Dick’s Sporting Goods, Inc. continued its momentum from the fourth quarter into the start of the new fiscal year as results for the retailer’s fiscal first quarter ended May 4, came in ahead of estimates.

Total net sales increased 6.2 percent to $3.02 billion in the quarter, including a benefit of approximately $45 million from the calendar shift due to the 53rd week last year. Comparable store sales, adjusted for the calendar shift, posted a 5.3 percent increase on top of a 3.6 percent comp from last year.

First-quarter comps were driven by a 2.7 percent increase in transactions and a 2.6 percent increase in the average ticket, with strength across footwear, athletic apparel and hardlines.

“During the quarter, we saw more athletes purchase from us, and they spent more each trip compared to the prior year,” offered company President and CEO Lauren Hobart on a conference call with analysts. “Our emphasis on the omnichannel athlete experience is driving robust athlete engagement. We are continuing to enhance service levels across all our digital and store experiences to meet our athletes wherever they are, provide the support and service they need, and get product into their hands faster. During Q1, we continue to see growth in our omni-channel athletes, our strongest athletes, who spend more with us and shop more frequently than single-channel athletes.”

Gross profit for the first quarter was $1.1 billion, or 36.3 percent of net sales, and increased ten basis points versus the prior-year first quarter. The margin improvement reportedly included leverage on occupancy costs due to higher sales and a decline in merchandise margin of 45 basis points, which included a higher year-over-year shrink of 22 basis points.

“It’s worth noting that while we anticipated our shrink to be higher than the previous year, the increase in shrink moderated compared to our expectations,” noted company CFO Navdeep Gupta.

SG&A expenses increased 6.6 percent to $739.7 million on a non-GAAP basis and deleveraged ten basis points compared to Q1 last year. The increase in SG&A dollars reportedly included investments in brand campaigns introduced earlier this year supporting Calia, DSG, Golf Galaxy, and dicks.com. It also included higher estimated incentive compensation expenses and costs in support of the company’s sales growth.

Pre-opening expenses were $21.1 million in the quarter, an increase of $11.9 million compared to the prior-year Q1 period. The increase was driven primarily by DSG’s Q1 House of Sport openings.

Dick’s SG&A and pre-opening expenses were adjusted in the current and prior years to reflect the reclassification of grand opening advertising from SG&A to pre-opening expenses.

EBT was $342.4 million, or 11.3 percent of net sales, in the first quarter, compared to EBT of $328.3 million, or 11.6 percent of net sales, in Q1 of 2023.

“As expected, our Q1 tax rate grew from 7.2 percent in last year’s quarter to 19.6 percent this year,” Gupta said. “I’ll remind you that this approximate 1,200 basis points increase reflects the higher tax deduction from the vesting of employee equity awards and exercises in the prior year, which favorably impacted Q1 2023 earnings by approximately 45 cents a share compared to the current-year quarter.

Net income was reported at $275 million, or $3.30 per diluted share, in the quarter, compared to $305 million, or $3.40 per diluted share, in the prior-year Q1 period.

Stores
“As we’ve talked about previously, our significant investments to reposition our portfolio are key to delivering an elevated omni-channel athlete experience,” added CEO Hobart. “We expect House of Sport and our next generation 50,000-square-foot [50K] Dick’s store to drive robust omni-channel athlete engagement and generate strong sales and profitability.”

During the first quarter, Dick’s opened two House of Sport stores and expects to open six additional locations in 2024. Hobart said the company also opened two next-generation 50K locations during the first quarter and sees opening a further 14 throughout 2024.

“We continue to be very pleased with the results of these exciting Dick’s concepts,” she added. “This one-two punch of House of Sport and our next-generation 50K format combined with the elevated omni-channel experience our teammates are bringing to life throughout our entire portfolio is the future of Dick’s.”

Hobart also said the company is growing Golf Galaxy Performance Centers, offering an immersive experience for golf enthusiasts of all levels, with three new stores during the first quarter.

“We remain confident in the long-term growth opportunity in golf and are excited to bring this experience to more golfers,“ Hobart said.

“Investing in our digital capabilities is central to our omni-channel success. I want to briefly talk about GameChanger, the premier live streaming, scheduling, communications, and scorekeeping mobile app where we’re building the first and best place to experience youth sports,“ she said, shifting the topic line.

“During Q1, GameChanger drove continued strong sales growth,“ Hobart said. “Over 5 million unique users engaged with GameChanger, averaging approximately 30 minutes daily on the app. We saw a robust increase in app usage across all sports, including those newer to the GameChanger platform, such as basketball, football, soccer, and volleyball.“

Hobart closed by saying that Dicks is “excited to continue innovating within the fast-growing, multi-billion dollar youth sports technology market and strengthening their relationships with athletes and their families through GameChanger.”

Balance Sheet and Capital Allocation
Dick’s ended Q1 with approximately $1.6 billion of cash and cash equivalents and no borrowings on its $1.6 billion unsecured credit facility.

Quarter-end inventory levels increased 5.5 percent compared to the end of Q1 last year, slightly below the retailer’s 6.2 percent increase in sales. Gupta said the company believes its inventory is “clean and well-positioned.”

Net capital expenditures were $126 million in the first quarter, and the company paid $94 million in quarterly dividends.

“We also repurchased 548,000 shares of our stock for $113.6 million at an average price of $207.32. In 2024, we continue to expect share repurchases of $300 million,“ Gupta added.

Outlook

“As a result of our strong Q1 performance, our expectations for continued robust demand from athletes, and the confidence we have in our business, we are raising our full-year outlook,“ the CFO shared as he began to wrap up his prepared comments. “We now expect consolidated sales in the range of $13.1 billion to $13.2 billion.”

Gupta continued to report that the company expects comp sales growth from 2 percent to 3 percent compared to prior expectations for 1 percent to 2 percent growth.

The retailer now plans for the EBT margin to be 11.1 percent at the midpoint compared to 10.9 percent.

Gross margin is now expected to expand modestly compared to 2023 non-GAAP results.

“We previously expected gross margins to be in line with 2023 non-GAAP results at approximately 35 percent,“ Gupta noted. “We continue to expect SG&A expenses to leverage modestly compared to 2023 non-GAAP results. In total, we now anticipate full-year earnings per diluted share to be in the range of $13.35 to $13.75 compared to our prior expectations of $12.85 to $13.25.”

Gupta said earnings guidance is based on approximately 83 million average diluted shares outstanding and an effective tax rate of roughly 23 percent compared to prior expectations of approximately 24 percent.

“We continue to expect net capital expenditures of approximately $800 million for the year,“ he said.

Lastly, Gupta pointed out several items the company sees impacting the comparability of financial results for the second quarter.

“First, recall that due to the shifted calendar, we expect our reported total sales to be positively impacted in the first half with an offset in the second half,“ he detailed. “Specifically, given the impact of the shift on a key back-to-school week, we expect our reported total sales in Q2 to be positively impacted by approximately $100 million versus the prior year with an offset in Q3.”

Second, Gupta reported that Dick’s would begin to anniversary the higher shrink rates from 2023 in the upcoming second quarter.

“As a reminder, our shrink in Q2 of last year also included a cumulative unfavorable true-up of actual results from our physical inventories, which reflected an 84 basis points increase over 2022,“ he noted. “Consequently, we expect to see year-over-year favorability in shrink during this year’s second quarter.”

Gupta also noted that DKS had cleaned up some of its inventory in the outdoor space last year in the first quarter but noted to analysts that the company exited that in the first quarter.

“We don’t anticipate annualizing those actions either because where we have exited Q1 this year, we feel great about our inventory and the quality of the inventory and, most importantly, the assortment that we have available for going into the key selling season here in Q2,“ Gupta detailed.

Image courtesy Dick’s Sporting Goods, Inc.