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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good morning. And welcome to the DICK's Sporting Goods’ Second Quarter Earnings Conference Call. All participants will be in a listen-only mode [Operator Instructions]. After today's presentation, there will be an opportunity to ask questions [Operator Instructions]. Please note this event is being recorded.
I would now like to turn the conference over to Steve West, Vice President of Investor Relations. Please go ahead, sir.
Good morning, everyone. And thank you for joining us to discuss DICK's second quarter 2018 results. On today's call will be Ed Stack, our Chairman and Chief Executive Officer; Lauren Hobart, our President; and Lee Belitsky, our Chief Financial Officer. Today's call will be archived for approximately 30 days on our Investor Relations Web site located at investors.dicks.com.
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. Please refer to our Investor Web site at dicks.com to find the reconciliation of non-GAAP financial measures referenced in today’s call. And finally for your scheduling purposes, we are tentatively planning to publish our third quarter 2018 earnings release before the market opens on November 28, 2018 with subsequent earnings call at 10 AM Eastern Time.
With that, I will now turn the call over to Ed.
Thank you, Steve, and good morning everyone. This morning, we reported second-quarter earnings per diluted share of $1.20. Revenue grew 1% to approximately $2.18 billion. Adjusted for the calendar shift due to the 53rd week, our consolidated same-store sales declined 4% and our eCommerce business increased 12%. As a percent of total net sales, the online business increased to approximately 11% compared to approximately 9% in the same period last year. We also delivered double-digit growth in private brands and athletic apparel, excluding Under Armour. However, as expected, sales were impacted by strategic decisions we made regarding the slow growth, low margin hunt and electronics business, which accounted for nearly half of our comp decline. In addition, we experienced significant declines in Under Armour sales as a result of their decision to expand distribution. Notwithstanding these challenges, the health of our core business is relatively strong and we're confident sales trends will improve next year as these headwinds are expected to subside.
I’d like to point out that the operating margin of the hunt and electronics categories are approximately 1,700 basis points lower than the Company average. Therefore, while our decisions regarding these slow growth, low margin categories are impacting sales, they have limited impact on our ability to generate earnings. As we focus on driving profitable sales, we had another very good quarter on the margin front. Merchandise margin expanded 141 basis points, primarily driven by improved product cycles, fewer promotions, and a favorable merchandising mix. The stronger merchandise margin drove an improvement in gross margin, which increased 74 basis points.
While the retail landscape remains highly dynamic, we remain committed to driving profitable sales while making improvements across our business. From a merchandising perspective, we continue to refine our assortment with a focus on key items and better in-stock positions. Our efforts are paying off in tangible ways as we grew revenue by 1%, while our inventory declined 6.4%. We remain pleased with the improved product we're seeing from many of our key partners and private brands, and are optimistic about the pipeline as we look to the second half of the year and into 2019. We also continue to be enthusiastic about the product improvements we're seeing from Under Armour, particularly the innovation they're delivering with the HOVR shoe, as well as foundational core products such as ColdGear and Compression.
Our private brand remains strong delivering double-digit growth again this quarter. In addition to allocating premium floor space to our own brands, we have also expanded our existing brands to new categories. For example, in CALIA, we went after swim in a big way and are very pleased with the success of that product. Additionally, our Team Sports license agreement with Adidas has significantly expanded into American football, which is exclusive to DICK's.
Driving exclusivity is a priority and we expect the momentum in this business to continue as we deliver growth through our existing new brands, including our new Alpine Design outdoor brand that just launched this third quarter. We continue to believe we can grow our private brand business to $2 billion over time. As we refine our assortment, we're adapting our product offering to better align with the categories that our athletes demand, reallocating valuable floor space to growth categories, and brands that are outperforming. This includes our private brands, as well as elevating the assortment with key partners such as Nike, Adidas, Calloway, Brooks, New Balance and Yeti. Additionally, as the hunt industry continues to face headwinds, we're evaluating our strategies for this category across all banners. This includes optimizing that assortment and reallocating the floor space to categories that drive profitable sales growth.
Later this quarter, we will remove virtually all of the hunt products from 10 DICK's stores where the category with significantly underperforming and replace it with products and in-store experience that are most relevant to our athletes in those markets. Some examples include an elevated outerwear and license shop assortment and more experiential elements such as the HitTrax batting cages in our baseball area. We are executing our strategies to better navigate the dynamic retail environment and ensure the long-term success of DICK'SSporting Goods. We remain extremely confident and are upbeat about the future of our Company.
In closing, I would like to thank our associates for their hard work and dedication to this Company. And now I’d like to turn the call over to Lauren.
Thank you, Ed, and good morning everyone. As I outlined on our last call, we are focused on delivering our three key strategic initiatives to provide the best omni-channel experience for all athletes. I’d like to highlight some of the great progress that we've made on each of our strategic pillars during the quarter. The first pillar of our strategy is the relentless improvement of our core execution to deliver the best shopping experience in retail. Improving convenience for our athletes is a top priority and we are continuing with our rapid, data driven testing approach to deliver key improvements through the omni- channel shopping experience.
Last quarter, I discussed our new BOPIS Locker test at the front of select DICK's stores. Initial results were very encouraging, and we quickly expanded that test from three stores to 10. Positive results included significantly higher satisfaction for our online athletes. The surprise for us was the much improved satisfaction scores from our in-store athlete as well as they benefited from shorter wait times and improved service levels. This rapid testing approach continued through the second quarter, and we are now testing Curbside pickup in select stores as well.
Looking ahead, offering these types of services to improved convenience and remove friction for our athlete is critical to maintaining DICK's as a leading omni-channel retailer. We see significant opportunity to drive continued improvements. Additionally from a product standpoint, we are delivering a much stronger more curated assortment with a greater focus on key items. We've narrowed and removed complexity from our assortment, which has allowed us to add more depth behind key items and significant business drivers. This increased depth is leading to stronger in-stock positions, which is resulting in an improved customer experience.
This brings me to the second pillar of our strategy, which is leveraging the power of our expertise to guide and inform athletes. In addition to the refinements we've made to our assortment, we're improving the in-store presentation to provide our athletes with a clear point of view of what's important through what we're calling strike points. With this elevated presentation, the athlete is drawn to these key items, making our stores easier to shop. We have been extremely pleased with how the athlete has responded and the increased depth and elevated presentation of these strike points is resulting in strong double-digit sales growth on many of those key items.
We're also partnering with our vendors to elevate our collective voices as we did recently with the Play Like You Own It campaign that we co-launched with Nike, which received over 20 million views in its first week. The early leads on this elevated presentation and marketing have been very encouraging and it's clear that athletes are responding to our strong point of view. These joint efforts with our vendor partners illustrate the strength of our relationships and we continue to look for ways to better leverage our partnerships to drive growth in our business. Additionally, we are leveraging our ScoreCard and Team Sports HQ databases to deliver customized marketing to our athletes. This includes personalized offers as well as content tailored to athletes’ preferred sports and interests. Our teams are beginning to consolidate this data into an even more robust combined dataset, which will allow us to deliver even greater personalization in the future.
Finally, on the ScoreCard loyalty program, we're continuing the expansion of the Gold Tier through 2018. This new Gold Tier will better reward our most loyal athletes with perks such as early access to new product launches, special [indiscernible] services, elevated in-store experiences and exclusive events in partnership with local communities. Our third strategic pillar is improving productivity. Across the organization, we are laser focused on lowering costs and eliminating unnecessary spending to reinvest in strategic growth initiatives. We've reduced expenses within our stores and at our support center by improving efficiency through workforce productivity initiatives.
Moving forward, we will continue to make critical investments in the customer experience, to store environment and in our supply chain, as well as in key growth areas such as eCommerce, our private brands and Team Sports HQ. At the same time, we'll be highly disciplined in how we invest our time, resources and capital and look for opportunities to drive efficiencies across the business. In closing, we see tremendous opportunities we continue to execute our strategy to drive competitive advantage and strengthen our leadership position.
I'll now turn the call over to Lee to review our financial results and outlook in more detail.
Thank you, Lauren, and good morning everybody. I'd like to start with a brief overview of our second quarter results. Consolidated sales increased 1% to approximately $2.18 billion. This included a benefit from the calendar shift of $50 million or $0.08 in earnings per diluted share; our adjusted consolidated same for sales declined 7%; transactions declined by 4.7%, driven partially by the continued refinement in our hunt business and fewer promotions; and average ticket increased by 0.7% due primarily to a less promotional environment.
During the quarter, our best performing categories included outdoor apparel and fitness equipment. License sales also comp positively benefiting from World Cup soccer tournament. Additionally, we continued to drive double digit growth in our private brands, which significantly outpace the Company average, driven by continued strength in CALIA and our new brands. As Ed mentioned, athletic apparel comps excluding Under Armour, grew by double-digits. Finally, athletic footwear and golf were also areas of relative strength for the quarter. And overall, we are really very pleased with our apparel business for the quarter.
Despite these strengths, however, sales negatively impacted by the strategic decisions we made regarding the hunt and electronics businesses, which contributed to nearly half the comp decline, as well as weakness in outdoor equipment. The positive takeaway is we are benefitting from a margin rate perspective. As Ed mentioned, the operating margin of the hunt and electronics categories is approximately 1,700 basis points lower than the Company average. Therefore, we need only recover about 60% of the loss in hunt and electronic sales to generate the same level for gross profit dollars.
This leads me to margins. Gross profit for the second quarter was $659.3 million or 30.28% of sales, a 74 basis point improvement versus last year. Within gross margin, merchandise margin increased to 141 basis points, primarily driven by improved product, narrower inventory assortments, fewer promotions and a favorable merchandise mix. Partially offsetting improved merchandise margin were higher freight and shipping costs, as well as modest deleverage and occupancy expense.
SG&A expenses were $495.3 million for the quarter or 22.75% of sales, deleveraging 128 basis points versus non-GAAP SG&A of 21.47% last year. This deleverage was driven predominantly by higher incentive compensation accruals and continued investments in our growth initiatives to support our long-term strategy. In total, we delivered second quarter earnings per diluted share of $1.20. Now looking to our balance sheet, we ended the second quarter with approximately $124 million of cash and cash equivalents and $108 million outstanding on our revolving credit facility. Traditionally, our inventory levels were down 6.4% in the quarter.
Turning to our second-quarter capital allocation, net capital expenditures were $40 million. We repurchased approximately 2.2 million shares for $74 million at an average price of $33.27. Additionally, we paid approximately $22 million in quarterly dividends during the quarter. As previously announced, we are investing in our first company operated regional eCommerce fulfillment center in Binghamton, New York area, which can serve customers in our concentrated markets in the Northeast within one business day. This fulfillment center will utilize robotics to increase the facility's throughput and make it much more efficient than our current in-store fulfillment processes. We expect the facility to open in the third quarter of 2019.
Additionally, we plan to open a smaller regional eCommerce fulfillment center for the Western region of the U.S., which will also come online late in 2019. We expect these new fulfillment centers to reduce delivery time to our customers, allow us to scale quickly and be more efficient as we continue to grow our eCommerce business. Our continued investments in the long-term optimization of our eCommerce business are paying off. Our eCommerce business comped up 12% in the quarter or 31% on a two-year stack. Additionally, we are very pleased with the current operating margin in eCommerce and its improving trajectory as we leverage fixed cost investments from the previous years.
Now, moving on to our fiscal 2018 financial outlook. We are now expecting full year comp sales to decline by 3% to 4% compared to our previous guidance of flat to low negative single-digits. However, we are raising our full year earnings per share guidance to $3.02 to $3.20 due primarily to better-than-expected merchandise margins. With respect to gross margin, I’d like to address the common question regarding the notion of easy earnings comps in the back half of the year; while it certainly appears less difficult given the significant margin declines we saw in the second half of last year; recall that due to the calendar shift, our sales and margins benefited in the first half of the year and we expect the subsequent negative impact to the second half of the year.
That said, we expect to hit a benefit from the positive mix impact due to the decline in our hunt and electronic sales, as well as more rational promotional environment through improved product and clean inventories. Therefore, we now expect gross margins to be approximately flat for the year versus our prior guidance of slight decline. We expect gross margin expansion to continue in the third quarter. However, we expect it to decline in the fourth quarter due to the shift in the calendar.
This concludes our prepared comments. Thank you for your interest in DICK's Sporting Goods. Operator, you may now open the line for questions.
Thank you [Operator Instructions]. And our first question today will come from Simeon Gutman of Morgan Stanley.
I wanted to ask and I don’t know if we can shed light on Under Armour some more, but I wanted to ask to clarify if they’ve increase their channel distribution or if there is a mix shift that's occurring, meaning they are just growing quicker elsewhere. And then connected to that, this was mass that we put out at the early part of the year. We said, look, if Under Armour was down another 10% with your business this year, it could be hurting you by as much as 90 basis points, curious if you'd comment on that math?
So, I'm not sure about the math, but our Under Armour business has been difficult. It was based on the change in distribution, which I understand why they did it. But they had a significant change in their distribution strategy, and that has impacted our Under Armour business. We're in the process of replacing that business and also looking at how we can grow the Under Armour business going forward. We're pretty excited about their pipeline beginning in '19 of things that we think we can start to replace some of that Under Armour business.
And connected to that, I think Lee mentioned the transaction number, but I think that was all in. Can you share a transaction number if you exclude hunt and electronics? And I don’t think you can exclude Under Armour from that. But if you just -- if we try to strip out the noise here, trying to gauge the underlying trend in the business?
Well, wee can't. But if you take a look at that, our comps without those are up 1%. And when you think about it, the concern with our negative comp, and I can understand that. But it's really focused on three things that are changing; one business we are exiting, which is the electronics business. We’re downplaying the hunt business based on what's going on not only from what our policy on firearms, but just that industry is challenged; and we are repositioning a third with Under Armour, and we're pretty excited about what we can do with Under Armour as we move into '19. The other ones are businesses that are going to, like I said, exiting or significantly downplaying. So, without those three areas, our business is really good. We're really excited about it; the athletic apparel business comped double digits; we're happy with our footwear business, our golf business; the outdoor category was -- we weren’t really happy with that, but other than that, we're really excited about our business.
And then just lastly same topic on comp, maybe can you just remind us what the calendar does to the comp for the back half. And I'm looking at the implied back half comp based on what you've done in the first half. It looks like it gets -- it could contemplate the world getting a little bit worse, but I think that might just be the shift.
Yes, it is the shift as we see it. We picked up $0.18 a share in the spring season, and we expect that we will give back those $0.18 a share in the fall due to the calendar shift. In addition to that, last year we had 53 weeks, so we had a 14-week fourth quarter, which also accounted for about $0.09 a share in addition to that. So, we've got calendar shift and we've got an extra week in last year's fourth quarter to go against.
The next question comes from Michael Lasser of UBS.
Ed, I think you just said that if you exclude hunt and electronics and Under Armour, your business was up 1%. Is that versus the down 4% that you reported?
That's correct.
So you said that….
Yes, on a comp basis.
The hunt and electronics business accounted for half of the comp decline, so that 200 basis points. So that means that Under Armour accounted for another 300 basis points of decline in the second quarter?
That’s the math.
Okay. You also, and I think this was in Lee's remarks, talked about less promotional activity. So you're kind of going through and making the decision to become less promotional. At a time, your margins are getting better and arguably you could use some of that firepower to draw in traffic when maybe some of your competitors are not doing as well. So why are you making that strategic decision, particularly at a time when the consumer is in a pretty healthy spot and we're seeing really good trends across a lot of other types of retailers?
Well, the margin rate, as we said, is being -- it’s a less promotional environment out there. We have access to more better product from a footwear standpoint than we had before with the Nike product, Adidas products. And there is a mix shift here with -- we talked about the gun and electronics business being 1,700 basis points below the Company average. So as we downplay that and move business to other areas, there is an impact, positive impact to margin rate from a mix standpoint.
I think that we also don't want to be in the business kind of training the customer to wait for promotions on our side and get back to having the strong brand driving sales for us. So, we've got pretty promotional last year, and we're trying to pull back a little bit from that.
And the marketplace is doing that. I mean, if you take a look at -- we said that our athletic apparel comps were double digits if we exclude UA. And those double digits, they're at a higher-margin rate. There is better product -- I talked before that we see better product innovation in product line this year and into next year, so there's no reason to promote it. And our comps are being -- the negative comps are being driven by those three components of our business, and we don't want to promote and give away product in the other areas as we try to transition these three categories.
The question would be, you expressed some confidence that next year your comp trends will improve once you no longer see a drag from these issues. But where do you get the confidence that something else, another category might start to [shift]?
Well, you never know. We're not seeing that right now. We have been seeing the gun and electronics piece coming forth some time. I mean right after the election, you go back and take a look at others in this industry that were public, or the manufacturers and the quarter or so after the election, those businesses started to have a problem. So we've seen this coming in the gun piece. And then electronics piece is just a low margin business that we don't feel that we're well equipped to focus on that, and we think we can focus on other areas of the business that can drive more profitable sales. And we think we can drive more shareholder value in the long-term through more profitable sales as opposed to trying to chase after a couple of categories that are 1,700 basis points below the Company margin rate.
Our next question comes from Robbie Ohmes of Bank of America Merrill Lynch.
One follow-up, just the timing of the Under Armour drag going away. Should we view the second quarter as the biggest drag from the changes with the second quarter is the biggest drag from the changes with Under Armour? And so is it the first quarter next year that we could see Under Armour going back to being a contributor?
Yes, I would say the first quarter of next year is when it will be much less of a drag. We don’t think it will be an issue in beginning in the first quarter of next year. I think we said we're somewhat -- we're quite confident on some of the things that they're doing, the HOVR is great. We've moving back into some of the core foundational product in Under Armour we're excited about that. So I think the first quarter of next year we're feeling a lot better.
And the other question I had, I think you guys said the average ticket was up 0.7%. And I was just -- given the less promotional environment, is it mix that's holding it back from being-up more or is it -- or is average ticket in apparel and footwear not up significantly. Any color on that you can give us?
When you take the hunt business down, I mean, a firearm is $300, $400, $500 to $800; when you start taking a look at the average ticket in firearms that's pretty high and that business; we are downplaying that; and we're taking that, as we said, we're taking that out of 10 stores this fall, repositioning the floor space; the higher profitable areas that we think we can get sales growth out of, such as the license category; we're going very aggressively after the baseball category and our private brands.
So it’s fair to say the apparel and footwear average ticket was up much more than 0.7% in the second quarter?
Yes.
And next we have a question from Christopher Horvers of JPMorgan.
So a few questions. So as we think about the back half, if we assume that declines in hunt and electronics business persist, but the comp headwind from this business is roughly double. And is there any differentiation between the third and fourth quarters, considering the peak a hunt I think in 3Q but then electronics really start to fall off in 4Q. So how are we thinking about that headwind and the differentiation between 3Q and 4Q?
So I wouldn’t plug in your model the peak of the hunt business is Q3, a lot of the big game hunting seasons open-up in November in areas where we're really highly concentrated. So Q4 is a very big hunt piece of our business and it's been a good gift item in the fourth quarter also.
So with that does the headwind, I mean from our next perspective, does this headwind roughly double to nearly 400 basis points in these two categories in the back half?
So there is more, we haven't quantified. There is some more risk on overall comps from the hunt business in the back half of the year. However, we feel good about the apparel and footwear businesses going into the back half of the year, as well we're in the much better position with Adidas and Nike going into the fall in terms of their -- our in-stocks with those brands.
And we've got that all baked into the guidance. This is why we took the guidance to the sales guidance to where we took it. So it's all baked in there.
So it’s basically -- it sounds like you're thinking -- the apparel and footwear business is showing acceleration and then in 4Q you have this easier gross margin -- easier eCom comparison on the Web site functioning last year in the holidays. And so in terms of -- as you think about the gross margin in the fourth quarter, you mentioned, it's expected to be down. Can you talk us through that? I mean, I understand you have the 53rd week, and there is leverage on occupancy. And then there's the shifts headwind from a sales perspective but by the same token your merch margins look like they were down 100 basis points. So any discussion there to help us think through why the gross margins are down in the fourth quarter?
Well, we're losing a week of sales to leverage fixed costs. So we have 14 weeks last year versus 13 weeks this year when you look at it in totality. So that's one factor. And with the shifted calendar, overall, there is like a double impact, one is losing a week and the second is the shift puts more of the business behind after Christmas. So that causes loss in the business and loss in sales as well. So that's why we've been reporting the comps on shifted basis, so you get reasonable basis for that. But it's really leveraging the fixed costs both in our supply chain and in efficiency costs.
It's virtually all based on the shift.
And then the last question, as we think about the shift and understanding the impact of sales. But is there a big impact on the SG&A line, because at least relative to our model the SG&A came in about $15 million below expectation. Is that despite higher incentive comp headwind? So is that just corporate discipline or is that more having to do with the sales shift?
That’s not a shift, that’s more a disciplined spending on our side.
The next question comes from Camilo Lyon of Canaccord Genuity.
Ed, go back to Under Armour discussions being such a drag for you. I’m curious, you mentioned in a prior question that going into next year, you don’t expect it to be much of a drag, which doesn’t suggest you expect to grow just that it's much less of a distractive to comp growth. As you think about -- as you see the product pipeline over the next nine to 12 months and know that that expanded distribution to your department stores is not echoing away. How do you -- why do you think that there is going to be an improvement in the brand for you? Is there a dramatic shift in the segmentation that you're seeing from a pricing perspective or a quality perspective? Just trying to understand the points around confidence interval that you have around the product improvement going forward?
So a couple of things, I think the product that they've got would be -- the working from a segmentation standpoint, we work with them on exclusive product that would be available to us and we're focusing on that. One of the product lines we're going to expand is exclusive to us and at under Armour's own stores and Web sites is the products are on the rock. We're going to take ease -- a hot commodity right now, everybody loves them. This is one of the areas that this is exclusive to us that we'll be expanding. We're excited about their HOVR shoe and we're excited about the product that will be put in more of a premium authentic athletic environment as opposed to more of a discount mid-tier distribution. So we're -- time will tell, but we're excited about it and we're working very closely with them and we're great partners and we think we're going to between us, so we're going to get this figured out.
And so just to be clear, it sounds like you don’t expect it to grow next year at least as you can see right now it's just that it'll be a slower decline of your business?
I didn't say it, I didn’t think it would grow, I didn't say that -- I'm not going to comment on the growth of it. I will tell you that we're quite excited about -- there will be a significant change in direction of Under Armour.
I was just trying to understand the much less of a drag comment that you made earlier. And then just a question on eCom business, it looks like the growth rate decelerated a little bit. Was there something that happened in the quarter that would explain the deceleration from the robust growth in the first quarter?
Yes, the first quarter, we had mentioned -- we benefited significantly from the fact that a year ago we brought our platform in house. And as a result of that, we have a lot of work to do to get the marketing backup we have to get SEO backup, so we had easy compares in Q1 that helped to drive a very strong comp growth in Q1 of this year. On a quarter-to-quarter basis, the eCom business remained penetrated at 11% of our sales in Q1 and 11% of our sales in Q2. So the deceleration was more of a result of a spike in Q1 that was due to an overlap issue.
So is that the right growth rate to think about going forward, or mix penetration?
We're not going to comment -- we're not going to give guidance of exactly what the eCommerce piece is going to be. But we're very comfortable with the growth rate we had in the second quarter.
Our next question comes from Matt Fassler of Goldman Sachs.
Two questions for you, first of all, as you think about the promotional backdrop. But you said that the environment broadly across categories is more rational, diminishing and need to be promotional, or are there certain areas that remain hot where you've essentially decided to step back and not to play, and that would be other of course than hunting the decision is a bit more strategic?
It's pretty rational out there. The industry has consolidated and it's gotten more rational. And one of the ways that we're able to become less promotional is the exclusive products that we're caring in the store right now, whether they're now some exclusive products from Nike or Adidas, or our own private brand. And so we're able to sell those at full price they're differentiated in the marketplace, the consumer finds the value in them and we're able to -- we don't need to discount them to push them out the door.
And then the second question relates to the inventory decline, which obviously is quite impressive relative to the sales number. Can you talk about how much of that decline again relates to the categories that you called out or you've decided to pull back, specifically hunting and electronics? And I'm not sure how much you've also pulled back on your Under Armour inventory commitments and perhaps what the inventories look like in categories where you're comfortable…
We're not going to get to that level of detail, Matt. But we're pleased with the inventory being down a little more than 6%. We've been much more -- and our buying group has done a much better job of buying product this year than maybe last year. We've made some improvements in that what Lauren talked about these key items to make sure that we're in stock, and the key items sell at a faster rate at a higher-margin. And so we've just done -- the team has done a better job from a merchandising standpoint in the second quarter than in the past.
The next question comes from Mike Baker of Deutsche Bank. Mr. Baker your line is open.
Can you talk about your market share? Even when you add back those three categories, your sales are up 1% on a comp basis and that includes lot of private label. Anyway, it's a strongest consumer environment it's been, a lot of retailers saying in decades certainly years. Is the sporting goods space is growing slower than other areas of the economy, or do you feel like you're losing share maybe to some of your vendors. Can you just talk about that dynamic? Thanks.
Sure, I think our market share is stable. If you take a look at what some of the others in the industry have reported in sporting goods, I think we're doing really well, especially when you take out that -- those three areas. Our comps and athletic apparel being up double-digits, ex the one issue, I think it's pretty positive. So we're pretty comfortable with our market share. We think that we've got the ability to go garner more market share with -- and what we're doing reformatting the store with these strike points that Lauren talked about and these key items. So we're pretty excited about it.
We are -- I think one thing that we want to make sure The Street doesn't miss is, and I understanding you're maybe disappointing with the negative four comp. But this is the second quarter in a row we've raised our guidance. And if we weren’t enthusiastic about what's going on in our business, we wouldn’t have raised our guidance for the second quarter in a row. And if we weren’t excited about our business, we would've bought back $182 million worth of stock in the first two quarters. So I think they're pretty -- a couple of pretty bullish signs of how we feel about our business going forward.
Yes, those are fair points and I appreciate that. If I could ask a couple more follow ups. One, maybe I missed it or maybe it's embedded in the math somewhere. But have you ever told us how big the hunt and electronics businesses are? We now know the margin rate and we know the comp drag, but just total size or penetration.
No, we haven’t and we haven’t gotten to that level of granularity and we're not going to start now.
So I guess we'll all just make our own estimates on what that would be based on the information you have provided. One more quick follow-up is, we know the calendar shifts have helped buy about $83 million year-to-date, you say you're going to give that back in the third and fourth quarter. Can you differentiate how much gets back in which quarter or again the analysts will just make their own assumptions and we'll go from there.
One of the things we did is we went to annual guidance and so we've given you guidance of how -- what we're going to do for the year. This is the second quarter in a row we've raised guidance, but we're not going to break it down quarter-by-quarter.
But you are telling us what the calendar shift has been in each of the quarter. All right, well, we can just make our estimates. I appreciate the color. Thanks.
The next question comes from Scot Ciccarelli from RBC.
Can you help us understand the change in the ecommerce fulfillment side a little bit better? I guess, I’m little confused about it. You're talking about improved efficiencies and speed of delivery from the new eCom center. But frankly, I guess I thought the whole idea around the store level fulfillment is that your stores are already closer to customers than DC ever could be, so that would enable faster delivery. If you can try connect those two that would be helpful?
I think that in a centralized eCommerce fulfillment, you can get more consistent execution. We do have the inventory close to the stores. So obviously the shipping time is light, it's small coming from the stores but the consistency, the execution and the picking isn’t as consistent as it is coming out of the centralized fulfillment center.
And it's still going to be a combination of -- we're still going to be using stores for distribution, we're going to be using a central fulfillment strategy. So it's going to be a combination of the two and we feel that's the best use of our capital and the best for the consumer.
For an average order, let's say, is the faster fulfillment coming from a DC or is it coming from the store that might be couple of miles away?
Well, once we put the distribution center in northeast, it will be faster from the DC. But right now, we have a central fulfillment in the Midwest that services the whole country. So at this point, the fulfillment from the local stores is faster.
And the next question comes from Steve Forbes of Guggenheim.
I want to focus on the 2Q merchandize margin dynamic. So you mentioned the 141 basis points, and I guess we could try to do some math around what part of that. And I think the majority of it is due to the increasing private brand penetration. So Ed, just correct me if I wrong there, and then just touch on what's happening in the branded SKUs, given the reduced promotional activities. Are those merchandize margins still under pressure or have they stabilized?
They've stabilized and actually increased. Again, we've talked about some of the -- it's not only our private brands but exclusives that we have with the brand, that's going to be a figure part of our business also and the brands margins have increased also.
And a big part of this is mix as well. As we talked about electronics and hunt being 1,700 basis points below the chain average, so there's big reductions we're seeing there. It's helping merch margin as well.
And then just a quick follow-up on the reduction in CapEx guidance for the year, so about $25 million net. What's driving that if you could just focus to get us in on what's changed quarter-over-quarter here?
It's really timing and the build out of the fulfillment center that we've got in Conklin. The timing of when the spent is going to hit we're looking to open that facility in the third quarter next year. We thought that more of it would be in the back half of the year this year. But the way it's coming out, it's going to be more in the early part of next year?
And the next question comes from Kate McShane of Citi.
I wondered to the extent that you can. Can you talk about the cadence of comps that you saw thereafter second quarter and any high level commentary about back-to-school?
So Kate, we haven't commented on the monthly breakdown in the comps throughout the quarter. So we're not -- we won't be doing it at this point. And again, we haven't given any guidance going into the third quarter either as well. So unfortunately, we're not going to be able to add some color to that.
And there has been a management change in one of your closer competitors in the Texas, Oklahoma area. Just wondering if you've seen any real change there in the competitive environment?
No.
And then my last question is, just as we look towards Q4 and fully understanding you don’t guide by quarter. But just how should we think about Q4 and just some of the strength you saw, particularly with the cold weather apparel? How should we think about that this year and then maybe some offsets to lapping that strong compare?
Well, I mean, we continue to be enthusiastic about the business, like I said. But the one thing that I think The Street needs to understand is the calendar shift. And I’m not sure that you guys completely understand that yet that we -- it helped us in the first half of the year, which we guided earlier in the year and it's going to be a bit negative in the back half of the year.
The next question comes from Brian Nagel of Oppenheimer.
So the first topic I wanted to talk a little bit further about is with Under Armour. In the K, I do understand a key part of the [Technical Difficulty] and the stores are -- I think the stores are…
Brian, we can't…
Can you hear me now?
I can hear you now, great. Yes, thank you.
So the first question I want to ask, to start with going to the Under Armour issues. Clearly, Under Armour has been a key partner for you historically. Your stores have been geared towards Under Armour. Just what's happening with their distribution necessitate overtime for you to a certain extent retrofit your stores towards other brands? And then the second question I have on Under Armour, with what's going on now, it sounds like more of a shorter term issue. You expect a bounce back next year. Is there some type of support coming to Under Armour, special support coming to DICK's from Under Armour? Just help me get through this period.
So as far as retrofitting the stores, we're taking a look at space of what we are going to do. We've changed some space as it relates to the women's side of the business. But again, we're enthusiastic about Under Armour's pipeline and we think this headwind is going to subside in the first quarter, beginning the first quarter next year. And from a support standpoint, Under Armour has always supported us and we've supported them. So there hasn't been any meaningful change in the relationship from what we've always had.
And then the second question I had, second topic on CALIA. You called that out now for a while as a area of strength and the success with your private brands. As you look at the demand trend there, can you just say where it's coming from. Do you think that customer is switching from other brands to CALIA? Is it a new customer is it different than what DICK's is catered to historically?
When we built the CALIA brand, we had it because we thought we had a white space in our stores and that this brand is tapping into it. So lots and lots of women shop our stores and who are not always shopping for themselves, they were shopping maybe for kids. And the CALIA brand has tapped purposely into that consumer in a way that some of other brands, which targets a little younger that was not doing.
The next question will come from Peter Benedict of Baird.
Just two, first Lee, I know -- providing more color on maybe the costs of these DCs that you have coming on. Just curious what the capital is yet to decide for those?
We haven disclose that at this point.
Are you -- once you get these two up in running, I mean how do we think about longer-term, does that sets you guys up for the next few years? Or do you think there is additional supply chain investment that needs to be made?
It'll probably carry us for a few years.
And then just shifting over to the ScoreCard, any stats you guys can share around the loyalty program, number of members, penetration. What really the opportunity is there?
We have a significant majority of our shoppers, our ScoreCard members. I believe that we announced last quarter that it's over 22 million people, and that is the engine of all of the data that we use to drive personalized marketing. So we use it drive our investments in direct-mail, in email and even when we go by media, we know where our ScoreCard numbers are and how they feel. The work that we're doing now is to merge those databases with the Team Sports HQ database, so that we can drive either more personalization. But ScoreCard is a huge, huge engine of our marketing and our data knowledge of our customer.
The next question comes from David Schick of Consumer Edge Research.
One on golf that’s having a better year, industry wide you guys I think as well its product intro I guess and economy. Just Ed, your thought on whether it can top the comp going forward the industries has tended to have more pendulum swings. Is there something changing in the way you think about the golf industry? And then second is across retail, a little bit of a reemergence team, perhaps in more wage dollars going back into the models out there. I know you guys are in -- you've been clear you're investing for what's right for the business. What are you seeing and doing on the wage front? Thank you.
We will start with golf first. We think golf is really in a good place, there's a couple of reasons for that. The guys that are out there right now on tour are bringing some excitement back to the game, and it only got multiplied with Tiger coming back and playing well. So we think golf really in a good place. I was out to see -- we're enthusiastic about the pipeline for Callaway going forward. We've seen the new Titleist Drivers driver, which is really good and we were at Taylor Made yesterday in California and looked at their product line and are really enthusiastic about that. So I think there is at least another year of a good product cycle of great product and great marketing from the brands to come in and keep this going. There are some innovations in golf balls and clubs, wages, quarters I mean, it's across the whole spectrum right now and we continue to be enthusiastic about golf.
As far as wage pressure, I think everybody is under wage pressure and we're dealing with that the best we can. We're making sure we've got the right people in the store. We're looking at our labor model to make sure that our labor model works, and then we serve our athletes also. So it's a complicated jigsaw up puzzle to put together, but we feel we're doing very well in that area right now.
And our final question today will come from Sam Poser of Susquehanna.
I have a couple of follow-ups. Lauren, I think you mentioned on doing a lot of things to improve the shopping experience, both online and in-stores. I wanted to just discuss the staffing levels in the stores and training within the stores, and what's evolving in that?
We have had a huge focus in our stores on training and specifically on cross training, so that our associates and teammates now are not just able to work in one area but each of them can help each other out and read one of our athletes through the entire store. It's been a huge initiative for us so that we're getting more bank to the buck with every teammate that we have in the store. So we are very, very focused on service, we are very focused on efficiency and productivity. So that we can free up those athletes to serve the -- those teammates to serve the customer better.
And then just to confirm, the double hit in the fourth quarter is the week of sales that you lose and the calendar shift, which makes the sales -- the loss of sales quarter over quarter much greater in the fourth quarter than it is in the third quarter. Is that a fair statement?
Yes, we lose a week and we have a calendar shift, yes.
And then lastly, I’m sorry to beat the Under Armour question to that here. But you call -- I guess you have some items that you're excited about for spring. However, beyond that you're building out your private label apparel business, you're building out Nike and it sounds like you're building out Adidas. So anything from anybody else has to be able to take share from that stuff, or it has to be incremental. So outside of the rock and the HOVR, I mean are you seeing real strength? Or is it just those things that would mitigate the current declines that you're seeing?
Well, I'd say we think these things can help mitigate the current decline but we're also seeing things from a pipeline standpoint, it would be exclusive to us that we're working on other products that can help stem this decline. And we've been great partners with Under Armour, they've been great partners with us and we're both working on this to get this to be a growth vehicle for both of us again. And our teams are working very hard and collaboratively. And we think that in the first quarter of next year, we start to make the turn it will be a much less of a drag then.
And is this is -- are you testing this with the consumer in that when you're dealing with active apparel or athletic apparel? Is it really -- it's much more difficult to differentiate than footwear, I mean the difference between [Technical Difficulty] so generally what's carried in footwear in the moderate channel versus with you is significantly different you could see and it's marketed differently. But with apparel, that’s a much finer line. What's going to make that work?
Well, we think the product is differentiated, it's higher technology, it will be -- the real athlete who is looking to use the product to actually perform in as opposed to look like they perform in. We're confident some of this stuff will work. And that's part of what we're supposed to do as merchants is and look at this determine what we think is going to sell, talk to the brands that we're doing business with and let them know where we think the gaps are. And Under Armour has been great listening to us we've been great listening to them. And we're pretty enthusiastic that this will get better beginning next year.
And Sam the customer is able to tell that differentiation with the other brands like Nike and Adidas and so on. And the guys like Kohl's and us, we can both succeed with those brands really well with differentiated product assortments.
This concludes our question-and-answer session. I would like to turn the conference back over to Ed Stack for any closing remarks.
I'd like to thank everyone for joining us on our quarterly call. And we'll look forward to talking to you at the end of November. Thank you.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.