DICK'S Sporting Goods, Inc. (DKS) Q1 2015 Earnings Report, Transcript and Summary

Good morning, and welcome to the DICK'S Sporting Goods' First Quarter 2015 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. 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 first quarter 2015 financial results. 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 approximately 30 days. In order for us to take advantage of the safe harbor rules, I would like to remind you that today's discussion includes some forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which include, but are not limited to, our views and expectations concerning our future results. Such statements relate to future events and expectations and involve known and unknown risks and uncertainties. Our actual results or actions may differ materially from those projected in the forward-looking statements. For a summary of the risk factors that could cause results to differ materially from those expressed in the forward-looking statements, please refer to our periodic reports filed with the SEC, including the company's annual report on Form 10-K for the year ended January 31, 2015. We disclaim any obligation and do not intend to update these statements except as required by the securities laws. 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. Leading our call today will be Ed Stack, our Chairman and Chief Executive Officer. Ed will review our first quarter results, key business drivers and outlook. After Ed's comments, André Hawaux will provide greater detail regarding our results, capital allocation and guidance for the second quarter and full year 2015. I will now turn the call over to Ed Stack.

Thank you, Anne-Marie, and thanks to all of you for joining us today. As we announced this morning, we generated first quarter earnings per diluted share of $0.53, achieving the high end of our guidance of $0.49 to $0.53. First quarter consolidated same-store sales of 1% was within our guidance range of between flat to 2% and on top of the 1.5% comp in the first quarter of 2014. As expected, our first quarter results reflect the slower start to the spring selling season as we highlighted in our year-end earnings call. Since February, the sales trend has notably improved. DICK'S omni-channel comp sales increased 1.8% in the quarter, with growth across the hard lines, apparel and footwear categories and supported by an increase in both traffic and ticket. We're pleased with this performance and are encouraged by the improving trends in our golf business. While Golf Galaxy comps were down 11% and in line with the DICK'S golf business, both showed significant sequential comp improvement during the quarter as the weather improved, especially in the Northeast. We're seeing the golf recovery continue into the second quarter and expect margin improvement year-over-year in the second quarter. We're also pleased with our women's athletic apparel. A significant amount of research has gone into our women's strategy, which encompasses our product content, merchandise presentation, shopping experience and marketing. During the quarter, we augmented our women's fitness apparel selection by launching CALIA by Carrie Underwood. This is a higher-margin, exclusive private brand offering that serves the athletic female. CALIA is off to a great start, and we believe it will become our #3 women's athletic apparel brand by the end of 2016. On the marketing front, we recently launched our first campaign targeted directly to women. It speaks to all the pressures women are under today, the sacrifices they make for their families and work, and how difficult it is to find those few precious moments for themselves. And finally, in new stores that we'll be opening up this year, we're redeveloping the shopping environment for the athletic female, including updated dressing rooms and improved merchandising presentation, which effectively pulls the entire women's concept together. Our focus on eCommerce continues to pay off, with eCommerce penetration growing to 8.5% of sales in the first quarter this year compared to 7% in the first quarter of 2014. We have significantly outpaced the market and have picked up market share in the online space. We moved up to #70 on the Internet Retailer Top 500 list, and in 2014, we grew nearly twice the pace of the industry. Additionally, we continue to make progress towards our goal of moving our DICK'S Sporting Goods eCommerce site onto our own exclusive platform by January 2017. This quarter, we completed a key step by successfully relaunching golfgalaxy.com, and later this year, we plan to launch a Field & Stream transactional site. By having 2 sites on our own platform, we will be able to operate and learn from the multi-tenancy dynamics prior to relaunching dicks.com on the same platform. Finally, we're also excited about our first combo store that is set to open in July in Mobile, Alabama. This combines durable place with DICK'S and Field & Stream right next to each other, with the interior walls opened up in the middle of the store so customers can cross-shop between chains. As we move forward with this format, the hunt, fish and camp product will all be in Field & Stream, leaving more room in the DICK'S stores for higher-margin, faster-turning categories, such as our women's, youth and team sports businesses. We believe this will be a very compelling shopping experience and plan to have 4 of these combo stores in place by the end of 2015. Our balance sheet remained strong, and both the level and quality of our inventory is well positioned. DICK'S sales growth outpaced inventory growth, exiting the first quarter with the incremental inventory in our balance sheet supporting the growth of our Field & Stream concept. We also continue to return capital to shareholders through our quarterly dividends and share repurchases, completing a $150 million in share repurchases in the first quarter. As a result of our performance in the first quarter and our expectations for the remainder of the year, we are raising the low end of our full year guidance to $3.12 to $3.20 per diluted share and maintaining our 2015 guidance on a full year comp sales growth of 1% to 3%. This guidance contemplates the $150 million of share repurchases executed in the first quarter. Before concluding, I would like to thank our associates for their many contributions to our progress as they are the driving force behind our success. All of us are grateful to them for their exceptional loyalty and commitment. I'd now like to turn the call over to André. André Hawaux: Thank you, Ed, and good morning, everyone. This morning, I will cover our first quarter results, our balance sheet and capital allocation, and our performance expectations for the remainder of 2015. To begin with our first quarter financial results. Total sales increased 8.8% to approximately $1.6 billion. Consolidated omni-channel same-store sales increased 1% compared to our guidance of flat to 2% same-store sales growth and compared to comps of 1.5% in the first quarter of last year. DICK'S Sporting Goods omni-channel same-store sales increased 1.8%, driven by a 1% increase in sales per transaction and an increase in traffic of 0.8%. In the first quarter of 2015, we continued to grow our omni-channel platform. We opened 9 new DICK'S stores, 1 new Field & Stream store, and we generated 95.4% new store productivity. And as Ed mentioned, we grew our eCommerce business to 8.5% of sales compared to 7% in the first quarter of 2014. This translates into approximately 32% growth for our eComm business. We also relocated 1 DICK'S store and 1 Golf Galaxy store during the quarter. Gross profit for the first quarter was $469 million or 29.96% of sales and was down 68 basis points from Q1 of 2014, driven by lower merchandise margin, occupancy deleverage and an increase in shipping expenses as a percentage of total sales due to our continued growth in eCommerce. As you will recall from our last earnings call, we anticipated a lower merchandise margin in the first quarter as a result of planned promotional activity earlier in the season. SG&A expenses in the first quarter were $361 million or 23.05% of sales, and on a non-GAAP basis, leveraged 38 basis points from the first quarter of last year. This was primarily due to lower administrative expenses as a percentage of sales. Now looking to our balance sheet. We ended the first quarter of 2015 with approximately $81 million of cash and cash equivalents and approximately $51 million in borrowings outstanding on our $500 million revolving credit facility, reflective of our share repurchase activity and capital expenditures during the quarter. First quarter 2015 net capital expenditures were $25 million or $66 million on a gross basis. Total inventory increased 9.7% for the end of the first quarter of 2015 compared to the end of the first quarter of 2014. As Ed mentioned, in the quarter, our inventory for the DICK'S business grew at a slower pace than sales, and the balance of the inventory growth is to support our Field & Stream expansion. Turning now to our capital allocation strategy. In the first quarter, we paid $17.4 million in dividends and completed share repurchases of $150 million. Since we started our $1 billion authorization at the beginning of 2013, we have repurchased approximately over $605 million of common stock and have approximately $395 million remaining under the authorization. We believe that investing in our business, share repurchases and dividends all remain key elements of our capital allocation strategy. Turning to our outlook for the remainder of fiscal 2015. We are raising the low end of our full year earnings guidance and now expect full year earnings per diluted share of $3.12 to $3.20. We expect same-store sales to increase 1% to 3%, consistent with our prior guidance. Gross margin is expected to increase, primarily driven by merchandise margin expansion. SG&A is expected to deleverage as we invest in building our brand, coupled with expenses related to bringing eCommerce onto our own platform. Year-over-year preopening expenses are expected to remain relatively flat as a percentage of sales. As a result of these dynamics, we expect the operating margins to increase slightly year-over-year. Net capital expenditures for the full year 2015 are expected to be approximately $245 million or about $365 million on a gross basis. In 2015, we expect to open approximately 45 new DICK'S stores, relocate 7 new DICK'S stores -- 7 DICK'S stores and relocate 1 Golf Galaxy store. We also remained focused on scaling our Field & Stream concept and expect to open 9 new Field & Stream stores this year. For the second quarter of 2015, we anticipate earnings per diluted share of $0.73 to $0.76. Consolidated omni-channel same-store sales are expected to be approximately flat to up 2% compared to a 3.2% increase in our comps in the second quarter of 2014. Non-GAAP operating margin is expected to remain relatively flat due to an expansion in gross margin, offset by SG&A expense deleverage, primarily due to our investments we are making in eCommerce. Our guidance for the second quarter contemplates meaningful World Cup sales comparisons as well as higher levels of golf clearance in the same period last year. We also expect to open 7 new DICK'S stores and 1 new Field & Stream store in the second quarter. In summary, we continue to successfully grow our business, make the right investments and deliver shareholder value. We are focused on driving store productivity, adding stores in new and underpenetrated markets, expanding and insourcing our eCommerce business and further developing our Field & Stream specialty concept. This will conclude our prepared remarks. Thank you for your interest in DICK'S Sporting Goods. Operator, please open the line for questions.

[Operator Instructions] And our first question will come from Christopher Horvers of JPMorgan.

So I wanted to follow up on your comment, Ed, and you said that DICK'S sales growth exceeded the inventory growth at the end of the quarter. So inventory growth was up 9.7%, so are you suggesting that you're comping 2% to 3% at this point in May? And then could you reflect that back against the guidance of 0 to 2%? Does that suggest that you're just -- the compares get a lot tougher as the quarter progresses?

That was coming out of the -- that was -- the number we talked about that the sales grew faster than the inventory is at the end of the first quarter. And our inventory in the DICK'S store was lower than what the sales had gone up in a total basis, and that the differential was really to support the Field & Stream stores.

I got you. So that was in the end of the quarter?

Yes, that was at the end of the -- as we exited the quarter.

Okay. Understood. And then can you talk about how you think about the golf business, the growth in the golf business longer term, how you're thinking about what's really sustainable growth rate is in the store? And how does that compare about how you think about with a sort of sustainable comp rate in the -- is in Golf Galaxy long term?

Well, I think the golf business, as we said, it gets sequentially better in the quarter, and we hesitate to talk about what's going on in a particular quarter, but based on the golf business -- and the Golf Galaxy business is such a small part of our total business. I do think it gets kind of more airtime than it needs. It's a little more than 3% of our total business on an annual basis. But as we take a look at our golf business in total for this quarter, I'm not saying that this is how it's going to play out because we got very promotional towards the middle of the quarter around Father's Day. But our golf business right now is significantly better, relatively down a little bit, but close to being flat. Margin rates are up 100 basis points this quarter so far, and that's on a much lower cost structure on how we restructured the golf business last year. So I think the golf business is going to continue to be difficult. I don't think there's a lot of growth in it, although there are some good things happening in the business today, and a lot of it's coming from the PGA Tour. Some of these young guys that are out there playing, I think, are going to be very helpful to the game. We have to wait and see longer term how it plays out, but some of the things happening out on Tour are really very good for the game.

Understood. And then one last question for André is, merchandise margins were down pretty significantly in the second quarter. I know you expect them to be up. Any sort of directional commentary of how much we can recapture from last year? André Hawaux: Yes, certainly, Chris. We're not going to get into that level of granularity for what our merchandise margins are going to increase in the second quarter. But we do have that baked into our guidance, and they will expand in the second quarter of 2015 versus 2014, largely driven by the comments that you made about being promotional last year.

The next question will come from Seth Sigman of Crédit Suisse.

Two questions on the outdoor category. I guess first, are we deep enough now into the Field & Stream initiative to get a sense of how those stores are going to comp after that first year of opening? And then the second piece of that is, just in general, just wondering how the hunting business has performed within the core business? Has it stabilized? Is it returning to growth? What's the outlook for that category?

Yes. So I think it's too early to talk about Field & Stream's comp. We've only got 2 stores that have been open for a year. Those 2 stores, we're trying to determine what the right penetration to the market is, so they're significantly cannibalized. We've got the 1 store that we opened up in Pittsburgh, gotten cannibalized by 2 other stores, 1 about 30 miles south of Pittsburgh and another 1 about 60 miles to the east. And the stores have a broad draw range, if you will. So it's still early to say. We're really excited, and we continue to be excited about what we can do with Field & Stream. And in particular, we're excited about these combo stores that we're doing this year. We will have a DICK'S and Field & Stream right next to each other and an entryway about halfway through the store punched in with big entryway, about 30-some feet. The customers will be able to cross-shop. We've got 1 store -- we've got 1 of these concepts open today in Columbus, Ohio where there's a DICK'S store right next to Field & Stream store. There's also a Golf Galaxy store there, but right now today, you can't shop between the 2 chains. And if you take a look at the volume that we're getting out of that DICK'S and Field & Stream store and combine these, we're -- we think this is going to be a really pretty compelling shopping experience. We'll have 4 of these opened up by the end of this year, of which 1 includes the 1 in Eastern Ohio that we're going to punch a hole between the DICK'S store and the Field & Stream store to allow customers to shop between those 2 stores, which they can't do today.

Okay. The second piece of that was just how the hunting business is performing within the core DICK'S stores and whether it's stabilized? It's been a troubled category over the last year. Has it returned to growth? And what's your expectations?

It's gotten much better. It's not growing by leaps and bounds yet. I think there's still a bit of a hangover from all of the product that was bought when it ran up so significantly. But we're really -- it's stabilized, and we're very happy with that business right now. We think it will start to grow again, be relatively flat through the rest of this year and probably start to grow next year.

And just one final one. When you think about the store, like trends outside of golf and hunting, can you talk about maybe some of the performance apparel categories, footwear, categories that have outperformed over the last year or so? How are those performing today relative the 1.8% comp reported for the DICK'S stores?

So they're performing better than those -- than the 1.8%. If you take a look at the athletic apparel business, the footwear business, the team sport business, we're pretty pleased with what's going on in those other areas.

The next question will come from Simeon Gutman from Morgan Stanley.

It's sort of a follow-up to the prior 2 questions, Ed. So there's a school of thought that if golf and outdoor collectively are less of a drag for -- in the second quarter, if not a 0 drag, and I think you implied that for golf and somewhat in outdoor. And then you have footwear and apparel that are still growing healthily, and I don't want to put words in your mouth, but somewhere in mid-single digits. We could have seen comps a little bit higher than what you're guiding to in the second quarter. And granted you mentioned the World Cup compare, maybe that was underappreciated. But can you comment if any part of that framework is off, whether -- I mean, the golf and outdoor, you've kind of suggested. So footwear and apparel, if they're growing in that range, does that mean that World Cup compare is a couple hundred basis points? I mean, why couldn't we see growth better than that 0 to 2%?

Well, the -- so we're starting to see that stabilization in golf. As I said, I'm not sure that it's going to -- we're not convinced that's going to continue, as we got very promotional in the golf business last year in and around Father's Day to try to drive that inventory out of the system, which was pretty successful. We got rid of a lot of inventory, so we're going to be under some pressure there. And I think the World Cup was probably underappreciated. It was a very meaningful part of our comp business that -- and the World Cup doesn't happen this year. So you're not far off from your thoughts on how that impacted our comps.

Okay. And then my second question, related to, I guess, profit dynamics between retail and eCommerce. So the eCommerce business was strong as usual. And we've seen with a lot of other companies, they tend to struggle to maintain their margins or even grow with that type of growth. Because it implies what they're doing in the store is not as great, and the cost structure doesn't seem to flex as well. So I'm just curious, I mean, you have shipped from store and I think that's helping mitigate some of that. Your SG&A per foot has been managed well. Are there other things that you're proactively doing to ensure that margins continue to grow, even if the physical store comp is under pressure and as eCommerce continues to grow fast?

Yes. So on the eCommerce side, to be able to move to our own platform and not have the GSI platform and the fees associated with GSI will be a significant improvement to the -- to our eCommerce business. And that's part of the significant investments we're making from an eCommerce standpoint 2 years ago last year, this year, and we will move this, the DICK'S Sporting Goods site, to this new platform in 2017. We were really enthusiastic. The relaunch of the Golf Galaxy site is up and successful, and we're pleased with how that's going. We'll have Field & Stream up later this year, and we'll run the bugs out of the system before we turn on the DICK'S site.

The next question will come from Camilo Lyon of Canaccord Genuity.

Ed, you mentioned regarding the DICK'S inventory being below sales. Is that a function of being light in any particular category as a result of some of the inventory reshipment delays from the West Coast ports? Or was that just better inventory management that you saw there?

It was really a bit of both. So there were some shipments that were delayed. We got almost caught up at the end of the first quarter, but there were still some shipments that were delayed. So there's a bit of that, but the vast majority of that has come through much better inventory controls that we implemented this year versus last year.

Would you be able to share what categories you thought you were underexposed?

When you say underexposed...

Underrepresented from the share price.

There were some shipments that got caught up from a team sports standpoint, baseball, some footwear, apparel that was primarily in those categories.

Okay. And then just on CALIA, I thought it was interesting that you've mentioned that you thought that this would be the third biggest brand by the end of the year in women's. Can you just share a little bit as to why you believe that, that will be the third brand? Is it because of the value proposition? Is it the number of SKUs that you have in the line? What's going to take a consumer to shop that brand versus some of the other brands that you have in the store?

Yes. Well, we indicated that it would be #2 by the end of -- by the end of 2016 -- I mean, #3 by the end of 2016. And where that's going to come from is just from the performance that we see today. So the team has done a wonderful job with this brand. Carrie Underwood has been a terrific partner in promoting this brand, and kind of the sales trend that we see that we are on in this category, we're pretty confident we'll be #3 by the end of 2016.

Is that coming at the expense of the lesser-tier brands that you have in the store or some of the more premium brands?

It's coming from -- it's coming across the board. It's a -- this is a bit more of a premium brand product. It's different in the marketplace, women are looking for something different, and we have provided that with CALIA by Carrie Underwood. And it's coming from a number of different places.

Okay. And just my last question. Just to clarify on the golf comment, I think there was a nice overall expectation of profitability would be much better, given that you've done a fair amount of work of managing the inventories last year. But it sounds like there was an acceleration in the business from a demand perspective. Just wanted to drill down into that a little bit more. Is that a function of interest in the category, would you say, or new products coming to market or just easier comparisons?

I think it's easier comparisons. I think there are some really good things going on in golf right now. Like I said, with the match play was pretty exciting as was the players championship that they had, Rory McIlroy winning this past weekend. I think there are some good things happening in golf, driven by the tour right now. I think that there has been some pent-up demand. And it's way too early to tell. We're just -- we normally don't give any look into a quarter, but we think that this idea of what's going on with golf is so -- seems to be so important to the shareholder base that we thought we'd give you a little peek into what's happening right now. I don't know that it's going to continue, it's still early on, but we have been pleased in the month of April and then into May so far.

Okay. And then just following up on that, the last thing on the margin or a comment you made of golf margin rates being up 100 basis points thus far. That would -- I would have assumed that, that margin rate would improve, would accelerate given the incremental discounting that happened later in the quarter last year. Is that a fair assumption? So at a 100 basis points, we'll be something above that for the category if it stays on this path?

No, we're not going to get to that level of granularity and guide to what our golf margins will be. But they're at 100 -- roughly 100 basis points right now. And we do think that they would be better than they were last year because of less promotional activity this year versus last year.

The next question will come from Brian Nagel of Oppenheimer.

Just hoping to dig maybe a little bit deeper into the weather impact. I mean, clearly, you're not -- by no means are you the only company talking about some of the weather disruptions here in the fiscal Q1. But so maybe a couple questions here. Can we get some color around the performance of stores or regions that were and were not weather-impacted? And -- or maybe this -- could you -- is there a way to estimate what comps in the quarter would have been had the weather been, I don't know if this is even the right word anymore, but normal for the period?

And nobody knows what normal is from that standpoint anymore. To kind of come out and say what they would have been if the weather had been normal, so it's tough to describe normal, so I don't really know how we would do that. But with the stores -- and we're very much -- we still have a big concentration in the Northeast and the Upper Midwest, and that's -- the weather was, as we all know, really the worst. It was difficult. Those were the areas that were impacted the most. And with that being said, we were still pretty happy that we were able to generate a 1.8% consolidated comp and come in to the high end of our guidance at $0.53 under some pretty difficult conditions. Now that being said, we've got to continue to go and try to make some of that up in the second quarter, but we're trying to be -- we're trying to give a realistic and conservative estimate of where we're going here.

Okay, that's fair. So we have a comp -- so I guess, let me ask you this. Is the comp guidance you've laid out for the fiscal second quarter indicative of where the business is trending right now?

We're not going to get to that. I thought we kind of got out of the box a little bit and gave you a little peek into golf for the second quarter. We're not going to get too granular into how we're going in the second quarter, but right now, we're very pleased with what's happening in the second quarter.

Okay. Fair enough.

I know that doesn't answer your question, Brian.

No, it doesn't, but I understand where you're coming from, but that's fine. And then the second -- shifting gears a bit, André, you talked about merchandise margins and the promotional cadence, and then someone asked the question before about margins. But I guess, the question I have is, as we look at margins going through the balance of this year and recognizing there's maybe a bit of a choppy comparison in the second quarter given the outside -- outsized promotions last year. I mean, how should we think overall about your stance towards promotional cadence now as we think about [indiscernible]? André Hawaux: As we commented both in our Q4 earnings release, Brian, and also in the first quarter here, we said we plan for our -- we plan to be much more promotional in Q1. We saw some opportunities to move inventory as I mentioned. And we did say that on a full year basis, we'll see our margins expand. And you can expect to see that happening in Q2. And our sense is that you'll see that happening in Q3 and Q4 as well. So margin expansions in the balance of the year, and on a full year basis, we will make up what we gave back in Q1. That's pretty much what we talked about when we laid out our guidance.

Our next question will come from Robby Ohmes of Bank of America Merrill Lynch.

This is Rafe Jadrosich on for Robby. Can you guys just remind us which categories there was promotional activity in 1Q and then sort of what's the outlook for those categories for rest of the year? And then yes, that's the first question.

The promotional categories are -- in Q1, we wanted to clean up the balance of our winter merchandise, the cold weather merchandise. We wanted to continue to clean up some of the issues in golf, so kind of the areas that you've had anticipated. And going forward, it'll be -- in Q2, it'll be primarily just kind of a natural promotion. We don't see anything -- we're actually seeing Q2 being less promotional this year than we were last year.

Okay. Can you give some color around sort of trends in golf, ASPs versus units and then how you think about last year, very promotional in the second quarter? Did you see a traffic lift from all of the promotions you have in golf, and then how you think about lapping that?

Well, the AURs are up as we indicated we thought they would be based on the promotional environment last year. So AURs are up. And last year, we -- the units this year versus last year, we're not going to guide to that level of granularity, but we think the AURs will be up, and the margin rates will be up.

Okay. And then last question. Within footwear, can you talk about trends by category? And then are you seeing your allocations improve at all?

We never talk about trends by category specifically. But the -- I mean, from a -- to give you specific numbers that the basketball business continues to be very good. We expect the cleat business to continue to be good, and our allocations have improved, yes.

Our next question will come from Paul Swinand of Morningstar.

But I'm going to ask another golf one.

Okay. What a surprise.

Everybody is trying to guess what the golf impact on the second quarter is, but I'm trying to -- I get a lot of questions on the longer term. And the question is really, is there any analysis you've done by customer segment or product category? I know you mentioned some of the new players, but what can we say or what analysis have you done on the longer term? Is there a reason to think that this will be a strong category for you? I know in your prepared remarks, you said it was only 3% of the business, but it's still a big traffic driver in DICK'S regular stores. And eComm as well, I think it's a big opportunity. So again, comments on the longer term and how you think the golf business will develop and still be strong.

So I indicated that the Golf Galaxy business is a little more than 3% of the business on a total standpoint. We think that longer term, golf is going to be an okay business. We think that there's other areas that are going to grow at a faster rate than golf, but we think golf is an important part of our business, and we're going to stay in the golf business. We see certain categories of golf accelerating. The golf apparel business is really -- is where, I think, a fair amount of growth will come from. I think the golf equipment business will be stabilized, and it will kind of move up or down a little bit one year to the next. But we think that longer term, that will be a good solid, profitable business for us.

Any comments by region or maybe by younger players or...

No, not really. I mean, the areas of the country, once all the areas of the country are up and playing, there's not a huge difference.

Got it. And then wanted to ask a little bit of a similar question on soccer. And I know, usually, in the past, you said Olympics or some of these events are not really a big mover. And I remember last year, you did say the World Cup was bigger than you expected. Is soccer going to grow as a percentage of the business? And do you think that that's going to be a place where maybe customers shop at DICK'S and there aren't as many competitive alternatives because you're such a big team sports player?

Yes, we think soccer is going to continue to grow. We had indicated that the Olympics are usually not a big driver of sales. The World Cup always has been. And this past year, the team did a great job with the World Cup, and it exceeded our expectations. We think soccer is going to continue to grow pretty significantly, and we think that we're positioned in a great place to take a big part of that growth in soccer that's coming.

So just to be clear here, you think it's outpacing the rest of the team sports business?

In general, overall, probably in the long term. This year, it will a little bit more difficult because of the World Cup. But if you take it on balance throughout the next couple of years, yes, I think it will outpace the majority of team sports businesses.

Our next question will come from Stephen Tanal of Goldman Sachs.

I sort of have to do it, but I'm really curious if weather affected the golf business specifically? Or if you would say that was a factor in the results for Galaxy and for DICK'S core golf?

So we try not to hide too much behind the weather. But as I said, we're really -- we're still -- a high concentration, an important concentration of our businesses are in the Northeast and Upper Midwest. There is a fair amount of Golf Galaxy stores up there. And yes, with 7.5 feet of snow sitting up in New England, it impacted the golf business. The courses were late opening up, and it had an impact. And that might be one reason why some of the golf business is doing better than it is right now -- than it had been because of the pent-up demand early on.

Sure. That seems to make sense. In terms of Field & Stream, you referenced cannibalization, and clearly, some of the stores have opened near one another. I'm sort of curious if you could fill us in, in terms of how you're thinking about the regional growth strategy for that business and how you're planning really where you're going to open the stores? Like what enters the thought process? And is there any focus regionally, if you will?

Well, we take a look, as you would expect, we take a look at where the hunters are and where the fishermen are. We take a look at a number of demographics: hunting licenses sold, hunting participation, same with fishing. We've got a lot of DICK'S stores. We know where the better hunt, fish categories are. So that's how we are taking a look at this. The majority of them will be in the eastern part of the United States, to begin with, and then -- eastern and a bit more in kind of the Carolinas and north. But as I said, we're really excited about these combo stores where we can put a DICK'S and a Field & Stream right next to each other and then reformat a DICK'S store to have some of higher-margin, higher-turning items expanded in there that we would like to be able to do and have all the hunt, fish, camp products in Field & Stream. Still allow people to cross-shop. We think it's going to be a pretty compelling experience. We have -- some of the customers that we have talked with and the research that we have done on this, they love the idea, and we'll get a sense in the next few months on how this combo store does.

Okay. Understood. And then lastly for André. In terms of the gross margin drivers, are you able to quantify that for us in the quarter? Merch margin would be helpful specifically. André Hawaux: Yes. Merch, in Q1 -- I'll give you the merch margin piece, and I won't go into elaborate details on all the other elements. I did mention that we deleveraged occupancy, and also the increase in our eCommerce sales drove some of those fees there, shipping expense, but the merch margin was down 56 basis points.

And our next question will come from Eric Tracy of Janney Capital Markets.

Actually, André, real quick if I could follow up on that gross margin, specifically to the occupancy deleverage and expenses going towards the eComm and housing. How should we just think about that sort of order of magnitude going forward in the timing of when potentially could inflect on that? And sort of what is the omni-channel comps sort of needed to ultimately leverage that? André Hawaux: So let me take a step back. There were a couple elements in that question. One is if you take a look at when we think about what does the total sales need to be to leverage occupancy. We talked to our investors about that number being approximately on a full year basis right around that 10% range. So that's kind of what we look for in terms of total sales to leverage occupancy. In terms of the eCommerce discussion, we've really kind of never had that specific discussion other than to say that the goals we have and the profitability that business gets significantly better for us as we insource the business. So we talked about the investments we were making at our analyst meeting this year, which is about $8.5 million in that insourcing project. So those are the details that we've laid out to our investors.

Okay. And then, Ed, a little bit bigger picture strategically. Obviously, eComm doing extremely well in terms of building out. Could you speak to how you feel like you're working with the brands to differentiate the products sort of cross-channel? Are there some exclusives that you're getting? Ultimately, this question kind of speaks to potential of cannibalization of the brick and mortar, and it certainly seems like very comfortable continuing to grow the door base. But any comments on what the ultimate mix of eComm should be relative to brick and mortar?

I think everybody is still trying to figure out what that appropriate mix is. Our eCommerce business continues to grow at a pretty rapid rate. We have talked about that we're opening stores in markets where we have little penetration or no penetration that we've talked before. In San Francisco, we've got roughly 2 stores in the Bay Area. There's a lot of places in San Francisco and Houston and some other places that customers can't shop at DICK'S Sporting Goods store because we don't have one. So those are the places we're going to open up DICK'S stores. From an eComm standpoint, we continue to work very closely with our vendors. They are trying to help us also to drive our eComm business, whether that's from broadening the assortment online and shipping directly to the consumer on a direct shipped basis from the vendor or working with us on some short-run opportunity, short-run close-out, short-run promotions. There's not enough product to fill all of the DICK'S stores, but we can put it online and be out of it in 3, 4 days a week or so. So we continue to work with the brands. We continue to invest heavily from an eCommerce standpoint, and it continues to pay off. As you could see, as sales went up to 8.5% in the first quarter. And last year, we -- our eCommerce business grew at double the rate of the industry. And we've got a relatively -- in our category, we've got a pretty robust eCommerce business. André Hawaux: And I just would add to what Ed mentioned is, I think one of the metrics we've asked our investors to hold us to, so we have very high standards for opening up new brick and mortar, and our -- that 95.4% was pretty indicative of the fact that we are holding ourselves to high standard when we open up new stores, new brick and mortar, because of the eCommerce items that we see in the marketplace.

Fair enough. And if I could just switch gears lastly, back to the women's business, CALIA, clearly believing that there's a lot of momentum behind that. Does that in any way also speak to -- you've got kind of the year plus -- of building the shop-in-shops, going after the women's category with some of the more premium brands. Is that in any way a statement on feeling like the product that these brands have in the marketplace maybe isn't resonating with women? Or is there something else on the marketing side that needs to take place? Just a little bit more color as to what your -- what the learnings are on that front?

I wouldn't take that to think that with the brands. I think the brands have brought terrific product to the marketplace. The brands are doing extremely well. I think this is just additive that’s something new in the marketplace, and this marketplace continues to grow. So I would not read anything into the brands' performance. Our performance with the brands has been terrific in this category, and we expect it to continue that way.

Our next question will come from Sam Poser of Sterne Agee CRT.

Most of them have been answered. I guess, just more of a general thought question here. When you're looking at your -- the build-out of Field & Stream, the increase in the eCommerce business, is there a natural movement from hard line to the soft line goods in the DICK'S sporting goods stores and that's really going to be the longer-term story of the margins from a brick-and-mortar perspective there?

Well, Sam, yes. So we were talking about these combo stores. We're taking out the hunt, fish, camp out of the combo stores side of DICK'S and having that exclusively in Field & Stream, making room for these higher-margin categories, higher-turning categories such as women's, kids and the team sports areas. So -- and we've always talked about that one of the components of our margin rate expansion would come from a change in mix more to the soft line side of the business.

And I mean, and where are -- excluding the combo stores, where are we in that evolution?

Well, we've -- as we did last year, we took some space out of the fitness area and the golf area and devoted that to these areas we talked about and had great results. So we still continue to do that. We're just looking to where we can modify space and move more of the higher-margin products in there. So we're still early on in this. And as Field & Stream develops, we will continue to kind of make this move and try to drive more of that outdoor hunt, fish, camp business to Field & Stream and make some more space for these higher-margin, higher-turning items in DICK's.

One last thing. When you -- for instance, if you're in a city where you don't have a joint store but one nearby, would you consider pulling hunt, fish, camp out of DICK's, even though it's not an adjacent store?

That's a conversation we're having. We have come to no conclusion on that yet.

The next question will come from Sean McGowan of Needham & Company.

A couple questions about timing. Ed, can you give us some sense of whether or not that you expect the timing of store openings in the second half this year to be comparable to last year with the vast majority being in the third quarter? And André, in terms of share repurchase, a lot more done in the first quarter this year than last year. Should you expect -- should we expect the full year total share repurchases to be comparable to last year, do you think? André Hawaux: So a couple things there. You can expect the store openings to be skewed towards that third quarter. So we're going to be about the same, roughly about the same in the second quarter. And the bulk of our store openings on the DICK'S side, those 45 DICK'S stores, will be in the third quarter. And that's pretty much the way we have traditionally done that. With respect to what we've told our investors today is the guidance that we have right now contemplates the $150 million of share buyback that we've done. That's what is incorporated in our guidance. And we may do a little bit more this year; we may not. Right now, the guidance that we provided you includes that $150 million and no more.

The next question will come from Scot Ciccarelli of RBC Capital Markets.

So the eCommerce business continue to grow pretty quickly. We kind of established that. But as it matures, can you update us today in terms of how the product mix is different in the eCommerce channel versus the mix at the store level? And specifically, how would the profitability trends look if you didn't have those extra expenses related to the GSI relationship?

Well, the mix is a little bit different online than it is in the stores because we don't sell firearms, we don't sell ammunition, we don't sell some of those categories online. And it would be -- we're not going to give exactly what the difference would be, but it would be meaningfully more profitable without the GSI fees. And that's why we're moving into -- in 2017 to move everything into our own platform, and the accretion is pretty meaningful going forward.

I guess my question is if we -- even without the GSI relationship, I think, Ed, you’d mentioned before, you expect the eCommerce business or channel to be more profitable than the retail level. And just -- can you just help us understand how that's going to be possible with the extra shipping costs that are involved there?

Well, I didn't say that it would be more profitable even with GSI. I said we've gotten into a point where it was relatively the same. So the profitability was the same, but as we move forward through the year, if we exceed our sales budget, the profitability flow-through, from a brick-and-mortar standpoint is better than the profitability flow-through from an eCommerce standpoint because the GSI fees are linear. They are at a percent of sales, so it's difficult to leverage those costs. Basically, we pay a fee, a percentage fee. On a $50 pair of shoes, we pay the same percent fee at a $100 pair of shoes. So you can't leverage those costs. But this is getting to be much more profitable. We think as we eliminate those fees from GSI, do more business, scale our -- I mean, be able to leverage some of our fixed costs and turn some our variable costs into fixed costs, which we then can leverage. We feel that it's going to continue to become -- it will be more profitable than the stores -- a few years down the road.

Our next question will come from Michael Lasser of UBS.

Ed, last quarter, you were helpful -- helping us understand what could go right in the first quarter and what could go wrong. I think it helped to frame the hole you’re in maybe at the start of the quarter and how much things got better. Can you help provide some more perspective for this second quarter, especially relative to the margin? I think the widespread expectation is that a lot of the 100-plus margin -- 100 basis points plus margin degradation that you saw in the second quarter of last year would come back, as the bulk of that was related to the clearance activities that has to do with golf.

Yes. So we're not going to give further guidance of exactly how many -- what the margin rate is going to be. But it's -- we expect it to be meaningfully higher than it was last year because there would be a lot less promotional activity. One of the things that -- one of the headwinds from a margin rate standpoint that we have to anniversary is the World Cup. So the World Cup, as we said, was a meaningful part of our business, and the margin rates on the World Cup were well above the company average.

That being said, that would suggest that the golf activity clearance was probably well in excess of a 100 basis point drag. And so is that kind of something that's been permanently in the business now?

The -- no, the drag from a golf standpoint, margin rate?

Yes.

No, the golf margin rates will be higher this year than they were last year.

Okay. And then I guess, longer term on the margin, we've seen the gross margin -- the overall gross margin down for almost 2 years in a row now. Is this just kind of the cost to doing business as you shift more volume online and move some traffic out of your stores? So occupancy has been -- is going to be this consistent drag? Or is there something aside from quarter-to-quarter volatility in the merch margin that can help stabilize that line item? André Hawaux: So I do think that your point on occupancy deleverage, I mean, that does in fact -- we have to see our overall, as I mentioned, our overall sales increase reach up around that 10%. So that's going to move around quarter-to-quarter. There have been some quarters of the last several years where we have actually positively leveraged occupancy, but we haven't been consistent with that. And that's one of the things we talked about in our analyst meeting is we've got to get that brick-and-mortar comps a little bit more consistent. As we move forward, we'll be able to leverage that. But you do are -- you are seeing some of dynamics with our outsized growth in eCommerce where some of those eCommerce costs right now are negatively -- are not being leveraged as we continue to grow that business.

And on the margin rate side, on the flip side of that, we feel that there is margin rate expansion, merch margin rate expansion, due to the mix of products that we're selling and also, better inventory control. We had some inventory issues that we took some markdowns that we needed to do to get rid of inventory last year, and we feel that the inventory is in much better shape this year than it was last year. Our clearance inventory is down a bit of the first quarter again versus the end of the first quarter last year. So the inventory is really very good shape, and part of the margin rate expansion will come from mitigating markdown pressure in the back end.

Okay. And then last one. Just kind of broadly speaking, last year, your comps were above 1% for each quarter throughout the year. I think it was widely viewed that last year was characterized as the tough year for golf and hunting, and yet this year, the comp was below what you saw in any given quarter last year. So would you attribute that to just overall continued softness in golf? Was the environment -- the consumer spending environment more difficult this year than it was at any given point last year? Maybe you could reflect on it from that perspective.

All right. Are you talking about the first quarter?

Yes, the overall comp in the first quarter compared to the overall comp over the last 4 quarters.

Don't underestimate the effect that, as I said, 7 feet of snow up in New England and New York and the weather in the upper Midwest had, especially in the month of February and into March. We had a lot stores that were just closed for days during that timeframe, and it got sequentially much better. And it's kind of hard to take one quarter and say that that's an issue. We thought 1.8% on a comp basis, consolidated comp basis, on the DICK'S side was pretty good under the conditions that we operated in the first quarter.

And our final question will come from Mike Baker of Deutsche Bank.

So a year ago on this call, you told us the golf and the hunt business was 30% of sales. Can you tell us where you are now as you have downsized? And if you could break it out between golf and hunt, that would be helpful.

Yes. So we're not going to get to that level of granularity, but I will tell you that the golf and hunt business is less than 30% of the business today just based on the trend that both categories have and the growth trends we've got in other areas of business. So they are less meaningful this year than they were last year. But to kind of combine those and lay those out, we're not going to do that.

Okay. And also, in the past, you've given -- you've told us what the drag is from golf and hunt or more -- I guess, actually, the growth in apparel and footwear. Are you going to give us those numbers going forward? André Hawaux: Yes, Michael. Let me give you that right now. If you take a look at our -- so last year, we didn't want to, but we got into this habit of telling you what the business was growing x the hunt business and x the golf business because of the tremendous headwinds in those businesses. So I'm going to use that same factor for this year. If you excluded those 2 businesses, so both the golf business and the hunt business, our comps, that 1.8% comp at DICK'S would have been a 3.8% comp at DICK'S.

And then I'll squeeze in one more. Just a clarification, André. You said you expect second, third and fourth quarter gross -- you said margins to be up to make up for what you lost in the quarter. I assume you mean, gross margin, not operating margin. Is that right? André Hawaux: Yes, well I meant merchandise margin. The question that was asked was around the comparison on the merch margin. Yes.

And ladies and gentlemen, this will conclude our question-and-answer session. I would like to hand the conference back over to Ed Stack for his closing remarks.

I'd like to thank everyone for joining us for our quarterly call, and we look forward to talking to everyone at the next call. Thank you.

Ladies and gentlemen, this concludes today's conference call. We thank you for attending. You may now disconnect your lines.