DICK'S Sporting Goods Inc (DKS) 2014 Q4 法說會逐字稿

Good morning, and welcome to the DICK'S Sporting Goods fourth-quarter and full-year 2014 earnings results conference call.

(Operator Instructions)

Please note, this event is being recorded.

I would now like to turn the conference over to Anne-Marie Megela, Vice President of Treasury Services and Investor Relations.

Please go ahead, ma'am.

Thank you.

Good morning, and thank you for joining us to discuss our fourth-quarter and full-year 2014 financial results.

Please note that 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.

In addition, as outlined in our press release, the dial-in replay will also be available for approximately 30 days.

In order for us to take advantage of the Safe Harbor rules, I would like to remind you that today's discussion includes some forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which includes but are not limited to our future expectations concerning our future results.

Such statements relate to future events and expectations and involve known and unknown risk and uncertainties.

Our actual results or actions may differ materially from those projected in the forward-looking statements.

For a summary of the risk factors that could cause results to differ materially from those expressed in the forward-looking statements, please refer to our periodic reports filed with the SEC, including the Company's annual report on Form 10-K for the year ended February 1, 2014.

We disclaim any obligation and do not intend to update these statements, except as required by the securities law.

We've also included some non-GAAP financial measures in our discussion today.

Our presentation of the most directly comparable financial measures calculated in accordance with Generally Accepted Accounting Principles and related reconciliation can be found on the Investor Relations portion of our website at DICKS.com.

Leading our call today will be Ed Stack, our Chairman and Chief Executive Officer.

Ed will review our fourth-quarter and full-year results, key business drivers, and outlook.

After Ed's comments, Andre Hawaux will provide greater detail regarding our omni-channel growth, financial results, capital allocation, and guidance for the first-quarter and full-year 2015.

I will now turn the call over to Ed Stack.

Thank you, Anne-Marie, and thanks to all of you for joining us today.

As we announced this morning, we generated record earnings in the fourth quarter of 2014, delivering 17% EPS growth over the fourth quarter of last year and exceeding the high end of our guidance.

We delivered a 10.9% increase in sales, improved operating margins year over year, and recently announced a 10% increase in our dividend.

Additionally, our balance sheet remains strong, and our inventory is well positioned as we enter 2015.

Our consolidated omni-channel same-store sales increased to 3.4%, with increases in both ticket and traffic.

This was above our guidance of 1% to 3% and on top of a 7.3% shift in comp gain in the fourth quarter of 2013.

These results were driven by the continued growth of our omni-channel network, our powerful marketing and merchandising strategies, and the execution of these strategies by our store associates.

Our efforts resulted in DICK'S omni-channel comp sales increasing 3.8%, led across most -- led by most categories of apparel, footwear, and hard lines.

The trend in hunting improved significantly during 2014, and by the end of the fourth quarter, the pressures in this category were primarily limited to the guns and related accessory purchases.

The golf trends also showed a slight improvement from the spring of 2014 but were down versus last year.

Comps at Golf Galaxy were down 7.1%, with the DICK'S golf business slightly better.

The balance of our business, excluding hunt and golf, was up 6% for the quarter.

The strong performance across the remaining categories validates our merchandising and space allocation strategies that we put in place during this past year.

The fourth quarter was a more promotional environment, as expected.

Our team was able to navigate this environment and strategically execute clearance promotions while exceeding our top-line and bottom-line growth targets and ending the year with our inventory in great shape.

Our clearance inventory is at historical low levels across most categories and is down approximately 230 basis points across the Company, compared to last year.

As we head into the spring season, the inventory is well positioned to support our anticipated sales.

Key spring businesses have been set ahead of last year, and we have opened to buy dollars available to chase hot product.

The start of the spring season, however, has been delayed across much of the country, due to the extreme weather conditions.

We also remain a bit concerned about the West Coast port situation, as some of our spring product is still sitting on the docks.

As a result, we have taken a cautious view of the rest of the quarter, and our quarterly guidance contemplates the results through February, with some expected recovery.

We don't believe this delay will have an impact on our full-year results, but rather as a first-quarter event.

It is also important to note that in those handful of markets where athletes, families, and outdoor enthusiasts are starting to participate in spring-related activities, we are seeing positive indicators that we have the right product for them, giving us the confidence in our merchandising strategy and our pricing strategy.

In 2015, we will build our DICK'S business with continued investments in eCommerce as we further enhance our customers' omni-channel experiences and prepare to become eCommerce independent.

We will also drive traffic and strengthen our brand equity through expanded marketing strategies, including our recently announced sponsorship of the United States Olympic Committee and Team USA.

We will also be continuing to scale our Field & Stream business.

In 2015, we are also excited about our merchandising strategies, with renewed focus on key items across our business.

We will be expanding our women's athletic apparel offering as we launch CALIA by Carrie Underwood, a private-label fitness apparel line.

CALIA emphasizes lifestyle and is geared toward the athletic female.

It will be available only at DICK'S Sporting Goods and provides a point of differentiation in our merchandise selection.

We're very pleased with the feedback we've received from initial focus groups and are excited for its launch this Thursday.

As a result of these strategies, we expect to deliver 2015 full-year consolidated comp growth of 1% to 3%, with earnings increasing to $3.10 to $3.20 per diluted share.

Our gradual improvement in hunting, as well as continued but diminishing challenges in golf, have been contemplated in our guidance.

In 2015, we will also continue to return capital to our shareholders through both share repurchases and dividends.

All in all, we're quite pleased with our Q4 performance, which, as stated earlier, was a record Q4, with EPS growing 17% over last year.

These results would not have been possible without our terrific team.

I would like to thank our associates throughout our Company for the hard work and commitment they showed to deliver these fourth-quarter results and for their upcoming efforts during this new fiscal year.

I'd now like to turn the call over to Andre.

Thank you, Ed, and good morning, everyone.

This morning, I will cover four topics: first, our omni-channel growth metrics; second, our fourth-quarter financial results; third, our balance sheet and capital allocation strategy; and, finally, details of our full-year and first-quarter 2015 expectations.

In 2014, we profitably grew our omni-channel platform.

We opened 45 net new DICK'S stores and ended the year with 603 DICK'S stores in 46 states.

These new stores continue to perform well, with 94.7% new store productivity.

Our stores also support the growth of our eCommerce business, which increased approximately 28%, to over $625 million in sales in 2014.

During the year, we launched a new mobile app and continued to iterate on our mobile, tablet, and desktop sites to increase conversion.

We also made significant progress in building the infrastructure for our eCommerce business.

In the first quarter of 2015, we plan to launch GolfGalaxy.com on our new platform as we prepare to bring the DICKS.com eCommerce site in-house in January of 2017.

Now, looking closer at our Q4 financial results.

Total sales increased 10.9%, to approximately $2.2 billion.

Consolidated omni-channel same-store sales increased 3.4%, compared to our guidance for 1% to 3% same-store sales growth and compared to shifted comps of 7.3% in the fourth quarter of last year.

DICK'S Sporting Goods consolidated omni-channel same-store sales increased 3.8%, while Golf Galaxy decreased 7.1% in the fourth quarter.

The 3.8% consolidated increase in the DICK'S business was driven by a 3% increase in traffic and by a 0.8% increase in sales per transaction.

Our investment in eCommerce continues to pay off as it increased to 14.4% of sales in the fourth quarter of 2014, compared to 12.2% of sales in the fourth quarter of 2013.

Gross profit for the quarter was $691.3 million, or 32% of sales, and was down 25 basis points from Q4 of 2013.

This was due primarily to a 64-basis-point decrease in the merchandise margin.

As Ed mentioned, there were elevated promotional levels within the quarter, particularly post-holiday, which resulted in more aggressive clearance activity.

Shipping expenses also increased as a percentage of sales due to the growth of our eCommerce business.

These factors were partially offset by favorable occupancy leverage.

SG&A expenses in the fourth quarter were $438.7 million, or 20.31% of sales, and leveraged 38 basis points from the fourth quarter of last year.

This was primarily due to lower administrative and payroll expenses as a percentage of sales.

The net effect of the above is that we delivered $1.30 per diluted earnings per share above the high end of our guidance.

Now, looking to our balance sheet, we ended FY14 with approximately $222 million of cash and cash equivalents.

We ended FY13 with approximately $182 million in cash and cash equivalents, with no borrowings outstanding on our $500-million revolving credit facility at the end of either fiscal year.

In 2014, we invested in our business, and we also returned over $260 million to shareholders through share repurchases and dividends.

Total inventory increased 12.9% at the end of FY14, compared to the end of FY13.

As Ed discussed, we are very well positioned with both the level and the quality of our inventory.

Turning now to our capital allocation strategy.

In FY14, we repurchased $200 million of shares.

As we have demonstrated, we expect to use our share -- our repurchase program, to both offset dilution and opportunistically repurchase shares.

Since we started our $1 billion authorization at the beginning of 2013, we have repurchased over $455 million of stock and have approximately $554 million remaining under the authorization.

In addition to our repurchase program, we further demonstrated our commitment to returning capital to shareholders by recently increasing our dividend by 10%, to an annualized rate of $0.55 per share.

This marks the first increase since we initiated our quarterly dividend.

We believe that investing in our business, share repurchases, and dividends all remain key elements of our capital allocation strategy.

Now, let's turn to our 2015 outlook.

We expect full-year earnings per diluted share of between $3.10 to $3.20, and same-store sales increase between 1% to 3%.

Gross margin is expected to increase, primarily driven by merchandise margin expansion.

SG&A is expected to deleverage slightly as we invest in building our brand, coupled with the expenses related to becoming eCommerce independent in 2017.

Year over year, pre-opening expenses are expected to remain relatively flat as a percentage of sales.

We expect operating margins to increase slightly year over year.

Net capital expenditures for the full-year 2015 are expected to be approximately $245 million, or about $365 million on a gross basis.

2014 net capital expenditures were $247 million, or $349 million on a gross basis.

As we noted in our press release this morning, our earnings guidance includes the expectation of approximately $100 million to $200 million of share repurchases in 2015.

While the exact timing of the repurchases during the year may vary, we are committed to returning capital to shareholders through both share repurchases and dividends.

In 2015, we expect to open up approximately 45 new DICK'S stores, relocate 9 DICK'S stores, and relocate 1 Golf Galaxy store.

We also remain focused on scaling our Field & Stream concept and expect to open nine new Field & Stream stores this year.

For the first quarter, we anticipate earnings per diluted share of between $0.49 to $0.53.

Consolidated omni-channel same-store sales are expected to be approximately flat to up 2%, compared to a 1.5% increase in our comp in the first quarter of 2014.

Gross profit margins are expected to decline slightly, due primarily to planned promotional events as we continue to further reduce clearance levels and transition sales from slower moving areas to more robust categories such as apparel and footwear.

Importantly, we expect gross margins to expand in each of the three subsequent quarters and for the full year.

For the first quarter, SG&A expenses as a percentage of sales are expected to slightly leverage.

Pre-opening expenses as a percentage of sales are expected to be relatively flat in the first quarter this year compared to the first quarter of 2014.

Our first quarter outlook reflects the slow start to the spring selling season, as Ed mentioned, but we do not expect a delay to have an impact on our full-year results.

We continue to see significant growth opportunities for our business as we look beyond 2015.

We look forward to sharing more details with you at our analyst meeting in New York on April 14, which we announced earlier today in the press release.

Our investor relations team will be in touch with additional details of the event.

Before concluding, I'd like to thank our associates for their hard work during the past year.

They genuinely live the DICK'S brand, and this dedication shows both in the shopping experience we deliver to customers and in the results we generate for shareholders.

I'm grateful to each team member -- of our -- members of our team for their loyalty, drive, and continued commitment.

This will conclude our prepared remarks, and I'd like to thank you all for your interest in DICK'S Sporting Goods.

Operator, please open the line for questions.

Thank you, sir.

(Operator Instructions)

Our first question will come from Seth Sigman of Credit Suisse.

Great.

Thanks, and congrats, guys, on a great quarter.

Thank you.

I wanted to talk a little bit about the promotional activity theme that's come up for a few quarters now.

Maybe focusing first on the fourth quarter, if you can just elaborate on some of the categories that were impacted, how much of the promotional activity was centered around some of the challenged categories that we've seen all year?

And then tie that in with the expectation that in the last three quarters of 2015, you expect that merch margins can be up.

What kind of gives you that confidence at this point?

Well, was a lot of the challenged areas that there was some promotional activity in so around the ammunition category, around the golf category.

Then there was also some other promotional activity from an apparel standpoint to a footwear standpoint, and so it was just a promotional quarter in the fourth quarter between couponing and all of that, so but we expected that.

We had indicated that.

In this quarter, we think that it's still going to continue to be a bit promotional.

We're going to use -- we're also going to be continuing -- our clearance inventories are at historically low levels.

We'd would like to actually get those down even a little bit lower.

In some of the non-go forward products that are still in the inventory that are going to be in categories that have been slower moving, we're going to be cleaning those out making room for more apparel, footwear, the categories that are growing quite well.

So there may be some a little bit of margin rate erosion in this first quarter but going forward, we don't think that there's going to be that same issue.

Our inventory is in better shape.

We're really focused on these key items, and we expect to be able to mitigate this -- the margin rate will come from mitigating markdowns through the balance of the year, and we're starting to see that in these categories that have performed better and that we've taken this key item approach.

Okay, understood.

That's helpful.

Just a follow-up question on the store growth and the store strategy and whether there's a little bit of an evolution here, where it seems like the store count or the store growth expectation, 45 stores in 2015, is about in line with last year, maybe a little bit lower than we had expected.

Do you still feel confident in that 800 store target?

Is that still the thought process?

And then related, I think you also talked about relocating nine stores.

That seems to be an increase from prior years as well.

So again, just trying to understand the evolution of the store strategy.

We still feel comfortable with this storing strategy.

As we said, we want to make sure that we go about this in a orderly fashion, so we still feel good about the number of 800 stores.

The relocated stores, I wouldn't read anything into that other than over the next couple of years, we will have -- because of the growth ramp we had ten years ago, there will be more and more stores that the leases are coming due and when we have an opportunity where appropriate to relocate the store into a shopping center or a retail node that might be a better node today than it was ten years ago, we're going to do that, and that's all this is.

I wouldn't read anything into it.

Okay, and just a clarification.

The relocated stores, are they performing pretty much similar to how a new store would perform?

Yes.

Sometimes, most of the time, even better.

Because we're taking a store that -- most of the relocated stores are actually performing quite well.

They are just -- we're able to make a better real estate deal or we're able to move to a better shopping center or a better retail node that's in the same trade area and the performance has really been quite good when we've relocated these stores.

Sounds good.

All right.

Thanks, guys.

The next question will come from Chris Horvers of JPMorgan.

Thanks, and good morning.

So I wanted to follow up on the golf category.

What are you seeing, any commentary on what you're seeing in the warm weather markets as it relates to golf so far?

No, golf is better in the warm weather markets than in the cold weather markets right now, that's for sure.

But we're seeing it getting better.

It's improving but it's still not back to last year's levels.

And I think as the brands just start their marketing effort, TaylorMade just launched their new marketing effort around the R15 this past weekend with a different ad than they had originally put out they are hoping is a little bit better.

We think that golf is going to be still a drag on the total sales, but not to the same degree that it was last year.

And then as you think about last year, I think, I forget, maybe it was second-quarter ASPs and golf hardware were down sort of high teens.

How are you thinking about the promotional environment on golf in the spring?

What's your view of the inventory levels at not only your stores but in the general overall?

Presumably as you lap that significant decline, do you think there's an opportunity at least in that specific quarter to see a golf benefit?

Well, we expect to see average prices move up because there's not the same clearance inventory out in the marketplace.

Our golf inventory is very clean.

Our inventory is down versus last year.

Our clearance inventory is down versus last year.

Our golf inventory really could not be in much better shape, and I would say that the vast majority of the brands in their inventories are in great shape, too.

So the whole channel doesn't have the same inventory issues this year that we did last year, and we expect to see some margin rate improvement and some average retail price improvement.

Perfect, thanks very much.

Have a great spring.

Thank you.

Next question will come from Camilo Lyon of Canaccord Genuity.

Thanks.

Good morning, everyone, and let me add my congrats on a great fourth quarter.

Thank you.

I was hoping, Ed, if you could maybe disaggregate the commentary around the guidance for Q1 when you mentioned both weather and the port delays.

If you could just maybe quantify how you're thinking about both of those issues affecting how your outlook is on Q1 from a comp perspective and if you foresee any sort of delays from the ports spilling over into Q2?

So, the one thing we know about the weather and the port delay, there's not an awful lot we can do about either one of them, although we are trying to expedite product we did -- we obviously knew that the port delay was going to be an issue.

We rerouted products to other ports as a number of other people did.

We've flown in some product where necessary, but there are some things that got caught up in the port, and we're late on some deliveries.

So I don't know how much that's going to impact it but its all been impacted, put into our guidance on kind of the worst case scenario.

The weather, we hope it gets better up in the northeast.

I was up in Boston last week.

There's a boatload of snow up there right now.

So we've kind of laid all of this out into our guidance, and we don't think it'll impact the full year but it's right now, having a bit of an impact on the first quarter and if it gets better, then we've got some upside to our first quarter.

And could you talk about maybe the categories that are being impacted by the delayed shipments and when you think that those backlogs of containers will start to release as you start to see improvements in your inventory flow?

Our inventory, when they're going to do that, I'm not sure.

It will depend on how this stuff gets cleared on the docks and some of the stuff that's still out on boats on the docks, so we're not sure but we feel okay about our business right now.

We would just like to have this other inventory in here.

In the categories, it's a little bit of everything.

There's apparel categories coming in from Asia.

There's footwear, there's golf product, there's a little bit of everything.

It's a -- that's a big port out there.

Definitely, and then just my final question.

When you spoke about the commercial activity in the fourth quarter and the lingering effect into Q1, is it the usual suspects that are driving that promotional activity, or are there new competitors coming into the market trying to win some share via promotions?

No, it's just the same competitive set.

Okay.

Thanks a lot, and best of luck.

Thank you.

The next question will come from Mark Miller of William Blair.

Yes, hi, good morning.

Is there a way to size the investment the Company is making right now in eCommerce so in 2014, and then does that investment, I guess, help us understand the progression out to 27?

Does that grow in your 2015 plans?

And then if you were integrated in the business today, what kind of lift would that present to you or what do you see in 2017 from that transition?

So, Mark, I'm going to give you some points that we talked about for 2014 and talk a little bit about 2015.

When we meet at our analyst meeting on the 14th, we'll give you greater visibility into how we see obviously 2016 and 2017 going.

So as you recall, last year we talked about our investments -- our incremental investments in eCom to build our independence to be roughly about $0.03, and that was what was in our 2014 number.

In 2015, we are looking at about $0.04 that is about incremental investment related to the project, the insourcing project that we have.

So that's the visibility I'd give you today, and as we talk with you all on the 14th, we'll give you more line of sight into what we think the investments are going to be, but as you can imagine, the investments are substantive in the sense as we bring a very large site on to becoming independent, and we believe that it's the right thing to do.

We have a growth business that's continuing to grow quarter in, quarter out, so we believe we're making the right investments and so far they are paying off pretty well.

Just to clarify that $0.04, is that incremental to the $0.03 or is that an incremental $0.01?

That's incremental to the $0.03.

Got it.

Okay, and then can you provide further perspective on the US Olympic deal?

Obviously, that ramps into 2016 but is that a material marketing spend the Company is planning, and will there be a dedicated assortment?

What else might that entail?

Thanks.

Sure.

It's not meaningful to the grand scheme of our marketing but our marketing budget, its all been part of the marketing budget so you won't see a significant increase in our marketing budget this year over last year outside the launch of the CALIA brand that we're doing, but there's not a line of products around it.

It's really more around supporting these unfunded athletes that are working hard to try to make the Olympic team.

They're not funded by any of the larger brands and giving them a place to work with flexible work hours, giving them the ability to have product that they need to train with.

So it's around those types of things with this Olympic sponsorship and not about a line of product that we're going to bring out to sell.

Thanks, and maybe just a final one if I can.

On Field & Stream, obviously, the firearms and ammo business has been tougher across the industry but absent that, roughly where did you come in sales per square foot versus your plan?

And maybe just if you can give us a sense for where the private label business you think can go on that.

Thanks a lot.

Sure.

We're not going to talk specifically, and we have indicated that we weren't really going to talk specifically about Field & Stream until we get this up and running.

We've only had -- we've only have two stores opened up for more than a year.

One's been opened up for about 17 months, and the other one's been opened up for about 15 months, so this is really a new concept and we're not going to get into any specifics.

It's very de minimus in the grand scheme of things today, although we think it's a great growth driver for us going forward.

From a private label standpoint, we think that the private label opportunity in Field & Stream is pretty significant.

We also think it's important to continue to drive the brands that that customer is really looking for, a brand penetration, and we would expect the private label over a period of time to be slightly higher than what it is in DICK'S, but not significantly more than what we do inside the DICK'S business today.

Great, thank you.

Sure.

The next question will come from Kate McShane of Citi Research.

Thanks, good morning.

Good morning.

I wondered if we could have anymore detail around the comp of your extended women and youth categories versus the average comp, and also how footwear may be compared to the Company average?

Yes, so we're not going to talk about it in that granular a detail, but the women's and youth comp certainly outperformed the comp of the Company as a whole, and what was the question on footwear, Kate?

Just the same question in terms of related to the Company average comp, how footwear performed.

Yes, footwear was kind of in that zone of the Company average.

Okay, my next question is new initiatives in spring, aside from Carrie Underwood.

Will there be any other brand introductions or categories that are being introduced?

And with regards to Carrie Underwood, what is it taking space from and what category is it addressing?

So there's no real other big initiatives or other brands that we're launching outside of the CALIA brand under Carrie Underwood.

And what we're doing with that space is we're just reconfiguring some space, and it would be coming out of primarily Adidas and Reebok.

I'd also like to just add, Kate, to Ed's earlier point.

The real focus for us in addition to the launch of CALIA will really be on this key item focus that we're bringing to the marketplace which I would say we perhaps in the past lost our way a little bit, and we're really reemphasizing that and we believe it's going to pay pretty significant dividends.

Okay, and if I can just finish up with one last question on traffic.

You mentioned you saw 3% increase in traffic.

Can you walk us through how that trended throughout the quarter and maybe what initiatives you had in place from a marketing perspective that could have driven that above what you did in Q4 the year prior?

I'm not going to get into the flow of that in the quarter, but we had very good marketing initiatives both from a brick and mortar standpoint with a lot of our marketing that we emphasized around the holiday, around Black Friday, as well as specific traffic drivers to our eCom site, Kate.

So we felt pretty good about the marketing we put in place across the omni-channel space to drive those traffic transactions.

Thank you.

The next question will come from Peter Benedict of Robert Baird.

Yes, hi, guys.

Thanks for taking the question.

You talked a lot about inventory being lean.

Can you talk about the inventory levels in the firearms business, if you start looking at the hunt category?

How have those trended, how do you feel about those both at DICK'S, and then what you see in the channel?

And then I'm curious with what you guys saw in terms of average selling prices within that category during the fourth quarter.

So we won't get to average selling prices to that level of granularity, obviously, but our inventory in the gun piece is a little bit higher than we would like it to be right now, but this is in inventory -- this is not inventory that has a shelf life where it goes bad.

So this is just product that we'll be able to sell through the year and into the next hunting season and into the fourth quarter.

So we feel very good about the quality of the inventory we have in firearms, although we'd love to have a little bit less but we're not concerned about the quality of the inventory.

There's not significant markdowns that we have to take in order to clear this out.

Okay, fair enough, and thank you.

And then just on the footwear business, you mentioned kind of a Company average type comp during the fourth quarter.

Any call outs there when you think about basketball versus running or anything else we should be thinking about within footwear?

Thank you.

Basketball, the only thing I'd say is basketball is trending better than running.

Okay, great, thanks very much.

Our next question will come from Paul Swinand of Morningstar, Inc.

Good morning, and as usual, thanks for patience with all of the questions.

I realize I'm beating the horse a little bit here, but running has had a strong stretch here and is it that the products is not so new anymore?

I know we had all of the lightweight and fly net and all.

Is it the products not inspiring or is it just the tough comps after three or four years of being up?

I think it's a couple things.

I think it's the tough comps, but I think there's been some great innovation in basketball driven by our friends out of Portland, so the basketball category is just -- and these categories, you kind of take a look at.

They cycled, the running silhouette is the hot silhouette, and it kind of cools and basketball becomes the hot silhouette, and that will be here for a little bit and then it'll transition back into running.

So I think it's just a cycle, and the running silhouette will be back.

The running business is still very good, and the core people that are out there running we service them, we've got the right product.

That product is pretty good, but kind of the kids have kind of moved to more of a basketball silhouette than a running silhouette for right now.

Okay, got it, thanks.

And I know we talked about the -- you talked already about the gross margin for the year and the color there, and I know you've got some natural uplift coming through 2017 with the takeback of eCom and some other things, but can you give us just maybe a little more color on what you think the long run potential is for gross margin improvement?

Where it might come from?

Well, I think it will continue to come from the mix of product, so as we continue to expand the apparel business across men's, women's and kid's as we continue to increase our footwear business and other areas of our business that carry higher margins, there's going to be a mix that's going to increase that margin rate.

I think we have some opportunity from an inventory standpoint to be better in stock on the better selling items so we can mitigate some markdown pressure on the back end, and we'll do a better job from a buying in terms and conditions of sales.

So it's really kind of back to basics, and as we've looked at this in our performance over the last couple of years, we think there's a real opportunity there.

Okay, great, thanks a lot, and best of luck.

Thank you.

The next question will come from Sam Poser of Sterne, Agee.

Good morning.

Thank you for taking my questions.

Just had a couple.

There's been a lot of talk from other retailers regarding the impact of the minimum wage and have it may possibly have it to raise wages.

Are you seeing -- what are you seeing there?

Well, we continue to monitor the wage -- what's going on from a wage standpoint, but the vast majority we're paying above minimum wage today, so it's really not that big of an issue with us.

Thank you, and I've got a couple more.

What made you decide to go -- you're building out a nice brand at apparel business with Under Armour, Nike, and so on, especially developing the women's business.

What made you move towards this -- the Carrie Underwood collaboration there?

Well, I think it's just consistent with what we've talked about is trying to differentiate ourself from what's going on in the marketplace.

This is a category that's a terrific category right now.

We felt there was a void in the marketplace, and we put together a group of people a little more than a year ago to look at this and bring out this brand, and they've done a terrific job with it.

It's out in the stores right now.

It launches this Thursday, and the early reaction has been really quite good, but the primary reason is to continue to differentiate us in the marketplace from the competition.

And then can you tell us -- two other things.

What is the terms of the Golf Galaxy leases right now?

When are you going to start seeing the leases come up and possibly make a -- and possibly start closing more stores?

And secondly, what is the golf inventory look like on a year-over-year basis right now?

We talked at the Golf Galaxy stores because we've got a number of them.

They come up each year, and we're only going to close the ones where we think that there is -- that they're in a bad location, they're not performing very well.

A number of these stores, we may and we have been doing this, relocating those to a different location and to the new format, and as I had indicated earlier on the call from another question, our golf inventory is in as good a shape as its ever been, much better than last year.

We're very pleased.

Our inventory level is down significantly.

Our clearance level is down significantly, and the overall clearance in the channel in the pipeline with the brands is down significantly also, so we expect to see some AUR improvement in golf and also some margin rate improvement.

Thank you very much.

Good luck.

Sure, thanks.

The next question will come from Matt Nemer of Wells Fargo.

Good morning.

This is Omair on for Matt Nemer.

ECommerce continues to be very strong despite what looks to be some tough compares from last year.

Has there been any shift in strategy online, maybe varying up the free shipping offers or anything like that, or perhaps an increase in online product skews?

I think there's a number of things.

Our team has just done a great job as they've continued to be more experienced in this.

We have changed up some shipping issues from time to time, and we've just done a really good job from an omni-channel standpoint of what's going on in the store, lining up our online presence with what we're trying to do in the store, lining up our online presence with what we're doing from a marketing standpoint.

The collaboration between all of our groups here has just been terrific and has really lead to this.

Our eCommerce team has done a great job.

They're coming up with new ideas on how to drive the business through learning more about what it takes to convert customers, and we're just getting more experienced and doing a very good job there.

We expect another good year this year.

And if I could follow-up, as you open new stores, what sort of lift to the eCom business are you seeing in some of these new regions?

There's a big lift.

We haven't said what it is specifically, but when we open up a store in a trade area or a market that we haven't been in before, there's a very meaningful increase in our eCommerce business, but understand that's off a pretty small base, too.

The numbers we've talked about, this we have to share with you all publicly.

It's about 50% increase.

When we put a new store in a market, we see about a 50% growth rate from the zip codes in that area, but to Ed's point, that's off typically of a very small base, but we do see that happening and it continues to compound as those stores continue to penetrate the marketplace.

Got it, thank you very much guys.

Our next question will come from Simeon Gutman of Morgan Stanley.

Thanks.

Good morning.

Andre, a follow-up to an earlier question on omni-channel.

You mentioned some of the investment dollars.

Can you please remind us just some of the capabilities that DICK'S has internalized versus what still needs to be built, whatever time frame that may be?

Sure.

I'll give it to you at a fairly high level.

So when we launch our Golf Galaxy site in the first quarter, it will be on our new platform, and we will have many of the components that we need.

We will have all of the plumbing, if you will.

We'll have to bring on in the new module some new ship from store capabilities, some other ordering capabilities that we're bringing on with the new site.

But as we bring Golf Galaxy on, we will start to iterate very quickly to all of the things we'll need for the DICK'S site ultimately to be live in 2017, so most of those capabilities, Simeon, are coming online with the GolfGalaxy.com site.

That said, it's going to be a much smaller site, so we're going to want to make sure over the next couple years that we're able to scale bringing on the DICKS.com site in 2017.

But we'll have many of the capabilities right out of the chutes with more to come, obviously, as we continue to move towards 2017.

Okay, and then a follow-up to the online question.

Ed, is there a strong overlap right now in the merchandise that's being purchased online versus the store or are you seeing a wider gap, meaning people are -- they're purchasing the stuff that's online only?

Yes, no.

What we're starting to see as our online business gets larger, we're starting to see it act more and more like what's going on in the stores, so the key items in the stores are the key items online, although we do have that long tail of product online of some things that are not available in the store, but there's more and m ore overlap of what's going on in the stores from an online standpoint.

Are you tweaking store mix as you see things happen online, or are you're roughly -- I guess that's always happening but is there any changes that you're accelerating because you're seeing them online?

Well, there's certain things that we'll see online that we will then try to move into the store if needed and vice versa, so yes, the groups are talking back and forth to each other, exchanging information, and we move assortments back and forth all the time.

Okay, thanks.

Sure.

The next question will come from Michael Baker of Deutsche Bank.

Thanks.

I wanted to focus a little bit on the hunting and golf business.

Can you -- first of all, in past quarters, you've given us some of the trends in hunting, I think down mid-single digits, for instance last quarter.

You said it's much better this quarter.

Is it still down or is it positive yet?

It was down just a little bit, primarily because of the gun business.

Okay, and then can you tell us if you either separately or together, how much hunt and golf is as a percent of total sales in 2014?

What that was at a peak, what that is expected to be over time?

From a competitive standpoint, we're not going to get to that level of granularity, but we've indicated that the golf business will continue to be a less important part of our business and not because of the reduction in golf sales, but as the reduction of golf sales as a percent to our total business, so as we continue to ramp the Field & Stream business, golf gets to be less of the total percent.

We are growing other areas of the business at a pretty fast rate.

As we've indicated, the women's business, the youth business, the footwear business, and as those things grow at a faster rate than golf, then golf becomes a smaller percent of the business, and that's not to be misinterpreted that we're not investing in golf.

We still think golf is an important part of our business.

It's going through a bit more of a difficult cycle right now, but we think it will be -- it will stabilize and we are going to be in the golf business, and we're enthusiastic about the golf business.

Okay, so then one follow up to that perhaps is, I know you did a space reallocation initiative, took out about a thousand square feet, as I recall, from golf so that I think is behind you, but is there more now?

Is there sort of a second step in that reallocating more space to apparel and footwear than you had previously planned?

No.

Not coming out of golf, no.

Okay, one last one I promise.

We know the weather is terrible here in February in Boston, but Patriots Super Bowl sales didn't offset that?

I certainly helped.

Well, we appreciate that but you didn't buy enough.

I bought a lot, but okay.

Okay, thanks.

Our next question will come from Sean McGowan of Needham & Company.

Thank you very much.

Couple of that are kind of quick.

Andre, tax rate that we should be using for 2015?

Let me look for that.

I don't have it right off.

I think it's about 38.5% roughly is what I would use.

It's going to move a little bit quarter to quarter based on things, but I think for what I would use for your modeling purposes is about roughly 38.5%.

Okay, and then circling back on your commentary at the beginning of the call regarding the impact of the port delays.

Ed, are you saying that it's not going to have an impact on the full year?

You don't mean that you're actually going to make up for sales that are lost.

You just mean it's not material for the whole year.

Is that what you mean?

Yes, I don't think it's not material for the whole year, and to be honest with you, there is some things we may be able to make up at the end of this quarter or into the next quarter because with what's happened from a weather standpoint, we don't feel we've lost any market share.

I mean, the kids and people, the kids aren't out playing lacrosse in some of these markets.

They're not out playing baseball yet.

There's going to be a bit of delay of the season, so as we get caught up with inventory I think the demand is still there, so there's still a lot of products that need to be bought that haven't been bought yet because of the weather.

Okay, and then would you say that on balance for the fourth quarter, was weather a favorable impact to your sales, neutral, or negative?

I would say it was probably neutral to negative because it was really warm through those key selling months of November and December.

We didn't really get much snow.

We would love to have had the weather we have right now in November and December, but I would say the weather was neutral to negative.

Okay, and last question, on fitness devices, A, are you're seeing good business in that, and B, perhaps more importantly, are you seeing any kind of, to the extent that you can track what goes on with the consumers, are you seeing any kind of rub off where they buy the device and as a result of being more interested in fitness, they're buying more clothing and shoes and other accessories?

Well, we can't track the second part of your question yet, but just intellectually you would think that it's either neutral or positive to that, but that business has continued to be very good, and we expect it to be very good for the reasonable future, so more and more people are being active, and more and more people are trying to compete with each other for a number of steps or calories they burn, et cetera, so I think all in all, it's neutral to probably positive.

Thank you.

Sure.

Our next question will come from Michael Lasser of UBS Investment Bank.

Good morning.

Thanks a lot for taking my question.

It deals with the competitive landscape, so it was really promotional in the fourth quarter.

Is this the new norm?

Is this -- I think last year there was partly an explanation where the year started off slow and due to the weather and others had to be aggressive to make up their plans, while we're starting to see a similar story play out so what's the chance that we're just in a new intensely promotional environment for sporting goods?

Well, I don't think that's the case, and I think as evidenced by the fact that we said we think it's going to continue to be a bit promotional in this quarter.

Part of what we indicated that the margin rate is that we're going to be trying to clean out, clean some inventory down on some slower moving categories to reinvest that in some faster selling categories.

And we indicated that we would expect margin rate expansion in the next three quarters, so no, I don't think it's a new normal.

And Ed, there's been documented struggles from one of your competitors.

How does that play into what was your M&A strategy, and then your promotional strategy?

We never comment on our M&A strategy and our promotional strategy, we've known about what's going on with our competitors for a long time, and it's really not going to make any change in our promotional strategy.

Okay, and then one last quick one.

You cited long-term gross margin drivers of being mostly focused on being sharp with inventory ordering and how you manage that.

The Company had done a good job of using technology to price optimize, size optimize, they also -- you also increased your private label penetration and as a result of some of those factors it drove significant amount of merchandise margin.

Are those initiatives tapped out at this point?

No, I don't think so.

I think we've still got some opportunities and doing a better job with our inventory, our pricing strategies within that inventory and we have an initiative that we started last year which will be to start to grow our product development, our private label strategy again, and I think you can see that with the launch of the CALIA brand which everyone in the organization is very excited about.

Okay, thank you so much.

Sure.

The next question will come from Sam Reid of Barclays.

Thank you so much for taking my question.

Quick one here regarding square footage reallocation.

Would you be able to kind of give us a sense as to how much that's helped you during the quarter, specifically in some of those stronger categories that you guys have been highlighting over the past few quarters?

Thank you so much.

Sure.

It helped us significantly.

As I said, the women's and kid's business, the apparel business grew at a faster rate than the Company as an average.

Those categories have higher margin rates than the categories that they displaced, higher turnover rate, so it's been a very big benefit to us.

Our next question will come from Stephen Tanal of Goldman Sachs.

Thanks a lot, guys, for taking my question.

I'll try to keep it tight.

You know the softer 1Q outlook in terms of the sales cadence, I just want to be clear that it sounds like you're saying that that's embedding an expectation that trends will slow because of the west coast inventory issues.

Is that sort of correct -- the right way to think about it?

Well, we said that there was two things that's impacting that.

The guidance in the first quarter is looking at how weather has impacted our business in the month of February, and we expect to have some improvement in that.

And then there's also some portion of this that we're just slower getting some products into the stores because of what's gone on the west coast.

If I had to rank them one two, I'm not going to give you a percentage between one and two, but if I had to rank which is the more significant piece of this, it's the weather piece that's shutdown a lot of stores that is the biggest driver of that, more than the port strike.

So to be clear then, store closure days and fab are worse than they were a year ago is sort of what you're saying.

It's not any better.

There's issues with store closing days.

You've got to take a look at -- we're not going to get into all the granular detail here, but store closing days depends on what day of the week it is, what week that the store closures happen in because all weeks and all days are not created equally.

Of course, and then on the gross margin guide for Q1, is any of that merch margin pressure at all related to the west coast or that's all sort of promotional activity?

Yes, that's promotional activity, just cleaning out this inventory a bit more than we, like I said, we're at historical low levels from a clearance standpoint but there's some things we just feel that we've got the opportunity to clean a little bit deeper.

And then there's still promotional activity out there as people are trying to clean up through the fourth quarter, whether that's from an outerwear standpoint in certain parts of the country, if it's still the gun business.

There's still some promotional activity out there, but we're seeing it moderate, and we think that there will be margin rate expansion in quarters two through four.

Understood, and then lastly, occupancy leverage looked really good.

Sounds like at least 50 basis points or so are right around there based on the disclosures you've given.

Could you remind us these days at what point you start levering occupancy in terms of same-store sales growth?

Yes, and we look at it, Stephen, this is Andre, we look at it really on a total sales basis.

It's a little deceptive to just look at comps for that, but we're looking at that 9% to 10% range as we typically would see occupancy leverage for us on a full-year basis.

It's going to bump around quarter to quarter but on a full-year basis, those are the kind of numbers we're looking at.

And that's 9% to 10% total volume, total sales, not comp.

Understood.

Yes.

That's what I said.

That's what I said.

Thanks, guys.

Our next question will come from Joe Feldman of Telsey Advisory Group.

Hi, guys.

Thanks for taking my question.

Most have been asked but I wanted to follow up with something.

Remember a couple years ago, there were a few equipment changes or rule changes and was just wondering if there's anything like that on the horizon that might actually help spur some sales or even hurt sales.

I think there was like some kind of gun ban on a particular type of rifle ammunition that maybe I wonder if that's something that you guys had sold, so any kind of equipment changes you could talk about?

No, there's no equipment changes of any significance on the horizon.

The biggest impact we had a couple years ago is when the high school association changed the bat standards for using a baseball bat, to the new composite core bats which would allow the ball to come off the bat slightly slower to help reduce injuries, and California was the first to adopt that and then the next year the rest of the country did, so every young man or young girl who played high school baseball had to buy a new bat, and that was a big -- that was great for our business but there's nothing on the horizon like that in the near future.

Got it.

And the other question I wanted to ask was given the improving trends that we've been all seeing in the economy, I'm just wondering are you seeing any difference in what people buy in terms of like are people stepping up maybe from the good to the better or from the better to the best or within categories, are you noticing any changes or creep up in ticket?

I think we see some things where technology has really made a difference, such as baseball bats.

Some of the higher end baseball bats are perceived to be a real value.

That's helped and some of the apparel products where the apparel is much technologically has been better, they're buying that, but we don't see them stepping up just to step up.

There has to be a perceived value in order to step up.

Got it, thanks, and we look forward to seeing you in April.

Great.

Look forward to it.

The next question will come from David Magee of SunTrust.

Yes, hi, everybody.

Good quarter.

Thank you.

I guess I had another question on competition.

If you look at your stores that you're opening now with your core concept, is the overlap percentage with other chain competitions, is that a number that's increasing over time or decreasing, would you say?

I'd say it's probably pretty much the same.

I think it's -- it hasn't changed a whole lot.

So you all haven't changed your strategy as far as how close you want to be to like competition?

Was that sort of the change?

We haven't changed that at all.

Great.

Thanks, and good luck.

Our next question will come from Chris Svezia of Susquehanna Financial Group.

Good morning, everyone.

Thanks for taking my questions.

I guess, Ed, first for you.

Just on the outerwear business relative to expectation in the fourth quarter, how did it perform relative to the average for DICK'S stores for you guys?

That's footwear and a cold weather apparel.

It was okay.

It was come right at our expectations.

It came later than we would have liked it to be -- had come, which means that there was a little margin rate pressure there because it came later but all in all, we're pretty pleased with it.

Okay.

The other question I had was just on when you mentioned the ability chasing inventory and inventory availability for opportunistic buys, just how do we think -- is that more than what you've seen in the past?

Is that a way for you guys maybe to drive traffic and comp and product margins in subsequent quarters?

Just maybe talk about that if you could for a sec.

We'll be trying to do that a bit more than we have in the past, and we'll buy that product and use it to generate traffic as a promotion at different times of the year, so we're getting out ahead of this and buying this product further in advance than we have in the past, so it's a much more important part of our program than it may have been over the last couple of years.

And is it across -- is it any category specific or just kind of across the board?

It's across the board.

We're taking a look at this at the ability to buy some short run close outs that we hadn't really done in the past that we could be used in a grand opening campaign or it could be used in seasonally in a particular market, so we're looking at these close outs so a lot more aggressively than we have in the past.

Okay, fair enough.

And two questions for you, Andre, real quick.

Just on the deferred construction allowances, which I think it doubled year over year.

I'm just curious, the increase of that timing.

And then the other question I just have is just what if you want to talk to level of comp or to level of sales growth do you need to leverage SG&A with the additional investments in 2015?

Sure, so let's talk about the first piece.

So the deferred construction allowances are going to be a couple things.

One is there's a little bit of timing there.

The other is the sort of the nature of some of the way we're building stores today.

It's a little bit of a mix difference between build to suits and reverse build to suits, so that's going to affect a little bit about what the landlords typically give us in construction allowances.

So that's what the movements that you've got there.

With respect to SG&A, I think we're in that, again total sales, not comp but total sales in that probably that 8% to 9% range is where we start to see leverage in total.

Okay.

Even with the additional investments in 2015?

We see that and as we mentioned in my prepared remarks, we'll see a little bit of deleverage in SG&A in 2015 as a result of some of the additional investments we are making in eCommerce independence.

Okay.

Got it.

Okay.

Thanks very much.

See you guys in April.

Thank you.

Ladies and gentlemen, that will conclude our question and answer session.

I would like to turn the conference back to Edward Stack for his closing remarks.

I'd like to thank everyone for joining us today as we reviewed our fourth quarter call and look forward to talking to everyone on our first quarter call.

Thank you.

Ladies and gentlemen, the conference has now concluded.

We thank you for attending today's presentation.

You may now disconnect your lines.