Dick’s Sporting Goods (DKS)
Q3 2015 Earnings Conference Call
November 17, 2015 10:00 am ET
Edward Stack - Chief Executive Officer
André Hawaux - Chief Operating Officer
Teri List-Stoll - Executive Vice President, Chief Financial Officer
Anne-Marie Megela - Vice President, Treasury Services, Investor Relations
Kate McShane - Citi Research
Seth Sigman - Credit Suisse
Tim - Morgan Stanley
Camilo Lyon - Canaccord Genuity
Robbie Holmes - Bank of America Merrill Lynch
Aram Rubinson - Wolfe Research
Michael Lasser - UBS
Paul Swinand - Morningstar
Stephen Tanal - Goldman Sachs
Matt McClintock - Barclays
Sam Poser - Sterne Agee
Dan Wewar - Raymond James
Christopher Horvers - JP Morgan
Matt Nemer - Wells Fargo
Mike Baker - Deutsche Bank
Scot Ciccarelli - RBC Capital Markets
Rick Nelson - Stephens
John Kernan - Cowen
Peter Benedict - Robert W. Baird
Chris Svezia - Susquehanna Financial Group
David Magee - SunTrust Robinson Humphrey
Previous Statements by DKS
I would now like to turn the conference over to Anne-Marie Megela, Vice President of Treasury Services and Investor Relations. Please go ahead.
Thank you. Good morning and thank you for joining us to discuss our third quarter 2015 financial results. On today’s call will be Ed Stack, our Chairman and Chief Executive Officer; André Hawaux, our Chief Operating Officer, and Teri List-Stoll, our Chief Financial Officer.
Please note that a rebroadcast of today’s call will be archived on the Investor Relations portion of our website located at dicks.com for approximately 30 days. In addition, as outlined in our press release, the dial-in replay will also be available for 30 days.
During this call, we will be making forward-looking statements which are predictions, projections and other statements about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could materially differ because of factors discussed in today’s earnings press release, in the comments made during this conference call, and in the Risk Factors section of our Form 10-K, Form 10-Q, and other reports and filings with the Securities and Exchange Commission. We do not undertake any duty to update any forward-looking statement.
We have also included some non-GAAP financial measures in our discussion today. Our presentation of the most directly comparable financial measures calculated in accordance with generally accepted accounting principles and related reconciliations can be found on the Investor Relations portion of our website at dicks.com.
I will now turn the call over to Ed Stack.
Thank you, Anne-Marie. As announced this morning, our third quarter non-GAAP earnings per diluted share were $0.45, within our guidance of between $0.45 and $0.48. Net sales for the quarter increased 7.6% to approximately $1.6 billion. Within this, consolidated same store sales increased 0.4%, below our guidance range largely due to performance in a couple of key categories. As we mentioned on our last call, our inventory was well positioned coming into the third quarter for back-to-school selling season. Our merchants did a great job selecting key items, refining our product assortments. Overall, we were very pleased with our performance across the important categories such as athletic apparel, athletic footwear, and accessories.
At the conclusion of back-to-school, our comps were running at the higher end of our guidance; however, as the quarter progressed, record warm weather across the majority of our markets negatively impacted sales and traffic. This impact was notable in the critical cold weather categories. The outdoor category comped relatively flat in the quarter. We saw strength in lifestyle camping, paddle sports, and sport games offset by a decline in hunting. We expect the hunt business to remain under pressure in the fourth quarter based on recent trends and an anticipated promotional environment.
Our golf business continued to show meaningful improvement. During the quarter, our gold margins expanded over 200 basis points compared to last year as both golf apparel and equipment comped positive on a consolidated basis.
We continue to leverage our strong vendor relationships. We are working together to create and deliver best-in-class merchandise presentations and a new unique shopping experience for our customers. Key vendors such as Nike, Under Armour, The North Face and Adidas continue to make investments in our business at an increasing rate to support growth in important categories such as athletic apparel and footwear, where we delivered solid comp gains for the quarter.
With Nike, we opened up six Brand Jordan shops during the third quarter and have opened an additional four this quarter. We have also partnered with Nike to develop a new full-service footwear deck. With Under Armour, we’re working to create a next-generation shop concept that we plan to roll out next year, and we are also working with new partners, such as Polo, and are opening 75 Polo shops this year. Additionally, our investments in private brand continues to pay off. For example, Calia remains well positioned to become our number three women’s athletic apparel brand by the end of 2016.
As a key element of our omni-channel focus, our ecommerce business remains strong. Ecommerce penetration grew to 8% of net sales in the third quarter compared to 7.3% in the third quarter of 2014, reflecting a growth rate of 18%. We continue to move forward with our ecommerce independents to capitalize on the significantly improved economics and other strategic benefits, including the control to create a differentiated online experience, easier access to data and the ability to leverage cross-channel data, control over development cycles, including faster testing times and implementation, and the ability to quickly stand up new sites.
Turning to the fourth quarter, we’re off to a slow start as the continuation of unseasonably warm weather across the majority of our market is putting pressure on sales and traffic. This is obviously affecting our inventory levels, which are higher than we’d planned. To address this situation, we are working with key vendors to return slow-moving product as well as cancelling some orders. We are also developing markdown strategies and securing markdown allowances. We expect a more promotional holiday season that will create additional margin rate pressure. Given these dynamics, we have reduced our expectations for the rest of the year, and Teri will provide more detail around our guidance.
I’d like to thank our associates for their hard work during the quarter and for delivering earnings in spite of a challenging retail environment.
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