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Dick’s CEO: ‘Consumer Is Going Through an Awful Lot Right Now’

Dick’s Sporting Goods downgraded its full-year outlook because “the consumer is going through an awful lot right now,” CEO Lauren Hobart told Wall Street analysts last week.

In a Nutshell: While the retailer continues “to see meaningful growth above 2019 levels,” chief financial officer Navdeep Gupta told investors on a Wednesday earnings call that “an increasingly uncertain macroeconomic backdrop, geopolitical environment and a dynamic global supply chain” are behind Dick’s more “cautious” outlook.

Hobart described Dick’s “plus 40 percent” inventory position as “very healthy” and doesn’t “anticipate any significant markdown risk.” Gupta pointed out that “there may be a higher propensity of the promotions in the back half of the year.”

With labor, freight and product costs “accelerating more quickly than we had anticipated,” Dick’s “will be surgically addressing price changes as we absorb” some of the increases,” Hobart added.

Big-name brands are helping the athletic chain’s business. “Our partnership with Nike is at an all-time high, as is our partnership with all of our strategic partners,” Hobart said. “And I think that’s a result, not just of a situational moment in time with certain partners, but the fact that we have invested so much in our stores and in our experience, such that brands who are rooted in sport want to actually showcase their product and their brand in our stores.” That means “we are getting access to higher heat and more pristine premier product that’s high in consumer demand, “she added.

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Gupta said average tickets declined 2 percent as transactions fell 6.4 percent year over year. But Hobart explained this away as part of the normalization Dick’s expected as part of a post-Covid rebound.

“As the Covid surge in categories like fitness and the outdoor equipment normalize, that does put a little bit of a pressure on the ticket size,” though that balances against the overall increases in average unit retail, or AUR, Dick’s has documented, she said, not to mention the effects of inflation.

Dick’s private brands performed “extremely well” in Q1, with DSG, VRST and Calia all gaining share, Hobart said. Speaking to clothing and shoe sales, the CEO pointed to footwear’s strong performance, adding, “if we could chase more, we would.”

Clothing was a different story. “On the apparel side, we did have some inventory challenges during the quarter, just making sure that we have the right product, the right season product in stock,” Hobart went on to say. “But we are planning to buy around anything that came in late, so it’s not a markdown risk for us, and we believe that by back-to-school apparel should be getting better.”

Sales and earnings: Dick’s expects non-GAAP earnings per diluted share in the range of $9.15 to $11.70, down from $11.70 to $13.10, and comparable store sales in the range of negative 8 percent to negative 2 percent.

Dick’s said comparable store sales declined 8.4 percent during the quarter that ended April 30—following a 117 percent increase in comparable sales the prior-year period. Consolidated sales dropped 7.5 percent to roughly $2.7 billion partly in the absence of stimulus payments, Gupta said.The result still marked a 41 percent increase from the same period in 2019.

The company’s gross profit declined 83 basis points from the same period last year, hitting $984.7 million, or 36.4 percent of net sales. The decline was driven by an “increase in supply chain-related costs and a deleverage on fixed occupancy costs,” Gupta said. Losses were somewhat offset by expanding margins, however. “We continue to see the benefits from our increasingly differentiated product assortment, combined with our disciplined and more sophisticated promotional strategies and clearer pricing,” he added.

SG&A expenses totaled $615.3 million (22.7 percent of net sales), and and deleveraged 195 basis points compared to last year, “primarily due to the decrease in sales.” Increased expenses in SG&A came from investments in advertising and raising hourly wages for workers. The company’s SG&A spending increased on Covid-related safety costs from last year, with $13 million going toward on advanced protections. EBT amounted to $331.9 million, or 12.29 percent of net sales.

“Our financial position is strong,” Gupta said, noting $2.25 billion of cash and cash equivalents for the first quarter. Dick’s, which said first-quarter product flow improved, expects that momentum to continue in the second quarter.

Net capital expenditures were $53.9 million, and Dick’s paid $46.1 million in quarterly dividends. “We also repurchased 417,000 shares of our stock for $42 million at an average price of $101.39,” Gupta said. “Our plan now includes a minimum of $300 million of share repurchases.”

CEO’s Take: “We entered 2022 in a position of tremendous strength and we’re focused on enhancing our existing strategy to further strengthen our core business and drive long-term profitable growth,” Hobart said. “Our digital capabilities remain core to our omnichannel success and we are continuing to prioritize investments in technology and data science.”

“Dick’s is the clear market leader, and we are well-positioned to extend our lead and build on our competitive advantages in the years ahead,” she added. “We continue to closely watch the macro landscape and have the flexibility in our business to remain nimble.”