Good morning, and welcome to the DICK'S Sporting Goods second quarter earnings conference call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Steve West, Vice President of Investor Relations. Please go ahead, sir.

Good morning, everyone, and thank you for joining us to discuss DICK'S' second 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. Today's call will be archived for approximately 30 days on our investor relations website located at investors.dicks.com. As 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 discussion 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. And finally, for your scheduling purposes, we are tentatively planning to publish our third quarter 2018 earnings release before the market opens on November 28, 2018, with a subsequent earnings call at 10 a.m. Eastern Time. With that, I will now turn the call over to Ed.

Thank you, Steve. Good morning, everyone. This morning, we reported second quarter earnings per diluted share of $1.20. Revenue grew 1% to approximately $2.18 billion. Adjusted for the calendar shift due to the 53rd week, our consolidated same-store sales declined 4% and our eCommerce business increased 12%. As a percent of total net sales, the online business increased to approximately 11% compared to approximately 9% in the same period last year. We also delivered double-digit growth in private brands and athletic apparel, excluding Under Armour. However, as expected, sales were impacted by strategic decisions we made regarding the slow-growth, low-margin hunt and electronics business, which accounted for nearly half of our comp decline. In addition, we experienced significant declines in Under Armour sales as a result of their decision to expand distribution. Notwithstanding these challenges, the health of our core business is relatively strong, and we're confident sales trends will improve next year as these headwinds are expected to subside. I'd like to point out that the operating margin of the hunt and electronics categories are approximately 1,700 basis points lower than the company average. Therefore, while our decisions regarding these slow-growth, low-margin categories are impacting sales, they have limited impact on our ability to generate earnings. As we focus on driving profitable sales, we had another very good quarter on the margin front. Merchandise margin expanded 141 basis points primarily driven by improved product cycles, fewer promotions and a favorable merchandising mix. The stronger merchandise margin drove an improvement in gross margin, which increased 74 basis points. While the retail landscape remains highly dynamic, we remain committed to driving profitable sales while making improvements across our business. From a merchandising perspective, we continued to refine our assortment with a focus on key items and better in-stock positions. Our efforts…

Thank you, Ed, and good morning, everyone. As I outlined on our last call, we are focused on delivering our 3 key strategic initiatives to provide the best omnichannel experience for all athletes. I'd like to highlight some of the great progress that we've made on each of our strategic pillars during the quarter. The first pillar of our strategy is the relentless improvement of our core execution to deliver the best shopping experience in retail. Improving convenience for our athletes is a top priority, and we are continuing with our rapid data-driven testing approach to deliver key improvements to the omnichannel shopping experience. Last quarter, I discussed our new BOPIS locker test at the front of select DICK's stores. Initial results were very encouraging, and we quickly expanded that test from 3 stores to 10. Positive results included significantly higher satisfaction for our online athletes, but the surprise for us was the much improved satisfaction scores from our in-store athletes as well as they benefited from shorter wait times and improved service levels. This rapid testing approach continued through the second quarter, and we are now testing curbside pickup in select stores as well. Looking ahead, offering these types of services to improve convenience and remove friction for our athletes is critical to maintaining DICK'S as a leading omnichannel retailer. We see significant opportunity to drive continued improvements. Additionally, from a product standpoint, we are delivering a much stronger, more curated assortment with a greater focus on key items. We've narrowed and removed complexity from our assortment, which has allowed us to add more depth behind key items and significant business drivers. This increased depth is leading to stronger in-stock positions, which is resulting in an improved customer experience. This brings me to the second pillar of our strategy,…

Thank you, Lauren, and good morning, everybody. I'd like to start with a brief overview of our second quarter results. Consolidated sales increased 1% to approximately $2.18 billion. This included a benefit from the calendar shift of $50 million or $0.08 in earnings per diluted share. Our adjusted consolidated same-store sales declined 7% (sic) [ 4% ]. Transactions declined by 4.7%, driven partially by the continued decline in our hunt business and fewer promotions. And average ticket increased by 0.7% due primarily to a less promotional environment. During the quarter, our best-performing categories included outdoor apparel and fitness equipment. License sales also comped positively, benefiting from the World Cup soccer tournament. Additionally, we continue to drive double-digit growth in our private brands, which significantly outpaced the company average, driven by continued strength in CALIA and our new brands. As Ed mentioned, athletic apparel comps, excluding Under Armour, grew by double digits. Finally, athletic footwear and golf were also areas of relative strength for the quarter. And overall, we are really very pleased with our apparel business for the quarter. Despite these strengths, however, sales were negatively impacted by the strategic decisions we made regarding the hunt and electronics businesses, which contributed to nearly half the comp decline as well as weakness in outdoor equipment. The positive takeaway is we're benefiting from a margin rate perspective. As Ed mentioned, the operating margin of the hunt and electronics categories is approximately 1,700 basis points lower than the company average. Therefore, we need only to recover about 60% of the lost hunt and electronics sales to generate the same levels of gross profit dollars. This leads me to margins. Gross profit for the second quarter was $659.3 million or 30.28% of sales, a 74 basis point improvement versus last year. Within gross margin,…

[Operator Instructions] And our first question today will come from Simeon Gutman of Morgan Stanley.

I wanted to ask -- and I don't know if we can shed light on Under Armour some more, but I wanted to ask -- to clarify if they've increased their channel distribution or there's a mix shift that's occurring, meaning they're just growing quicker elsewhere and then connected to that, this was math that we put out at the early part of the year. We said, look, if Under Armour was down another 10% with your business this year, it could be hurting you by as much as 90 basis points. Curious if you'd comment on that math.

So I'm not sure about the math, but it's -- Under Armour business has been difficult. It was based on their -- the change in distribution, which I understand why they did it, but they had a significant change in their distribution strategy, and that has impacted our Under Armour business. We're in the process of replacing that business and also looking at how we can grow the Under Armour business going forward. We're pretty excited about their pipeline beginning in '19 of things that we're -- that we think we can start to replace some of that Under Armour business.

Okay. And connected to that, I think Lee mentioned the transaction number, but I think that was all in. Can you share a transaction number if you exclude hunt and electronics, and I don't think you can exclude Under Armour from that, but if you just -- if we try to strip out the noise here, trying to gauge the underlying trend in the business?

Well, we can't, but if you take a look at that, our comps, without those, are 1%. And when you think about it, the concern with our negative comp, and I can understand that, but it's really focused on 3 things that are changing. One business we are exiting, which is the electronics business. We're downplaying the hunt business based on what's going on, not only from what -- our policy in firearms but just the industry is challenged. And we are repositioning a third with Under Armour, and we're pretty excited about what we can do with Under Armour as we kind of move into '19. The other ones are businesses that are going to -- we're, like I said, exiting or significantly downplaying. So without those 3 areas, our business is really good. We're really excited about it. The athletic apparel business comped double digits. We're happy with our footwear business, our golf business. The outdoor category was -- we weren't really happy with that, but other than that, we're really excited about our business.

Perfect. And then just lastly, same topic, on comp. Maybe can you just remind us what the calendar does to the comp for the back half? And I'm looking at the implied back half comp based on what you've done in the first half. It looks like it gets -- it could contemplate the world getting a little bit worse, but I think that might just be the shift.

Yes, it is the shift as we see it. We picked up $0.18 a share in the spring season, and we expect that we will give back those $0.18 a share in the fall due to the calendar shift. In addition to that, last year, we had 53 weeks. So we had a 15 -- we had a 14-week fourth quarter, which also accounted for about $0.09 a share in addition to that. So we've got the calendar shift, and we've got an extra week in last year's fourth quarter to go against.

The next question comes from Michael Lasser of UBS.

Ed, I think you just said that if you exclude hunt and electronics and Under Armour, your business was up 1%. Is that versus the down 4% that you reported?

That's correct.

So you said that...

On a comp basis.

Yes. The hunt and electronics business accounted for half of the comp decline, so that's 200 basis points, so that means that Under Armour accounted for another 300 basis points of decline in the second quarter?

That's the math.

Okay. You also -- and I think this was in Lee's remarks -- talked about less promotional activity. So you're kind of going through and making the decision to become less promotional at a time where your margins are getting better. And arguably, you could use some of that firepower to draw in traffic when maybe some of your competitors are not doing as well. So why are you making that strategic decision, particularly at a time when the consumer's in a pretty healthy spot, and we're seeing really good trends across a lot of other types of retailers?

Well, the margin rate, as we said, is being -- it's a less promotional environment out there. We have access to more better product from a footwear standpoint than we had before with the Nike product, adidas product. And there's a mix shift here with -- we talked about the gun and electronics business being 1,700 basis points below the company average. So as we downplay that and move business to other areas, it's -- there's an impact -- positive impact to margin rate from a mix standpoint.

I think that we also don't want to be in the business of kind of training the customer to wait for promotions on our side and get back to having a strong brand driving the sales for us. So it got pretty promotional last year. We're trying to pull back a little bit from that.

And the marketplace is doing that. I mean, if you take a look at -- we said that our athletic apparel comps were double digits if we exclude UA. And those double digits are at higher margin rates. There's better product -- I talked before that we see better product innovation and product line this year into next year, so there's no reason to promote it. And our comps are being -- the negative comps are being driven by those 3 components of our business. And we don't want to promote and give away product in the other areas as we try to transition these 3 categories.

That's understandable. I guess, the question would be you expressed some confidence that, next year the -- your comp trends will improve once you no longer see a drag from these issues. But where do you get the confidence that something else -- another category might start to be an issue?

Well, you never know. We're not seeing that right now. We have been seeing the gun and electronics piece coming for some time. I mean, right after the election, you go back and take a look at others in this industry that were public or the manufacturers and -- in a quarter or so after the election, those businesses started to have a problem. So we've seen this coming in the gun piece. And the electronics piece is just a low-margin business that we don't feel that we're well equipped to focus on that, and we think we can focus on other areas of the business that can drive more profitable sales. And we think we can drive more shareholder value in the long term through more profitable sales as opposed to trying to chase after a couple categories that are 1,700 basis points below the company margin rate.

Our next question comes from Robbie Ohmes of Bank of America Merrill Lynch.

One follow-up. Just the timing of the Under Armour drag going away, should we sort of view the second quarter as the biggest drag from the changes with Under Armour? And so is it the first quarter next year that we could see Under Armour going back to being a comp contributor?

Yes. I would say the first quarter of next year and -- is when it'll be much less of a drag. We don't think it'll be an issue beginning in the first quarter of next year. Like I said, we're somewhat -- we're quite confident on some of the things that they're doing. The HOVR shoe is great. We've kind of -- moving back into some of the core foundational product in Under Armour. We're excited about that. So -- and I think the first quarter next year, we're feeling a lot better.

And the other question I had, I think you guys said average ticket was up 0.7%. And I was just -- given the less promotional environment, is it mix that's holding it back from being up more? Or is it -- or is average ticket in apparel and footwear not up significantly? Any color on that you can give us?

Well, when you take that -- the hunt business down -- I mean, the firearm is $300, $400, $500, $800. When you start taking a look at the average ticket in firearms, that's pretty high. And that business, we are downplaying that, and we're taking that -- as we said, we're taking that out of 10 stores this fall, repositioning the floorspace to higher profitable areas that we think we can get sales growth out of, such as the license category. We're going very aggressively after the baseball category and our private brands.

So it's fair to say the apparel and footwear average ticket was up much more than 0.7% in the second quarter?

Yes.

And next, we have a question from Christopher Horvers of JPMorgan.

So a few questions. So as we think about the back half, if we assume the declines in hunt and electronics business persist, with the comp headwind from these businesses roughly double and is there any differentiation between the third and fourth quarters considering the peak of hunt, I think, in 3Q, but then electronics really starting to fall off in 4Q. So how are we thinking about that headwind and the differentiation between 3Q and 4Q?

Well, I wouldn't plug in your model that the peak of the hunt business is in Q3. A lot of the big game hunting seasons open up in November in areas where we're really highly concentrated. So Q4 is a very big hunt piece of our business, and it's been a good gift item in the fourth quarter also.

So with that -- does the headwind -- I mean, from a mix perspective, does this headwind roughly double the nearly 400 basis points in these 2 categories in the back half?

So there is more -- we haven't quantified. There is some more risk on the overall comps from the hunt business in the back half of the year. However, we feel good about the apparel and footwear businesses going to the back half of the year. As well, we're in a much better position with adidas and Nike going into the fall in terms of their -- our in-stocks for those brands so...

And we've got that all baked into the guidance, which is why we took the guidance to -- the sales guidance to where we took it. So it's all baked in there.

Right.

Understood. So it's basically -- it sounds like your thinking the apparel and footwear business is showing acceleration, and then, in 4Q, you have this easier gross margin -- easier eComm comparison on the website functioning last year in the holidays.

Yes.

Yes. And so in terms of -- as you think about the gross margin in the fourth quarter, you mentioned it's expected to be down. Can you talk us through that? I mean, I understand you have the 53rd week and there's leverage on occupancy and then there's the shift headwind from a sales perspective, but by the same token, your merch margins like -- looked like they were down 100 basis points. So any discussion there to help us think through why the gross margins are down in the fourth quarter?

Well, we're losing a week of sales to leverage fixed costs. So we had 14 weeks last year versus 13 weeks this year when you look at it in its totality, so that's one factor. And with the shifted calendar, overall, there is like a double impact. One is losing a week and the second is the shift puts more of the business behind -- after Christmas, so that causes a loss in the business and loss in sales as well. So that's why we've been reporting that comps on a shifted basis so you get a reasonable basis for that, but it's really leveraging the fixed costs both in our supply chain and in occupancy costs.

It's virtually all based on the shift.

Yes.

Okay. So then the last question is if you think about this shift and understanding the impact of sales, but is there a big impact on the SG&A line because, at least relative to our model, the SG&A came in about $15 million below expectation. Is that despite higher incentive comp headwind? So is that just -- is that corporate discipline? Or is that more having to do with the sales shift?

That's not a shift. That's more a disciplined spending on our side.

The next question comes from Camilo Lyon of Canaccord Genuity.

Ed, just going back to the Under Armour discussion. It's been such a drag for you. I'm curious, you mentioned in a prior question that, going into next year, you don't expect it to be much of a drag, which doesn't suggest you expect it to grow. It's just that it's much less of a detractor to comp growth. As you think about -- as you see the product pipeline over the next 9 to 12 months, and I know that, that expanded distribution to mid-tier department stores is not going away, how do you -- why do you think that there's going to be an improvement in the brand for you? Is there a dramatic shift in the segmentation that you're seeing from a pricing perspective or a quality perspective? Just trying to understand the finer points around the confidence interval that you have around the product improvement going forward.

So a couple things. I think the product that they've got will be -- they're working from a segmentation standpoint. We worked with them on exclusive product that would be available to us and how we're focusing on that. One of the product lines we're going to expand that's exclusive to us and at Under Armour's own stores and website is the product around The Rock. We're going to take -- I mean, he's a hot commodity right now. Everybody loves him. This is one of the areas that this is exclusive to us that we'll be expanding. We're excited about their HOVR shoe, and we're excited about the products that will be put in more of a premium, authentic athletic environment as opposed to more of a discount mid-tier distribution. So we're -- time will tell, but we're excited about it, and we're working very closely with them, and we're great partners, and we think we're going to -- between us, we're going to get this figured out.

Got it. And so just to be clear. It sounds like the -- you don't expect it to grow next year, at least as you can see right now. It's just that it'll be a slower decline of your business.

I didn't say I didn't think it would grow. I didn't say that -- I'm not going to comment on the growth of it. I will tell you that we're quite excited about the -- there'll be a significant change in direction of Under Armour.

Got you. I was just trying to understand the -- much less of a drag comment that you made earlier. Okay, great. And then just a question on the eComm business. It looks like the growth rate decelerated a little bit. Was there something that happened in the quarter that would explain the deceleration from the robust growth in the first quarter?

Yes. The first quarter, we had mentioned that we benefited significantly from the fact that, a year ago, we brought our platform in-house. And as a result of that, we have a lot of work to do to kind of get the marketing back up. We had to get SEO back up. So we had easy compares in Q1 that helped to drive a very strong comp for us in Q1 of this year. On a quarter-to-quarter basis, the eComm business remained penetrated at 11% of our sales in Q1 and 11% of our sales in Q2, so the deceleration was more a result of a spike in Q1 that was due to an overlap issue.

Okay. So is that the right kind of growth rate to think about going forward or mix penetration?

We're not going to comment. We're not going to give guidance on exactly what the eCommerce piece is going to be, but we're very comfortable with the growth rate we've had in the second quarter.

The next question comes from Matt Fassler of Goldman Sachs.

Two questions for you. First of all, as you think about the promotional backdrop, would you say that the environment broadly across categories is more rational, diminishing the need to be promotional? Or are there certain areas that remain hot where you've essentially decided to step back and not to play? And that would be other, of course, than hunting, where I know that decision is a bit more strategic.

Yes -- no, it's pretty rational out there. The industry is consolidated, and it's gotten more rational. And one of the ways that we're able to become less promotional is the exclusive products that we're carrying in the store right now, whether they're some exclusive products from Nike or adidas or our own private brands, and so we're able to sell those at full price. They're differentiated in the marketplace. The consumer finds the value in them. And we're able to -- we don't need to discount them to push them out the door.

Got you. And then the second question relates to the inventory decline, which, obviously, is quite impressive relative to the sales number. Can you talk about how much of that decline, again, relates to the categories that you called out, where you've decided to pull back, specifically hunting and electronics? I'm not sure how much you've also pulled back on your Under Armour inventory commitments, and perhaps what the inventories look like in categories where you're comping?

Yes. We're not going to get to that level of detail, Matt, but we're pleased with the inventory being down a little more than 6%. We've been much more -- our buying group has done a much better job of buying product this year than they -- maybe last year we've made some improvements. And what Lauren talked about, these key items, to make sure that we're in stock, and the key items sell at a faster rate at a higher margin. And so we've just done -- the team's done a better job from a merchandising standpoint in the second quarter than in the past.

The next question comes from Mike Baker of Deutsche Bank.

Can you talk about your market share? Even when you add back those 3 categories, your sales are up 1% on a comp basis, and that includes a lot of private label. Anyway, it's the strongest consumer environment has been, a lot of retailers are saying, in decades, certainly, in years. Is the sporting goods spaces growing slower than other areas of the economy? Or do you feel like you're losing share maybe to some of your vendors? Can you just talk about that dynamic?

Sure. No, I think our market share is stable. If you take a look at what some of the others in the industry have reported in sporting goods, I think we're doing really well, especially when you take out that -- those 3 areas. Our comps in athletic apparel being up double digits, x the one issue, I think is pretty positive, and so we're pretty comfortable with our market share. We think that we've got the ability to go garner more market share with -- and what we're doing, reformatting the store with these strike points that Lauren talked about in these key items. So we're pretty excited about it. We are -- I think one thing that we want to make sure The Street doesn't miss is -- and I understand you may be disappointed with the negative 4 comp, but this is the second quarter in a row we've raised our guidance. And if we weren't enthusiastic about what's going on in our business, we wouldn't have raised our guidance for the second quarter in a row. And if we weren't excited about our business, we wouldn't have bought back $182 million worth of stock in the first 2 quarters. So I think they're pretty -- a couple of pretty bullish signs of how we feel about our business going forward.

Yes. Those are fair points, and I appreciate that. If I could ask a couple more follow-ups. One, maybe I missed it or maybe it's embedded in the math somewhere, but have you ever told us how big the hunt and electronics businesses are? We now know the margin rate and we know the comp drag but just total size or penetration.

No, we haven't. And we haven't gotten to that level of granularity, and we're not going to start now.

Okay. So I guess we'll all just make our own estimates on what that would be based on the information you have provided. All right, one more quick follow-up is -- we know the calendar shifts have helped by about $83 million year-to-date. You say you're going to give that back in the third and fourth quarter. Can you differentiate how much gives back in which quarter or, again, we can also just make our own assumptions and we'll go from there?

One of the things we did is we went to annual guidance, and so we've given you guidance of how -- what we're going to do for the year. This is the second quarter in a row we've raised guidance, but we're not going to break it down quarter-by-quarter.

Right. But you are telling us with the calendar shift has been in each of the quarters so -- all right, well anyway, we can just make our estimates. Appreciate the color.

Yes.

The next question comes from Scot Ciccarelli of RBC.

Scot Ciccarelli. Can you help us understand the change in the eCommerce fulfillment side a little bit better? I guess what I'm a little confused about is that you're talking about improved efficiencies and speed of delivery from the new eComm center. But frankly, I guess I thought the whole idea around the store-level fulfillment is that your stores are already closer to customers than DC ever could be, so that would enable faster delivery. If you can kind of connect those 2, that'd be helpful.

Sure. I think that in a centralized eCommerce fulfillment, you can get more consistent execution. We do have the inventory close to the stores so, obviously, the shipping time is light. It's small coming from the stores. But the consistency, the execution and the picking isn't as consistent as it is coming out of the centralized fulfillment center.

And it's still going to be a combination of -- we're still going to be using stores for distribution. We're going to be using a central fulfillment strategy.

Right.

So it's going to be a combination of the 2, and we feel that's the best use of our capital and the best for the consumer.

But for an average order, let's say, is the faster fulfillment coming from a DC? Or is it coming from the store that might be a couple miles away?

Well, once we put the distribution center in the Northeast, it'll be faster from the DC. But right now, we have a central fulfillment in the Midwest that services the whole country. So at this point, the fulfillment from the local stores is faster.

And the next question comes from Steve Forbes of Guggenheim.

I wanted to focus on the 2Q merchandise margin dynamic, right. So you mentioned 141 basis points, and I guess we could try to do some math around what part of that, and I think the majority of it is due to the increasing private brand penetration, so maybe just correct me if I'm wrong there. And then just touch on what's happening in the brand -- the branded SKUs given the reduced promotional activities. Are those merchandise margins still under pressure? Or have they stabilized?

They've stabilized and actually increased. Again, so we've talked about some of the, not only our private brands but exclusives that we have with the brands. That's gotten to be a bigger part of our business also, and the brands' margins have increased also.

And a big part of this is mix as well. So we talk about electronics and hunt being 1,700 basis points below the chain average. So those big reductions we're seeing there is helping merch margin as well.

And then just a quick follow-up on the reduction in CapEx guidance for the year, right, so about $25 million net. What's driving that, if you could just focus us in on what's changed quarter-over-quarter here?

It's really timing and the build-out of the fulfillment center that we've gotten in Conklin. The timing of when the spend is going to hit, we're looking to open that facility in the third quarter next year. We thought that more of it would be in the back half of the year, this year, but the way it's coming out, it's going to be more in the early part of next year.

And the next question comes from Kate McShane of Citi.

I wondered to the extent that you can, can you talk about the cadence of comps that you saw throughout the second quarter and any high-level commentary about back to school?

Yes. So Kate, we haven't commented on the monthly breakdown in the comps throughout the quarter, so we're not -- we won't be doing it at this point. And again, we haven't given any guidance going into the third quarter either as well. So unfortunately, we're not going to be able to add some color to that.

Okay. And there has been a management change in one of your closer competitors in those Texas, Oklahoma area. Just wondering if you've seen any real change there in the competitive environment.

No.

Okay. And then my last question is just as we look towards Q4 and fully understanding you don't guide by quarter, but just how should we think about Q4 and just some of the strength that you saw, particularly with the cold weather apparel, how should we think about that this year and then maybe some offsets to lapping that strong compare?

Well, I mean, we're -- we continue to be enthusiastic about the business, like I said. But the one thing that, I think, The Street needs to understand is the calendar shift. And I'm not sure that you guys completely understand that yet, that we -- it helped us in the first half of the year, which we guided earlier in the year, and it's going to have -- it's going to be a bit negative in the back half of the year.

The next question comes from Brian Nagel of Oppenheimer.

So the first topic I wanted to talk a little bit further about is with Under Armour. Clearly, Under Armour has been a key partner for you for a while and your stores are -- I mean, historically, quite...

Brian, we can't -- Brian, it's tough to hear you.

Can you hear me now?

I can hear you now. Great. Yes, thank you.

Perfect. Sorry. So the first question I wanted to ask dive a little deeper into the Under Armour issues. Clearly, Under Armour's been a key partner for you, historically. Your stores have been very geared towards Under Armour. Does what's happening with their distribution necessitate over time for you to, to a certain extent, retrofit your stores towards other brands? And then the second question I have in Under Armour, with what's going on now, again, it sounds like more of a shorter-term issue, you expect a bounceback next year. Is there some type of support coming to Under Armour -- special support coming to DICK'S from Under Armour that's helping you get through this period?

So as far as retrofitting the stores. We're taking a look at space of what we're going to do. We've changed some space as it relates to the women's side of the business. But again, we're enthusiastic about Under Armour's pipeline, and we think this headwind is going to subside in the first quarter -- beginning in the first quarter next year. And from a support standpoint, Under Armour has always supported us, and we've tried -- and we've supported them. So there hasn't been any meaningful change in the relationship from what we've always had.

Okay. And the second question I had or second topic, on CALIA, you called it out now for a while as an area of strength and a success with your private brands. As you look at the demand trend there, can you say where it's coming from? Do you think that customer is switching from other brands to CALIA? Is it new customers? Is it different than what DICK'S has catered to historically?

Yes. When we built the CALIA brand, we did it because we felt we had a whitespace in our stores and that this brand is tapping into it. So lots and lots of women shop our stores and were not only shopping for themselves. They were shopping maybe for kids. And the CALIA brand has tapped purposely into that consumer in a way that some of our other brands, which target a little younger, was not doing.

The next question will come from Peter Benedict of Baird.

Just 2. First, Lee, I don't know, can you provide anymore color on maybe the cost of these DCs that you have coming on? Just curious what the capital is you have set aside for those.

We haven't disclosed that at this point.

Okay. Are you -- once you get these 2 up and running, I mean, how do we think about longer term? Does that set you guys up for the next few years? Or do you think there's additional supply chain investment that needs to be made?

It'll probably carry us for a few years.

Okay. And then just shifting over to ScoreCard. Any stats you guys can share around the loyalty program: number of members, penetration, what really the opportunity is there?

Yes. We have -- a significant majority of our shoppers are ScoreCard members. I believe that we announced last quarter that it's over 22 million people, and that is the engine of all of the data that we use to drive personalized marketing. So we use it to drive our investments in direct mail, in e-mail and even when we go buy media, we know where our ScoreCard members are and how they skew. The work that we're doing now is to merge those databases with the Team Sports HQ database so that we can drive even more personalization. But ScoreCard is a huge, huge engine of our marketing and our data and knowledge of our customer.

The next question comes from David Schick of Consumer Edge Research.

Thanks for taking my question. One on golf, been having a better year industry-wide. You guys, I think, as well. It's product intros, I guess, and economy. Just, Ed, your thoughts on whether it can comp the comp going forward. The industry has tended to have more pendulum swings. Is there something changing in the way you think about the golf industry? And then second is sort of across retail. A little bit of a reemergent theme, perhaps, in more wage dollars going back into the models. Out there, I know you guys are in -- you've been clear. You're investing for what's right for the business. What are you seeing and doing on the wage front?

Yes. We'll start with the -- with golf first. We think golf's really in a good place. There's a couple reasons for that. The guys that are out there right now on tour are bringing some excitement back to the game, and it only got multiplied with Tiger coming back and playing well. So we think golf's really in a really good place. I was out to -- we're enthusiastic about the pipeline for Callaway going forward. We've seen the new Titleist driver, which is really, really good. And we were at TaylorMade yesterday out in California and looked at their product line and are really enthusiastic about that. So I think there's a -- at least another year of a good product cycle of great product and great marketing from the brands to come in and keep this going. There's some new innovations in golf balls, in clubs, wedges, putters, I mean, it's across the whole spectrum right now, and we continue to be enthusiastic about golf. As far as wage pressure, I think everybody is under wage pressure, and we're dealing with that the best we can. We're making sure we've got the right people in the store. We're looking at our labor model to make sure that our labor model works, and then we serve our athletes also. So it's a complicated jigsaw puzzle to put together, but we feel we're doing very well in that area right now.

And our final question today will come from Sam Poser of Susquehanna.

I have a couple of follow-ups. Lauren, I think you mentioned on the -- doing a lot of things to improve the shopping experience, both online and in-stores. I wanted to just discuss the staffing levels in the stores and training within the stores and sort of what's evolving in that.

We have had a huge focus in our stores on training and specifically, on cross-training so that our associates and teammates now are not just able to work in one area, but each of them can help each other out and lead one of our athletes through the entire store. It's been a huge initiative for us so that we're getting more bang for the buck with every teammate that we have in the store. So we are very, very focused on service. We are very focused on efficiency and productivity so that we can free up those athletes to serve -- sorry, those teammates to serve the customer better.

And then, just to confirm, the double hit in the fourth quarter is the week of sales that you lose and the calendar shift, which makes the sales -- the loss of sales quarter-over-quarter much greater in the fourth quarter than it is in the third quarter. Is that a fair statement?

Yes. We lose a week, and we have a calendar shift, yes.

Okay. And then lastly -- I'm sorry to beat the Under Armour question to death here. But you -- I guess, you have some items that you're excited about for spring. However, beyond that, you're building out your private label apparel business. You're building out Nike. And it sounds like you're building out adidas. So anything from anybody else has to be able to take share from that stuff or it has to be incremental. So outside of The Rock and the HOVR, I mean, are you seeing real strength? Or is it just those things that would mitigate the current declines that you're seeing?

Well, we think these things can help mitigate the current decline, but we're also seeing things from a pipeline standpoint that would be exclusive to us that we're working on other products that can help stem this decline. And we've been great partners with Under Armour. They've been great partners with us, and we're both working on this to get this to be a growth vehicle for both of us again, and our teams are working very hard and collaboratively. And we think that, in the first quarter of next year, we start to make the turn. It'll be much less of a drag then.

And is this -- are you testing this with the consumer in that when you're dealing with active apparel or athletic apparel, is it really -- it's much more difficult to differentiate than footwear. I mean, the difference between generally what's carried in footwear in the moderate channel versus with you is significantly different. You can see it's marketed differently. But with apparel, that's a much finer line. What's going to make that work?

Well, we think the product is differentiated. It's higher technology. It'll be the real athlete who's looking to use the product to actually perform in as opposed to look like they perform in. We're confident some of this stuff will work. And now that's part of what we're supposed to do as merchants is kind of look at this, determine what we think is going to sell, talk to the brands that we're doing business with and let them know where we think the gaps are. And Under Armour has been great listening to us. We've been great listening to them. And we're pretty enthusiastic that this will get better beginning next year.

And Sam, the customer is able to tell that differentiation with the other brands like Nike and adidas and so on. And the guys like Kohl's and us, we can both succeed with those brands really well with differentiated product assortments.

This concludes our question-and-answer session. I would like to turn the conference back over to Ed Stack for any closing remarks.

I'd like to thank everyone for joining us on our quarterly call, and we'll look forward to talking to you at the end of November. Thank you.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.