Corrected Transcript

29-May-2024

Dick's Sporting Goods, Inc. (DKS)

Q1 2024 Earnings Call

Total Pages: 25

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Dick's Sporting Goods, Inc. (DKS)

Corrected Transcript

Q1 2024 Earnings Call

29-May-2024

CORPORATE PARTICIPANTS

Nathaniel A. Gilch

Navdeep Gupta

Senior Director-Investor Relations, Dick's Sporting Goods, Inc.

Executive Vice President & Chief Financial Officer, Dick's Sporting

Lauren R. Hobart

Goods, Inc.

President, Chief Executive Officer & Director, Dick's Sporting Goods,

Inc.

.....................................................................................................................................................................................................................................................................

OTHER PARTICIPANTS

Adrienne Yih

John Kernan

Analyst, Barclays Capital, Inc.

Analyst, TD Cowen

Simeon Ari Gutman

Justin E. Kleber

Analyst, Morgan Stanley & Co. LLC

Analyst, Robert W. Baird & Co., Inc.

Kate McShane

Joseph Civello

Analyst, Goldman Sachs & Co. LLC

Analyst, Truist Securities, Inc.

Christopher Horvers

Chuck Grom

Analyst, JPMorgan Securities LLC

Analyst, Gordon Haskett Research Advisors

Robert F. Ohmes

Paul Lejuez

Analyst, BofA Securities, Inc.

Analyst, Citigroup Global Markets, Inc.

Warren Cheng

Will Gaertner

Analyst, Evercore Group LLC

Analyst, Wells Fargo Securities LLC

Michael Baker

Seth Basham

Analyst, D.A. Davidson & Co.

Analyst, Wedbush Securities, Inc.

Joseph Isaac Feldman

Jonathan Matuszewski

Analyst, Telsey Advisory Group LLC

Analyst, Jefferies LLC

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Dick's Sporting Goods, Inc. (DKS)

Corrected Transcript

Q1 2024 Earnings Call

29-May-2024

MANAGEMENT DISCUSSION SECTION

Operator: Thank you for standing by, and welcome to the DICK'S Sporting Goods First Quarter 2024 Earnings Conference Call. [Operator Instructions] After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you.

I'd now like to turn the call over to Nate Gilch, Senior Director of Investor Relations. You may begin.

.....................................................................................................................................................................................................................................................................

Nathaniel A. Gilch

Senior Director-Investor Relations, Dick's Sporting Goods, Inc.

Good morning, everyone. And thank you for joining us to discuss our first quarter 2024 results. On today's call will be Lauren Hobart, our President and Chief Executive Officer; Navdeep Gupta, our Chief Financial Officer. A playback of today's call will be archived in our Investor Relations website located at investors.dicks.com for approximately 12 months.

As a reminder, we will be making forward-looking statements that are subject to various risks uncertainties that could cause our actual results to differ materially from these statements. Any such statements should be considered in conjunction with cautionary statements in our earnings release and risk factor discussions in our filings with the SEC, including our last annual report on Form 10-K as well as cautionary statements made during this call.

We assume no obligation to update any of these forward-looking statements or information. Please refer to our Investor Relations website to find a reconciliation of our non-GAAP financial measures referenced in today's call.

And finally, a few admin items. First, as we previewed on our last earnings call, beginning this quarter, we have revised our comparable sales calculation to include revenue from our GameChanger business. Second, beginning this quarter, we have included grand opening advertising costs within preopening expenses. These onetime costs incurred in connection with opening new stores were historically presented within SG&A part of advertising costs. We have reclassified prior period amounts to conform to our current year presentation.

And finally, for our future scheduling purposes, we are tentatively planning to publish our second quarter 2024 earnings results on September 4, 2024

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

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Lauren R. Hobart

President, Chief Executive Officer & Director, Dick's Sporting Goods, Inc.

Thank you, Nate, and good morning everyone. We're incredibly proud of our strong Q1 results, which demonstrate how well our strategies are working. Powered by our compelling omni-channel athlete experience, differentiated product assortment, deep engagement with the DICK'S brand, and our focus on providing a best-in- class teammate experience, we continued our momentum from the fourth quarter. Our execution on these strategic pillars is driving continued market share gains.

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Dick's Sporting Goods, Inc. (DKS)

Corrected Transcript

Q1 2024 Earnings Call

29-May-2024

For the first quarter, our sales increased 6.2% to just over $3 billion. Adjusting for the calendar shift, our comps increased 5.3%, which was on top of a 3.6% comp last year. This strong comp was driven by growth in transactions and in average ticket.

During the quarter, we saw more athletes purchase from us, and they spent more each trip compared to the prior year. Our first quarter gross margin expanded 10 basis points, and we achieved double-digit EBT margin of over 11%. In total, we delivered Q1 EPS of $3.30.

Today, we're raising our full year outlook to reflect our strong Q1 results. We now expect comp sales growth for the year to be in the range of 2% to 3%, and EPS to be in the range of $13.35 to $13.75. Our emphasis on the omni-channel athlete experience is driving robust athlete engagement. We are continuing to enhance service levels across all our digital and store experiences to meet our athletes wherever they are, provide the support and service they need, and get product into their hands faster.

During Q1, we continued to see growth in our omni-channel athletes, our strongest athletes, who spend more with us and shop more frequently than single-channel athletes. As we've talked about previously, our significant investments to reposition our portfolio are key to delivering an elevated omni-channel athlete experience.

We expect House of Sports and our next generation 50,000 square foot DICK'S store to drive robust omni- channel athlete engagement and generate strong sales and profitability. During Q1, we opened two House of Sport locations and are excited to open six additional locations this year. We also opened two next-generation 50K locations during the first quarter and look forward to opening an additional 14 locations throughout 2024. We continue to be very pleased with the results of these exciting DICK'S concepts.

This one-two punch of House of Sport and our next generation 50K format, combined with the elevated omni- channel experience our teammates are bringing to life throughout our entire portfolio, is the future of DICK'S. We're also growing our Golf Galaxy Performance Centers, an immersive experience for golf enthusiasts of all levels, and opened three new locations during the first quarter. We remain confident in the long-term growth opportunity in golf and are excited to bring this experience to more golfers.

Investing in our digital capabilities is central to our omni-channel success. I want to briefly talk about GameChanger, the premier live streaming, scheduling, communications, and scorekeeping mobile app, where we're building the first and best place to experience youth sports. During Q1, GameChanger drove continued strong sales growth. Over 5 million unique users engaged with GameChanger, averaging approximately 30 minutes per day on the app.

We saw a robust increase in usage of the app across all sports, including those that are newer to the GameChanger platform, such as basketball, football, soccer, and volleyball. We're excited to continue innovating within the fast-growing,multibillion-dollar youth sports technology market and strengthening our relationships with athletes and their families through GameChanger.

Our access to differentiated on-trend product, which is our second strategic pillar, helps make DICK'S the go-to destination for sport in the US. We're excited about the product pipeline from our key brand partners. For example, Nike's recent Paris Innovation Summit highlighted several breakthrough products across apparel and footwear that we look forward to bringing to our athletes.

Our relationships with our brand partners are stronger than ever, and the innovation of performance and style, in our opinion, has never been better. In addition, our flagship vertical brands, DSG, CALIA, and VRST, are

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Dick's Sporting Goods, Inc. (DKS)

Corrected Transcript

Q1 2024 Earnings Call

29-May-2024

resonating very well with our athletes. They continue to outpace the total company comp growth and contribute greater margin expansion. We see a long runway for sales and profitability growth for our vertical brand.

Our teammates are a critical driver of our success, and our third strategic priority is providing a best-in-class teammate experience. This past quarter, we were named a great place to work for the fourth year in a row. We remain focused on providing our teammates with the tools and technology to help them do their jobs better and driving a culture where they can develop and thrive.

Lastly, we're creating deeper brand engagement. During the first quarter, we invested in several exciting marketing campaigns and also continued to invest in DICK'S brand building during March Madness. We're excited to celebrate the 10-year anniversary of our Foundation's Sports Matter program and recently announced that the program is giving $2 million in grants to mark its anniversary and empower even more young athletes to pursue their passion.

In closing, we are very pleased with the strength of our first quarter performance and are highly confident in our strategies to drive sustained profitable growth. Before concluding, I'd like to thank all of our teammates across the company for their tremendous efforts and continued commitment to DICK'S Sporting Goods. It's their passion and hard work that make these results possible. They are truly an outstanding team.

With that, I'll turn the call over to Navdeep to share our financial results in more detail.

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Navdeep Gupta

Executive Vice President & Chief Financial Officer, Dick's Sporting Goods, Inc.

Thank you, Lauren, and good morning, everyone. Let's begin with a brief review of our first quarter results. We are very pleased to report a consolidated sales increase of 6.2% to $3.02 billion. This included a benefit from the calendar shift due to 53rd week last year of approximately $45 million. Adjusting for the calendar shift, which we believe provides the clearest view of the business, our comps increased 5.3% as we continued to gain market share.

Our strong comps were on top of a 3.6% comp last year. Our Q1 comps were driven by a 2.7% increase in transactions and a 2.6% increase in average ticket. And we saw strength across footwear, athletic apparel and hardlines. Gross profit for the first quarter was $1.1 billion or 36.29% of net sales and increased 10 basis points from last year. This included leverage on occupancy costs due to higher sales and a decline in merchandise margin of 45 basis points, which included higher year over year shrink of 22 basis points. It's worth noting that while we anticipated our shrink to be higher than the previous year, that increase in shrink moderated compared to our expectations.

On a non-GAAP basis, as expected, SG&A expenses increased 6.6% to $739.7 million and deleveraged 10 basis points compared to last year. This increase in SG&A dollars included investments in the exciting brand campaigns we introduced earlier this year, supporting CALIA, DSG, as well as Golf Galaxy and Dicks.com. This also included higher estimated incentive compensation expense and cost in support of our sales growth.

Pre-opening expenses were $21.1 million, an increase of $11.9 million compared to the prior year. This expected increase was primarily driven by our Q1 House of Sport opening. As Nate noted earlier, SG&A and pre-opening expenses have been adjusted in the current and prior years to reflect the reclassification of grand opening advertising from SG&A to pre-opening expenses.

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Dick's Sporting Goods, Inc. (DKS)

Corrected Transcript

Q1 2024 Earnings Call

29-May-2024

EBT was $342.4 million, or 11.34% of net sales. This compares to EBT of $328.3 million, or 11.55% of net sales in Q1 of 2023.

As expected, our Q1 tax rate grew from 7.2% in last year's quarter to 19.6% this year. I'll remind you that this approximate 1,200 basis points increase reflects the higher tax deduction from the vesting of employee equity awards and exercises in the prior year, which favorably impacted Q1 2023 earnings by approximately $0.45 compared to the current year quarter.

In total, we delivered earnings per diluted share of $3.30. This compares to earnings per diluted share of $3.40 last year.

Now looking to our balance sheet, we ended Q1 with approximately $1.6 billion of cash and cash equivalents and no borrowings on our $1.6 billion unsecured credit facility. Our quarter-end inventory levels increased 5.5% compared to Q1 of last year, slightly below our 6.2% increase in sales. We believe our inventory is clean and well- positioned.

Turning to our first quarter capital allocation, net capital expenditures were $126 million and we paid $94 million in quarterly dividends. We also repurchased 548,000 shares of our stock for $113.6 million at an average price of $207.32. In 2024, we continue to expect share repurchases of $300 million.

Now turning to our outlook for 2024, as a result of our strong Q1 performance, our expectations for continued robust demand from athletes and the confidence we have in our business, we are raising our full-year outlook. We now expect consolidated sales in the range of $13.1 billion to $13.2 billion. In addition, we now expect comp sales growth in the range of 2% to 3% compared to our prior expectation of 1% to 2% growth.

EBT margin is now planned to be at 11.1% at the midpoint compared to 10.9% previously. Gross margin is now expected to expand modestly compared to 2023 non-GAAP results. We previously expected gross margins to be in line with 2023 non-GAAP results at approximately 35%. We continue to expect SG&A expenses to leverage modestly compared to 2023 non-GAAP results.

In total, we now anticipate full year earnings per diluted share to be in the range of $13.35 to $13.75 compared to our prior expectations of $12.85 to $13.25. Our earnings guidance is based on approximately 83 million average diluted shares outstanding and an effective tax rate of approximately 23% compared to our prior expectation of approximately 24%. We continue to expect net capital expenditures of approximately $800 million for the year.

Lastly, as you model 2024, I want to point out a couple of things that we expect to impact comparability of our financial results for the second quarter. First, recall that due to the shifted calendar, we expect our reported total sales to be positively impacted in the first half, but then offset in second half. Specifically, given the impact of the shift on a key back-to-school week, we expect our reported total sales in Q2 to be positively impacted by approximately $100 million versus the prior year, with an offset in Q3.

Second, we will begin to anniversary the higher shrink rates from 2023 in the upcoming second quarter. As a reminder, our shrink in Q2 of last year also included a cumulative unfavorable true-up of actual results from our physical inventories, which reflected an 84 basis points increase over 2022. Consequently, we expect to see year- over-year favorability in shrink during this year's second quarter.

In closing, we are very pleased with our Q1 results and remain enthusiastic about the future of our business.

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Dick's Sporting Goods, Inc. (DKS)

Corrected Transcript

Q1 2024 Earnings Call

29-May-2024

This concludes our prepared remarks. Thank you for your interest in DICK'S Sporting Goods. Operator, you may now open the line for questions.

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QUESTION AND ANSWER SECTION

Operator: Thank you. We will now begin the question-and-answer session. [Operator Instructions] Your first question comes from the line of Adrienne Yih from Barclays. Your line is open.

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Adrienne Yih

Analyst, Barclays Capital, Inc.

Q

Great. Thank you very much and congratulations on a great start to the year. Lauren, we were lucky enough to see House of Sport in Boston during the quarter. And I guess my question for you is kind of more longer term. The notion or the philosophy was that you wanted to create a store such that people wouldn't need to go to another store other than House of Sport or the DICK'S next-gen. So to the extent that you see kind of going forward, how do you see the sporting goods landscape kind of panning out?

And then my kind of main question is the investment in training, education, service, and then advertising. It's a level up of anything that we're seeing currently in the retail landscape. So can you talk about kind of the investments that you're making there and how that's going to differentiate your concepts versus the rest of retail? Thank you.

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Lauren R. Hobart

President, Chief Executive Officer & Director, Dick's Sporting Goods, Inc.

A

Great. Thanks, Adrienne. Yeah, we were delighted to have you and a group of people in Boston. We've had a ton of people coming through the House of Sport there, and the excitement in that community has been absolutely just incredible to see. I think the thing about House of Sport that is truly redefining sports retail is that we are creating an experience that people cannot get anywhere else. And what you're seeing is athletes are really responding to it. So communities are responding to it. I don't know how some of you texted that you saw the blimp going by like there's just so much fanfare and excitement when we open a House of Sport.

But then, as it's open, athletes are coming in, they are driving further, they're spending more time. They're really excited about the product and the experience that they see at House of Sport.

Secondly, the brand partners that we have are also very excited, because we can bring a brand to life throughout our entire company in a really elevated way. But in House of Sport, because we have collab spaces and other opportunities to truly bring a brand to life, we can showcase a brand in the best possible way, and that's helping us drive both new partnerships as well as more access and excitement with our current brand partners.

And then the last thing I would point out that, I think is important to note is that if you look at real estate developers and landlords and mall developers, when a House of Sport opens in a mall, we are seeing significant increases in traffic to the mall. And so there's a lot of excitement in the marketplace there as well. Across the board, we're just super excited about House of Sport and equally excited about our new 50K square foot format, which is a takedown of the House of Sport but provides many of the same elements.

You asked about investments. I'll turn it to Navdeep to talk a little bit about SG&A, but the SG&A expenses in Q1 were as planned and we invested in marketing. We will continue to invest to build our brand long-term. We

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Dick's Sporting Goods, Inc. (DKS)

Corrected Transcript

Q1 2024 Earnings Call

29-May-2024

invested in training and service and tech tools to drive the athlete experience that our teammates need to be able to deliver. Anything you would add, Navdeep?

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Navdeep Gupta

Executive Vice President & Chief Financial Officer, Dick's Sporting Goods, Inc.

A

Yeah, no. Good morning, Adrienne. And just building on what Lauren said, the focus continues to be, as Lauren said, it's around the core four pillars. And two of those pillars that we talk a lot about is about the athlete experience and the teammate experience. And the work that our store team, as well as the merchandising team, are doing in bringing innovative and very differentiated product to our stores and the store team, the work that they're doing in providing this experience and kind of the fit experience that we are able to provide to our athletes when they walk into the store, whether it's a baseball bat, whether it's a golf club, that we feel is kind of our differentiator, as we see not only within our own industry players, but quite frankly, again, some of the specialty players that are in the marketplace as well.

So that will be a key area for our investments. And like Lauren indicated, we showcase that with the investments in advertising, including our vertical brands and how differentiated they are as part of Q1. But we expect these investments to continue to be balanced against the sales growth that we are delivering here as well.

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Adrienne Yih

Analyst, Barclays Capital, Inc.

Thank you very much. It's definitely showing up in the stores. Thanks.

Q

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Lauren R. Hobart

President, Chief Executive Officer & Director, Dick's Sporting Goods, Inc.

Thank you.

A

.....................................................................................................................................................................................................................................................................

Navdeep Gupta

Executive Vice President & Chief Financial Officer, Dick's Sporting Goods, Inc.

Thank you.

A

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Operator: Your next question comes from the line of Simeon Gutman from Morgan Stanley. Your line is open.

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Simeon Ari Gutman

Analyst, Morgan Stanley & Co. LLC

Q

Good morning, everyone. I wanted to ask about sell-through of seasonal merchandise, spring and summer, as the seasons are transitioning. And in the context of merch margin being down a little this quarter. Can you also share with us was merch margin or is merch margin planned to be flat within the overall gross margin guidance or is the gross margin being elevated by occupancy? Thanks.

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Lauren R. Hobart

President, Chief Executive Officer & Director, Dick's Sporting Goods, Inc.

A

Thanks, Simeon. Yeah. For the quarter, we were really pleased with our gross margin expanded 10 basis points, 36.29%. There were a ton of puts and takes to the quarter as we expected there would be. Well, and an unexpected good surprise with the sales numbers that enabled us to drive more leverage on occupancy costs, more leverage on supply chain and e-commerce costs. All of that was slightly offset by a 45 basis point decline in

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Dick's Sporting Goods, Inc. (DKS)

Corrected Transcript

Q1 2024 Earnings Call

29-May-2024

merch margin, but that we had anticipated driven primarily because of the shrink, the fact that we're not anniversarying yet the shrink reserves that we put into place, and we'll start anniversarying those in Q2.

I think it's important to note that one of our core merchandising strategies and one of our core sales driving strategies is to keep our inventory clean and fresh. We are constantly moving product through the life cycle so that when people come into our stores or shop online, they're getting a completely differentiated assortment and they are finding the products that are appealing to them. And so as expected, merch margin was slightly declined in Q1, but for the full year, we are now expecting gross margin to expand modestly, whereas before we had said it was going to be flat.

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Simeon Ari Gutman

Analyst, Morgan Stanley & Co. LLC

That's helpful.

Q

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Navdeep Gupta

Executive Vice President & Chief Financial Officer, Dick's Sporting Goods, Inc.

And Simeon, we are expecting...

A

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Simeon Ari Gutman

Analyst, Morgan Stanley & Co. LLC

I want to ask...

Q

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Navdeep Gupta

Executive Vice President & Chief Financial Officer, Dick's Sporting Goods, Inc.

A

Simeon, I'll just add one more thing to what Lauren said. The merge margin, I would say, in Q1 was in line with our expectations, and we expect merch margin to also expand modestly on a year-over-year basis in 2024 compared to non-GAAP 2023 results.

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Simeon Ari Gutman

Analyst, Morgan Stanley & Co. LLC

Q

Okay. And then, follow-up Navdeep, the full-year EBIT or the implied EBIT or EBT, whatever way you look at it, looks like it's being raised above and beyond what was achieved or beat versus the Street number in Q1. The comp, I think, looks like it's more of a flow-through from what happened in Q1. So is that fair? And what is changing in terms of profit to raise the back half while sales is kind of moving up by what happened in Q1?

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Navdeep Gupta

Executive Vice President & Chief Financial Officer, Dick's Sporting Goods, Inc.

A

Yeah, Simeon that's a great question. First of all, let me start by saying we were really excited by the results that we delivered here in Q1. And we continue to remain really excited about the future and the opportunities that we see ahead of us.

As you can imagine, this is just Q1. We are very early in the year, as well as everybody knows what else is happening on a macro factor basis. So what we have done today in terms of the full-year guidance is it reflects the results that we posted here in Q1, and we maintained largely our expectations for Q2 through Q4. There's a little bit of a disconnect with the external consensus expectation, but I would say we are appropriately cautious as

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Dick's Sporting Goods, Inc. (DKS)

Corrected Transcript

Q1 2024 Earnings Call

29-May-2024

we think about Q2 through Q4, but we continue to remain really excited about the opportunities that we see for the balance of the year.

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Simeon Ari Gutman

Analyst, Morgan Stanley & Co. LLC

Thanks. Good results. Take care.

Q

.....................................................................................................................................................................................................................................................................

Navdeep Gupta

Executive Vice President & Chief Financial Officer, Dick's Sporting Goods, Inc.

Thank you.

A

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Operator: Next question comes from a line of Kate McShane from Goldman Sachs. Your line is open.

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Kate McShane

Analyst, Goldman Sachs & Co. LLC

Q

Hi, good morning. Thanks for taking our question. I believe when you last guided same-store sales of 1% to 2% that was mainly based on your assumption of market share gains. With the new comp guide of 2% to 3% today, is there any better view on the health of the industry within that, or is it still primarily driven by market share?

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Lauren R. Hobart

President, Chief Executive Officer & Director, Dick's Sporting Goods, Inc.

A

Kate, we are excited to raise the comp guidance from 1% to 2% to 2% to 3% for the balance of the year. As Navdeep had just mentioned, the large part of that is flowing through the results that we just had in Q1 so that we do maintain an appropriate level of caution as we go. We obviously - we do plan on continuing to gain market share. That's one of our key strategies and we think we have the experience and the product to be able to do that.

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Kate McShane

Analyst, Goldman Sachs & Co. LLC

Q

Okay, thank you. And then our second question, with the change in accounting for GameChanger and some of your earlier comments in the prepared comments about GameChanger, is there a meaningful strategy change there in terms of how much that can drive the business and what is kind of the long-term goal and strategy with GameChanger?

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Lauren R. Hobart

President, Chief Executive Officer & Director, Dick's Sporting Goods, Inc.

A

Yes, thanks for the question. We are so excited about GameChanger and excited in the fact that it is such an amazing, emotive platform through which people can engage with their kids' sports, with their grandkids' sports, and kids can track their stats and see how they're doing and where they're performing. So you're hearing the excitement because we've been investing in this digital platform.

It's a leading youth sports app. It's got incredible capabilities and it keeps driving meaningful success. So 5 million active users on the platform in Q1 on average spending 30 minutes per day on GameChanger, it's an incredible engagement tool. So the way I look at it, the way we look at it, is that it's a key part of our long-term strategy to become synonymous with sports. It's part of our entire ecosystem. You're seeing, we're starting to account for it in comps. It's a relatively negligible part of that equation right now but we believe it is a big part of our future.

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Dick's Sporting Goods Inc. published this content on 31 May 2024 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 31 May 2024 13:44:06 UTC.