Thank you for standing by and welcome to the DICK's Sporting Goods First Quarter 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I'd now like to turn the call over to Nate Gilch, Senior Director of Investor Relations. You may begin.

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 on 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 and uncertainties that could cause our actual results to differ materially from these statements. Any such statements should be considered in conjunction with cautionary statements in our earnings release and risk factor discussions in our filings with the SEC, including our last Annual Report on Form 10-K as well as cautionary statements made during this call. We assume no obligation to update any of these forward-looking statements or information. Please refer to our Investor Relations website to find the reconciliation of our non-GAAP financial measures referenced in today's call. And finally, a few admin items. First, as we previewed on our last earnings call, beginning this quarter, we have revised our comparable sales calculations to include revenue from our GameChanger business. Second, beginning this quarter, we've included grand opening advertising costs within preopening expenses. These one-time costs incurred in connection with opening new stores were historically presented within SG&A, part of advertising costs. We have reclassified prior period amounts informed to our current year presentation. And finally, for your future scheduling purposes, we are tentatively planning to publish our second quarter 2024 earnings results on September 4th, 2024. With that, I will now turn the call over to Lauren.

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 omnichannel 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. 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 omnichannel 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 continue to see growth in our omnichannel 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 omnichannel athlete experience. We expect House of…

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 hardline. 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, the 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 openings. As Nate noted earlier, SG&A and pre-opening expenses have been adjusted in the current…

Thank you. We will now begin the question-and-answer session. (Operator Instructions) We ask that you please limit yourself to one question and one follow-up. Your first question comes from the line of Adrienne Yih from Barclays. Your line is open.

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.

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're 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 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?

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 the -- is kind of our differentiator as we see not only within our own industry players, but quite frankly against 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.

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

Thank you.

Thank you.

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

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 plan to be flat within the overall gross margin guidance, or is the gross margin being elevated by occupancy? Thanks.

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 were -- was slightly offset by a 45 basis point decline in 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 our -- 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 lifecycle 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.

That's helpful.

And Simeon, we are expecting --

I want to ask --

Simeon, I'll just add one more thing to what Lauren said. The merch 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 '24 compared to non-GAAP 2023 results.

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?

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 have 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 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.

Thanks. Good results. Take care.

Thank you.

Your next question comes from the line of Kate McShane from Goldman Sachs. Your line is open.

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?

Kate, we are excited to raise the comp guidance from 1% to 2% to 2% to 3% for the balance of year. As Navdeep 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 do plan on continuing to gain market share. That's one of our -- it's one of our key strategies and we think we have the experience and the product to be able to do that.

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?

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 trying 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.

Kate, I'll add two more points to that, to what Lauren said. First of all, the platform itself is a very high growth, both on a sales basis as well as on a -- and as a very profitable platform. So by itself, the business itself is fantastic. The other thing that we have talked about is the fact that the athletes that are both GameChanger user and the ScoreCard user have 2x the revenue profile of just a ScoreCard user. So that indicates also that the level of engagement that we have with these multi-channel athletes is actually really, really exciting and interesting to us as we look to the long-term opportunity with this platform.

Thank you.

Thank you.

Your next question comes from the line of Chris Horvers from JPMorgan. Your line is open.

Thanks. Good morning. So my first question is just a follow-up on the merchandise margin. Can you talk about what after the first quarter being down, can you talk about what the drivers of what makes it go up over the year? And within that answer maybe address is it channel inventory is clearing up? We've heard about maybe some of the vendors being promotional. Is the newness coming? Is it the House of Sports? Maybe help us think about what the big drivers are there? Thank you.

Yeah, Chris, I'll start with the full-year outlook that we provided. So we expect both the gross margin and the merge margin to expand modestly compared to 2023 non-GAAP results we posted last year. The ingredients within that, if you think about Q1 results, we have already declared what there are a couple of points we shared today around the Q2 expectation that you need to be thinking about as you model this. The first and foremost is we had an 84 basis points of accumulative true-up in shrink last year when we did the physical inventories in that stores. And so we don't anticipate having that same impact this year. So there will be favorability that we expect in shrink results in Q2. And we continue to be appropriately cautious for the balance of the year just on the shrink line itself. And in addition, as you would remind -- you would recall that we were cleaning up some of the inventory in the outdoor space last year in Q2. So we don't anticipate annualizing those actions either because where we have exited Q1 this year, we feel really great about the -- our inventory and the quality of the inventory and most importantly, the assortment that we have available for going into the kind of the key selling season here in Q2. So excited about the assortment and how clean that assortment is. So we expect that action again will not be annualized as we look to Q2.

Got it. And then in my, as a follow-up question, just can you touch a little bit on how you think about the cadence of comps over the year? I know you don't drive speak specifically to by quarter, but how should we think about that? I know there was some lift in the first quarter here with regards to lapping the closed stores, the House of Sports stores. And I think the general consensus maybe was around two points. So any comments on that and how you think about the cadence of comps over the year? Thanks so much.

Yeah, Chris, you're absolutely right. We said originally, and we still hold that the first half of the year, where we had eight of our largest stores being converted to House of Sports and closed for a good part of the first half of last year is driving stronger comps in Q1. Now, we just obviously delivered a stronger comp than we had even expected. But in the first half we do, we will feel that impact, and then in the second half, we'll go up against that those openings. And so that is why we've said the deceleration. We expect some deceleration in the back half and nothing has changed in that opinion. We continue to believe that.

Great. Thanks so much.

Thank you.

Your next question comes from the line of Robby Ohmes from Bank of America. Your line is open.

Hey, good morning. Great quarter. My first question is just, Lauren, you guys have been leading with apparel and footwear for a little while now. Any signs or expectations that hardlines could start to catch up and grow again for you guys?

Thanks, Robby. Yes. What's really great about the quarter we just had with the 5.3% comp is we saw growth across all aspects of our business. So we saw growth in footwear, we saw growth in athletic apparel, we saw growth in total hardlines. Obviously, there's some puts and takes in there. And we've been talking about some of those -- some of the consumer trends that are right sizing from the pandemic. But that's a very small piece of our business. And the core hardline categories are doing very well. This past quarter, we had a slightly wetter season, impacted the game of golf and team sports a little bit, but nominally so. And in general, we're very, very excited about the hardlines business.

Got it. And then you guys called out Nike and the Paris Summit in the press release, can you give a little more color on what you think the pipeline looks like from Nike and your other key vendors versus what you were getting last year heading into the year?

Thanks, Robby. Yes, I would say we're excited about the product pipeline that we see across our strategic partners and we look long-term, obviously, we have long-term strategy planning meetings where we're looking at a couple of years with our strategic partners. I'm also very excited, as we all are, about our flagship vertical brands, the CALIA, DSG, VRST, doing incredibly well and some of our emerging brands. Within our strategic partners, we are very excited about the long-term work that we saw in Nike. We were there at the innovation summit and then more recently we were in their offices and looking at future innovation. I would call out things like the technology that they are bringing to the air platform. It's going to be very exciting from a consumer standpoint. We're really excited about the elevation of both performance apparel and footwear and bringing some newness into those categories. And then they've started to talk about what their Olympic messaging is going to be and we are really, really excited to see that come to market and just drive consumer noise around the Nike brand. So across the board, very excited about that partnership.

Sounds great. Thank you.

Thank you.

Your next question comes from the line of Warren Cheng from Evercore ISI. Your line is open.

Hey, good morning. Congrats on a really solid quarter and a tough environment here. I wanted to ask about how you're thinking about SG&A investment here and whether that's evolving given the really strong response you're getting to the elevated service levels at House of Sport and the next-gen stores. Could the core benefit from kind of a higher level of SG&A and selling personnel? And maybe just if you could take a minute and talk about how you're thinking about SG&A in the medium term here.

So Warren, first of all, let's start with where the SG&A came in. So SG&A deleveraged 10 basis points here in Q1 and that was driven by the core investments that we are making is including in advertising. So because we see clearly an opportunity to continue to position, especially at flagship vertical brands in a much more appropriate fashion with our athletes because those brands, like Lauren said, are resonating so well. So you saw us come out with advertising message around CALIA around DSG as well as drove the brand awareness for our dotcom platform with DICKS.com. So that will be an area that we said we were going to invest in Q1 and the early part of the year, and we did that. And then on a full-year basis what we have guided is we expect our SG&A to modestly leverage on a year-over-year basis. So we are being prudent in how we are making investment. You called out we are making investments in talent, in technology, as well as in the store service level, especially as you look to the House of Sport as well as the 50K. And those are kind of the planned investments that we are making in addition to investments that we are making in store training. So we will continue to look to make these core investments that are driving the differentiation in the marketplace and are resonating really well with the athletes. However, balancing that also against the overall ability to drive the leverage on the SG&A line for the full year.

Thanks, Navdeep. And my follow-up question, can you help us put the $35 million per box number that you gave last quarter in a little bit more context? Once you're fully rolled out to the 75 to 100 target over the next three years, would that represent sort of one of the larger and more productive stores in the chain? Because I know the new House of Sports have a lot of different shapes and sizes or is that pretty representative of the average that you would expect across the fully scaled-out chain?

Yeah. So the $35 million that we shared last quarter, that's kind of our expectation for an average House of Sport on an omni basis. That includes both the store as well as the e-comm business. And we have rolled out 12 stores based -- this is based off of the learning informed by those 12 stores that we have opened at the end of 2023 and we continue to be really excited with the two store openings that we have done here in Q1.

I would point out also that the 50K's continue to deliver incredibly strong results. And the House of Sport, the ones that have been opened the longest, also keep driving growth. So we're really excited, not just about how they open, but how they grow past that.

Thanks. Nice quarter. Good luck.

Thank you.

Thank you.

Your next question comes from the line of Mike Baker from D.A. Davidson. Your line is open.

Okay, thanks. Sort of been asked, but maybe ask it another way. The -- so the EBT -- the implied EBT margin for the rest of the year is up, I think after it was down this quarter. Now it seems like a lot of that is because of cycling the second quarter declines from last year. So I guess the question is this, how should we think about the potential to increase your margins in the back half of the year and then beyond this year, the margins, at least according to your guidance, will be up, I think, 30 basis points on the EBT line this year. Well, what are the long-term margin drivers? Should margins once we cycle the easy comparison in the second quarter, do margins keep going up?

Yeah, Mike, great question. I won't provide quarterly guidance today, but what we have given to you are some of the key ingredients. On a full-year basis, we expect our EBT margin to expand driven by the fact that we expect gross margin to expand modestly as well as our SG&A to leverage modestly compared to non-GAAP results for 2023. You called out really well that the drivers of that will be definitely here in Q2. Keep in mind, Q2 will also have the higher amount of leverage being driven by the $100 million of sales shift that we're going to see from Q3 into Q2. In terms of the long-term expectation, we continue to be really, call it, excited about both the ability to grow our top-line sales as well as the bottom-line profitability over the long-term.

Okay, that makes sense. Follow-up question. How much of the $11 million increase in pre-opening costs went to pay Larry Bird, Kevin McHale and Robert Parish to show up at your opening, which was amazing.

Those are, I'll call them, they're right investments. They're like Lauren said, they are driving such an excitement in the community and the overall results that we are driving here in these stores. But great question.

Great question.

Thank you. It was cool.

Good.

Thank you.

Your next question comes from the line of Joe Feldman from Telsey Advisory Group. Your line is open.

Yeah. Hi, guys. Good morning. And wanted to ask a bit about the promotional environment and what you're seeing out there. And, because, it feels like inventory levels are still a bit high from a lot of the competition and some of the brands. And I'm just curious about how you're approaching it and what you're seeing. Thanks.

Thanks, Joe. We didn't see an unusually promotional environment in Q1. Certainly the industry overall is in a better place than it was at the end of last year. And our inventory, in particular, 5.5% growth on a 6.2% total comp. We feel really good about our inventory and the healthiness of it. And so I think we continue to manage through whatever promotional environment will come our way, but we have no concerns there and we know that we have the ability to manage with the tools that we have to drive profits.

Thank you for that. And then another kind of related question is some of the categories that were asked about, but how is outdoor broadly performing? Because I know, again, we hear it's kind of still soft out there and just wondering if you guys saw a step up in your outdoor performance.

Yeah. Joe, I want to point out, in the long-term, we have a tremendous confidence in the outdoor business. It's a $40 billion TAM. We are building public lands. We're working to moose draw, athletes to bring, explorers rather to bring them in, so that we can really deliver a unique and differentiated experience in the outdoor category. Across the board, the industry does continue to have a post-pandemic reset and we're no different in that than everybody else. But it doesn't take away. It's a small piece of our business, first of all, at this time, and doesn't take away from our confidence, our long-term confidence, that there is a consumer here that we can serve even better than they're being served today. And participation in the outdoor category continues to be high. So when this category rebounds, it's going to, we believe it's going to be really strong.

That's great. Now, thank you guys for that, and good luck with the quarter.

Thank you.

Thank you.

Your next question comes from the line of John Kernan from TD Cowen. Your line is open.

Good morning. Thanks for taking my question and congrats on a great quarter.

Thank you.

Thank you.

Can you talk to footwear. Footwear has been a big driver of comps going back to last year. I know the premium footwear decks have obviously attracted top allocations from Nike, HOKA, ON. How many more doors can HOKA and ON get into? How many more premium footwear decks can there be? And maybe just talk the allocations you're getting at footwear, given it's such a big portion of the comp?

Yeah, great question. Footwear certainly has been a big driver of comps and footwear is a key part of how people shop. It's the engine that drives the train. We're very pleased with our footwear business. Our premium full-service footwear decks, which we started putting into place many years ago, absolutely are driving that elevated experience and then opening us up for more allocations, more specialty brand partners with HOKA and ON and with the premium footwear decks, we'll be at 90% by the end of the year. And obviously, all of our new store development, as we reimagine the portfolio, will have premium full service footwear decks. HOKA and ON are still in a good portion of the chain. There's still significant upside in both brands. HOKA is a little further ahead, been on at this point just in terms of the number of door count, and we're excited to continue to expand those brands as well.

Got it. And then maybe we saw some more sluggish trends within the broader sporting goods industry in the first quarter that you obviously significantly outperformed. I'm just curious are there any regions that are outperforming? What were the biggest category outperformers in Q1? And how are you thinking about long-term market share in the industry?

Yeah. We had 5.3% comp. We saw growth. We didn't see sluggish trends across our categories. We saw growth across all of the different areas of our business, footwear, apparel, total hardlines, all grew. And I think what we can speak to our story, the consumer is absolutely putting a priority on a healthy and active lifestyle. You see people running and walking, being outdoors. But I think the most important thing is that we are providing them with an experience that they're clearly choosing. And that's both due to the products that we have in our stores as well as the experience that we provide in-store and online. And so it's the core strategies that are coming to life that are driving our performance and we're not seeing any pockets of softness across the country.

Excellent. Thank you.

Thank you.

Your next question comes from the line of Justin Kleber from Baird. Your line is open.

Hey, good morning, everyone. Thanks for taking the questions. First just a clarification on the full-year merch margin outlook. Is the modest expansion just recapturing the shrink pressure from last year or you're expecting your, I guess what I would call your core merch margins to improve year-over-year, particularly, Navdeep, you mentioned lapping the outdoor clearance. So just wanted to clarify that first.

Yeah. So from a shrink perspective, we said that we will be having favorable impact in Q2 and then we continue to be appropriately cautious. We have counted half of the chain and still half of the chain needs to be counted. So as you can imagine, we want to be cautious in our expectation for shrink. And on the merch margin side, we continue to be really enthusiastic about the work that our merchant team is doing in terms of the differentiated product assortment we are bringing, the work that we are doing and how well our flagship vertical brands are performing between CALIA, DSG, VRST. And so we continue to be -- I won't break down merch margin expectations deeper than that, but we expect to grow our margins, both the gross margins and merch margin, on a year-over-year basis modestly as we look to the full year.

Got it. Okay, thank you. Just one other question around the calendar shift. Curious if you could share the EPS benefit in 1Q. I assume those sales flow through at a much higher incremental margin. But, again, just any color on how that $45 million in 1Q impacted earnings. And then just so we can think about the list in 2Q related to the $100 million in the calendar shift benefit. Thank you.

Yeah, I would say, as you can imagine, it's $45 million. So you can appropriately do a flow-through calculation on that. And this is -- this -- the shift is happening in the early part of the year or -- so you can appropriately adjust your margin expectation in the SG&A. I would say, net between the Q2 and Q3, the impact would be neutral. It's just that Q2 is going to get a favorable impact with $100 million of sales within approximately the same amount of an offsetting impact in Q3.

All right. Thank you and congrats on the quarter.

Thank you.

Thank you.

Your next question comes from the line of Joseph Civello from Truist Securities. Your line is open.

Hey, good morning, guys. Thanks for taking my questions and congrats on the quarter. I just wanted to ask another question about the cost cadence this year. In 2Q, obviously, you're going to be lapping a ton of clearance in the outdoor from last year. Should we think about recovering all of that or most of that or do you give any guidance there?

No, I don't know, if I'll give any more specific guidance on a quarterly basis, but as you can imagine, in addition to kind of the lapping of the clearance activity that you called out, we will be favorable against the shrink true up that we had almost about 84 basis points of an unfavorable impact that we saw in Q2. I would look at it on a full year basis. We -- like we said, we expect our merch margin to expand on a year-over-year basis as well as the gross margins.

Okay, great. And then just one more question. I think said shrink came in a little bit better than you were expecting. How should we think about that in the second half as you are lapping normalized shrink from last year?

Yeah, absolutely. Great question. So, like, shrink, like, it deleveraged 22 basis points here in Q1. It did -- it's -- the shrink is still going up on a year-over-year basis. I want to be clear about it. So that's where we continue to be appropriately cautious as we look to Q3 and Q4 impact on the P&L basis. However, like you said, it did moderate versus our internal expectation, which is a good news trend. But we have only counted half of our chain. So we'll continue to be appropriately cautious as we look to the balance of the year on shrink line. I would give a lot of credit to --

All right. Thank you so much.

I'll give a little bit of a shout-out to our store team and the DC team, the work that they're doing in -- not just in continuing to move the merchandise, make appropriate operating decisions to keep the stores and our athletes safe. That is allowing us to have a slightly, call it, moderated growth on a year-over-year basis versus our internal expectations.

Got it. Thanks so much.

Thank you.

Your next question comes from the line of Chuck Grom from Gordon Haskett. Your line is open.

Hey, good morning. Really great quarter. My question's on traffic. The past three quarters have been really, really strong, particularly on a two-year basis. Curious if there's a way to unpack new customers versus existing customers.

So we've continued to grow our athlete base over the past several years. I think we had 7 million new athletes joined last year and 1.5 million this past quarter. And traffic has continued to be strong. So it's about new athletes. It's also just about the differentiated product that we keep bringing in and the fact that the elevation of the brand and the experience has been strong. So really, really good traffic numbers and our consumers holding up very, very well.

Okay, great. And then my follow-up is just on GameChanger. I'm curious how you're thinking about growing that business for kids and youth sports. There's just a big appetite right to watch your kids, there's a ton of different platforms out there, but it seems like you guys are taking the pole position here. Just so curious how you're thinking about growing it over time.

Yeah, great question. And we have the same vision you have. It is the best platform. And really, we started off GameChanger. It was a Diamond Sports focused business. And so while we continue to improve, we're using artificial intelligence to get the video even more exciting and accurate. And there's lots going on behind the scenes there to drive even more excitement there. Our biggest thing in the short term is to grow the Diamond Sports business into other emerging -- they're not emerging sports, but they're emerging to the platform, things like volleyball and other sports, and basketball is a big priority. So that's how we're going to be growing near term. But our vision is big here and we are thinking long-term and how we can continue to develop that connection with our athletes, not just when they're in the store, but when they're at their practice, at their games, and beyond during training.

Great. Thank you.

Thank you.

Your next question comes from the line of Paul Lejuez from Citi. Your line is open.

Hey, thanks, guys. I'm wondering if you could talk a little bit more about stores versus e-comm in terms of what you're seeing transactions versus ticket within both channels. And I'm curious if you could share anything further about what you see in the e-comm business in the trade area of a House of Sports store when it opens and as they mature. Thanks.

Yeah. Paul, thanks for the question. We don't -- we no longer break out stores in an e-comm, and that's because inherently, the customer is so omnichannel and focused that it became a very challenging exercise. But we're very pleased with our digital business and very pleased with how the e-commerce business responds when we open new stores and when a House of Sport comes in the area. It's all a very positive ecosystem story.

Okay. Then just a follow-up. Did anything change in terms of how you're thinking about category performance as you move throughout the year just based on what you saw in Q1, maybe relative to your prior expectations, just how each category is contributing to this year's growth.

Now, overall, the categories are delivering on our expectations above them in Q1 and nothing material changed.

Thank you.

Thank you.

Your next question comes from the line of Will Gaertner from Wells Fargo. Your line is open.

Hey, guys, thanks for taking my question. Just firstly, where are you guys and who are you guys taking share from in your opinion?

Yeah, so it's a quick question. Yes, we're taking share, really across the board. There's been some consolidation in the industry. We are taking share from, I don't want to call out anybody specifically, but we have our premium footwear assortment, for example, is driving strong interest. Our apparel is driving strong interest. Our vertical brands are meeting consumer needs, even everything from opening price point to true lifestyle. So I would say it's across the board and across the industry that we're seeing share gains.

Got it. Thank you. As far as GameChanger, it looks like it added 20 basis points to the comp, excuse me, last year.

Correct.

Yes.

How do we think about GameChanger as far as revenue going forward? I mean is -- I think you call that $100 million revenue in 4Q, is that -- is there any seasonal way puts and takes there? I mean how do we think about GameChanger and how much is going to add to the comp going forward?

Yeah, you said both of the facts really well. Yes, the favorable, the impact was -- the favorable impact to comp was about 20 basis points. And we expect that on a full-year basis. It will range between 20 basis points to 30 basis points. And our full year expectation from the GameChanger platform is to deliver about $100 million of sales yet in 2024.

Got it. Thank you.

Thank you.

Your next question comes from the line of Seth Basham from Wedbush Securities. Your line is open.

Thanks a lot and good morning. My question is just on SG&A. Following the business optimization actions you took last year, where are you with reinvesting there? Are you still on track to reinvest in the focus areas that you planned and any other color you have on the SG&A outlook?

Yeah, no, we are definitely focused on investing in appropriate capabilities and quite frankly, we have been doing this all along 2023 itself. The big area of investments continue to be in talent, right, bringing the right talent that is helping us do these store openings have the successful openings not just of the House of Sport, but the 50K. There is a lot of investment, as you can imagine, that is going in technology area, which as you can imagine, that is allowing us to get the top-line returns from those investments. And it's also helping us drive productivity improvements, which we are then able to reinvest that into the business. And then the third area continues to be investment appropriately within the advertising line, driving the brand awareness as well as the growth in our vertical brands.

Got it. And so, going forward beyond 2024, SG&A leverage is going to be predominantly dependent on top-line growth. That's a fair statement?

That's generally a fair statement, but I would say again, we -- on a long-term basis, we expect both to drive top-line growth as well as the bottom-line profitability improvement. It will be balanced between the margin investment opportunity or the SG&A investment opportunities.

Thank you.

And your final question today comes from the line of Jonathan Matuszewski from Jefferies. Your line is open.

Great. Nice results and thanks for taking my questions. The first one was on ticket. If you could give us just more color on what fueled the ticket growth this quarter looks better than the industry and prepared remarks indicate more spend per trip. So any more color there would be helpful and kind of understanding what's embedded in that revised comp guide for 2024 regarding ticket whether the 50-50 split from 1Q is reasonable. Thanks.

Yeah, Jonathan, I would say the answer to the first question is the same, right? The -- what is driving increased basket size when the athletes come to our store as well as the overall ticket continues to be driven by the differentiated product that we have access to. This is the product that is highly coveted, highly in demand right now. So having that product allows you to not only capture the demand that is walking into the store or online, but you are able to get a much better recovery on that full-price selling as well. So the premium assortment and the premium product as well as the most allocated and sought-after product continues to drive both the -- our ticket size as well as the basket size when the athletes come. And in terms of the guidance, we don't provide the guidance at that level. So I'll continue to keep the comp guidance of 2% to 3% for the full year at the highest level. And we continue to be really excited about the balance trend that we are driving between the traffic growth as well as the ticket growth.

Great. And just a quick follow-up on the transactions this quarter. Did you see any discernible shift in trends across income cohorts?

We didn't. We saw growth across all of our income demographics and we didn't see trade down from best to better, better to good. So pretty consistent across all the income demographics or cohorts.

Thanks so much.

Thank you.

And that concludes our question-and-answer session. I will now turn the call back over to President and CEO, Lauren Hobart, for some closing remarks.

Well, thank you all for your interest in DICK'S Sporting Goods. And I just want to take a moment to thank our incredible team in our CSC, our DCs, our stores, our GameChanger offices. It is they who delivered this really strong quarter. I'm very, very thankful and proud of them. Thank you all. We'll see you next quarter.

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