DICK'S Sporting Goods Inc
NYSE:DKS
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DICK'S Sporting Goods Inc
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Good morning, everyone, and welcome to the Dick's Sporting Goods’ First Quarter 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 also note today’s event is being recorded.
At this time, I’d like to turn the conference call over to Mr. Steve West, Vice President of Investor Relations. Sir, please go ahead.
Good morning, everyone, and thank you for joining us to discuss our first 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. A rebroadcast of today's call will be archived on the Investor Relations portion of our website, located at dicks.com for approximately 30 days.
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 website at dicks.com to find the reconciliation of non-GAAP financial measures referenced in today’s call.
Now for couple of admin items, please note we revised our earnings release schedule to more closely align with our SEC reporting calendar. Also for the second and third quarters, the timing of our quarterly dividend announcement will be consistent with that new calendar and we will announce any dividend in conjunction with our quarterly earnings release. And finally for your future scheduling purposes, we are tentatively planning to publish our second quarter 2018 earnings release before the market opens on August 29, 2018 with our subsequent earnings call at 10 AM Eastern Standard Time.
With that, I will now turn the call over to Ed.
Thank you, Steve, and good morning, everyone. Before moving to the business review, I’d like to first formally introduce Steve West as our new Head of Investor Relations. Additionally, I’d like to thank Nate Gilch for his outstanding work in IR over the past years. Nate’s moving into a new leadership role within our finance organization supporting field operations.
This morning, we’re pleased to report earnings per diluted share of $0.59 and are raising our full-year earnings per diluted share guidance to a range of $2.92 to $3.12 from $2.80 to $3. First quarter revenue grew 4.6% to approximately $1.9 billion. Adjusted for the calendar shift due to the 53rd week last year, our consolidated same-store sales declined 2.5% and our e-commerce business increased 24%. As a percent of total net sales, our online business increased to approximately 11% compared to approximately 9% in the same period last year.
Merchandise margin rate increased across the majority of our business categories. This margin rate expansion is due to stronger innovation and newness from several of our key partners, as well as the higher penetration of our private brands. Our refined assortment led to a healthier business with fewer promotions. During the quarter, we started to see the benefits of many of our strategies and investments.
First, our private brand business is a source of strength that continues to accelerate. This business continues to outpace our Company average delivering double-digit growth again this quarter. Driving differentiation and exclusivity within our assortment is the top priority.
We’ve expanded our CALIA collection to new categories and given it premium space in our stores. In the three short years since its launch, CALIA has grown to be our number three private brand in our portfolio and the number two brand in women's athletic apparel behind only Nike.
This quarter, we also launched Tommy Armour Golf Clubs. These clubs were designed in partnership with the BMW Designworks and have received national recognition. We have significant momentum in our private brand business and believe it can reach $2 billion over a relatively short period of time.
Second, we are seeing the positive impacts of our merchandising strategy we launched last year. Over the course of last year, we enhanced relationships with strategic partners, eliminated non-essential vendors, and removed complexity from our assortment and supply chain.
As a result of these efforts, we have a more refined assortment, cleaner inventory, better in-stock positions, and fewer promotions compared to the last few quarters. Importantly, during this first quarter, our inventory levels declined 3.8% year-over-year compared to a 4.6% increase in sales. This reflects better execution and translates to better merchandising margin rates. We continue to work on optimizing our assortments and our vendor base.
Our technology investments are continuing to show positive results. We are now more than a year past the launch of our proprietary e-commerce platform and our online customer experience has continued to improve.
As we anniversary the launch of the website last year, we are very pleased with our 24% e-com growth of this past quarter. I am extremely optimistic about the future of Dick's Sporting Goods. While we’re pleased with the progress made during the quarter, we remain focused on our goal to build the best omni-channel experience for all athletes. Lauren will outline in more detail our strategy against this goal.
Before I turn the call over to her, I'd like to thank our associates for their hard work and commitment to this Company over the past year. We’re driven by the sheer belief that sports make people better and have the power to unify us.
I'd now like to turn the call over to Lauren.
Thanks, Ed, and good morning everyone. Like Ed, I am very excited about the opportunities that we have in front of us to drive the competitive advantage and win with our customers, whom we call athletes. As we strive to build the best omni-channel experience for all athletes, we've built a strategic framework for achieving this goal.
The first pillar of our strategy is the relentless improvement of our core execution to make our shopping experience the best in retail. We are working to make it frictionless for athletes to engage with us across all touch points of their journey regardless of when, where, or how they want to visit with us.
There are two areas within the shopping path that are key priorities. First, we are making it easier for athletes to find the best products to meet their needs by increasing our in-stock positions and our depth, presenting our products in powerful and impactful ways and continuing to offer our best price guarantee.
Second, we are making it more convenient for athletes to complete transactions. This includes focusing on speed of checkout both in-stores and online. Our efforts to improve core functionality on our new web platform combined with overall better execution resulted in improvements in margin rates, conversion and average order value in e-commerce during the quarter contributing to the 24% online growth.
As part of improving the athletes’ overall experience, we continue to invest in our supply chain to improve the speed and reliability of our online delivery. We are also continuously testing ways to improve the online pick up experience.
This includes the recent pilot of Lockers near the entrance of select Dick's Sporting Goods stores, which conveniently allow people to place an order online and pick it up at a store within one hour without waiting for assistance. This is just one example of a new agile approach we are taking to innovation through which we are rapidly experimenting to optimize our omni-channel experience, learning quickly, and moving to solution.
This improved shopping experience will also become a core part of our marketing efforts going forward. In fact, today we launched a new TV campaign which emphasizes the benefits that we provide as an omni-channel retailer and highlights the many ways that athletes can shop with us. Marketing will continue to be a major priority as we raise awareness of our powerful omni-channel platform and deepen the emotional connection to our brands.
The second pillar of our strategy is to leverage the power of our expertise in Sporting Goods to guide and inform athletes. In addition to providing the most compelling assortment of brands and categories in the industry, the expertise that we share with our athletes differentiates us as the premier omni-channel sporting goods retailer. One example of this is through our Pro Tips Digital segments, which provide athletes with our advice on products and training as well as how-to guides.
Another great example of this is our recent partnership with Nike to launch the new Epic React running shoe. Our significant access and depth in the product, our in-store and online presentation, and our strong joint marketing efforts with Nike helps to make us a leader in this launch which proved to be extremely successful. We are also differentiating ourselves via our ScoreCard loyalty program which is a tremendous asset.
We have over 20 million active users in the program accounting for more than 70% of our sales. So the program is incredibly robust. This data from the program is the engine of our digital and direct marketing efforts, enabling us to engage in more meaningful and effective one-to-one personalized communications. We also continue to test new ways to better reward our most loyal ScoreCard members, including an expanded test of our ScoreCard goal program.
Our third strategic pillar is improving productivity in our business. We are highly disciplined in how we invest our time, resources, and capital to ensure we focus only on work that contributes to the strategic and financial objectives of the company. We are focused on driving efficiencies and processes and identifying savings from non-value added activities allowing us to reinvest in growing areas of our business. This is a very exciting time for our Company as we focus on driving excellence in our core business, creating differentiation in the marketplace, and delivering continuous productivity improvements.
I will now turn the call over to Lee to speak more specifically about our financial results and outlook.
Thank you, Lauren, and good morning, everyone. Let’s begin with a brief review of our first quarter results. Consolidated sales increased 4.6% to approximately $1.91 billion. This included a benefit from the calendar shift of approximately $32 million or $0.10 per diluted share.
Adjusted for the calendar shift due to the 53rd week last year, consolidated same-store sales declined 2.5%. Transactions declined by 3.7%, which we believe was impacted by colder spring weather this year versus last and average ticket increased by 1.2%. We continue to believe reporting the comp to reflect the calendar shift is the most meaningful indicator of our performance. However, given the confusion we've seen with some other retailers who have reported recently, we felt it was important to be as transparent as possible and report the comp both ways. Based on an unshifted calendar, consolidated same-store sales declined 0.9% for the quarter.
Looking at our best performing categories in the quarter and these were all on a shifted basis, we saw strength in our Fitness Equipment and Team Sports businesses, license sales also comp positively benefiting from the Eagles Super Bowl win. Additionally, we continue to drive double-digit comp sales growth in our private brands, which significantly outpace the company average driven by strong sales growth from CALIA, Field & Stream, and Adidas, Team Sports as well as our new brands.
Finally, our cold weather businesses such as outdoor apparel and boots increased sharply. These areas of strength however were offset by declines in our hunt and electronics businesses. As expected our firearms policy changes impacted our hunt business which saw an accelerated decline in an already challenged category. Our Electronics business, which is primarily fitness tracking was down in the high double-digits as we are essentially exiting that business.
As we said on the fourth quarter call, we expect these businesses to remain under significant pressure throughout the remainder of the year and the headwinds are incorporated in our full-year outlook. However, we are benefiting from a margin rate perspective as these categories tend to be lower margin businesses.
Moving on to margin, gross profit for the quarter was $560.4 million or 29.3% of sales a 35 basis point decline versus last year. Within gross margin, our merchandise margins rate increased 18 basis points driven by lower promotions and a favorable merchandise mix. This increase however was more than offset by higher shipping and fulfillment costs associated with the growth in our e-commerce business as well as occupancy expense deleverage.
SG&A expenses were $470.3 million for the quarter or 24.6% of net sales, deleveraging 56 basis points from the same period last year. This deleverage was primarily driven by higher brand building marketing expenses related to the Olympics, higher incentive compensation accruals and investment in our growth initiatives to support our long-term strategy.
The effective tax rate was approximately 28%, which was favorable to our guidance of a 30% tax rate in the first quarter due to a one-time state tax settlement. This contributed approximately $0.01 to our first quarter earnings.
In total, we delivered first quarter earnings per diluted share of $0.59 and there were no non-GAAP items during the quarter. Now looking to our balance sheet, we ended the first quarter with approximately $105 million of cash and cash equivalents and $280 million on our revolving credit facility.
Turning to our first quarter capital allocation, net capital expenditures were $44 million. We also repurchased approximately 3.3 million shares for a $107.9 million at an average price of $32.33. Additionally, during the quarter, we paid approximately $24 million in quarterly dividends.
Moving to our fiscal 2018 outlook, we are maintaining our same-store sales guidance at flat to down low single-digits. Additionally, as Ed mentioned, we are raising our full-year earnings per diluted share outlook to a range of $2.92 to $3.12 from $2.80 to $3 primarily due to lower share account as well as higher margins and the lower tax rate in the first quarter.
Before we take your questions, as we said on the fourth quarter call, due to the calendar shift following the 53-week year last year, we expect their sales and earnings to be positively impacted in quarters one and two, and negatively impacted in quarters three and four for a net neutral impact on the year. We expect the impact on second quarter sales and earnings to be similar to what we saw in the first quarter. For the third and fourth quarter, we expect the subsequent negative impact to offset the games in the first two quarters.
This concludes our prepared remarks. Thank you for your interest in Dick's Sporting Goods. And operator, you may now open the line for questions.
[Operator Instructions] Our first question today comes from Michael Lasser from UBS. Please go ahead with your question.
Good morning. Thanks a lot for taking my question. Has the margin performance – the merchandise margin performance in the first quarter made you rethink at all about the flow and shape of the margin over the coming quarters, particularly in the back half of the year when you're going to anniversary significant margin declines? So should we expect that this type of performance and the trajectory now is sustainable?
So Michael – hi, it’s Lee.
Hi, Lee.
We’re very pleased with the merchandise margins we are able to deliver in the first quarter, and we believe that we can sustain improved merchandise margins throughout the year.
Sustain and improve, so you expect your merchandise margins to be up year-over-year, correct? And maybe even grow more substantially given that the comparison will get easier from here , is that fair?
Well so we do expect it to be up over last year. The comparisons in the fourth quarter, we are so dependent as most of you know who have followed us. We’re so dependent on weather. So it depends on what happened in the cold weather category and if we need to promote that because the winter is too warm, then you know it might be relatively even. If it's a normal winter similar to what we had last year, we would expect the margin rates to be up, but it is weather dependent.
And speaking of the weather, my follow-up question, how much do you think the weather impacted your same-store sales in the first quarter, and how much of that do you think you'll get back in the second quarter, specifically which is factored into our comp expectations in the second quarter?
Well, I think it impacted us a bit. We don't really know how much, but I wouldn't factor in a whole lot of a change in the – that we're going to recoup an awful lot in the second quarter.
Okay. Thank you so much.
Our next question comes from Robby Ohmes from Bank of America Merrill Lynch. Please go ahead with your question.
Thanks for taking my question and congrats on a great quarter. Actually a couple of quick questions, Ed. The first, just I think you guys didn't call out branded athletic footwear and apparel as one of the key drivers for the quarter, just curious how that did?
We’re pleased with our footwear business and our apparel business.
And any anything that stood out within that category?
Nothing really in particular that surprised us. Our private brands did very well. The Adidas brand continues to do very well. I think we'll see some acceleration in Nike going forward, and we had a meeting with Under Armour yesterday. We are really pleased with the content and the direction we're going to be going with them going forward. So, all-in-all we’re pretty pleased with what’s going on there.
Thanks. And just one quick follow-up. When we think about your comps going forward on a shifted basis or apples-to-apples, where are we in the hunting and electronics being a pressure? Does that start to roll off and with the other things going on should we see you get back to positive comps maybe sooner rather than later?
Robby, right now we've guided – we maintained the guidance of low-single digits to flat. The electronics business really will continue to be difficult through most of the fourth quarter. In the hunt business, we expect based on our firearm policy, it's going to continue to be challenged through the balance of the year. So we don't see a big change. We do see this change in margin rates and we're really pleased and that's why we – that's one of the reasons why we raised our guidance for the year going forward.
That's great. Thanks Ed. Congrats again.
Thanks, Robby.
Our next question comes from Simeon Gutman from Morgan Stanley. Please go ahead with your question.
Thanks. Good morning and nice improvement. My question is the prior guidance had EBIT dollars down I think 20% for the year. First quarter looks like it was down 6% on a decently tough compare and if we have the guidance right for the full-year, the new guidance it looks like it's around mid-teens, that's down mid-teens. So I want to just clarify on the earlier question about the trajectory. Does that mean I guess every quarter should be worse than the first quarter from here even though the compares get a little bit easier?
Well I think the guidance you are referring to was back in November when we said that earnings could be down as much as 20% for the year. And I think then we kind of modified that a little bit in our year-end earnings call. We're pleased with the results coming out of the first quarter. There’s a long year ahead of us still, so we are – we baked in some improvement from the first quarter, but we're largely sticking with the back part of the year the guidance that we issued for the full-year back in March. At this point, we hadn't – we're not baking in additional improvements in the business running off through the rest of the year.
Okay. And then my follow-up. Ed mentioned that it sounds like the electronics and firearms, it probably don't dissipate the headwind until next year on the comp line, but can you tell us how much benefit you're getting on the margin line and just related to the response, Lee, just as far as the big investments and that 20% probably referred to – there was some contingency as well as real investments that you're making. Does that mean that the biggest part of your investment curve is abating?
No, we are continuing to invest. We've got some significant – we’ve got important margin pick up in the first quarter. Our expenses were very well controlled in the first quarter as well that helped the earnings as well. And we expect to continue to invest in the business in a meaningful way throughout the year both from a capital perspective which should accelerate as we get later in the year and from an expense perspective.
And then just the margin lift that you're getting from those categories being a little bit less weight on the sales line?
Yes. We haven’t broken that out separately, but it’s helping—it is certainly helping our merchandise margin rates.
And we think that's something that will continue throughout the balance of the year.
Yes.
Great. Thanks, Ed. Thanks, Lee.
Thanks.
Our next question comes from Brian Nagel from Oppenheimer. Please go ahead with your question.
Hi, good morning. Thanks for taking my question. Nice quarter. So a couple question, first off with regard to the gross margins, maybe a follow-up to a couple of the prior questions. But I think Ed you mentioned less promotional activity. So the question I have there is, was that more specific to Dick’s or are we seeing now less promotional activity within the sector and along those lines any comments on just the – what had been described before is kind of a glut of inventory a lot of inventory within the channel?
Well Brian, a couple of things. I think the majority of the inventory has been cleaned up which we talked a little bit about in the last call, so that's been cleaned up. I think there's been less promotional activity out in the marketplace from some of our competitors as they've got their inventory more in line.
Also less from the brands on a direct basis with – they've gotten their inventories in line and it's been less promotional from us as we've been – our team has done a really very good job of controlling the inventory, as you can see our inventory was down and our sales were up. So we've done that, it helped drive the margins positive and we expect that to continue through the balance of the year.
Got it. And then my follow-up question, different topic, so online continues to grow nicely for you, climbing to higher percent of your sales. As the business has gotten or getting bigger, how should we think about the underlying profitability of that sales channel now versus the legacy business?
It’s Lauren here. The profitability of the e-commerce channel has improved significantly since we've taken it in-house and we will continue to improve even further as we are able to leverage fixed expenses with growth. So we're very pleased with the profitability of the channel and expect to grow it significantly.
Okay. Thank you.
Thanks Brian.
Our next question comes from Seth Sigman from Credit Suisse. Please go ahead with your question.
Great. Thanks for taking the question. My first question is on gross margin. Obviously the performance was better than expected. You talked about mix, and you talked about less promotions, I am trying to understand some of the other factors that may have contributed. So thinking about the accounting change around the gift card breakage and then also was there any benefit from the week shift on gross margin as in theory to give you an opportunity to leverage some of the costs in there?
There was a small benefit from the week shift on gross margin as well. The first week of February is generally a pretty heavy clearance period for us while which we lost from this quarter and we picked up quarter beginning of May which is a pretty good margin quarter. So there is a little bit of a benefit. And with respect to the change in revenue recognition, really didn't impact the gross margin.
Got it. And then to clarify on the guidance as we think about the outlook, I think you previously talked about gross margin down slightly for the year or you basically now saying slightly positive?
We think it will be – we think for the year – on the merchandise margin, we think it will be slightly positive.
Yes, we still think that the gross margin overall including rent expense and shipping and fulfillment costs will be down somewhat for the year.
Okay. And then my follow-up question is around the Apparel business. Can you just speak about comp performance in that business through the quarter? And specifically if you look at the private brand growth, I think you talked about up double-digits, obviously nice to see that progress. And then we're just trying to figure out how incremental is this growth versus what's coming from share of shelf gains? Thank you.
So we won't – for competitive reasons, we won't kind of talk specifically what's going on from apparel standpoint. But we're pleased with the trajectory of the majority of the brands that we're doing business with. We think that it's going to continue to get better in our private brand as we said comp double-digits and we expect it will continue to outpace the company.
Thank you.
Our next question comes from Steve Forbes from Guggenheim Securities. Please go ahead with your question.
Good morning. Maybe a follow-up on that last one regarding private brands. How does the continued strength right in that – in the private brands themselves impact? How you think about future space allocation decision across the product categories? Are you making significant changes today? I think you mentioned in the prepared remarks that CALIA is getting more premium space. So can you just provide some color and expand on that?
Well, CALIA did get some additional premium space as we continue to drive out the – drive these private brands. They will continue to get additional spaces. They outperform some of the other vendors that haven't performed nearly as well. We'll see that in our Gulf Apparel business, the Walter Hagen brand and Slazenger brand has continued to get additional space. CALIA's continued to get additional space, and so we will continue to allocate space as needed as these brands continue to grow.
And is there a rollout plan in place were it is kind of evolving here given the strength and to be determined on how fast you can roll it out over time here?
Well, there's a rollout plan, which we basically executed for this year and as we get further into the year will make plans of what we want to do next year as we continue to drive this business. But with the space allocation is pretty much set for this year.
And then just a follow-up regarding the premium footwear deck, I think we're now in year two of the initial rollout. So can you just touch on how those initial stores right looking back 24 months here on maturing relative to expectations, how they comping in footwear right first the chain average and just really how that performing in general?
Well, we're not going to get that specific. But we're very pleased with the premium footwear decks as can be evidenced by we continue to build them in majority of the new stores.
Thank you.
Our next question comes from Chris Horvers from JPMorgan. Please go ahead with your question.
Thanks, some technical difficulties there. Trying the clod weather question in a different ways. You did have some other headwinds in the – tailwinds in the quarter in terms of the Eagles and the Little League bat role would be fair to say that those tailwinds offset the headwinds from the late spring on the outdoor businesses?
Yes, pretty much I would say that's fair.
Okay. And then can you comment on the overall levels of inventory in athletic marketplace? I mean clearly seasonal inventory should be pretty clean at least exiting winter as of the market fully cleaned and related to that you mentioned in encouraging conversation with UA about the content pipeline? What's your current expectation on when you might see differentiated product in Dick's stores? Do you think it could be in time for the holiday or do you still think that's next year?
Well, I think it depends on who we're talking about. We're not going to get that granular with brands. But there will be some differentiated key product that we'll have going into the back-to-school season and holiday, and some of it is not differentiated from the entire marketplace, but differentiated into the majority of the marketplace are kind of differentiated for us in a few other retailers that will have the product.
And then some other brands will be a bit more into next year. Our private brands we continue to drive, we've got an outdoor brand that will be launching this year from a private brand standpoint. CALIA continues to grow. We continue to feel good about the Field & Stream product that we're putting out from an apparel standpoint. So all-in-all, we're feeling pretty good about our business.
And then last just some quick numerical questions. Any sense on what the occupancy deleverage was and what the incentive compensation headwinds were for the quarter?
We haven't disclosed those specific percentages at this point.
Understood. Thanks very much.
Our next question comes from Matt McClintock from Barclays. Please go ahead with your question.
Hi. Yes, good morning, everyone. Ed, I was wondering if you could talk private label just following up on Steve's question, thinking about what you're doing in the physical store to drive growth of the private label business like giving CALIA more premium space. And then trying to think about the penetration of private label in your store versus online, what I'm trying to figure out is, it seems like you have a better ability to drive the private label business in the physical store by doing things like giving premium space, but what are you doing online to drive that business and are the penetration rate similar? Thanks.
So the penetration rates are a bit lower online than they are in the store right now and we're looking at ways that we can help grow that from a marketing standpoint what we’re – doing on online. And we do think that as we continue to grow this in-store it will help the online business.
Yes. I would just add that some of our private brands actually have strong penetration online those that have big social following, CALIA is one of them that it’s a mixed bag they do penetrate well there as well.
And generally more of the opening price point programs have lower penetration online in the areas where we are building brands have higher penetration online.
Perfect. Thank you so much for that color.
Our next question comes from Mike Baker from Deutsche Bank. Please go ahead with your question.
Hi. The first – your guidance implies that the first quarter will be about 19% to 20% of your full-year earnings, it's really never been higher than like 18.5%, I think is the highest and it averages about 17%, including 1Q 2013 when you have the same calendar shift it was like less than 18%. Any reason why it should be a bigger percent of the year versus what it's been historically again lost of those calendar shifts, it wasn't quite as high either?
To be honest, we didn't look at it that way. We've just taken a look at our quarterly results and what we feel is going to be for the balance of the year. And we don't look at it that way. I couldn’t even begin to answer it.
All right. Let me ask it this way if I could. I guess I’m trying to understand, it seems like you did bump up your guidance by, I guess – did you bump it up just by the beat in the first quarter or are you also flowing through some expectation perhaps from better merchandise margins?
We have largely unchanged our internal expectations other than share count going forward.
Okay. Understood. Thank you. That's helpful. Couple more follow-ups, the $0.10 benefit from the extra week, again going back a lot of time you have this calendar shift, it seems largely similar to the impact in 1Q 2013 when you adjusted the tax rate et cetera. So I guess the question is, is that $0.10 about in line with your plan from the extra week?
Yes.
Okay. Thank you. One more clarification and maybe you not wanted to answer this, but in the press release you did specifically call out a delay – delayed start to the outdoor sports because of the weather yet earlier in the Q&A session here, you seem to downplay that and so you're not really expecting much of a pick up. I'm just trying to reconcile those two ideas if you did in fact see a delay as written in the press release why wouldn't we expect a recouping of those sales?
We don't know – so there was – Team Sports was late getting started, some of the watersports, paddle sports where we don't know the timing of that if they're going to come back to buy that or they're just going to use since it's kind of toward the – getting more toward the end of the season, they're not going to upgrade that equipment or make a change. We're not sure about that.
So you haven't put any of that in the guidance obviously because your guidance is unchanged. Okay, understood. Thank you.
Correct.
Our next question comes from Sam Poser from Susquehanna. Please go ahead with your question.
Thank you for taking my questions. I've got a couple things. Number one, I mean your e-commerce, I guess how much of your overall business is being touched by digital right now? I mean sort of would you regard as omni-channel versus the pure e-commerce business that you're reporting in your numbers?
I'm not sure I understand the question.
Do you mean that our people researching and using the website for beyond just purchasing how big, is that the question?
I mean are you able to see like with the mobile apps are coming into the store, they're looking on the mobile app and then they're – how much interaction are your consumers having with the digital part of the omni-channel experience?
What I'm going to talk about, specifically what that is, but it's very significant. I mean most peoples purchased decision start online and the app is very well used, they are coming to our site, very significant part of our business is done because of the app or site.
Two other things. Are you going to be adding any kind of geo tracking that you can then talk to your loyalty customers like specifically when they're in a store, near store saying you might like this while they're in the neighborhood kind of thing?
Yes, we do have some capabilities. We think that's an untapped opportunity that we can drive into more significantly as we develop the app further.
Thank you. And lastly, Lee just to clarify the week-to-week comp compare was based on the same weeks this year versus same weeks last year was down 0.9% is that correct?
No.
Or is it – so week ending – the 13 weeks ending whatever the – ending the last day of fiscal Q1 this year was down 2.8%.
2.5%.
2.5% excuse me.
Yes. Shifted calendar comparable weeks was down 2.5%, unshifted was down 0.9%.
So thank you very much on continued success.
Thank you.
Our next question comes from Peter Benedict from Baird. Please go ahead with your question.
Hey guys, thanks for taking the question. Could you maybe elaborate a little bit more on what you're doing in the area of supply chain to enhance speed and efficiency? Just curious a little more detail on what's going on there?
Sure. Right now we are building out our e-commerce facility in the northeast, our e-commerce fulfillment facility in Upstate New York. That will be operational next year. I think that will get us closer to the customer from a centralized fulfillment perspective. Currently we are fulfilling everything out of Louisville, Kentucky. All of our centralized fulfillment at Louisville in addition to our store fulfillment.
So we believe we can hit all of the northeast within a day from our New York facility and we believe that we've got better execution really from our centralized fulfillment center that we do from the stores, so that should improve that. We're also beginning work to look at a West Coast fulfillment center, a centralized fulfillment center that will be working on for next year as well. Once again, those customers, they’re serviced on the central perspective out of Louisville, Kentucky as well. So we're looking at both of those facilities for launch next year.
That's helpful. The West Coast would launch as well next year?
Yes.
Okay. And when you launch those types of things, do you get kind of some initial margin headwind just because of capacity and start up expenses things like that and then they start to leverage maybe a year out? Is that how the cadence works?
We haven't model it out, but that's typically what we see when we built regional fulfillment centers. So that's probably a reasonable expectation for next year, but we haven’t worked through all the math on those yet.
All right. Now understood. Thank you. The purpose Locker test, just curious how broad that is and when we could see an expansion of that? Is that something we could see more broadly across your store base in time for the holiday?
So it's a very small test right now just a few stores and it's more of an operational test than anything else to make sure that we could do it. Our next part of this innovation cycle will be to actually see how important the Locker is versus getting the inventory into the front of the store, so that we make a positive economic decision in terms of this investment. So I do not think you’ll see a full rollout by holiday, but we will continue to make improvements to the [indiscernible] experience, and we are doing that in many stores.
Okay. Thank you. And then just last question numbers one on the other income expense line that tends to show income, but I guess this quarter it was an expense. So just curious if there's anything changing there and how we should think about that going forward? Thank you.
Yes, that primarily has to do with valuation of the long-term compensation investments and if the stock market goes down that value will go down has to flow through their income and if the stock market goes up that number will be a positive number.
Okay. Thanks so much guys.
Our next question comes from Omar Saad from Evercore ISI. Please go ahead with your question.
Thank you for taking my question. Good morning. I was hoping you guys could maybe give us an update on the price matching policy, what you're seeing our lot of customers taking advantage of that or is it going to bit more of a non-event as you've incorporated that in your customer experience and value proposition?
So the best price guarantee has actually become a very big core part of our marketing communications if you go into one of our stores. Now you'll see it's all over the front doors. It's all over the store and it provides people with a lot of assurance that they are getting the best prices. They don't have to leave the store to go find a better price.
The fact of the matter is it has been more of a marketing vehicle than anything that's been hurting our margin because we were doing a lot of price matching before without taking credit for it and without assuring the customers that would be the case that we were creating some stress that the transaction level that has been eliminated, it's a very positive customer experience. It has not been very dilutive to margin.
Thanks. That's helpful and then just one quick follow-up. Maybe you could just expand a little bit more on the effects of the gun policy change. I know it will be a little bit a headwind for those kind of passionate firearm consumers, but is there been any kind of positive effects of your decision to take that policy?
Well there has, there's been a number of people who have started shopping us or so they're going to shop us more because of the policy. So I guess overall I would say it’s – there’s definitely been some benefit of people who have joined us so to speak because of the policy.
Thanks, Ed. Good luck, guys.
Thank you.
Thank you.
Our next question comes from Camilo Lyon from Canaccord Genuity. Please go ahead with your question.
Thanks. Good morning. Ed, you’re clearly doing very well with CALIA continue to expand square footage to that brand that you just seems to also be doing well. I was wondering if you could just give us an update on Second Skin. I think you said that you would engage that brand to some reformatting and redesign for this year.
Right.
And was also wondering if you feel that you need to associate that brand with either an athlete or social influence or like you did with CALIA to drive greater awareness?
What we're looking at all those, do we want to have an influence or who would that be? How would we go about doing that? But the Second Skin line is being reconceptualize and will be launched probably sometime toward the end of 2019 beginning of 2020 is where we stand on that. We made some mistakes on that that we've talked about and we don't want to make those mistakes again. So we're going to take our time and make sure we do it right the same way as we did with CALIA.
Got it. And then I think you just - but just wanted to confirm, your views on allocating square footage to the brands that are performing, typically how frequently does that change? So I think you said that floor set for CALIA and some of the other private label brands are increasing, those are set for this year? Does that come up for discussion again as to how you plan those planograms next year? And at what point do you start to feel like if a better sense for increased or decreased space allocation to your private label brands?
Well, we've got clear, where we want clear for this year. We can make these changes in any time that we see that there's an issue. There will be – you'll see some changes in the front-end of our store in a number of stores as we try to be more seasonally relevant if you will. We did a test last year putting outerwear in the front – bring into the front of the store, in the front couple of pads which are worked out very well. We're going to test that in a few more stores this year. So you will see some changes, but you want to see anything significant don't have anything significantly planned other than what we've done so far this year and what we've got planned in the front of the store.
Okay, great. And then just lastly, you did mention that you said this is so far too you have private label brand coming in the outerwear space, presumably for this fall, winter of 2018 season. From a merchandize perspective, are you thinking about having good, better, best solution in this private label being your good option and if so does that impact and how should think about the impact to the existing brand that have been in that category. So you exit the brands or pulling back on the allocation of that square footage to something your main different that how occupied that good level of category pricing.
Well, I think that there – how we look at this some brands will be in the good and better level, some will be in the better and best level I would put clear in the better and best level. This outdoor brand we're talking about is really going to be in the good level kind of more of the opening price point product and really isn't going to impact any major vendor. We think its white space that we hadn’t covered in the past that we plan to cover with this brand.
Right. Good luck. Thanks for the comment here.
Thank you. Thanks.
Our next question comes from Scot Ciccarelli from RBC. Please go ahead with your question.
Hey, good morning. It’s Beth Reid on for Scot. Just wondering if you can comment on the pace of the business throughout the quarter presume in April was most challenge from a weather perspective. But just wondering how it compared to earlier in the quarter of February and March?
We don't talk about what kind of how would happen with the quarter, we've laid out the what our comps were for the quarter on a both shifted and unshifted basis in what our earnings were but we were getting more granular on a quarter-by-quarter basis.
Okay. And then just one more it seems like your store comps just still tracking in the negative load and the single-digit range. In your guidance have you baked in any improvement from here?
We’ve laid the guidance out exactly what we had done for the year.
Thank you.
Thanks.
Our next question comes from Jim Duffy from Stifel. Please go ahead with your question.
Thanks. Good morning. So as I actually some of the variables you guys did see positive trends in ticket inventories are clean, which I presume should help ticket going forward transaction was really the headwind in the quarter? As you look out any visibility the stabilization or positive inflection and traffic or transactions?
Well, we kind of laid it out kind of the way that it is right now part of the – we've got some headwinds in the firearms business and in the electronics business and as we said we don't think those are going to mitigate through the balance of this year. So they're going to be with us for the balance of this year. So we hope for some improvement. We haven’t baked anything in.
Okay. And then Ed, I had a question for you on the License Sports business? Any thoughts you have to share on the impact of the larger role of fanatics in some of the bigger leagues?
Now it'll be interesting to see how this plays out. Our License business has continued to be pretty good. We've been pleased with it and we'll see how this whole thing plays out as we work through this through the balance of the year and into next year.
And then last one Lee, quickly just the shift impact on the e-commerce growth rate?
No meaningful impact, it’s about the same shift and unshifted.
Very good. Thank you, guys.
Thanks.
Our next question comes from John Kernan from Cowen. Please go ahead with your question.
Hey, good morning. Thanks for taking my question. Congrats on the progress.
Thank you.
Just wanted to go to the SG&A line, I think SG&A dollars were up 7% in the first quarter, just wondering how much a trend as the year goes on? And then my follow-up is just – could you talk to the categories that drove the improvement in the e-commerce business, I think it was the best year-over-year growth you've reported in that business since 2016. So just expand a little bit on that on the big change in trend there from the fourth quarter? Thank you.
Well, with respect to SG&A, I mean again we're not changing how we look at the rest of the year. So we're effectively maintaining our guidance, the balance of the year around sales margin and SG&A expense as well. So whatever you guys said baked into your models you can retain that. With respect to the e-commerce business, Lauren you want to take…?
The e-commerce business – for the most part you would say within a tolerance range kind of mirrors what happened in the stores, so what you kind of see happening in the stores is what's happening from an online standpoint.
Yes. We’ve had very strong success with athletic footwear and apparel in the online business all year, and that was truing up in the quarter.
I think we’ve obviously got better business online than we do in the stores at this point. I think it's really driven by better execution that we've had this year versus last year across a number of metrics that we track. So we're really excited about that.
Great. Thank you.
Our next question comes from Tom Nikic from Wells Fargo. Please go ahead with your question.
Hey, good morning everyone. Thanks for taking my question. Just a couple of quick balance sheet items, I think you had more borrowed on the revolver, then you sort of have it anytime I can see at the end of Q1. I was just wondering what drove that.
And then just secondly, I think you said earlier that inventories were down, sales were up and you kind of expect that to continue going forward? Is that basically – are you sort of explicitly saying you expect inventory levels to be down year-over-year at the remainder of the year? Thanks.
We didn't specifically say that. We said the sales. We kind of guided from a sales standpoint and we will – we think we can continue to keep inventory down, but we haven’t said that. And then the cash piece is really a big – as part of the buyback, we bought back a bunch of stock.
We’ve been buying back shares and I think there's a couple of timing issues around that calendar shift on when we pay the rent. The rent got paid before the end of the quarter this year. The monthly rent last year hadn't got paid. So there are just some timing things associated with calendar shift.
All right. Thanks. Thanks for the clarification. Best of luck to the rest of the year.
And ladies and gentlemen, our last question today comes from Patrick McKeever from MKM Partners. Please go ahead with your question.
Thank you. Good morning, everyone. I know you didn't quantify the negative impact on firearm sales from the changes and selling in your sales policy that you made earlier this year and some of the changes in the assortment. But I guess since that announcement you've also had Mossberg discontinue, I guess, its relationship with you. And then there was the NSSF thing as well.
So my question is I mean are those incrementally negative to what you were originally thinking about with firearms for the year? And then have you had any additional fallout from any of your other manufacturers that you do business within that area and how are your relationships with some of the other firearms manufacturers?
Well, we don't have the best relationship with the firearms manufacturers right now. And Mossberg did indicate that they weren’t going to sell it on a direct basis. If we want, we can still buy that product from a distributor to have that in the assortment, product that they sell fit into our assortment.
We're not sure we're going to do that, but we have the ability to do that. As far as the National Shooting Sports Federation expelling us that – we didn't have a whole lot to do with them. They primarily run the shot show. We would go to the shot show. So we don't go to the shot show now. It's really not that big of a deal.
Right. Okay. And then just looking at your hunting business excluding firearms and also perhaps adjusting for some of the impact from weather, how is that trending? How would you expect that to look through the balance of the year?
Well the hunt business is going to continue – it's been a challenging business for the last several years, as you know based on what some of the manufacturers have reported, they've had a very difficult time over the last couple of years.
Our hunt business is going to continue to be challenged because that same consumer who is buying firearms is buying hunting boots and hunting apparel and all of that is baked into our guidance and we think that the whole category is going to continue to be challenged through the balance of the year.
Okay.
And like I said it's all baked into the guidance.
And then just within the Dick's stores, I mean how committed are you to firearms and hunt longer-term?
Well that depends on a lot of things that have to be determined yet, and that is how the business plays out. How the manufacturers decide that they want to do business together. There's a number of things that are yet to be determined. The one thing that we do know is that it’s continue to be challenged, but as we reallocate some marketing dollars as we reallocate expenses to some other categories, we think it will continue to be margin accretive to us.
Okay. Thanks, Ed.
Sure. Thanks.
End of Q&A
And ladies and gentlemen, at this time we'll conclude today's question-and-answer session. I'd like to turn the conference call back over to Mr. Ed Stack for any closing remarks.
I would like to thank everyone for joining us on our earnings call and we'll look forward to talking to everyone with our second quarter results. Thank you.
Ladies and gentlemen, that will conclude today's conference call. We do thank you for attending today's presentation. You may now disconnect your lines.