Earnings Call Transcript - DKS Q2 2024

Operator, Operator

Ladies and gentlemen, thank you for standing by. 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 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. Thank you. I will now turn the conference over to Nate Gilch, Senior Director of Investor Relations. Nate, you may begin.

Nate Gilch, Senior Director of Investor Relations

Good morning, everyone. And thank you for joining us to discuss our Second Quarter of 2024 Results. On today's call will be Lauren Hobart, our President and Chief Executive Officer; Navdeep Gupta, our Chief Financial Officer. A playback of today's call will be archived on 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, as well as 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 the 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 2024 earnings results on November 26, 2024. With that, I'll now turn the call over to Lauren.

Lauren Hobart, President and CEO

Thank you, Nate, and good morning, everyone. As we announced earlier this morning, we delivered a very strong quarter. Our Q2 results continue to demonstrate how well our long-term strategies are working and the great execution of our team. Powered by our compelling omni-channel athlete experience, differentiated product assortment, best-in-class teammate experience, and our ability to create deep engagement with the DICK'S brand, we are driving sustained top-line momentum and gaining market share. I am really proud of our team. Today we are again raising our full-year outlook. This reflects our strong Q2 results and the confidence we have in our business. We now expect comp sales growth for the year to be in the range of 2.5% to 3.5% and EPS to be in the range of $13.55 to $13.90. Now moving to our results. For the second quarter, our sales increased 7.8% to just under $3.5 billion. Adjusting for the calendar shift, our comps increased 4.5%. This strong comp was driven by growth in average ticket and in transactions. We saw more athletes purchase from us, and they spent more each trip compared to the prior year. With growth in sales, gross margin expansion, and SG&A leverage, we achieved an EBT margin of nearly 14% and EPS of $4.37, both significantly ahead of last year. At the heart of our strategies is our Omnichannel athlete experience. We're continuing to invest across our digital and store experiences to meet our athletes wherever they are, create confidence and excitement, and get product into their hands faster. We continue to be very pleased with the performance of House of Sport and our next-generation 50,000 square foot DICK'S locations, which internally we refer to as our fieldhouse concept. With House of Sport, we are redefining sports retail and creating very strong engagement with our athletes, our brand partners, and communities. It's also driving significant benefits to our real estate partners. We continue to hear from mall operators that our House of Sport locations drive increased traffic, sales per square foot, and occupancy rates for the malls where they operate. House of Sport is drawing unprecedented landlord interest and the opportunity to join many of the best shopping centers in the country. Later this month, we are excited to open our 15th House of Sport location and look forward to opening another five locations this year. We've also completely revolutionized our most typical format, our 50,000 square foot DICK’S store into what we're calling our Field House concept. Field House is inspired by House of Sport and includes interactive experiences and elevated presentation and service. These stores are performing exceptionally well. During Q2, we opened four Field House locations, and with 17 now open, we look forward to opening nine more locations this year. Investing in our digital capabilities is central to our Omni-channel athlete experience. This includes DICKS.com and our DICK'S mobile app, which continues to be key to our business and has strong engagement with our athletes. We continue to make the digital shopping experience better for our athletes and recently launched several features to help accelerate this journey, including elevated imagery, 3D viewing of select footwear, and AI-powered chat features. As we've talked about, we're also focused on digital innovation. With GameChanger, we've built a platform that engages with youth sports families in a uniquely authentic way with the content most valuable to them, their kids' sports games. Over 6 million unique users engaged with GameChanger in Q2, an 11% increase from last year, averaging approximately 45 minutes per day in the app, speaking to the power of this content to sports families, coaches, and players. GameChanger allows us to connect with our athletes beyond the traditional shopping experience and reinforces our leadership in sports. Importantly, GameChanger families are some of DICK'S most valuable customers. A GameChanger customer who also has a DICK'S scorecard spends over two times more per year at DICK'S than a typical scorecard customer. The GameChanger business model generates predictable, recurring, high-margin subscription revenue and during Q2, it drove continued robust sales growth. Providing differentiated on-trend products, which is our second strategic pillar, helps make DICK’S the go-to destination for sports in the U.S. We are excited about our assortment for the important back-to-school season and the product pipeline from our key brand partners and vertical brands. Our teammates are a critical driver of our success, and our third strategic priority is providing a best-in-class teammate experience. Our engagement surveys demonstrate that we are a fun and rewarding place to work. Our teammates are proud, personally committed, and optimistic about our future, and we're seeing fantastic improvement in turnover across our stores. Lastly, we're continuing to invest in DICK'S brand building. We recently announced a new partnership with Team USA and LA28, designating DICK’S as the official sporting goods retail provider. During the recent Olympic Games, we launched our latest marketing campaign that celebrates youth athletes and builds on our belief that sports have the power to change lives. In closing, we are very pleased with our second quarter performance, including the strong results at House of Sport, our Field House Concept, and GameChanger. And we are highly confident in our strategies to drive sustained and profitable growth. Before concluding, I'd like to thank all of our teammates across this company for their outstanding efforts and continued commitment to DICK'S Sporting Goods. Our strong performance is a direct result of their efforts. With that, I'll turn the call over to Navdeep to share our financial results in more detail.

Navdeep Gupta, CFO

Thank you, Lauren, and good morning, everyone. Before jumping into our Q2 results, I want to acknowledge the voluntary 8K we filed last week in which we disclosed that on August 21st, we discovered unauthorized third-party access to our information systems. Based on our current knowledge, we do not believe that this incident is material. It did not disrupt our business. Our stores remained open, and our e-commerce sites were functioning throughout. Moving to our second quarter results, we are very pleased to report a consolidated sales increase of 7.8% to $3.47 billion. This included a benefit from the calendar shift due to the 53rd week last year of approximately $95 million or $0.30 in earnings per diluted share. Adjusting for the calendar shift, which we believe provides the clearest view of the business, our comps increased 4.5% as we continued to gain market share. Our strong comps were driven by a 3.5% increase in average ticket and a 1% increase in transactions. We saw strength across key categories, led by footwear and athletic apparel. Gross profit for the second quarter was $1.28 billion, or 36.73% of net sales, and increased 231 basis points from last year. This increase was driven by a higher merchandise margin of 169 basis points and leverage on occupancy costs due to the higher sales. The increase in merchandise margin was driven by a favorable sales mix and the quality of our assortment. It also included lower year-over-year shrink of 83 basis points, as we anniversary higher shrinks from 2023 that included an unfavorable true-up based on the physical inventories last year. On a non-GAAP basis, SG&A expenses increased 4.1% to $786.3 million and leveraged 78 basis points compared to last year due to the higher sales. The increase in SG&A dollars included higher incentive compensation expense, planned investment in marketing, and costs in support of our sales growth. Pre-opening expenses were $8.9 million, a decrease of $24 million compared to the prior year. This decrease was driven by the timing of our new store opening. EBT in the second quarter was $482.3 million or 13.9% of net sales. This is up from EBT of $325.9 million or 10.1% of net sales in Q2 of 2023. In total, we delivered earnings per diluted share of $4.37, an increase of 55% compared to the earnings per diluted share of $2.82 last year. As I mentioned earlier, this included a $0.30 earnings per diluted share benefit from the calendar shift. Now looking to our balance sheet, we ended Q2 with approximately $1.7 billion of cash and cash equivalents and no borrowings on our $1.6 billion unsecured credit facility. As a result of our consistent and strong financial performance and commitment to a healthy balance sheet, Moody's upgraded our credit ratings from Baa3 to Baa2 in early August. Our quarter-end inventory levels increased 11% compared to Q2 of last year. This inventory investment has been a conscious decision to lean into differentiated key items and categories which are expected to drive our growth into the second half of 2024 and into early 2025. We believe our inventory is clean and well-positioned as we enter into Q3. Turning to our second quarter capital allocation. Net capital expenditures were $199 million, and we paid $89 million in quarterly dividends. We also repurchased 252,000 shares of our stock for $49.9 million at an average price of $198.05. Thus far this year, we have repurchased a total of $163.6 million of our stock. For the full year, we continue to expect share repurchases of $300 million. Now moving to our outlook for 2024. As Lauren said, we are again raising our full-year outlook. This reflects our strong Q2 performance and our confidence in our strategic initiatives and operational strength, balanced against the dynamic macroeconomic environment. We continue to expect 2024 consolidated sales in the range of $13.1 billion to $13.2 billion. We now expect full-year comp sales growth in the range of 2.5% to 3.5% compared to our prior expectation of 2% to 3% growth. EBT margin is now expected to be at 11.2% at the midpoint compared to 11.1% previously. We now expect gross margins to expand year-over-year compared to our expectation for a modest expansion previously. Based on the strength of our business, we are making some strategic investments to drive long-term growth, and we now expect SG&A expenses on a non-GAAP basis to de-leverage modestly year-over-year. For pre-opening expenses, we expect second-half expenses to be moderately higher than the first half, driven by the timing and mix of our new store openings. The vast majority of this expense will fall into the third quarter. In total, we now anticipate full-year earnings for diluted share to be in the range of $13.55 to $13.90 compared to our prior expectation of $13.35 to $13.75. Our earnings guidance is based on approximately 83 million average diluted shares outstanding and an effective tax rate of approximately 23%. We continue to expect net capital expenditures of approximately $800 million for the year. Lastly, keep in mind that due to the impact of shifted calendar, our reported total sales and EPS benefited by approximately $140 million or approximately $0.45 in earnings per diluted share in the first half. We expect an offsetting negative impact in the second half of the year. With the key back-to-school week shifting out of Q3 and into Q2 this year, the vast majority of this offset will happen in the third quarter. We estimate the unfavorable impact to Q3 reported total sales to be approximately $105 million or approximately $0.35 in earnings per diluted share. Excluding the 53rd week last year, which added $170 million or $0.19 in earnings per diluted share, this shift will not impact our full-year results. In closing, we are very pleased with our second quarter performance and the success of our long-term strategies. We remain very enthusiastic about the future of our business. This concludes our prepared remarks. Thank you for your interest in DICK'S Sporting Goods. Operator, you may now open the line for questions.

Operator, Operator

Thank you. We will now begin the question-and-answer session. Your first question comes from Adrienne Yih with Barclays. Please go ahead.

Adrienne Yih, Analyst

Good morning. I want to extend my congratulations. It’s not common to see this level of success in selling at full price given the current market conditions. So, congratulations. Lauren, my first question is quite general. I would like you to explain again why DICK'S is experiencing success after COVID, especially in what seems to be a slowing athleisure or athletic market. Can you outline the top three initiatives that DICK'S has implemented from pre-pandemic to post-pandemic and why you are emerging as a leading player in the sporting goods industry? Thank you.

Lauren Hobart, President and CEO

Thank you, Adrienne. I appreciate your congratulations and am very pleased with our Q2 performance, which was a 4.5% comp, building on last year’s 2% comp as we gain market share. This demonstrates that our athletes, or as we refer to our consumers, are doing well. They continue to value a healthy, active outdoor lifestyle and prioritize team sports. Our sustained market share growth reflects the effectiveness of our long-term strategies. Regarding what's changed, even before COVID, we have focused on several key strategic pillars over the past few years. The first is differentiated products. Our merchant teams have excelled in bringing products that are in high demand, sought after by consumers and teams alike. These products cater to both competitive performance athletes and those looking for a lifestyle approach. We now offer a truly differentiated assortment in the marketplace, which helps us drive sales and maintain healthy margins. Another key area of focus has been enhancing the athlete experience, which encompasses multiple aspects. We are improving service in our stores and online, ensuring timely product availability, and providing the right products to our customers. This aligns with our ongoing commitment to reinventing DICK'S Sporting Goods. With innovations like House of Sport and the Field House, we continue to redefine how we serve athletes, and these insights are being applied throughout our company. Overall, in the past quarter, we experienced growth across all income demographics, which is fantastic. We noticed an increase in the number of athletes shopping with us and spending more per visit. We also added 1.6 million athletes to our database this quarter. It’s been a great quarter, achieved through long-term strategies developed over several years, even before the pandemic, and I’m very pleased with our team’s execution.

Adrienne Yih, Analyst

Great. I have a quick follow-up for Navdeep regarding inventory. It seems that your inventory levels are higher than your current sales. This is something that often draws attention. Can you explain the strategy behind increasing inventory, especially when you observe improvements in comparable sales? How are you managing this balance and reducing risks on the back end? Are you taking on more upfront, and how are you handling that? Thank you.

Navdeep Gupta, CFO

Thank you for your question, Adrienne. You've framed it well; we are adding more support to our core strategies that Lauren mentioned. She highlighted two crucial points regarding our inventory investments. First, it's about the access we have and the work our merchants have done to bring unique products into our stores and online. This assortment is resonating very well, and I emphasized it as a key area for our investment. Secondly, our inventory is in great shape and well-balanced. Our clearance inventory is significantly lower compared to last year in the second quarter. Finally, looking at our updated guidance reflects our confidence in our assortment. We have modestly raised our comp expectations for the second half and also slightly increased our merchandise margin expectations. This confidence stems from the quality of our offerings and our access to a distinctive assortment. We're optimistic about our inventory and how well we are set up for the back-to-school season.

Lauren Hobart, President and CEO

Yes. And Adrienne, I would just add that the inventory that we've invested in is in things like key items and strike points and brands, and it has a long sale life. So we expect to have this inventory available and ready to sell into the spring and the Q1 of 2025. It is really good inventory.

Adrienne Yih, Analyst

Fantastic. Best of luck.

Lauren Hobart, President and CEO

Thank you.

Navdeep Gupta, CFO

Thanks, Adrienne.

Brian Nagel, Analyst

Hi, good morning. I, too, would like to add my congratulations on another very nice quarter.

Navdeep Gupta, CFO

Thanks, Brian.

Brian Nagel, Analyst

I have a high-level question to start, followed by a more specific one. Many of us are closely monitoring your vendor partners, and we’re hearing about a renewed focus on product innovation from companies like Nike and Under Armour. My question is, DICK'S has been performing exceptionally well despite a challenging macro environment and a wave of product innovation. Are you now seeing an acceleration in product innovation from these vendors? If so, how much of an additional benefit do you anticipate this will bring to DICK'S as it develops?

Lauren Hobart, President and CEO

Thanks, Brian. Absolutely, we are seeing our vendor partners focus on innovation. And we, ourselves, as I mentioned earlier, are innovating our entire experience as well. With our strategic partners, we have really long-term sharing sessions, strategy sessions where we do look at the pipeline for years to come.

Operator, Operator

Ladies and gentlemen, this is the operator. We are experiencing technical difficulties. Please remain on the line. Thank you for your patience. And ladies and gentlemen, we will resume. Brian Nagel, your line is now live.

Lauren Hobart, President and CEO

Brian, I apologize. I heard your question, and I don't know whether you heard any of my answer. Our line dropped. So should I start over?

Brian Nagel, Analyst

You started to respond. Do you want me to repeat the question?

Lauren Hobart, President and CEO

Sure. Why don't we do that? Thank you very much.

Brian Nagel, Analyst

My question is about what we’re hearing from several of your key vendor partners regarding their shift in focus post-pandemic towards product innovation. DICK'S has done exceptionally well despite a challenging macro environment, even when product innovation across the sector was slow. Are you beginning to see some benefits from this product innovation from your vendor partners? Additionally, how should we view this renewed focus on product innovation from these partners as a potential advantage for DICK'S moving forward into '24 and '25?

Lauren Hobart, President and CEO

Thanks, Brian. Yes, we’re excited about the product innovation cycle that we see coming down the pike with our vendor partners. And we have, as you would expect, long-term strategy meetings where we get peaks under the tent about what's coming. We're excited about the product innovation. But I would also point out, as I mentioned, to Adrienne's question, the innovation that we have in our own business in terms of how we are serving athletes, the reinvented portfolio and the access that we have to highly differentiated products. So product, itself, is a key tailwind for us, has been for some time, and we continue to see that due to the access, due to innovation coming, we think it is a key pillar for us.

Navdeep Gupta, CFO

Yes, Brian, I want to clarify that we are focusing on our core strategy, which Lauren explained effectively and is resonating with our athletes. For instance, we are repositioning our portfolio and investing in technology that enhances the experience for our athletes in-store and improves the functionality of our website. These investments are crucial for positioning our business for 2025 and beyond in a unique way. Additionally, our investment in SG&A is aligned with our confidence in our overall margin expectations. If you look closely at our guidance, we have increased our total margin expectations for the year, which allows us to offset this against our SG&A investment. Overall, we have raised our operating margin expectations by 10 basis points compared to our previous guidance.

Brian Nagel, Analyst

Very helpful. Thank you.

Simeon Gutman, Analyst

Hi, good morning, everyone. Lauren, I wanted to start asking about the top-line and engagement on the customer side. The angle is this proliferation of some of the strongest brands, and I won't name them all, but there is a handful that are higher profile that are probably driving a good amount of growth, at least that's a perception. My question is, what are you paying attention to that gives you confidence that you are maintaining engagement with your customers on all of these brands? My perception is that some of these brands are starting to proliferate into other places. So how is that engagement changing as we see some of these brands and products end up in more places?

Lauren Hobart, President and CEO

Thanks, Simeon. Our engagement with our customers, we call athletes, is as high as it has ever been. And that's a credit to the experience that we have in the stores. It is also a credit to our brand campaign and what our marketing team has done. I know many of you have seen some of the work that came out during the Olympics. So we are top-of-mind awareness is great. But when you get into products, we are unique in our ability to provide both performance and lifestyle, head to toe. We know the output starts with the footwear for a kid, and we can outfit them for their entire outfit both every day in life and on the field as well. So we are excited about the differentiation that we have versus our competitors. We feel really good about the increased access that we have to products, and we also feel really good about our performance of our vertical brands. So in general, very optimistic about our continued growth.

Simeon Gutman, Analyst

Can you discuss the performance of House of Sport compared to the initial forecast, especially in the period after the 12 months, such as around the 18th or possibly the 24th month in a few cases? Have there been any surprising developments in terms of product categories or merchandise compared to what you projected?

Lauren Hobart, President and CEO

We are very pleased with the performance of our House of Sports stores. At the end of last year, we provided guidance that the two stores that had opened were doing well enough to see positive comparisons. We are excited because athletes are traveling further, visiting more often, and spending more time in our stores. Overall, the ability to bring a brand to life is significantly aiding our product innovation. We can effectively showcase a brand's story in our collaborative spaces, which we refer to as "collab," allowing us to engage with both existing and new brand partners. Additionally, we have noticed an increased level of excitement and recognition from landlords and mall owners regarding our operations. When we open a House of Sport, mall owners report increased traffic, higher sales per square foot, and improved occupancy rates. This success is giving us access to some of the top malls and shopping centers in the country, which is crucial to our strategy.

Simeon Gutman, Analyst

Okay, thanks. Well done, good luck.

Lauren Hobart, President and CEO

Thank you, Simeon.

Navdeep Gupta, CFO

Thank you, Simeon.

Robert Ohmes, Analyst

Hi, good morning, guys. Great quarter. My first question, and probably both of them are actually for Navdeep. Navdeep, can you talk about the House of Sport conversions and sort of how that might have benefited comps in the second quarter and how we should think about House of Sport conversions in the back half as a benefit to comps versus maybe what you saw in the first half? And then another modeling question, I'll just give you the two upfront, would just be for gross margin in the back half, if you could give us any thoughts on puts and takes for us to think about in 3Q versus 4Q, that would be great.

Navdeep Gupta, CFO

Thanks, Robby. I appreciate your comment on the second quarter performance. Regarding the conversion benefit for House of Sport, it's consistent with what we mentioned at the end of last year. We indicated that the first half would benefit from the eight House of Sport conversions completed last year, all of which were closed remodels. Thus, our first half of 2024 benefitted from those remodels. For the second half, our updated guidance suggests that our comps will again be positive, but we anticipate a slight reduction in the benefit compared to the first half. We remain confident in the overall strategy for House of Sport. As Lauren mentioned earlier, the product access and differentiated service we offer are resonating well with our athletes, who are spending more time in our stores. Our store teams are excelling at utilizing their in-store assets, including engaging more deeply with the community. This gives us confidence as we apply the lessons learned from House of Sport to the Field House concept we discussed this morning. Regarding the gross margin expectations, it’s a great question as there are various factors to consider. We indicated at the end of last year that our occupancy costs would be decreasing this year, and that was part of our initial expectations. We still expect occupancy costs to decrease over the full year, but the reduction will be less significant due to higher sales expectations. The shift of important back-to-school sales from Q3 to Q2, amounting to $105 million, should be considered when estimating Q3 gross profit. Additionally, in the fourth quarter, we have the week 53, which contributes an extra $170 million in sales, and this also needs to be factored into the gross profit expectations for that quarter. Overall, driven by the strong performance in Q2, we have raised our total margin expectations for the year and also slightly increased our merchandise margin expectations for the second half due to our confidence in our product assortment.

Robert Ohmes, Analyst

Thank you.

Operator, Operator

Your next question comes from the line of Mike Baker with D.A. Davidson. Please go ahead.

Michael Baker, Analyst

Okay. Also a couple of questions. One, I remember DICK'S was all about the athlete and it wasn't really focused in the past as much on lifestyle. I get now that it's still all about the athlete. That's clear. But it seems like there's been a little bit more shift towards some lifestyle type products. Is that just in House of Sport? Or is that across the entire chain? Am I right in my perception that, that shifted a little bit? Any way to sort of frame that up a little bit, please?

Lauren Hobart, President and CEO

Mike, that's a great question. We've always been focused on sports and will continue to be. Our commitment is to athletes, enhancing their performance, and helping them feel confident and excited about the products that can boost their abilities. Before we invested in premium full-service footwear at DICK'S, we didn't have access to the products that young athletes want, which includes what they wear off the field or court as part of their lifestyle. Now that we've made that investment, it's true that we're still deeply rooted in sports. We continue to offer outstanding footwear, apparel, and gear for anyone looking to compete at a high level, and that selection is getting better as we gain access to elite products like specialized soccer cleats. At the same time, we now offer trendy shoes, which are important for athletes when they visit us to get everything they need.

Navdeep Gupta, CFO

And Mike, let me build on that. This is much beyond just the House of Sport as well. As we have called out in the past, 90% of our chain now has a premium full-service footwear DICK'S experience. So the access that Lauren just talked about goes well beyond our House of Sport locations into our Field House. And actually, it goes into the almost large majority of our DICK'S Sporting Goods chain as well.

Michael Baker, Analyst

Got it. Makes sense. One follow-up and kind of a serious question, how much did the Celtics contribute this quarter? You must have sold a lot of Celtics Care. I know I bought a lot. Did that impact the comparison at all? I am curious because we noticed that many items were marked down shortly after the championship. I'm just wondering how the Celtics championship and those licensed product sales affected the quarter?

Lauren Hobart, President and CEO

So we love the Celtics. We love all teams that are winning, but it wasn't material in the quarter. It's always great to have some – it is always great to have licensed hot, but it wasn't material.

Navdeep Gupta, CFO

And then on to the markdown question, you will continue to see us being very decisive about the inventory that we have. We want to make sure that we have access as well as space available in store and online for the right product that can continue to drive this enthusiasm we are seeing from our athletes.

John Kernan, Analyst

Good morning. Thanks for taking my questions. And congrats on a great quarter.

Lauren Hobart, President and CEO

Thank you.

Navdeep Gupta, CFO

Thanks, John. Your supply chain has undergone significant changes over the past few years. You are managing to maintain high full-price sell-through on your inventory. I understand you announced another distribution center opening in Fort Worth. Can you discuss your supply chain strategy moving forward, particularly regarding the entire omnichannel approach? Additionally, what do cost projections look like for the supply chain in the latter half of the year? We are extremely excited about the collaboration between our merchandising, supply chain, and inventory allocation teams. It's crucial that we ensure the right product availability and flow it through our network efficiently and quickly, particularly for items like licensed products that require different handling speeds. These teams work harmoniously, and our investment in the new distribution center is a response to the significant growth we've experienced compared to 2019. Our top-line sales have increased notably, and the velocity and access to our SKUs are exceptional. Therefore, we are committed to making necessary investments in our supply chain, including the opening of a new distribution center in Dallas, set to launch in early 2026. Regarding expectations for the second half of the year, our supply chain is operating as anticipated, and the team is effectively managing the challenging conditions in international freight. Overall, we are very pleased with the collaboration and efforts of our supply chain team.

Lauren Hobart, President and CEO

John, I just want to add a point to Navdeep's comments about our fulfillment for e-commerce and the fact that our stores have become a really critical part of our supply chain. We fulfill the vast majority of our eCommerce demand through our stores, and that gets us closer to the athletes, quicker delivery, lower cost. And so part of our supply chain, we are opening six DC to help service all of our stores, but our stores are also an incredible piece of our supply chain as well as being athlete serving.

John Kernan, Analyst

That's helpful thanks, and Navdeep, Lauren follow-up for you. It seems like some of the private owned brands like CALIA, VRST, and DSG have gained square footage space inside the stores. How are those performing versus the chain? And what's the outlook for owned brands? Thanks.

Lauren Hobart, President and CEO

Thank you. We are very excited about the performance of our vertical brands overall, especially DSG, VRST, and CALIA. Each of these brands is addressing a gap in our portfolio. DSG is successfully catering to the entry-level price point with products that are both functional and fashionable. As a result, we are expanding the presence of these vertical brands due to their strong performance and the positive commercial response. Recently, we relaunched the limitless pant under VRST, which has been very well received. CALIA is also thriving, fulfilling lifestyle needs both for gym and outdoor activities. We are seeing growth in both our strategic and vertical brands, and the entire portfolio is performing well.

John Kernan, Analyst

Excellent. Thank you.

Operator, Operator

Your next question comes from Chuck Grom with Gordon Haskett.

Eric Cohen, Analyst

This is Eric asking about the additional SG&A investments you're making. Are you moving investments from '25 into this year, or are these entirely new investments made from a position of strength? Additionally, how should we consider the timing of these investments for the second half of the year?

Navdeep Gupta, CFO

Yes, I would say it's a combination of both things. We are seeing some pull forward opportunities from '25 into this year as well as some incremental investment opportunities to continue to position better for 2025 and beyond. In terms of the timing of these expenses, I’d say, they would be ratably between Q3 and Q4. One of the things, as you're thinking about the modeling, I want you to keep in mind the preopening expenses in Q3. That will be an area of investment also when you look at the back half expectations.

Eric Cohen, Analyst

Great. And then can you just provide any quantitatively how impactful the House of Sport was as you lap the temporary closings from last year and the conversions? And was there any benefit this quarter from the Olympics, the summer soccer tournaments? And just any commentary on Q3 to-date?

Navdeep Gupta, CFO

Let's begin with the last question because it's the simplest. We won't be providing commentary at this time. We are very enthusiastic about the key back-to-school season, and we're currently in the midst of it. Additional details about our Q3 performance will be shared in late November. Regarding the Olympics, it presents a great chance to highlight the significance of sports and sports lifestyle among athletes, both young and adult. We view this mainly as an opportunity to emphasize the importance of stores and an active lifestyle within communities. It does not significantly affect our comparable sales performance that we experienced in Q2. Concerning the House of Sport conversion, I can't provide a specific figure right now. As mentioned, the first half saw some benefits, but the advantages in Q2 were less pronounced compared to Q1, as we began opening some of these remodels in the second quarter of last year.

Eric Cohen, Analyst

Great. Appreciate it.

Operator, Operator

Your next question comes from Will Gaertner with Wells Fargo. Please go ahead.

Will Gaertner, Analyst

Hi, guys. Thanks for taking my question. Can you guys just provide some more detail on what categories are driving the same-store momentum for you?

Lauren Hobart, President and CEO

Yes. Thanks, Will. With the 4.5% comp, we saw growth across many aspects of our business. We did see particular strength in footwear and apparel, and we saw some puts and takes within hardlines. But overall, just really pleased across the board.

Will Gaertner, Analyst

Got it. And just one more for me. Is one of the reasons why you are bringing in inventory earlier, are you seeing delays with Red Sea? Is that still an issue for you guys?

Navdeep Gupta, CFO

Well, there is some aspect of it, but I won't call that as a material. We are working through kind of a dynamic supply chain environment that exists, but it's not a material driver of the inventory investment. Just a slight amount of timing difference between this year, Q2 and last year.

Lauren Hobart, President and CEO

Yes. We're not being inventory in earlier, so to speak, we're making strategic investments, cautious choices to invest in inventory so that we can meet athletes' demand.

Will Gaertner, Analyst

Understood, I’ll pass it on. Thank you.

Lauren Hobart, President and CEO

Thank you.

Operator, Operator

Your next question comes from Justin Kleber with Baird. Please go ahead.

Justin Kleber, Analyst

Hi, good morning, everyone. It's Justin Kleber. Thanks for taking the questions. First one for me was just curious how you are thinking about shrink over the back half of the year. It looks like this quarter, you effectively recaptured all of last year's cumulative true-up. So does your revised margin outlook assume shrink is a tailwind across the back half of the year?

Lauren Hobart, President and CEO

Yes, you are correct that we trued up shrink over last year when we had done inventories, and so you shouldn’t expect it to be flat going forward into the second half.

Justin Kleber, Analyst

Got it. Okay. Thanks. And then one other question just on the guidance. The comp guide was raised, but you held the total sales view. So is that just a function of fewer temp warehouse stores that are not in the comp base? Or is there something else going on there?

Navdeep Gupta, CFO

No, it's a few of those puts and takes that happen. First of all, there is a little bit of a timing. There is a little bit in the non-comp sales, as well as you can imagine, there is a rounding factor as well when you are rounding to billions of dollars. But yes, it is a combination of those three things.

Justin Kleber, Analyst

Got it. Okay. Makes sense. Thanks, guys. And congrats on the quarter.

Lauren Hobart, President and CEO

Thank you.

Navdeep Gupta, CFO

Thank you.

Warren Cheng, Analyst

Hi, good morning. I want to ask what's the limit on how much of the chain can eventually be upgraded to Field House locations? And are you accelerating the pace there? And one follow-up on that was just SG&A load per store, how does that compare to the base for the Field House location?

Lauren Hobart, President and CEO

Warren, there's no set limit on how many stores could be upgraded to Field House. We have a significant number of our stores that come up for renewal every year, and we'll continue to upgrade as it makes sense, or we'll relocate as it makes sense and develop a Field House. But long term, that is the future of DICK'S Sporting Goods, and I will pass it to Navdeep for the SG&A question.

Navdeep Gupta, CFO

Yes, Warren, as you can expect, we are definitely making investments in elevated levels of service and experience in these stores. But keep in mind, what we shared last year that the Field House stores have both a very strong top line and bottom line profile with an EBITDA margin of 20% or slightly more. So we continue to be pleased in balancing the investments that we are making and the returns that we are driving.

Warren Cheng, Analyst

Thank you for that. I have a follow-up question regarding the new House of Sport locations opening with a smaller footprint compared to the original 120,000 square feet. Is there a convergence occurring between these and the Field House locations? Additionally, what distinguishes the House of Sport from the Field House? Thank you.

Lauren Hobart, President and CEO

Yes, that's a great question. Some of our initial House of Sport locations were quite large, exceeding 100,000 square feet. We continue to refine that model, allowing it to adapt to different sizes while still maintaining that 100,000 square feet standard. In contrast, our Field House concept is more aligned with the original 50,000 square foot format. Although it offers an enhanced presentation, service, and product, some interactive experiences, such as a rock climbing wall and track and field features, are not feasible in a Field House setting. However, I wouldn't say there is a convergence apart from the positive influence that insights from House of Sport have on Field House and the broader chain.

Warren Cheng, Analyst

Great. Thanks for the color. Good luck.

Lauren Hobart, President and CEO

Thank you.

Navdeep Gupta, CFO

Thank you.

Paul Lejuez, Analyst

Hi, thanks. This is Kelly on for Paul. Thanks for taking our question. It looks like the 2H outlook assumed comps could have flattish to up 2. Just curious what your assumptions there on the low end versus the high end? And any differences we should take into account 3Q versus 4Q?

Navdeep Gupta, CFO

Yes, our guidance for the second half suggests that it will not remain flat. We anticipate positive comparisons in both the third and fourth quarters. The distinction between the high and low ends of our projections relates to the economic uncertainties that are present, as consumers are still feeling pressure. We are weighing our optimism and confidence in our core strategy against the current economic landscape. I believe there are no significant differences between Q3 and Q4. The back-to-school season is crucial for Q3, while the holiday period plays a vital role in Q4.

Paul Lejuez, Analyst

Got it. And just a follow-up. I know you talked about some of these high-performing brands already, HOKA and ON specifically. I think you did roll out some more doors in 2Q. So any additional color on the door rollout, how they're performing on a like-for-like basis and if there's more opportunity to expand doors with these brands in F'25? Thanks.

Lauren Hobart, President and CEO

Yes. There is more opportunity to expand both in HOKA and ON, and we'll be continuing to do that. And the brands are performing very well where we have them in same stores.

Michael Lasser, Analyst

Good morning. Thank you so much for taking my question. So recognizing that you don't guide by quarter, DICK'S did outperform the consensus by $0.50 in the second quarter. You are raising the full year guide by $0.15 to $0.20. So how at all is your expectations internally for sales and profit change in the back half of the year?

Navdeep Gupta, CFO

Yes, Michael, I’ll begin with the consensus aspect of your question. We clearly communicated at the end of Q1 that we shifted $100 million of significant back-to-school sales from Q3 to Q2. Today, I mentioned that $95 million of this shift contributed to the difference between comparable sales and total sales. This shift enhanced our second quarter by nearly $0.30. It's essential for analysts to incorporate this accurately into their models. Regarding our guidance, we've successfully met our expectations for the second quarter in terms of top-line growth, gross profit, and full-year EPS. Additionally, we have slightly increased our expectations for comparable sales in the second half of the year, reflecting our confidence in our product offerings and core strategies. As you analyze Q3 on a year-over-year basis, keep in mind the $105 million unfavorable impact due to the back-to-school sales now recorded in Q2, which we estimate will affect Q3 by approximately $0.35.

Lauren Hobart, President and CEO

Yes. I want to just build on Navdeep's point because it is such an important point. So there was absolutely no deceleration in our back-half expectations. In fact, modest improvement in comps, as Navdeep mentioned. But there may be some confusion in terms of the impact from third quarter to second quarter and the 53rd week. So we would be happy to answer any questions after the call.

Navdeep Gupta, CFO

Yes, Michael, I’d say, when we look at a core long term metric of performance metrics or the trajectory of the business, we continue to believe really strongly in both the sales and margin potential we have in our overall business here and we'd continue to be very excited about that, as we move through the balance of '24 and into '25.

Michael Lasser, Analyst

My follow-up question is given you have a core base of House of Sport up and running, what are you seeing from these locations in terms of their economics at influencing how you will proceed with the coming tranches of new models that you will be locating given that there should be 60 to 80 additional House of Sport locations over the next couple of years?

Navdeep Gupta, CFO

Yes, Michael, we are very pleased with the performance of our House of Sport locations. We will have 20 locations by the end of this year, and the initial stores in their second year are still performing positively. The stores we opened last year and this year continue to meet our financial expectations, and importantly, they are resonating well in their communities. This gives us confidence to further position our chain as we consider new opportunities, and we remain optimistic about the long-term outlook for House of Sport.

Steven Forbes, Analyst

Good morning, Lauren, Navdeep. Maybe just a quick follow-up on Michael's question. Given that you do have both formats sort of maturing here and some entering the comp base, any way to help frame how the range of profitability and sales are trending relative to the store targets you’ve given, meaning is the range tight and giving you confidence that maybe those original store targets are conservative? Or any way to just help frame up how they're performing versus the pro forma plan?

Navdeep Gupta, CFO

They are performing in line with our pro forma expectations. From a financial return perspective, they are hitting the levels we anticipated. This is why we are fully committing to the House of Sport strategy and increasing our capital expenditures to acquire more locations. We believe this is a distinctive offering for our athletes and provides a unique level of service and experience for our brand partners and landlords. We remain very confident in the capabilities and returns we are experiencing from the House of Sport stores. Regarding the long-term outlook, we will share more details as we prepare our outlook for 2025. However, I can confirm that our ongoing focus, consistent with previous statements, is to enhance both sales and profitability for the long-term success of the business. This will guide our focus as we work on portfolio repositioning and the investments we are making.

Steven Forbes, Analyst

And then just a quick follow-up on maybe the makeup of the second half implied comp guidance. Given the strength in comp average ticket, but also your comments right around engagement with your athletes, what should we expect to moderate in the back half of the year? Is it more ticket moderation or transaction moderation? Thank you.

Navdeep Gupta, CFO

Yes, we don't provide the guidance at that level of detail. So I’d say, Steven, at the aggregate level, we feel really confident about the core strategies and the core product offering that we have. We couldn't be more excited about the back-to-school season and the holiday season that is upon us. The range that you are seeing from a guidance perspective on a comp basis is primarily driven by the macroeconomic uncertainties that we just want that we wanted to be acknowledging as we provided the guidance today.

Lauren Hobart, President and CEO

Thank you all for attending our call today and for your interest in DICK’S Sporting Goods and to all of our teammates across the country and the world. Thank you so much for all you do to drive our results. Thanks, everybody. See you next quarter.

Operator, Operator

This concludes today's conference call. Thank you for your participation, and you may now disconnect.