Things are moving mighty fast at Dick’s Sporting Goods. After a strong finish to the fiscal year and posting its largest Q4 ever, the company has already put its stake in the ground for the next chapter (or chapters) in the story of the 75-year-old sporting goods retailer.
Since our founding in 1948, Dick’s has believed in the power of sports to change lives,” offered company President and CEO Lauren Hobart as she commenced her prepared remarks on a conference call with analysts. “Dick’s Sporting Goods We bring this to life every day through the experience we provide for our athletes, the differentiated products we offer, the marketing we create to connect our athletes deeply with our brand, and most importantly, our teammates. Through these strategic pillars, we are actively creating and defining our future. And during this past year, it’s evident just how far we’ve extended our leadership position.”
But Hobart spent little time on the past. It was clear that the DKS team is looking forward and planning ahead. It is already years ahead of the market on where, when and how to go next, and House of Sport and 50K clearly play a big part in that vision.
“For 2024, we’re guiding to another strong year and expect to grow both our sales and earnings through positive comps, higher merchandise margin and productivity gains,” said Hobart, setting the table for the growth conversation.
“We’re excited to continue redefining the future of retail,” she shared, almost a declaration that Dick’s has the answer for what troubles retail in general and sporting goods retail more specifically. “With the continued success of our growth initiatives, we will increase our capital investment to drive our business forward, both digitally and in-store, and continue gaining market share in this fragmented $140 billion industry.”
Hobart said a key driver of the growth is the repositioning of the company’s portfolio, including House of Sport, the next-generation 50K format, which she said completely revolutionizes the “most typical 50,000 square foot Dick’s store,” and Golf Galaxy Performance Center.
CFO Navdeep Gupta said the company would invest in several exciting brand campaigns, including supporting the House of Sport grand openings during the first quarter.
“For 2024, our capital allocation plan includes net capital expenditure of approximately $800 million. As we continue to reposition our portfolio, these investments will be concentrated in-store growth, relocations, and improvements in our existing stores, along with ongoing investments in technology and supply chain expansion,” he continued.
“Our 2024 CapEx plan also includes purchasing certain real estate assets related to House of Sport, for which we are evaluating potential sale-leaseback opportunities,” Gupta added.
“House of Sport is one of the most exciting concepts in retail today, and in 2024, we expect to open eight new locations,” Gupta shared, sounding more like a sales guy than a CFO on the call. “As we elevate our store portfolio, seven of these are planned relocations or conversions of existing Dick’s stores, along with one new store at Prudential Center in Boston. We expect to begin construction on approximately 15 House of Sport locations scheduled to open throughout 2025. We will also open 16 next-generation 50K Dick’s stores in 2024. As part of this, we will relocate or remodel 12 existing Dick’s stores into this innovative new format and open four new locations.”
He said that across the company’s footprint, Dick’s will add approximately 50 premium full-service footwear decks, taking the elevated athlete experience to nearly 90 percent of all Dick’s locations.
“In 2024, we are also excited to grow the footprint of our Golf Galaxy business and plan to open 10 Golf Galaxy Performance Center locations,” Gupta continued. “As part of this, we will relocate or remodel five existing Golf Galaxy stores into this immersive new format and open five new Golf Galaxy Performance Center locations. Through these investments, we expect to increase our square footage by approximately 2 percent in 2024, marking our most significant expansion since 2017.”
Gupta also said the company plans to begin construction on a new regional distribution center, which will open in 2026. He said the new DC will play an important role in supporting the long-term growth of the business.
Gupta then put his CFO back on and projected that for a new House of Sport location, Dick’s expects approximately $35 million in omni-channel sales in year one and very strong profitability with a target of approximately 20 percent EBITDA margins.
He went a little deeper during the Q&A session, responding to a question by saying that stores open at full maturity because of their strong brand awareness and positioning in these markets.
“The House of Sport locations are opening on an omni-channel basis, with almost $35 million in top-line sales and almost $14 million when it comes to the next-gen 50K.”
He said the company sees comparable EBITDA margins between both formats.
“And as you can expect, there’s a little bit of an interplay that happens between the margin and the SG&A,” he expanded. You have a little bit more of the elevated experience being provided in House of Sport locations. And so, therefore, there is a little bit of a higher service level component to it, but the service also comes with the revenue associated with it. So there’s a little bit of a higher margin you get from that, I would say.”
Regarding capital requirements for this expansion, the CFO said it would take about $11.5 million of net CapEx to open a House of Sport location, resulting in an expected year-one cash-on-cash return of approximately 35 percent.
“We also expect attractive returns from our next-generation 50K Dick’s store investments, where we are targeting approximately $14 million in year-one omni-channel sales and a comparable EBITDA margin of approximately 20 percent,” he detailed.
“There’s a little bit of a more capital investment that we are putting into it,” he shared. “So that plays into the depreciation. But when you look at the overall, just operating—the EBITDA margin rates that we are driving, we are very, very happy with the returns that we are driving and the strong profitability that we are delivering out of both these boxes.”
Lauren Hobart jumped back into the conversation, providing the big picture for the company.
“Industry leaders consistently innovate from a foundation of strength, positioning themselves ahead of the curve,” She opined. “With this mindset, a key part of our growth strategy for this year and future years is continuing to drive omni-channel athlete engagement by repositioning our portfolio and experiences through House of Sport and our next-generation 50K Dick’s store.
“With House of Sport, we are truly redefining sports retail,” she continued. “Since we launched our first location in 2021, this highly experiential destination has brought very strong engagement with our athletes, brand partners, and communities and has delivered powerful financial results. Compared to a typical Dick’s store, athletes are traveling farther to visit House of Sport, increasing the time they spend in the store, and visiting more frequently.”
Hobart suggested that because of the engagement and experience at House of Sport, the retailer’s national brand partners provide access to unique and expanded assortments, while new and emerging brands see it as a platform for growth.
“With 12 House of Sport locations now open, we look forward to opening another eight locations in 2024. Next month, we are so excited to open a House of Sport in our hometown of Pittsburgh and at the Prudential Center in Downtown Boston. We will support these grand openings with high-impact marketing,” she added.
“With the compelling economics Navdeep outlined, House of Sport is a significant part of our future growth story,” Hobart said, “As we’ve said, by 2027, we expect to have between 75 to 100 House of Sport locations across the country. The vast majority of these will be relocations or conversions of existing Dick’s stores into House of Sport.”
The CEO also said that Dick’s already opened 11 next-generation 50K locations in 2023 and they are excited to open another 16 locations in 2024.
“This one-two punch of House of Sport and our next-generation 50K is the future of our Dick’s stores and will serve as the hub for our athletes’ omni-channel experience,” she proclaimed. “Inspired by House of Sport, this store has a similar elevated assortment and service model, premium experiences, and enhanced visual expressions, and the format is delivering great results.”
Hobart said that Golf Galaxy is another important part of the growth story.
“This past year, we grew our Golf Galaxy footprint to over 100 locations,” she said. “As Navdeep said, we plan to further grow our footprint through Golf Galaxy Performance Centers, which offer an immersive experience for golf enthusiasts of all levels. With 14 performance centers now open, we’re excited to open another 10 locations throughout 2024. This spring, we’re investing in marketing to drive market share and elevate the Golf Galaxy brand perception in a memorable and relatable way for golfers. During 2023, golf rounds played in the U.S. hit an all-time high, and we believe golf is a compelling long-term growth opportunity.”
Hobart said they continue to make big bets with their brand partners while actively seeking to work with new and emerging brands.
“At the same time, we will continue to invest in our highly profitable portfolio of powerhouse vertical [private label] brands, including VRST, DSG and Calia, that are gaining meaningful traction with our athletes,” she said. “For DSG, which is our largest vertical brand, we expect to build on the success of our Q4 campaign with an always-on approach focused on family, value, and sport.”
She said the Calia brand is their second largest women’s apparel brand behind only Nike, and she appeared excited about the recently launched Inspire collection.
“This is our most versatile collection yet and features an innovative new fabric,” Hobart explained. “We’re supporting this important launch through a campaign that uniquely positions Calia as a performance brand that embodies strength as beautiful.”
Hobart also pointed to digital capabilities that are core to their omni-channel success.
“As we expand our leadership position in youth sports, GameChanger, another incredibly strong digital capability we have, plays a pivotal role. GameChanger has become a leader in the multibillion-dollar youth sports technology market. It is a go-to destination for millions of parents, grandparents, and fans to watch games, track stats, and share video highlights for athletes of all ages,” she said.
“Last year, over 1 million teams used GameChanger to capture moments from 7 million games and create 110 million highlight clips,” she said, outlining its capabilities. “In fact, more games are covered on GameChanger in a single spring month than have been played in the entire history of Major League Baseball. As a recurring revenue software as a service platform, GameChanger is very profitable and has grown sales at over a 35 percent CAGR since 2017. We expect GameChanger to reach approximately $100 million in sales this year.”
The company noted in its 2024 outlook that the GameChanger would be counted in the comparable results.
“Importantly, GameChanger families are some of Dick’s Sporting Goods’ most valuable customers,” Hobart continued. “A GameChanger customer who also has a Dick’s ScoreCard spends over 2 times more per year at Dick’s than a typical ScoreCard member. With customers visiting the app over 13 times a month, we believe there are numerous opportunities for Dick’s to reach these customers in unique and authentic ways to drive brand loyalty and sales.”
She also said they will continue to invest in Dick’s brand building through the Sports Change Lives campaign.
“At Dick’s, we believe sports have the power to change lives, and our objective with this work is to unequivocally communicate who we are and what we stand for,” she noted. “We’re pleased with the first year results and the way the campaign is resonating with our athletes and increasing brand connection. In the second year of this campaign, you’ll see new creative expressions during high-profile sports moments, like the NCAA tournament, the Summer Olympics and NFL games.
Outlook
Dick’s Sporting Goods expects full-year comparable store sales growth to be in the range of 1.0 percent to 2.0 percent and net sales in a range of $13.00 billion to $13.13 billion.
Gross margins are expected to be approximately 35 percent of sales and in line with 2023 non-GAAP results. DKS expects merchandise margin to expand modestly, offset by occupancy deleverage as it invests in repositioning the company’s portfolio.
SG&A expenses are expected to leverage modestly compared to 2023 non-GAAP results, driven by an ongoing focus on improving productivity and reducing discretionary costs and the expected benefits from the business optimization action.
EBT margin is planned to be at 10.9 percent at the midpoint.
DKS anticipates full-year earnings per diluted share in the range of $12.85 to $13.25. The EPS guidance is based on approximately 83 million average diluted shares outstanding and an effective tax rate of approximately 24 percent.
“As you model 2024, I want to point out a few things that we expect to impact the comparability of our financial results,” Gupta suggested. “First, keep in mind that the extra week in 2023 will create a shifted calendar. As a result, when we report our comp sales results, we will compare week one through 52 in 2024 with week two through 53 in 2023. We do not expect this shift to have a material impact on comp sales for the full year. However, we do expect our reported sales to be positively impacted by the shifted calendar in the first half but then offset in the second half. During the first quarter, we will be investing in several exciting brand campaigns, as well as support our Q1 House of Sport grand openings. Next, as a reminder, in Q1, we will see an unfavorable impact to our gross margin from higher shrink rates, which we will anniversary starting in Q2. And finally, recall that our Q1 2023 tax rate was meaningfully lower than normal, driven by favorable impact of the vesting of employee equity awards and exercises. We do not anticipate this again in 2024.”
And for the win…
Gupta then reached into the wallet and pulled out a gift for investors, announcing an increase in DKS quarterly dividends of 10 percent on an annualized payout of $4.40 per share, or $1.10 on a quarterly basis. He noted this is on top of a 105 percent increase last year and marks the 10th consecutive year that shareholders have benefited from a dividend increase.
DKS shares took off on Thursday morning and didn’t look back, closing up 15.5 percent for the day to close at $216.90.
Well played.
Image courtesy Dick’s Sports Goods, Inc.
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See below for more SGB Media coverage of the Dick’s Sporting Goods fiscal quarter and 2023 fiscal year, including a summary of the income statements and balance sheets.
Dick’s Sporting Goods Sees Q4 Comps Up 2.8 Percent As Net Grows 26 Percent
