Dick’s Sporting Goods Earnings Call INSIGHTS: Back-to-School, Q3 Guidance

On Tuesday, Dick’s Sporting Goods, Inc. (NYSE:DKS) reported its second quarter earnings and discussed the following topics in its earnings conference call. Take a look.

Back-to-School

Robby Ohmes – Bank of America – Merrill Lynch: A couple of quick questions on, Ed I was hoping maybe you could give us, in other words sort of in the middle of the back-to-school season, any sort of flavor on how that’s going for you guys, then also your view if there is any update on your view on what that product launch lineup looks like for the fall season here both from a footwear perspective and apparel. Then I have a quick follow-up after that?

A Closer Look: Dick’s Sporting Goods Earnings Cheat Sheet>>

Edward W. Stack – Chairman & CEO: Well the back-to-school season, we can speak to our second quarter results which were above our guidance, so we were pleased with the second quarter sales. A portion of those sales to back-to-school piece is in there. So early on we are pleased with it and as we indicated in our – it was above our guidance and what we expect back-to-school to be is baked into our third quarter guidance, which we can’t speak to right now. From a product launch standpoint, we’re pleased with some of things that are out there. We have seen some of Colombia’s new technology North Face is in that technology, we are pleased with what’s going on out there and we’re obviously relatively enthusiastic about our business because we took our annual guidance up to a penny higher than what we beat the second quarter by. So for us that’s pretty bullish.

Robby Ohmes – Bank of America – Merrill Lynch: Then just a quick follow-up Ed, can you comment on two things? One would be the running specialty store tests that you guys had disclosed and the other, maybe a little more on potentially what next steps might be in terms of your involvement with JJB from here?

Edward W. Stack – Chairman & CEO: Sure, the running tests. We’ve opened one store right now. We have plans to open a second one, but we think running is an important part of the business. We’re testing a couple of these stores through roughly 4,000 square feet higher and technical running stores. Where we’re going to go with these, we can’t comment right now. We’ve got one open and we’re opening another one in October. What we do believe will happen and has already happened to some extent is we will learn what that technical runner is looking for from both a footwear and accessory and an apparel standpoint and be able to apply that to our stores. Our running business has been very good and part of that has been due to the research we did on the technical running stores, so we’re pleased with that. Our involvement with JJB, all we did originally was we made an investment in JJB of a little more than $30 million, $30 million of that was in the form of a convertible debt instrument. We took that position; we thought there would be – potential great upside, what we wanted to was to cap our downside. JJB has had a very difficult time. We all kind of know what’s happening in Europe. It’s continued to have a difficult time. With the announcements that they’ve made and it’s important to understand, we are not running JJB we are merely an investor with the ability to take a greater control if we convert it, but we’re not running JJB. The JJB management, the announcements that they’ve made about their performance and their financial condition and we felt that it was the prudent thing to do to fully impair this asset at this time and we’ll monitor the situation and hopefully the management team there can turn that business around.

Q3 Guidance

Michael Lasser – UBS: Ed you tend to be conservative bunch, you had kind of more difficult third quarter compare. The elections are going to be really heating up during the third quarter. Can you talk about how you mapped out your guidance for the third quarter, you are implying a nice acceleration to business, what’s driving that thinking?

Edward W. Stack – Chairman & CEO: What we see happening with our back-to-school sales earlier on in the second quarter. What our team has doing on our eCommerce site, has been very good with a 34% increase in the second quarter? We feel that’s going to continue to help drive the business. Our apparel and footwear business continues to do very well in the shops that we’ve put in place with Nike and Under Armour have done extremely well and the ones that we’ve put in place and that we will put in place going into the third quarter from the North Face we expect those to have similar results.

Michael Lasser – UBS: Can you expand a little bit on merch margin in the second quarter it was up 29 basis points which was a nice result, but not nearly as the size of an increase as you saw last year and it sounds like you are expecting it to accelerate. So what restrained it in the second quarter?

Edward W. Stack – Chairman & CEO: We don’t really think it was restrained, we thought that based on the way that we managed the businesses and managed the clearance activity, that it was really very good. One of the aspects that has been up pretty significantly has been the firearms business. The firearms business is a lower margin rate than the Company average, but at 29 basis points with the comps that had and what’s happening to the firearm business, we were very pleased with that.

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