Dick's Sporting Goods Inc

Hello all and a warm welcome to the Q2 2022 Dick's Sporting Goods Earnings Call. My name is Lydia and I'll be your operator today. If you'd like to ask a question at the end of the prepared remarks, please press star followed by the number one on your telephone keypad. Management kindly requests that you limit yourself to one question and one follow-up only. It's my pleasure to now hand you over to Nate Gilch, Senior Director of Investor Relations. Please go ahead when you're ready.

Good morning, everyone, and thank you for joining us to discuss our second quarter 2022 results. On today's call will be Lauren Hobart, our President and Chief Executive Officer, and Navdeep Gupta, our Chief Financial Officer. A playback of today's call will be archived in our investor relations website located at investors.dix.com for approximately 12 months. As a reminder, we will be making forward-looking statements which are subject to various risks and uncertainties that could cause our actual results to differ materially from these statements. Any such statements should be considered in conjunction with cautionary statements in our earnings release and risk factor discussions in our filings with the SEC, including our last annual report on Form 10-K and cautionary statements made during this call. We assume no obligation to update any of these forward-looking statements or information. During this morning's call, we will be discussing earnings per diluted share on a non-GAAP basis, which eliminates the impact of certain items related to our convertible senior notes issued in Q1 2020. For additional details on this or to find a reconciliation of any non-GAAP financial measure referenced on today's call, please refer to our investor relations website. And finally, for your future scheduling purposes, we are tentatively planning to publish our third quarter 2022 earnings results on November 22nd, 2022. And with that, I will now turn the call over to Lauren.

Thank you, Nate, and good morning, everyone. We are very pleased with our second quarter results, which demonstrate the strength of our core strategies and the foundational improvements we've made across our business over the past five years. In fact, we delivered approximately the same EBT in Q2 as we did in all of fiscal 2019. While the macroeconomic environment remains uncertain, the Dick's Sporting Goods consumer has held up quite well. Over the past two years, they've made lasting lifestyle changes focused on health and fitness, sports, and outdoor activities. And we remain uniquely positioned to capitalize on these secular trends. Our inventory is healthy and well positioned with improved in stock levels in key categories. Importantly, we are raising our full year outlook continues to incorporate an appropriate level of caution given today's macroeconomic environment and contemplates an approximate 10.7% EBT margin at the midpoint. Now to our results. As we announced earlier this morning, we delivered second quarter sales of $3.1 billion. This included a comparable store sales decline of 5.1%, and as expected, represented a sequential improvement from the first quarter. It's important to highlight that our sales continue to run substantially above pre-COVID levels, up 38% versus Q2 2019, reinforcing that the favorable shift in consumer behavior that I just mentioned is durable, and our actions to capitalize on this shift are yielding strong results. Notably for the year, our key athlete success metrics, inclusive of acquisition, new athlete retention, repeat purchasing, and omnichannel behavior, are elevated across the board compared to pre-COVID levels. Our increasingly differentiated product assortment, combined with our sophisticated and disciplined pricing strategies and favorable product mix, continues to drive strong merchandise margins. Our merchandise margin rate was up 439 basis points versus Q2 2019, as we maintained the majority of the merchandise margin expansion that we drove over the past two years. Before continuing, let me emphasize a critical point. The content of the product that we carry today is very different from the product that we carried five years ago. It's higher heat and more narrowly distributed than what you'll find in the marketplace. And therefore, it is not as susceptible to promotion. In addition, the tools we have today to surgically adjust pricing and promotions are significantly more sophisticated than they were several years ago. Lastly, our product mix has structurally shifted toward higher margin categories. We've materially reduced hunt exposure, which had margins approximately 1,700 basis points below the company average in 2019. And we've continued to grow our vertical brands, which currently have margins between 600 to 800 basis points above the national brands. Looking ahead, we remain very confident that our merchandise margin will be meaningfully higher compared to pre-COVID levels on an annual basis. and that this improved profitability is sustainable due to these foundational changes in our business. With our structurally higher sales, expanded merchandise margin, and operating efficiencies compared to pre-COVID levels, we achieved double-digit EBT margin of nearly 14%, approximately two times our Q2 2019 EBT margin. In total, we delivered non-GAAP earnings for diluted share of $3.68 in Q2, compared to $3.69 for the entire fiscal year of 2019. As we continue our transformational journey, we are focused on enhancing our existing strategies to further strengthen our core business and to drive long-term profitable growth. At the heart of these strategies is our athlete experience, and we continue to develop a highly engaging in-store service model to better serve our athletes. Our teammates are highly trained and are focused on creating confidence for our athletes by finding the best product for them. Our stores also now have highly experiential elements, such as our premium full-service footwear decks, elevated soccer shops, golf simulators, hit-tracks technology, and batting cages. Our new Dick's House of Sport and Golf Galaxy Performance Center stores are tremendous examples of the power of elevated service models and experiential retail. These new concepts are redefining sports retail and providing us with valuable learning while also driving strong sales and profitability. In addition, our digital experiences remain an integral part of our success, and we continue to prioritize investments in technology and in data science to elevate the athlete experience. We're focused on advancing our personalization capabilities and enhancing our one-to-one relationships with our athletes through our digital marketing. ensuring we serve them the most relevant product at the right time. Our personalization strategies are fueled by our robust and growing scorecard loyalty program and total athlete database. We now have over 25 million active scorecard loyalty members, a valuable cohort that has grown in recent years. And during the second quarter, our scorecard members generated well over 70% of our total sales, up approximately 200 basis points from the same period last year. Furthermore, our omnichannel platform, which features our stores as a hub, is an important competitive advantage for us. During the second quarter, our stores enabled over 90% of our total sales, serving both our in-store athletes and providing over 800 forward points of distribution for omnichannel fulfillment. Next, within merchandising, our brand portfolio is a tremendous asset, And in fact, our data tells us that approximately 80% of our active athletes look to Dick's for a multi-branded shopping experience. Importantly, our relationships with key brands remain stronger than ever, and we are continuing to develop relationships with new and emerging brands. At the same time, we are creating and growing disruptive vertical brands like Calia, Burst, and DSG. Our assortment is on trend across categories, and our wide range of price points ensures we are able to meet the needs of all athletes. Our teammates are our greatest asset, and we see our ability to attract and retain talent as a key differentiator and a competitive advantage for us. We're proud of our high teammate engagement levels, which reflect our efforts to be a great place to work. We'll continue to invest in our teammates and our enhanced service model to maintain our strong culture and drive a top-tier athlete experience. In closing, our strategies are working, and we remain confident in our ability to deliver long-term sales and earnings growth. We're the clear market leader in a large fragmented industry, and we believe we are well positioned to continue taking market share and extending our lead. Though the macroeconomic environment remains uncertain, we will continue to focus on meeting the current needs of our athletes. Before concluding, I want to thank all of our teammates for their hard work and unwavering dedication to our business. I'll now turn the call over to Navdeep to review our financial results and outlook in more detail.