Speaking at the BofA Securities 2023 Consumer & Retail Conference, Lauren Hobart, president and CEO at Dick’s Sporting Goods, and Ed Stack, executive chairman, discussed the chain’s transformation and other factors expected to drive continued robust top-line growth for Dick’s in the years ahead as well as why the chain is faring better than other retailers in the current inflationary climate.
“Our consumer has really been very good,” said Stack. “Our business has continued to be good.”
He said that even though the pandemic has become less of a concern, kids want to play sports.
“They want to be with their friends,” said Stack. “They want to be out. They want to be part of something and be part of a team. And that’s really very good for our business. And they’ve also got their parents saying to them, ‘We’ve been in the house for X amount of time, you should be out there playing sports.’ So, we think that this has got a lot of legs out there right now with what we’re seeing in participation in team sports.”
Stack also sees Dick’s continuing to benefit from people paying more attention to health & wellness which also developed during the earlier stages of the pandemic. Said Stack, “If it’s not running then it’s just walking, being outside, being health conscious. The state of our consumer is really good. We’re in a great lane right now.”
Hobart also said Dick’s has been fortunate to not see consumers trading down much in the fourth quarter or over the last year like some other retailers. She said, “We didn’t see trade downs from best to better and better to good. And we saw growth across every income demographic across the entire line. So, it does seem like we have a product for everybody between our opening price point and then we’ve got product for the most elite enthusiast athlete who wants to better their game.”
However, Stack and Dick’s team spent much of the time discussing transformation efforts that began in 2016 and 2017 that have repositioned Dick’s for accelerated growth and created greater differentiation from competitors in the marketplace to help avoid pricing pressures.
“We’ve got a very different product line than we had back in 2017,” said Stack. “It’s a much more narrowly distributed product, which carries higher margins. We’ve got more unique products that aren’t as widely distributed that really differentiate us in the marketplace.”
The roll-out of service-supported footwear decks has particularly improved access to footwear product, but Stack said changes to in-store space allocation, marketing and in-store service are also supporting Dick’s recent success, including not only sales gains but operating profit more than doubling as a percent of sales since 2017.
“It’s a very different business and people don’t quite understand that,” said Stack. “I think they’re starting to understand that we’re not merely a COVID beneficiary. That this transformation was going on before COVID and right now what you’re seeing is really the benefits of those investments that we made beginning back in 2016 and 2017 and we think it’s very sustainable.”
On March 7, Dick’s reported fourth-quarter earnings that were far ahead of Wall Street’s consensus estimate and provided 2023 guidance that also easily exceeded Wall Street targets. Comparable store sales climbed 5.3 percent in the quarter on top of the 6.6 percent increase in the prior-year period, a 19.3 percent increase in Q420, and a 5.3 percent increase in Q419.
Dicks said that when compared to 2019, sales in the year increased 41.3 percent or $3.62 billion, with approximately 80 percent of the growth being driven by sales in its “priority” categories of footwear, athletic apparel, team sports and golf.
Stack said Dick’s expects the priority categories to “continue to lead the way” with footwear being helped by better access to product due to the footwear decks. The team sports category is expected to continue to be driven by improving participation rates in many sports while golf continues to benefit from the surge in play the sport saw earlier in the pandemic.
Said Stack, “I think golf is going to be is going to continue to be a good category for us. It’s not going to be at the same level as the footwear business, apparel business, and team sport businesses, but it’s still going to be an important initiative and a big business for us that we think can grow.”
Hobart said Dick’s has faced challenges with elevated apparel inventories like other retailers but she believes the margin pressures have been less for Dick’s due to its push to further differentiate assortments.
“Apparel has certainly been a challenge this past year,” said Hobart. “The whole industry felt it when a lot of spring apparel came in late and on top of back to school and we’ve been working through it with our partners through Q3 and Q4. But it’s different from what I’m hearing about other apparel retailers because we have such a narrowly distributed product where we don’t have to compete with, say, big department stores on product. We’ve been able to be much more surgical. So, we didn’t have a very promotional environment in Q4. We had selected item-level pricing. We had a few doorbusters. But we did not have a massively promotional environment. So, I think it’s our distribution and our access that makes us different than other potential competitors.”
Stack said Dick’s relationship with Nike is at an “all-time high” with investments from each company in each other’s businesses. The partnership’s success is marked by Dick’s improved access to “more narrowly-distributed, faster-turning, higher-margin product” from Nike in both footwear and apparel categories.
“We see that continuing and we’re very excited about our relationship with Nike,” said Stack. “They’re certainly the hottest brand in the market today across not only just the lifestyle side of the business but also the performance side. What they’re doing from a running shoe standpoint with the Invincible, what they’re doing from a cleated standpoint, from a basketball standpoint…They’re hitting on all cylinders across all aspects of their business, and we’re really excited about that.”
Hobart added that Dick’s Connected Membership program with Nike has surpassed over 1 million shared members linking to both Dick’s and Nike’s loyalty programs and has been a strong success. She said, “I think it’s fantastic for teams to enter this new level of partnership where we’ve now got people throughout our entire organization partnering with the organization over at Nike because it took a village to do this Connected Membership. It was not a quick turn of a button.”
She added while the Connected Membership program currently provides perks such as early access to products, other perks such as pick-up at stores and returns are being added. Hobart said, “There’s just a lot of different elements. So, we’re partnering throughout the entire ecosystem, our two companies, to innovate on the athlete [customer] experience.”
On other topics:
- Dick’s is launching its largest brand campaign, “Sports Change Lives,” celebrating its 75th anniversary that will be running during the March Madness basketball games. Incorporating its Sports Matter grant program, Dick’s will be distributing 75 Sports Matter grants from The Dick’s Sporting Goods Foundation of $75,000 each to selected youth sports programs around the country. Hobart said employees across stores and distribution centers are enthused to celebrate the anniversary and Dick’s ability to support communities. Hobart said, “We talk a lot about the importance of people and the importance of our teammates, but there’s so much pride going on internally that it only helps to foster what’s going on externally. We just decided to elevate our brand voice. And the brand campaigns that we’ve done, they’re very inspirational. They want to get you out there to play.”
- Navdeep Gupta, EVP and CFO, said Dick’s Warehouse Sale and Going Going Gone! value concepts enable Dick’s to move clearance merchandise out of stores to enable more space in Dick’s locations for regularly-priced merchandise. The clearance items are then sold at higher recovery rates inside the value concepts. He said, “We are able to liquidate this product in a much-more efficient way and at much better margin than we were able to do before both online and in stores.” Gupta further said the value concepts don’t cannibalize Dick’s locations since value customers are still heading to the flagship chain for full-priced merchandise. At the close of the year, Dick’s had eight Going Going Gone! locations and 43 Dick’s Warehouse Sale locations. Gupta said, “It’s a very accretive strategy on both sides.”
- Gupta said the profitability of e-commerce is among the “structural” drivers of Dick’s expected higher profitability margins going forward versus 2019. He said Dick’s e-commerce business was “always profitable,” but now e-commerce profitability is “at parity” with the store business. The drivers of higher e-commerce profitability include the bigger size of the business that enables Dick’s to better leverage costs, improved pricing and promotion tactics versus sitewide promotions often used in 2019, and the expansion of BOPIS (buy-online, pick-up, in-store), curbside pickup and ship-from-store that also help reduce costs.
- Stack said Dick’s vertical brands, or private label brands, provide differentiation and “meaningfully higher” margins versus the national brands the retailer carries. He noted that while Dick’s gets a lot of credit for its success with its apparel brands, Calia, Vrst and DSG, Dick’s hard goods’ vertical brands have also gained strong acceptance. Stack said, “Our number one brands in golf are our own brands. Our number one brands in fitness are our own brands. And it’s really an important aspect of the outdoor category.”
- Stack said brands are enthused about supporting the growth opportunity of Dick’s experiential House of Sports concept. On its fourth-quarter call, Dick’s predicted the opening of as many as 75-to-100 House of Sports locations over the next few years, including nine in 2023. Stack said, “The brands want all of their best product there because it’s a place where they can showcase their entire brand as if it was in their own retail. So, whether that’s Nike, whether that’s Adidas, whether that’s Patagonia or North Face…It’s a place where they all want to be and have their best product, which is actually more narrowly distributed, which gives us a higher profit margin.”
- Hobart said Dick’s acquisition of Moosejaw, which is expected to close at the end of this month, builds on Dick’s outdoor ambitions marked by the launch of the Public Lands’ outdoor concept. Hobart said, “We’ve been trying to really excel in the outdoor category and we started this company, Public Lands, within the Dick’s family in the last two years. Moosejaw, being a 30-year brand in the industry, has an incredibly loyal following and is also a digital-first business, which I think will be really great for our teams to explore. So, we’re looking at it largely as an omnichannel retail concept and then sure, there might be some vertical brand opportunities as well.”
Photo courtesy Dick’s SG