Dick’s Sporting Goods Earnings Call Insights: Quantifying the Weather, Leveraging Occupancy

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

Quantifying the Weather

Christopher Horvers – JPMorgan: A lot of retailers are talking about the weather and potential pull forward, and perhaps you could share how you flushed that out and what your thoughts are on – what was incremental for the comp in 1Q that doesn’t repeat and comes out in 2Q? You saw this morning the census data in your category showed a 200 basis point acceleration to 7 from 5, so any insights there would be helpful?

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

Edward W. Stack – Chairman and CEO: We think that there was probably some pull forward into to Q1 based on the weather that we had last year. Meaning people were playing golf earlier this year, they were fishing earlier this year. The kids were out in the field playing lacrosse and baseball earlier this year and we feel there was definitely some pull forward into Q1 from Q2 sales.

Christopher Horvers – JPMorgan: Ed, but can we quantify that?

Edward W. Stack – Chairman and CEO: No we can’t quantify that. It’s just a sense that we have based on how good the first quarter was and those categories that were weather sensitive last year performed much better this year. That being said our merchants, our marketing people, the people in the stores did a great job taking full advantage of the better conditions we had this year than last year and as we said our comps were north of 8% this year which we thought was pretty good.

Christopher Horvers – JPMorgan: Was there any – lot of retailers had February and March and then April ended up decelerating, do you think that pull-forwards, some of that impacted April or they all will come in out of 2Q?

Timothy E. Kullman – EVP Finance, Administration and CFO: We think it may be coming out of second quarter; we’re very pleased with April also.

Christopher Horvers – JPMorgan: Then as a follow-up on BBCOR, any thoughts on how that impacted your comps overall in the first quarter, including the halo effect and how that might play out going forward?

Edward W. Stack – Chairman and CEO: It did impact our first quarter. It was important although, it was not meaningful to be 8%. We’re not going to give exactly what it was, but it was important but it wasn’t meaningful. It was less than a 1%. As we said in our guidance, in our call, last time that we thought this was a first quarter phenomenon and most of these bats are used for high school baseball players and it really wouldn’t move into the second quarter was primarily the first quarter opportunity.

Leveraging Occupancy

Michael Lasser – UBS: If we look back over the last couple years including the first quarter, there has been a pretty wide variability in your comp results, how do you feel about your ability to manage, especially store labor in that environment, especially if it continues, is there going to be a source of strain to become a larger organization or can actually be a source of potential benefit?

Edward W. Stack – Chairman and CEO: We got what we think a very good systemic solution to the store payroll; a mix with full-time and part-time associates we feel are appropriate and we can flex that payroll number as appropriate. So as business gets better, we’re able to move payroll into the store to service our customers and if the business is a little bit softer we have the ability to move that payroll back so as to not impact our earnings – negatively impact our earnings.

Michael Lasser – UBS: On the occupancy leverage, you saw a really nice result in the first quarter, is that how we should think about this line item moving forward and what’s the leverage point that you need – the comp point – the comp where you need at this point to lever?

Timothy E. Kullman – EVP Finance, Administration and CFO: This is Tim. On the occupancy side, we had a very good leverage because of the 8.4% comp. We feel that we need about a 3% comp these days to leverage occupancy. So we got a significant benefit because we have such a high comp in the quarter. Don’t expect a triple digit basis point improvement in occupancy going forward based on where our comp guidance is at this point.

Michael Lasser – UBS: If I could sneak one last one in, on related subject to that, I think Joe mentioned that you’re still going after 10 year leases, philosophically what’s the thought process there, especially with retail changing so quickly, a lot of sales are migrating online and you’re seeing some of that impact yourself. Was there any thought given the possibility of going after shorter term leases or as you roll out shipment store you’re not as concerned about it given that this could act as mini warehouses?

Joseph H. Schmidt – President and COO: We continue to pursue the opportunity to shorten these leases, and we’ve had very minimal success so far, but by and large the industry average as we get down and look at these sites is 10 years with the ability to re-up with a number of options. So I think you can look for the 10-year lease period to be pretty consistent moving forward, and again we’ll look at those opportunities to grab a five-year lease where we can.