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Dick’s Gets a Big Bump from Consumer Craze for Outdoors

Dick’s Sporting Goods looks like it is getting the e-commerce aspect of retailing figured out, recovering from the COVID-19 pandemic in a major way with a near-tripling of its online sales—194 percent growth—during the second quarter of 2020. The e-commerce growth sparked net sales of $2.71 billion and earnings of $276.8 million, both quarterly records.

In a company earnings call, CEO Edward Stack said more than 75 percent of e-commerce sales were serviced by the company’s stores, illustrating the commitment Dick’s has made toward improving in-store fulfillment throughout the pandemic.

“This included curbside pickup where we focused on improving speed and convenience, and the athlete response remains very strong,” Lauren Hobart, president and director of Dick’s Sporting Goods, said during the call. “E-commerce merchandise margin expanded meaningfully, which along with higher penetration of curbside and BOPIS sales drove a significant improvement in e-commerce gross margin. We also continue to reduce delivery times to our athletes, even as e-commerce demand remained at unprecedented levels. This success online is a direct result of the technology and fulfillment investments we have made over the years, as well as better integration of our digital and store channels, as we work to relentlessly improve the athlete experience, enhance our profitability and build the best-in-class omnichannel platform.”

Curbside contactless pickup was first implemented across Dick’s stores in April when lockdowns were at their peak. But four months later, Hobart noted that the company believes “curbside is here to stay.” While the company anticipated a drop-off in usage of the service once stores began to reopen, that has not been the case.

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Lee Belitsky, executive vice president and chief financial officer, backed her up in the earnings call, specifying that the company expects curbside pickup to remain strong for the balance of the year.

“We’re thinking that with Covid around, there might not be…interest in getting into crowded stores in the Christmas season, so we’re planning on a big curbside fall season,” Belitsky said. “We’re forward-deploying inventory out to our stores to satisfy that demand, and setting up all the parking lots to operate that way and it will be ready for a big curbside about the rest of the year.”

Meanwhile, more than 50 percent of the e-commerce growth came from mobile purchases, Hobart said. E-commerce penetration for the quarter was approximately 30 percent of total net sales, a massive jump compared to the approximately 12 percent during the second quarter of 2019.

The online boost helped the sporting goods giant boost its net sales 20.1 percent to $2.71 billion from $2.26 billion a year earlier, surpassing Wall Street expectations of $2.46 billion. Consolidated same-store sales increased 20.7 percent, even with approximately 15 percent of the company’s stores closed on average throughout the quarter. All of the company’s stores have since been reopened.

Despite a slight 2.8 percent increase in transactions in the quarter, the large same-store sales boost came from a larger 17.9 percent increase in average ticket.

Important for the retailer is that it saw growth across its three primary categories: hardlines, apparel and footwear.

“During this pandemic, the importance of health and fitness has accelerated,” Stack said during the call. “Participation in socially distant outdoor activities has increased and there has been a greater shift toward athletic apparel and active lifestyle product with people spending more time working and exercising at home. The majority of our assortment sits squarely at the center of these trends.”

Stack also noted that the company is “in a great lane” with its sales related to outdoor activities such as golf, camping, kayaking, fitness and running, indicating that he believes the activities are going to continue into next year and hopefully next if a vaccine and therapeutics come into play.

Dick’s has taken a more conservative approach from an inventory standpoint to be less promotional and maintain gross margin, with quarter-end inventory levels decreasing 12.2 percent from $2.14 billion at the end of the same period last year to $1.88 billion this year. Looking ahead, the company aims to continue optimizing its assortment to improve its in-stock positions in the most in-demand categories.

“Our team has done a great job working to [optimize the] supply chain, a number of these products that we talked about from a fitness standpoint: bikes, our own private brands,” Stack said. “So we control the supply chain, and the team has done a great job of being able to service the athlete or the customers. If you’re going to walk in our store, it’s still going to look like our fitness business has really depleted, but the flow of product we have coming in, it’s kind of going out as fast as it’s coming in.”

Gross profit in the second quarter was $936.9 million or 34.5 percent of net sales, a 456 basis point (4.56 percentage point) improvement compared to last year. This improvement was driven by merchandise margin rate expansion of 325 basis points (3.25 percentage points) and leverage on fixed occupancy costs of 204 basis points (2.04 percentage points). The merchandise margin rate expansion was primarily driven by fewer promotions as well as better-than-anticipated sales and margin on merchandise nearing end of life.

Dick’s Sporting Goods reported consolidated second-quarter net income of $276.8 million, or $3.12 per diluted share, excluding one-time charges, which was more than double the $1.30 that Wall Street analysts were projecting, according to Refinitiv data. The net income was well ahead of the company’s $112.5 million, or $1.26 per diluted share in the year-ago period.

The company remains in a strong financial position going forward after having cash on hand during the quarter to repay $1.4 billion of outstanding borrowings on its $1.85 billion revolving credit facility. The ended Q2 with $1.1 billion of cash and cash equivalents and now has no outstanding borrowings.

Despite the banner quarter, Dick’s Sporting Goods still is not providing an updated outlook for 2020.