DICK'S Sporting Goods, Inc. (NYSE:DKS) Q2 2023 Earnings Conference Call August 22, 2023 10:00 AM ET

Company Participants

Lauren Hobart - President & CEO

Navdeep Gupta - CFO

Nate Gilch - IR

Conference Call Participants

Simeon Gutman - Morgan Stanley

Adrienne Yih - Barclays

Robby Ohmes - Bank of America

Kate McShane - Goldman Sachs

Chris Horvers - J.P. Morgan

John Kernan - TD Cowen

Warren Cheng - Evercore ISI

Michael Lasser - UBS

Brian Nagel - Oppenheimer

Paul Lejuez - Citi

Mike Baker - D.A. Davidson

Justin Kleber - Robert W. Baird

Joe Feldman - Telsey Advisory Group

Chuck Grom - Gordon Haskett

Operator

Good morning. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome everyone to the DICK'S Sporting Goods Second Quarter 2023 Earnings Conference Call. [Operator Instructions]. Thank you.

Nate Gilch, Senior Director of Investor Relations, you may begin your conference.

Nate Gilch

Good morning, everyone, and thank you for joining us to discuss our second quarter 2023 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.dicks.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. Please refer to our Investor Relations website to find a reconciliation of our non-GAAP financial measures referenced in today's call. And finally, for your future scheduling purposes, we are tentatively planning to publish our third quarter 2023 earnings results on November 21, 2023.

With that, I’ll now turn the call over to Lauren.

Lauren Hobart

Thank you, Nate, and good morning, everyone. We are pleased with our strong sales performance for the second quarter. Total sales increased 3.6% to $3.22 billion, and our comp sales increased 1.8%, driven by robust transaction growth. We continue to gain market share, demonstrating that athletes throughout the country are increasingly relying on DICK'S to meet their needs. Within the quarter, sales accelerated significantly in July when the back-to-school season kicked off and when we opened our newest House of Sport location. For the full year, we remain confident in delivering comparable store sales in the range of flat to positive 2%, unchanged from our prior outlook. With this context, I want to take a moment to address our second quarter profitability and our revised 2023 EPS outlook. While we delivered double-digit EBT margin of 10.1%, our second quarter profitability was short of our expectations. This was primarily due to lower gross margin, which, while still significantly above pre-COVID levels, was lower than originally anticipated. Two key factors impacted our second quarter gross margin relative to our original expectations. The first was the impact of higher inventory shrink, organized retail crime and theft in general, an increasingly serious issue impacting many retailers. Based on the results from our most recent physical inventory cycle, the impact of theft on our shrink was meaningful to both our Q2 results and our go-forward expectations for the balance of year. We are doing everything we can to address the problem and keep our stores, teammates, and athletes safe. And second, beyond shrink, we also took decisive action on excess product, particularly in the outdoor category, to allow us to bring in new receipts and ensure our inventory remains vibrant and well positioned. Keeping our inventory fresh is one of our key operating philosophies, and we're pleased that our inventory was down 5% at the end of the quarter. Our revised 2023 non-GAAP EPSS guidance of $11.50 to $12.30, takes into account our Q2 results, as well as our latest views on gross margin for the back half of the year, including higher levels of shrink. It's important to note, we remain very confident that we still expect gross margin to increase for the full year compared to 2022, which includes a significant increase in the back half.