked about in these key items. So we're pretty excited about it. We are I think one thing that we want to make sure the street doesn't miss is and I understand you may be disappointed with a negative 4 comp, but this is the 2nd quarter in a row we've raised our guidance. And if we weren't enthusiastic about what's going on in our business, we wouldn't have raised our guidance for the Q2 in a row and if we weren't excited about our business, we wouldn't have bought back $182,000,000 worth of stock in the 1st two quarters. So I think they're pretty a couple of pretty bullish signs of how we feel about our business going forward.
Yes, those are fair points and I appreciate that. If I could ask a couple more follow ups. One, maybe I missed it or maybe it's embedded in the math somewhere, but have you ever told how big the hunt in electronics businesses are? We now know the margin rate and we know the comp drag, but just total size or penetration?
No, we haven't and we haven't gotten to that level of granularity and we're not going to start now.
Okay. So I guess, I'll just make our own estimates on what that would be based on the information you have provided. All right. One more quick follow-up is, we know the calendar shifts have helped by about $83,000,000 year to date. You say you're going to give that back in the 3rd Q4.
Can you differentiate how much gives back in which quarter? Or again, the analysts will just make their own assumptions and we'll go from there.
One of the things we did is we went to annual guidance. And so we've given you guidance of how what we're going to do for the year. This is the Q2 in a row we've raised guidance, but we're not going to break it down quarter by quarter.
Right. But you are telling us what the calendar shift has been in each of the quarters. So, all right, well anyway, we can just make our estimates. Appreciate the color. Thanks.
Yes.
The next question comes from Scot Ciccarelli of RBC.
Good morning, guys. Scot Ciccarelli. Good morning. Can you help us understand the change in the e commerce fulfillment side a little bit better? I guess I'm a little confused about you're talking about improved efficiencies and speed of delivery from the new e comm center.
But frankly, I guess I thought the whole idea around the store level fulfillment is that your stores were already closer to customers than D. C. Ever could be. So that would enable faster delivery. If you can kind of connect those 2, that would be helpful.
Sure. I think that in a centralized e commerce fulfillment, you can get more consistent execution. We do have the inventory close to the stores. So obviously the shipping time is light, it's small coming from the stores, but the consistency of the execution and the picking isn't as consistent as it is coming out of the centralized fulfillment center.
And it's still going to be a combination of we're still going to be using stores for distribution. We're going to be using a central fulfillment strategy. So it's going to be a combination of the 2 and we feel that's the best use of our capital and the best for the consumer.
But for an average order, let's say, is the faster fulfillment coming from a DC or is it coming from the store that might be a couple of miles away?
Well, once we put the distribution center in the Northeast, it will be faster from the D. C. But right now, we have a central fulfillment in the Midwest that services the whole country. So at this point the fulfillment from the local stores is faster.
Okay, understood. All
right, thanks guys.
Sure.
And the next question comes from Steve Forbes of Guggenheim.
Good morning.
Good morning.
I wanted to focus on the 2Q merchandise margin dynamic, right? So you mentioned 141 basis points. And I guess we could try to do some math around what part of that. And I think the majority of it is due to the increasing private brand penetration. So maybe just correct me if I'm wrong there.
And then just touch on what's happening in the brand, the branded SKUs, given the reduced promotional activities. Are those merchandise margins still under pressure or have they stabilized?
They've stabilized and actually increased. Again, so I've talked about some of the not only our private brands, but exclusives that we have with the brands. That's going
to be a bigger part of our business also and the brands margins have increased also. And a big part of this is mix as well as we talked about electronics and being 1700 basis points below the chain average. So the big reductions we're seeing there is helping merch margin as well.
And then just a quick follow-up on the reduction in CapEx guidance for the year, right? So that $25,000,000 net. What's driving that if you could just focus us in on what's changed quarter over quarter here?
It's really timing and the build out of the fulfillment center that we've got in Conklin. The timing of when the spend is going to hit, we're looking to open that facility in the Q3 next year. We thought that more of it would be in the back half of the year this year, but the way it's coming out is going to be more in the early part of next year.
Thank
you. And the next question comes from Kate McShane of Citi.
Hi, thanks for taking my question. I wondered to the extent that you can, can you talk about the cadence of comps that you saw throughout the Q2 and any high level commentary about back to school?
Yes. So Kate, we haven't commented on the monthly breakdown and the comps throughout the quarter. So we're not we won't be doing it at this point. And again, we haven't given any guidance going into the Q3 either as well. So unfortunately, we're not going to be able to add some color to that.
Okay. And there has been a management change in one of your closer competitors in the Texas Oklahoma area. Just wondering if you've seen any real change there in the competitive environment?
No.
Okay. And then my last question is, just as we look towards Q4 and fully understanding you don't guide by quarter, but just how should we think about Q4 and just some of the strength you saw, particularly with the cold weather apparel? How should we think about that this year and then maybe some offsets to lapping that strong compare?
Well, I mean, we're we continue to be enthusiastic about the business, like I said. But the one thing that I think the Street needs to understand is the calendar shift. And I'm not sure that you guys completely understand that yet That we've it helped us in the first half of the year, which we guided earlier in the year. And it's going to have it's going to be a bit negative in the back half
of the year.
Thank you.
Sure.
The next question comes from Brian Nagel of Oppenheimer.
Hi, good morning. Thank you for taking my questions. So the first topic I wanted to talk a little bit further about this is with Under Armour. Clearly Under Armour has been a key part of you for a while and your stores are maybe historically quite
Brian, it's tough to hear you.
Can you hear me now?
I can hear you now. Great. Yes. Thank you. Okay.
Perfect. Sorry. So the first question I wanted to ask, let's dive a little deeper into the Under Armour issues. Clearly, Under Armour has been a key partner for you historically. Your stores have been very geared towards Under Armour.
Just what's happening with their distribution necessitate over time for you to a certain extent retrofit your stores towards other brands? And then the second question I have on Under Armour, with what's going on now, I guess it sounds like more of a shorter term issue, you expect a bounce back next year. Is there some type of support coming to Under Armour, special support coming to Dick's from Under Armour that's helping you get through this period?
So as far as retrofitting the stores, we're taking a look at space of what we're going to do. We've changed some space as it relates to the women's side of the business. But again, we're enthusiastic about Under Armour's pipeline and we think this headwind is going to subside in the Q1, beginning of the Q1 next year. And from a support standpoint, Under Armour has always supported us and we've supported them. So there hasn't been any meaningful change in the relationship from what we've always had.
Okay. Then the second question I had or second topic on CALIA, you called it out now for a while as an area of strength and a success with your private brands. As you look at the demand trend there, can you say where it's coming from? Do you think that customer is switching from other brands to CALIA? Is it a new customer?
Is it different than what Dix has catered to historically?
Yes. When we built the CLIA brand, we did it because we felt we had a white space in our stores and that this brand is tapping into it. So lots and lots of women shop our stores and we're not always shopping for themselves. They were shopping maybe for kids. And the CALIA brand has tapped perfectly into that consumer in a way that some of our other brands which target a little younger was not doing.
Got it. Thank you.
The
next question will come from Peter Benedict of Baird.
Hey guys, thanks for taking the question. Just to first, Lee, I don't know, can you provide any more color on maybe the cost of these DCs that you have coming on? Just curious what the capital is you have set aside for those?
We haven't disclosed that at this point.
Okay. Are you once you get these 2 up and running, I mean, how do we think about longer term? Does that set you guys up for the next few years? Or do you think there's additional supply chain investment that needs to be made?
It probably carries for a few years.
Okay. And then just shifting over to the scorecard, any stats you guys can share around the loyalty program, number of members, penetration, what really the opportunity is there?
Yes. We have a significant majority of our scorecard members. I believe that we announced last quarter that it's over 22,000,000 people and that is the engine of all of the data that we use to drive personalized marketing. So we use it to drive our investments in direct mail, in email and even when we go buy media, we know where our scorecard members are and how they skew. The work that we're doing now is to merge those databases with the TeamSport HQ database so that we can drive even more personalization.
But ScoreCard is a huge, huge engine of our marketing and our data knowledge of our customer.
Okay, great. Thanks guys.
Thanks.
The next question comes from David Schick of Consumer Edge Research.
Hi, good morning. Thanks for taking my question. One on Golf, been having a better year industry wide, you guys I think as well, it's product intros I guess and economy. Just Ed, your thoughts on whether it can comp the comp going forward? The industry has tended to have more pendulum swings.
Is there something changing in the way you think about the golf industry? And then second is sort of across retail, a little bit of a reemergent theme, perhaps in more wage dollars going back into the models out there. I know you guys are in you've been clear you're investing for what's right for the business. What are you seeing and doing on the wage front? Thank you.
We'll start with golf first. We think golf is really in a good place. There's a couple of reasons for that. The guys that are out there right now on tour are bringing some excitement back to the game and it only got multiplied with Tiger coming back and playing well. So we think golf is really in a really good place.
I was out to see we're enthusiastic about the pipeline for Callaway going forward. We have seen the new Titleist driver, which is really, really good and we were at Taylor Made yesterday on California and looked at their product line and are really enthusiastic about that. So I think there's at least another year of a good product cycle of great product and great marketing from the brands to come in and keep this going. There's some new innovations in golf balls, in clubs, wedges, putters, I mean it's across the whole spectrum right now And we continue to be enthusiastic about golf. As far as wage pressure, I think everybody is under wage pressure and we're dealing with that the best we can.
We're making sure we've got the right people in the store. We're looking at our labor model to make sure that our labor model works and then we serve our athletes also. So it's a complicated jigsaw puzzle to put together, but we feel we're doing very well in that area right now. Thank you.
And our final question today will come from Sam Poser of Susquehanna.
Thank you for taking my questions. I have a couple of follow ups. Lauren, I think you mentioned on the doing a lot of things to improve the shopping experience, both online and in stores. I wanted to just discuss the staffing levels in the stores and training within the stores and sort of what's evolving in that?
We have had a huge focus in our stores on training and specifically on cross training, so that our associates and teammates now are not just able to work in one area, but each of them can help each other out and lead one of our athletes through the entire store. It's been a huge initiative for us so that we're getting more bang for the buck with every teammate that we have in the store. So we are very, very focused on service. We are very focused on efficiency and productivity, so that we can free up those athletes to serve the sorry, those teammates to serve the customer better.
Thank you. And then just to confirm, because the double hit in the 4th quarter is the week of sales that you lose and the calendar shift, which makes the sales the loss of sales quarter over quarter much greater in the Q4 than it is in the Q3. Is that a fair statement?
Yes, we lose the week and we have calendar shift, yes.
Okay. And then lastly, I'm sorry to beat the Under Armour question to that here. But I guess you have some items that you're excited about for spring. However, beyond that, you're building out your private label apparel business, you're building out Nike and it sounds like you're building out Adidas. So anything from anybody else has to be able to take share from that stuff or it has to be incremental.
So outside of the rock and the hover, I mean, are you seeing real strength? Or is it just those things that would mitigate the current declines that you're seeing?
Well, we think these things can help mitigate the current decline, but we're also seeing things from a pipeline standpoint that would be exclusive to us that we're working on other products that can help stem this decline. And we've been great partners with Under Armour. They've been great partners with us and we're both working on this to get this to be a growth vehicle for both of us again. And we're our teams are working very hard and collaboratively. And we think that in the Q1 of next year, we start to make the turn.
It will be much less of a drag then.
And is this are you testing this with the consumer in that when you're dealing with active apparel or athletic apparel, is it really how it's much more difficult to differentiate than footwear. I mean the difference between generally what's carried in footwear in the moderate channel versus with you is significantly different. You could see it, it's marketed differently. But with apparel, that's a much finer line. What's going to make that work?
Well, we think the product is differentiated. It's higher technology. It will be the real athlete who's looking to use the product to actually perform in as opposed to look like they perform in. We're confident some of this stuff will work. And that's part of what we're supposed to do as merchants is kind of look at this, determine what we think is going to sell, talk to the brands that we're doing business with and let them know where we think the gaps are.
And Under Armour has been great listening to us. We've been great listening to them. And we're pretty enthusiastic that this will get better beginning next year.
And Sam, the customer is able to tell that differentiation with the other brands like Nike and Adidas and so on. And the guys like Kohl's and us, we can both succeed with those brands really well with differentiated product assortments.
All right. Well, thank you very much and good luck with the rest of the year.
Thanks, Sam. Thank you.
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 quarterly call and we'll look forward to talking to you at the end of November. Thank you.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.