Following a pullback earlier in the year in its EPS and comp guidance largely due to challenges in the golf and hunt categories, Dicks Sporting Goods team spent considerable time at Goldman Sachs Global Retailing Conference defending its ambitious expansion prospects.
At the conference, Ed Stack, Dicks SGs chairman and CEO, stated that the company is the largest US based sporting goods retailer with sales of over $6 billion in 2013. Said Stack, With approximately 9 percent market share, we think our size is a pretty strategic asset, particularly in such a fragmented space, and we continue to invest in what we think is going to be very important through our Omni channel retailing initiatives.
But he said one ongoing question he continues to get asked by Wall Street is whether Dicks SG faces limitations in its store expansion potential. He added, Basically youre painted if you are a retailer, you have too many stores.
He said the Dicks SG chain has 574 stores currently and will have 600 in operation by year-end, which he said is meaningfully less stores than almost every other retailer that you would think of: Tractor Supply, PetSmart, Kohl’s, Michaels, Bed, Bath & Beyond.
He added that even with Dicks SGs plan to reach 800 doors by the end of fiscal 2017, were going to have a lot less stores than everybody else in this industry.
Finally, he noted, We still have a lot of places where we dont have stores. Dicks SG has only two in the San Francisco market, one in the five boroughs of New York, only a few stores in Florida and Texas, and some areas where it doesnt have any stores. He added, I know it’s a dirty word in retailing today that we are opening stores, but were opening stores in places where we really dont have any stores.
The other misconception about Dicks SG he often gets asked about is whether your store is too big. He noted that Dicks SG over the last eight quarters has a new store productivity in the high 90 percent range. He adds, If your new store productivity is still kind of sitting in that plus 90 percent range, I think it signifies that the store is not too big.
He also noted Dicks SG has been reallocating some space to make its store more productive.
The radical reallocation of its golf departments are the reason why investors lately are wondering if the stores should be smaller. As reported, the golf business was about 20 percent of the companys business a few years ago, but shrunk to around 15 percent now and will likely shrink to around 10 percent over the next three to four years. Added Stack, The business is going to flatten out. I dont think it will grow. It will be an okay business for us. It wont be great. Itll be a much smaller percent than it is today.
But he asserted that the mix continually gets adjusted depending on hot and colder activity trends. Said Stack, There has always been areas of the business where you think there are growth areas and other areas where you need to scale back, so not a surprise.
Indeed, the company is shifting space formerly dedicated to golf to faster-growing categories, including womens, team sports and footwear. Excluding golf and hunt categories, comps were up 7.8 percent in the rest of the business, boosted by many of those categories.
Stack particularly noted that Dicks SG remains significantly under indexed in both womens and youth and in the early innings as far as reaching the full potential in both areas. Investments are being made in presentation, product quality and marketing reach in both areas.
In womens, Nike, Under Armour and Lucy as well as its exclusive Reebok line were cited as important drivers of growth this year.
These brands are coming out with better product, better quality product, better colors, better fit – all of these that the athletic companies have really put a lot of time and effort into, said Stack.
He further noted that Dicks SGs female section is laid out to reach two female consumers. The first is the younger athlete still playing soccer, lacrosse, field hockey, fast pitch softball, etc. The second is the 25 to 54 who is active from a lifestyle standpoint, a wellness standpoint.
In youth, the target is the high-school athlete and changes included renaming the section from Kids to Young Athlete. Stack added, Our research showed kids – even eight, nine, ten year olds – dont view themselves as kids.
Its overall outdoor category, which includes hunt, fish and camp, was flat in the second quarter and expected to resume growth. The area had been impacted by some much accelerated purchases with expected gun ownership changes following the Sandy Hook tragedy over the previous two years and the last presidential election. Growing popularity of gun cubs and shooting skeet traps, including interest from women, are expected to boost revenues in the future.
The bullishness on the hunt category is also evident with Dicks SG aggressive plans in rolling out its Field & Stream concept. It has three stores open currently and will have ten open by year-end.
Stack said the companys initial entry has seen great crowds, great business, with Field & Stream offering a unique selling experience and brands such as Hoyt Bows and Yeti Coolers not seen at larger competitors in the space. The company is testing opening Field & Stream stores right next to Dicks SG locations, expected buying synergies for shoppers.
This is an estimated $34 billion business that grew at about a 5 percent CAGR from 2006 to 2011, said Stack. It’s a very fragmented business with the top five guys, including us, having about a third of the business. So we think that there’s a real opportunity there to go grab market share and build this brand. We think we can do with Field & Stream what we did with Dicks years ago to really make this a dominant player in this outdoor category.
Stack also talked up the opportunity in e-commerce, with sales growing at a 50 percent pace. Sales reached just under $500 million last year and will be pretty meaningfully higher than that in 2014. Said Stack, We feel that we really continue to take market share and win online with a broader product assortment.
Aiding the growth will be the ongoing transition expected to be complete in 2017 from GSI to its own e-commerce platform. Also helping is the roll out of buy-online/pickup-in-store, ship-from-store, vendor-direct shipments, and a just-released mobile app. Said Stack, This is an area we continue to invest very heavily in and well continue to invest very heavily in over the next couple of years and were seeing some great benefit in this business.
