Mar 3, 2015
Executives
Anne-Marie Megela - VP of Treasury Services and IR Ed Stack - Chairman and CEO Andre Hawaux - CFO
Analysts
Seth Sigman - Credit Suisse Chris Horvers - JPMorgan Camilo Lyon - Canaccord Genuity Mark Miller - William Blair Kate McShane - Citi Research Peter Benedict - Robert Baird Paul Swinand - Morningstar Inc. Sam Poser - Sterne Agee Simeon Gutmann - Morgan Stanley Michael Baker - Deutsche Bank Sean McGowan - Needham & Company Michael Lasser - UBS Investment Bank Sam Reed - Barclays Stephen Tindall - Goldman Sachs Joe Feldman - Telsey Advisory Group David Magee - SunTrust Chris Svezia - Susquehanna Financial Group
Operator
Good morning and welcome to the Dick's Sporting Goods Fourth Quarter and Full Year 2014 Earnings Results Conference Call. All participants will be listen only mode.
[Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Anne-Marie Megela, Vice President of Treasury Services and Investor Relations.
Please go ahead, ma’am.
Anne-Marie Megela
Thank you. Good morning and thank you for joining us to discuss our fourth quarter and full year 2014 financial results.
Please note that a rebroadcast of today's call will be archived on the Investor Relations portion of our website located at dicks.com for approximately 30 days. In addition, as outlined in our press release, the dial-in replay will also be available for approximately 30 days.
In order for us to take advantage of the Safe Harbor rules, I would like to remind you that today's discussion includes some forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 which includes but are not limited to our reasonable expectations concerning our future results. Such statements relate to future events and expectations and involve known and unknown risks and uncertainties.
Our actual results or actions may differ materially from those projected in the forward-looking statements. For a summary of the risk factors that could cause results to differ materially from those expressed in the forward-looking statements, please refer to our periodic reports filed with the SEC including the Company's Annual Report on Form 10-K for the year-ended February 1, 2014.
We disclaim any obligation and do not intend to update these statements except as required by the Securities laws. We’ve also included some non-GAAP financial measures in our discussion today.
Our presentation of the most directly comparable financial measures calculated in accordance with Generally Accepted Accounting Principles and related reconciliations can be found on the Investor Relations portion of our website at dicks.com. Leading our call today will be Ed Stack our Chairman and Chief Executive Officer.
Ed will review our fourth quarter and full year results, key business drivers and outlook. After Ed's comments, Andre Hawaux, who will provide greater detail regarding our omni-channel growth, financial results, capital allocation and guidance for the first quarter and full year 2015.
I will now turn the call over to Ed Stack.
Ed Stack
Thank you, Anne-Marie. And thanks all of you for joining us today.
As we announced this morning, we generated record earnings in the fourth quarter of 2014 delivering 17% EPS growth over the fourth quarter of last year and exceeding the high-end our guidance. We delivered a 10.9% increase in sales, improved operating margins year-over-year and recently announced the 10% increase in our dividend.
Additionally, our balance sheet remains strong and our inventory is well positioned as we entered 2015. Our consolidated omni-channel same-store sales increased 3.4% with increases in both ticket and traffic.
This was above our guidance of 1% to 3% and on top of it 7.3% shifted comp gain in the fourth quarter of 2013. These results were driven by the continued growth of our omni-channel network, our powerful marketing and merchandizing strategies and the execution of these strategies by our store associates.
Our efforts resulted in Dick’s omni-channel comp sales increasing 3.8% led by most categories of apparel, footwear and hard lines. The trending in hunting improved significantly during 2014 and by the end of the fourth quarter the purchase in this category will primarily limited to gun and related accessories purchases.
For Golf trend also showed a slight improvement from the spring of 2014 or down versus last year. Golf Galaxy was down 7.1% with Dick's golf business slightly better.
The balance of our business excluding hunting golf was up 6% for the quarter the strong performance across the remaining categories validates our merchandizing and space allocation strategies that we put in place during this past year. The fourth quarter was a more promotional environment as expected.
Our team was able to navigate this environment and strategically execute clearance promotions while exceeding our top line and bottom line growth circuits and ending the year with our inventory in great shape. Our clearance inventory is at historical low levels across most categories and is down approximately 230 basis points across the company compared to last year.
As we head into the spring season, the inventory is well positioned to support our anticipated sales. Key spring businesses have been set ahead of last year.
We have opened to buy dollars available to chase our product. The start of the spring season however is been delayed across much as the country due to the extreme weather conditions.
We also remain a bit concerned about the West Coast sports situation at some of our spring product is still sitting on the dark. As a result we have taken a cautious view for the rest of the quarter and our quarterly guidance contemplates the results through February with some expected recovery.
We don’t believe this delay will have an impact on our full year results for rather of first quarter event. It is also important note that it knows handful of markets where athlete's families and outdoor enthusiasts are starting to participate in spring related activities.
We are seeing positive indicators that we have the right product for them giving us the confidence of our merchandizing strategy and our pricing strategy. In 2015, we will build our Dick's business with continued investments in e-commerce as we further enhance our customers Omni channel experiences and prepare to become e-commerce independent.
We will also drive traffic and strength in our brand equity through expanded marketing strategies including our recently announced sponsorship of Untied States Olympic committee and team USA. We will also be continuing to scale our field and stream business.
In 2015, we are also excited about our merchandizing strategies with renewed focus and key items across our business. We will be expanding our women's and product apparel offering as we launched CALIA by Carrie Underwood, a private label fitness apparel line.
CALIA emphasizes life style and is gear towards the athletic female and will be available only Dick's reporting goods and provides a point of differentiation on our merchandize selection. We're very pleased with the feedback we've received from the initial focus groups and are excited for its launched this Thursday.
As a result of these strategies, we expect to deliver 2015 full year consolidated comp growth of 1% to 3% with earnings increasing to $3.10 to $3.20 per diluted share. Our gradual improvements in hunting as well as continued but diminishing challenges in golf have been contemplated in our guidance.
In 2015, we will also continue to return capital to our shareholders through both share repurchases and dividends. All in all, we're quite pleased with our Q4 performance which is stated earlier was a record Q4 with EPS growing 17% over last year.
These results would not have been possible without our terrific team. I would like to thank our associates throughout our company for the hard work and commitment they showed to deliver these fourth quarter results and for the upcoming efforts during this new fiscal year.
I'd now like turn the call over to Andre.
Andre Hawaux
Thank you Ed and good morning everyone. This morning I will cover four topics first our Omni channel growth metrics, second our fourth quarter financial results, third our balance sheet and capital allocation strategy and finally details of our full year and first quarter 2015 expectations.
In 2014 we profitability grew our Omni-channel platform. We opened 45 net new Dick stores and end of the year with 603 Dick's stores in 46 states.
These new stores continue to perform well with 94.7% new store productivity. Our stores also support the growth of our e-commerce business which increases approximately 28% over $625 million in sales in 2014.
During the year we launched a new mobile app and continue to iterate on our mobile tablet and desktop sites to increase conversion. We also made significant progress in building the infrastructure for our e-commerce business.
In the first quarter of 2015 we plan to launched golfgalaxy.com on our new platform as we prepare to bring the dick's.com e-commerce site in house in January of 2017. Now looking closer to our Q4 financial results total sales increased 10.9% to approximately $2.2 billion consolidated Omni-channel same stores sales increased 3.4% compare to our guidance for 1% to 3% same stores sales growth and compare to shipment comps of 7.3% in the fourth quarter of last year.
Dick's sporting goods consolidated Omni-channel same stores sales increased 3.8% while Golf Galaxy decreased 7.1% in the fourth quarter. The 3.8% consolidated increase in the Dick's business was driven by a 3% increase in traffic and by 0.8% increase in sales per transaction.
Our investment in ecommerce continues to pay off as it increased at 14.4% of sales in the fourth quarter of 2014 compared to 12.2% of sales in the fourth quarter of 2013. Gross profit for the quarter was $691.3 million or 32% of sales and was down 25 basis points from Q4 of 2013.
This was due primarily to a 64 basis points decrease in the merchandise margin. As Ed mentioned, there were elevated promotional levels within the quarter particularly post-holiday which resulted in more aggressive clearance activity.
Shipping expenses also increased as a percentage of sales due to the growth of our ecommerce business. These factors were partially offset by favorable occupancy leverage.
SG&A expenses in the fourth quarter were $438.7 million or 20.31% of sales and leverage 38 basis points from the fourth quarter of last year. This was primarily due to lower administrative and payroll expenses as a percentage of sales.
The net effect of the above is that we delivered a $1.30 per diluted earnings per share above the high end of our guidance. Now looking to our balance sheet, we ended fiscal 2014 with approximately $222 million of cash and cash equivalents.
We ended fiscal 2013 with approximately $182 million in cash and cash equivalents with no borrowings outstanding on our $500 million revolving credit facility at the end of either fiscal year. In 2014, we invested in our business and we also returned over $260 million to shareholders to share repurchases and dividends.
Total inventory increased 12.9% at the end of fiscal 2014 compared to the end of fiscal 2013. As Ed discussed, we're very well positioned with both the level and the quality of our inventory.
Turning now to our capital allocation strategy; in fiscal 2014, we repurchased $200 million of shares, as we repurchased $200 million of shares. As we've demonstrated we expect to use our share, our repurchase program to both offset dilution and opportunistically repurchase shares.
Since we started our $1 billion optimization at the beginning of 2013, we've repurchased over $455 million of stock and have approximately $554 million remaining under the authorization. In addition to our repurchase program, we further demonstrated our commitment to returning capital to shareholders by recently increasing our dividend by 10% to an annualized rate of $0.55 per share.
This marks the first increase since we initiated our quarterly dividend. We believe that investing in our business share repurchases and dividends all remain key elements of our capital allocation strategy.
Now let's turn to our 2015 outlook. We expect full year earnings per diluted share of between $3.10 to $3.20 and same store sales increased between 1% to 3%.
Gross margin is expected to increase primarily driven by merchandise margin expansion, SG&A is expected to deleverage slightly as we invest in building our brand coupled with the expenses related to become ecommerce independent in 2017. Year-over-year preopening expenses are expected to remain relatively flat as a percentage of sales.
We expect operating margins to increase slightly year-over-year. Net capital expenditures for the full year 2015 are expected to be approximately $245 million or about 365 million on a gross basis.
2014 net capital expenditures were $247 million or $349 million on a gross basis. As we noted in our press release this morning, our earnings guidance includes the expectation of approximately $100 million to $200 million of share repurchases in 2015.
While the exact timing of the repurchases during the year may vary we're committed to returning capital to shareholders to both share repurchases and dividends. In 2015, we expect to open up approximately 45 new Dick stores relocate 9 Dick stores and relocate one Golf Galaxy store.
We also remain focused on scaling our Field & Stream concept and expect to open 9 new Field & Stream stores this year. For the first quarter, we anticipate earnings per diluted share of between $0.49 to $0.53, consolidated omni-channel same store sales are expected to be approximately flat to up 2% compared to a 1.5% increase in our comp in the first quarter of 2014.
Gross profit margins are expected to decline slightly due primarily to plan promotional events as we continue to further reduce clearance levels and transition sales from some of our moving areas to more robust categories such as apparel and footwear. Importantly, we expect gross margins to expand in each of the three subsequent quarters and for the full year.
For the first quarter, SG&A expenses as a percentage of sales are expected to slightly deleverage. Preopening expenses as a percentage of sales are expected to be relatively flat in the first quarter this year compared to the first quarter of 2014.
Our first quarter outlook reflects the slow start to the spring selling season as Ed mentioned but we do not expect to delay to have an impact on our full year results. We continue to see significant growth opportunities for our business as we look beyond 2015.
We look forward to sharing more details with you at our Analyst Meeting in New York on April 14th, which we announced earlier today in the press release. Our Investor Relations team will be in touch with additional details of the event.
Before concluding, I’d like to thank our associates for their hard work during the past year. They genuinely live with DICK’s brand and this dedication shows both in the shopping experience we deliver to customers and in the results we generated for shareholders.
I’m grateful to each members of our team for their loyalty, drive and continued commitment. This will conclude our prepared remarks and I’d like to thank you all for your interest in DICK’s Sporting Goods.
Operator, please open the line for questions.
Operator
Thank you, sir. We will now begin the question-and-answer session.
[Operator Instructions] Our first question will come from Seth Sigman of Credit Suisse. Please go ahead.
Seth Sigman
I want to talk little talk about the promotional activity scene that’s come up for few quarters now. Maybe focusing first on the fourth quarter, if you can just elaborate on some of the categories that were impacted, how much of the promotional activity was centered around some of the challenged categories that we’ve seen all years.
And then tie that in with the expectation had in the last three quarters of 2015 you expect that merch margins can be up, what kind of gives you that confidence at this point?
Ed Stack
It was a one of the challenging areas that we -- there was some promotional activity so around the ammunition category, around the golf category. There is also some other promotional activity from an apparel standpoint, footwear standpoint.
It was just a promotional quarter in the fourth quarter between couponing and all of that, but we expected that. We had indicated that.
In this quarter we think that it’s going to continue a bit promotional. We are also going to be continuing, our clearance inventories are historically low levels.
We’d like to actually get those down even a little bit lower and some of the not go forward products that are still in the inventory they are going to be in categories that have been store moving we’re going to be cleaning those out making room for more apparel, footwear the categories that are growing quite well. So there maybe some little bit of margin rate emotion in this first quarter but going forward we don’t think that there is going to be that same issue.
Our inventories in better shape where we focused on these key items and we expect to be able to mitigate this, the margin rate will come from mitigating mark down through the balance of the year and we’re starting to see that in these categories that have performed better and that we’ve taken this item approach.
Seth Sigman
Okay. Understood, that’s helpful.
Just a follow-up question on the store growth and store strategy and whether there is a little bit of evolution here where it seems like the store growth expectation 45 stores in 2015 is about in line with last year, lower than we had expected. Do you still feel confident into that 800 store target is that still the thought process and then related I think you also talked about relocating nine stores that seems to be an increase from prior year’s as well.
Again just trying to understand the evolution of the store strategy.
Ed Stack
We still feel comfortable with this storing strategy. As we’ve said we want to make sure that go about this in an orderly fashion so we still feel good about the number of 800 stores.
The relocated stores I wouldn’t read anything into that other than over the next couple of years we will have because of the growth ramp we had 10 years ago there will be more and more stores that are the leases are coming due and we have an opportunity where appropriate to relocate the store into a shopping center or a retail note that might be a better today than it was 10 years ago we’re going to do that and that’s all this is I wouldn’t read anything into it.
Seth Sigman
Okay. And just the clarification, the relocated stores are they performing pretty much similar to how a new store would perform?
Ed Stack
Sometime most of the time even better, because we’re taking the store that most of these relocated stores are actually performing quite well there just we’re able to make it better realistic deal or we’re able to move to a better shopping center or a better retail note that’s in the same trade area and the performance is really been quite good when we relocated these stores.
Operator
The next question will come from Chris Horvers of JPMorgan. Please go ahead.
Christopher Horvers
Thank you. Good morning.
So I want to follow up on the golf category, what you’ve seen any commentary on what you’re seeing in the warm weather market as it relates to the golf so far.
Ed Stack
Golf is better in the warm weather markets and in the gold weather markets right now that’s for sure. But we’re seeing it’s getting better.
It’s improving but it’s still not back to last year’s levels. And I think the brands just start their marketing effort they may just launched their new marketing effort around the R15 this past week and with different add than they have originally put out there that they’re hoping is a little bit better.
We think the golf is going to be still a drag on the total sales but not to the degree that it was last year.
Christopher Horvers
And then as you think about last or I think forgive me, it was second quarter ASPs involved hardware were done sort of high teens, how you’re thinking about promotional environment on golf and the spring which you view of the inventory levels that not only your source but in the channel overall presumably as you lap that significant decline, do you think there is an opportunity at least in the specific quarters to see a golf benefit?
Ed Stack
Well, we expect to see average prices move up because it’s not the same clearance inventory out in the marketplace. Our golf inventory is very clear.
Our inventory is down versus last year. Our clearance inventory is down versus last year.
Our golf inventory really could not be in much better shape and I would say that the vast majority of a brand their inventories are in great shape too, so the whole channel doesn’t have the same inventory issues this year that we did last year, but we expect to see some margin rate improvement and some average retail price improvements.
Operator
The next question will come from Camilo Lyon of Canaccord Genuity. Please go ahead.
Camilo Lyon
I was hoping Ed, if you could maybe disaggregate the commentary about the guidance for Q1 when you mentioned about weather and Portway you can just maybe quantify how you’re thinking about both of those issues effective how your outlook is on the Q1 from a comp perspective and if you to see any sort of delays and reports stronger in the Q2?
Ed Stack
We see this whole -- the one thing we know about the weather in the Portway there is not an off a lot that we can do about either one of them although we’re trying to expedite product. We did -- we obviously knew that the Portway was going to be an issue.
We rerouted products to other ports as a number of other people did, we’ve flown in some products where necessary but there are something that get caught up in the port and we’re laid down some deliveries. So I don’t know how much that’s going to impact it but it’s been an impact that put into our guidance and kind of the worst case scenario.
The weather we hope it gets better up in the Northeast. I was up in Boston last week.
There is a boatload of snow up there right now. So we’ve kind of laid all of this out into our guidance and we don’t think it will impact the full year, but it’s right now having a bit of impact on the first quarter and if it gets better then we’ve got some upside to our first quarter.
Camilo Lyon
Could you talk about maybe the categories that are being impacted by the delayed shipments and when you think that those backlog of containers will start to release that you start to improvement in your inventory flow?
Ed Stack
Our inventory, when they’re going to do that I am not sure, it will depend on how this stuff gets cleared on the docks and some of these stuffs that still on both in the docks, so we’re not sure but we feel okay about our business right now. We would just like to have this other inventory in here.
In the categories, it’s a little bit everything as you know there is apparel category coming in from Asia, there is footwear, there is golf products, there is little bit everything. That’s a big port out there.
Camilo Lyon
Okay and just my final question, when you spoke about the promotional activity in the fourth quarter and that they’re going to effect in Q1, is that the usual suspect that are driving at promotional activity or are there new competitors coming from the market trying to win some share of your promotions?
Ed Stack
No it’s just the same competitive step.
Operator
The next question will come from Mark Miller of William Blair. Please go ahead.
Mark Miller
Is there a way to size the investment of the Company making right now in e-commerce so in 2014 and then does that investment I guess help us to understand the progression up to 27, does that grow in your 2015 plans or then if you were integrated in the business today what kind of lift would that present to you or what do you see in 2017 from that transition?
Ed Stack
So Mark, I am going to give you some points that we’ve talked about for 2014 and talk a little bit about 2015. When we meet at our Analyst Meeting on the 14th, we will give you greater visibility into how we see obviously 16 and 17 going.
So as you recall last year we talked about our investments, our incremental investments in e-com to build our independence to be roughly about $0.04 and that was what was in our 2014 number. In 2015, we are looking at about $0.04 that is about incremental investment related to the project, the in-sourcing project that we have, so that’s the visibility I give you today and as we talk with you all on the 14th, we’ll give you more widest insight into what we think the investments are going to be, but as you can imagine the investments are substance driven a sense as we bring a very large side on to becoming independent and we believe that’s the right thing to do we have a growth business that’s going to grow quarter in quarter out, so we believe we’re making a right investments and so far they are paying off pretty well.
Mark Miller
And just to clarify that $0.04 is that incremental to the $0.03 or is than incremental $0.01.
Andre Hawaux
That’s incremental with $0.03.
Mark Miller
Okay and can you provide further perspective on the U.S Olympic deal and obviously we're absent to 2016. But is that a material marketing spend the company is planning and could be a dedicated assortment what else like that in tail.
Thanks.
Ed Stack
Sure it's not meaningful for the grand scheme of our marketing. But our marketing budget is all been part of the marketing budget.
So you won't see a significant increase in our marketing budget this year over last year. Outside the launch of the CALIA brand that we're doing but there is not aligned surrounded.
It's really more around supporting the un-funded athletes that are working hard to try to make the Olympic team are not funded by any of the larger brands and giving them the place to work with flexible work hours giving them the ability to have product that they need to train with. So it's around both types of things with this Olympics sponsorship and not about all line of product that we're going bring out to sell.
Mark Miller
Thanks and maybe just a final one if I can. On Field & Stream obviously the firearms business have been tougher across the industry.
But absent that roughly where did you come in sales per square foot versus your plan and maybe just if you can give us a sense for where the private label business you think can go on that. Thanks a lot.
Ed Stack
So we're not going talk specifically we've have indicated that we won't really going talk specifically about Field & Stream until we get this up in running. We've only have two stores opened up for more than a year once been opened up for about 17 months and the other one is been opened up for about 15 months.
So this is really a new concept where not going get any specific. It's very diminished in the grand scheme of things today although we think it's a great growth driver for us going forward.
From a private label standpoint we think the private label opportunity in Field & Stream is pretty significant. We also think it's important to continue to drive the brand that customers really looking for a brand penetration and we would expect the private label over a period of time to be slightly higher than what it is in Dick's.
But that’s significantly more than what we do inside the Dick's business today.
Operator
The next question will come from Kate McShane of Citi Research. Please go ahead.
Kate McShane
I wondered if you could have any more detail around the comp of your women. You're extended women in new categories versus the average comp.
And also help footwear may be compare to the company average.
Ed Stack
So we're not going talk about it in that granular detail but the women's in new comps certainly outperformed the comp of the company as a whole. And what was the question of footwear Kate.
Kate McShane
Same question with in terms of related to the company average comp of how footwear performed.
Ed Stack
Footwear was kind in that zone of the company average.
Kate McShane
Okay my next question is new initiatives in spring aside from Carrie Underwood will there be any other brand introductions or categories that are being introduced. And with regard to Carrie Underwood what is it taking space from and what category is it addressing?
Ed Stack
There is no real other big initiative or other brands that we're launching outside of more clear brand under Carrie Underwood. And what we're doing with that space is we're just re-configuring some space and it would be coming out of primarily Adidas and Rebook.
Andre Hawaux
I also like to just add Kate to Ed's earlier point the real focus for us in addition to the launch of CALIA will really be on this key item focus that will bring into the marketplace. Which I would say we perhaps in the past of lost our way a little bit and we really reemphasizing that and we believe that’s going pay pretty significant dividends.
Kate McShane
Okay and if I can just finish up with one last question on traffic. You mentioned you saw a 3% increase in traffic can you walk us through how that trending throughout the quarter and maybe what initiatives you had in place on the marketing perspective that could have driven that above what you did in Q4 the year prior.
Ed Stack
I'm not going get into the flow of that in the quarter. But we had very good marketing initiatives both from a brick-and-mortar standpoint with a lot our marketing that we emphasized around the holiday around Black Friday.
As well as specific traffic drivers to our e-com side Kate. So we feel pretty good about the marketing, we put in place with both across the Omni-Channel space to drive those traffic transactions.
Operator
And the next question will come from Peter Benedict of Robert Baird. Please go ahead.
Peter Benedict
You're talking about inventory being lean. Can you talk about the inventory levels in that kind of fire arms business if we start looking at the hunt category.
How are those trends how do you feel about those build that Dick's and then what you're see in the channel and then I'm curious what you guys saw in terms of average selling price within that category during the fourth quarter.
Ed Stack
So we will get the average selling prices to that level of granularity obviously. Our inventory in the gun pieces is a little bit higher than we would like it to be right now but this is an inventory, this is not inventory that has a shelf life where it goes bad.
So this is just product that we'll be able to sell through the year and into the next hunting season and then to a fourth quarter so we feel very good about the quality of the inventory we have in firearms, although we'd love to have a little bit less but we're not concerned about the quality of the inventory there is not significant mark down that we have to take in order to clear the sale.
Peter Benedict
Okay, fair enough and thank you and then just on the footwear business, you mentioned kind of company average type comp there in the fourth quarter, any call out there when you think about basketball versus running or anything else we should be thinking about in footwear's? Thank you.
Ed Stack
Basketball -- basketball is trending better than running.
Operator
Our next question will come from Paul Swinand of Morningstar Inc., please go ahead.
Paul Swinand
Good morning and as usual thanks for patience with all the questions. We'd like to beaten the horse a little bit here but running's had strong stats here and is it that the product is not so new anymore and we had all the light weight and -- is it that the product is not inspiring or is it just the tough comp sector 3, 4 years are ticking up?
Ed Stack
I think it's a couple of things, I think it's the tough comps but I think there has been some great innovation in basketball driven by our funds out of -- so, and the basketball category is just and these categories you kind of taking look at. They cycled, the running silhouette is the hot silhouette and it kind of cools and basketball becomes a hot silhouette that will be here for a little bit, that will transition back into running.
So I think it's just a cycle and the running silhouette will be back. The running business is still very good and the core people that are out there running we service them, we've got the right product, that product is pretty good but kind of the kids have kind of move to more of a basketball silhouette than a running silhouette for right now.
Paul Swinand
Okay, got it thanks and I know we talked about -- you talked already about the gross margin for the year and the color there I know you've got some natural uplift coming through '17 with the tick back of ecomm and some other things like, can you give us just maybe a little more color on which take the long run potential is for the gross margin improvement? Where it might come from?
Ed Stack
Well, I think it will come, it will continue to come from the mix of product so as we continue to expand the apparel business across men's, women's and kids as we continue to increase our footwear business and in other areas of our business securing higher margins there is going to be a mix it's going to increase that margin rate. I think we've some opportunities from an inventory standpoint to be better in-stock and the better selling item so can mitigate some markdown pressure on the backend and we'll do a better job from a buying in terms of conditions of sales.
So, it's really kind of back to basics and as we looked at this and our performance over the last couple of years we think there is a real opportunity there.
Operator
The next question will come from Sam Poser of Sterne Agee, please go ahead.
Sam Poser
Good morning, thank you for taking my question. I just had a couple, there has been a lot of talk from other retailers regarding the impact of the minimum wage in average may possibly have the raise wages, are you seeing -- what are you seeing there?
Ed Stack
We continue to monitor the wage what's going on from a wage standpoint but vast majority we're paying above minimum wage today, so it's really not that big of an issue with us.
Sam Poser
Thank you, I got a couple more. What made you decide to go you're building out a nice branded apparel business with Under Armour, Nike and so on and especially developing the women's business.
What made you move towards this the Carrie Underwood collaboration there?
Ed Stack
Well, I think it's just consistent with what we've talked about is trying to differentiate ourselves from what's going out in the marketplace. This is a category that's the a terrific category right now, we felt that there was a void in the marketplace and we put together a group of people little more than a year ago to look at this and bring out this brand and they've done a terrific job – stores right now that launches their first day and their early reaction has been really has been quite good but the primary reason is to continue to differentiate us in the marketplace from the competition.
Sam Poser
And then can you tell us two other things that -- when -- what is the terms of the Golf Galaxy leases right now, when are you going to start seeing the lease have come up and possibly make – and possibly start closing more stores? And secondly what is the golf inventory look like on a year-over-year basis right now?
Ed Stack
We talked that the Golf Galaxy stores because we've got a number of them they come up each year and that we're only going to close but once when we think that there is that there’s bad location and are not performing very well, a number of these stores we may and we've been doing this relocating those to a different location and to the new format and as I've indicated earlier on the call from another question, our golf inventory is in its good shape as it's ever been, much better than last year we're very pleased our inventory levels down significantly, our clearance level was down significantly. And the overall clearance in the channel in the pipeline with the brand is down significantly also.
So we expect to see some AUR improvement in golf and also some margin re-improvement.
Operator
The next question will come from Matt Nemer of Wells Fargo. Please go ahead.
Unidentified Analyst
Good morning. This is [Omer] on for Matt Nemer.
E-commerce continues to be very strong despite -- to be some tough comparison last year, has there been any shaken strategy online maybe appreciating offers or anything like that or perhaps an increase in online product skills.
Ed Stack
I think there has number of things. Our team has just done a great job as they continue to be more experienced in this we have changed up some shipping issues from time-to-time and we’ve just done a really good job from an omni-channel standpoint of what’s going on in the store, lining up our online presence with what we are trying to do in the store lining up our online presence with what we’re doing from marketing standpoint.
The collaboration between all of our groups here it’s been just been terrific and it was really led to this. Our e-commerce team has done a great job.
They’ve coming up with new ideas that have to drive the business they’re learning more about what it takes to covert customers and we’re just getting more experience and doing a very good job there. We expect good year, this year.
Unidentified Analyst
And the second follow up, as you open new stores what sort of lift to the e-com are you seeing in some of these new regions.
Ed Stack
There is a big lift we haven’t said what it is specifically but when we open up a store in a trade area or market that we haven’t been in before there was a very meaningful increase in our e-commerce business. But understand that’s also pretty small base too.
Numbers we’ve talked about this we have shared with you all publically there are 50% increase when we put a new store in the market we see about a 50% growth rate from the zip codes in that area but at points typically a very small base but we do see that happening when it continues to compound as those stores continue to penetrate the market place.
Operator
Our next question will come from Simeon Gutmann of Morgan Stanley. Please go ahead.
Simeon Gutmann
Thanks. Good morning.
Andre a follow up to an earlier question on omni-channel you mentioned some of the investment dollars, can you please remind us just some of the capabilities that DICK’s has internalized versus what still needs to be built whatever timeframe that maybe?
Andre Hawaux
Sure. Fairly high levels, we launched our Golf Galaxy side in the first quarter.
It will be on our new platform and we will have many of the components that we need. We will have all of the pluming if you will, we’ll have to bring on in the new modules from new shifting store capabilities some other ordering capabilities that we’re bringing on with the new site.
But as we bring Golf Galaxy on we will start to iterate very quickly to all the things that will need for the DICK side ultimately to be live in 2017. So, most of those capabilities are coming online with the golfgalaxy.com site.
That said, it’s going to be a much smaller side, right. So we’re want to make sure over the next couple of years that we’re able to scale bring on the dicks.com site in 2017.
But we’ll have many of the capabilities right out of the -- with more to come obviously as we continue to move towards 2017.
Simeon Gutmann
Okay. And then a follow up to the online question, is there a strong overlap right now in the merchandise that’s being purchased online versus the store on are you seeing a wider gap I mean people they’re purchasing this online only.
Ed Stack
No, what we’re starting to see is our online business gets larger. We’re starting to see it act more and more like what’s going on in the store.
So the key items in the stores that the key items online, although we do have that long tail of product online with some things that are not available in the store. But, there is more and more overlap of what’s going on in the stores from an online standpoint.
Simeon Gutmann
Are you tricking store mix as you see things happen online or you’re roughly I guess so it’s happening but is there any changes that you’re accelerating because you’re seeing them online.
Ed Stack
Well, there are certain things that we’ll see online that we will then try to move into the store if needed and vice versa, so yes the groups are talking back to each other changing information and we assortment back in fourth quarter.
Operator
Sure. The next question will come from Michael Baker of Deutsche Bank.
Please go ahead.
Michael Baker
Thanks I want to focus little bit on the hunting and golf business, can you, first of all in the past quarter you’ve given us some, there is a trend in hunt having down mid-single digits since the last quarter, you said it’s much better this quarter is it still down or is it positive yet.
Ed Stack
It was down just a little bit primarily because of the gun business.
Michael Baker
Okay. And then, can you tell you us either separately or together how much hunt in golf is the percent of total sales in 2014 what that was at a peak what that is expected to be overtime?
Ed Stack
From a competitive standpoint we’re going to get that level of granularity but we’ve indicated the golf business will continue to be a less important part of our business and that because of the reduction in golf sales but as the reduction of golf sale that was percent to our total business, so as we continue to ramp our Field & Stream business golf get to be less of the total percent. We’re growing other areas of the business at a pretty fast as we’ve indicated the women’s business, the youth business, the sport business and as those things grow at a faster rate than golf and golf becomes the smaller percent of the business.
And that’s not to be misinterpreted that we’re not investing in golf, we still think golf is an important part of our business it’s going through a bit of the difficult cycle right now but we think it will stabilize and we’re going to be golf business and we’re enthusiastic about the golf business.
Michael Baker
Okay so then one follow-up to that analysis, I know you did space reallocation initiative, took out about 1000 square feet out from golf so that I think as behind but is there more analogy sort of second step in that reallocating more space apparel footwear then you had previously planned?
Ed Stack
No, not coming out of golf, no.
Michael Baker
Okay last one, I promise, when know the weather is terrible here in February in Boston but Patriot’s Super Bowl sales to upset that, it certainly helps?
Ed Stack
We appreciate that but you didn’t buy enough.
Michael Baker
I bought a lot but okay.
Operator
Our next question will come from Sean McGowan of Needham & Company. Please go ahead.
Sean McGowan
Thank you very much, couple of that, that really kind of quick, Andre tax rate that we should be using for 2015?
Andre Hawaux
Let me look for that I don’t have a right up. I think it’s about 38.5 roughly is what I would use it’s going to move a little bit quarter to quarter based on things, but I think for what I would use for your modeling purpose it’s about 38, roughly 38.5.
Sean McGowan
Okay and then certainly back on your commentary at the beginning of the call regarding the impact of the Portways at are you saying that it’s not going to have in impact on the full year? You don’t mean you’re going to make up for sales that are loss, you just mean it’s not material for the whole year that’s what do mean?
Andre Hawaux
I don’t think it’s not material for the whole year and to be honest with you there is something we may be able to make up at the end of this quarter or into next quarter because what happens for weather standpoint we don’t feel we’ve lost any market share. I mean the kids and people are -- kids are now playing lacrosse in some of these markets.
They’re not out playing baseball yet. There is going to be a bit of delay of the season so as we get caught up with inventory I think that the demand is still there, so there is still a lot of products that need to be brought that haven’t been bought yet because of the weather.
Sean McGowan
And then would that on balance for the fourth quarter it was weather a favorable impact to yourselves neutral or negative?
Andre Hawaux
I would say it was probably neutral to negative because it was really warm Q those key selling months of November and December, we didn’t really get much snow and we would love to have the weather we have right now in November and December. But I would say the weather was neutral to negative.
Sean McGowan
And last question on fitness devices, there are you going to see good business in that and do you perhaps more importantly, are seeing any kind of to the extent that you can tract because on a day with your consumers there are you seeing any kind of rub off where they buy the device and a result of being more interested in fitness they’re buying more clothing and shoes and other accessories?
Andre Hawaux
We can’t track the second part of your question yet, but just intellectually you would think that it’s either neutral or positive to that, but that business continues to be very good and we expect it to be very good and also reasonable future. So more and more people are being active and more and more people trying to compete with each other for a number of steps or calories that they burn et cetera.
So I think all in all its neutral to probably positive.
Operator
Our next question will come from Michael Lasser of UBS Investment Bank. Please go ahead.
Michael Lasser
Your deals with the competitive landscape still was really promotional in the fourth quarter, is this a new norm, I think last year there was partly an explanation where you start up blown due to the weather and others had to be aggressive to make up their plans where we’re starting to see a similar sort play out so what is the chance that we’re just being new intensely promotional in an environment or sporting there?
Ed Stack
I don’t think that’s a case and I think as evidenced by the fact that we said, we think it’s continuing to be a bit promotional in this quarter. Part what we’ve indicated that the margin rate is that we’re going to be trying to clean some inventory down and some slowing moving categories to reinvest that in some faster selling categories and we indicated that our margin we would expect margin rate expansion in the next three quarters.
So, no I don’t think it’s a new normal.
Michael Lasser
And there is documented struggles from one year competitors. How does that play into your M&A strategy and then your promotional strategy.
Ed Stack
We never comment on our M&A strategy and our promotional strategy we've known about what's going on with our competitors for one time and it's really not going make any change in our promotional strategy.
Michael Lasser
And then one last quick one. You said that long term gross margin drive has been mostly focused on being sharp with inventory ordering and how you manage that.
The company had done a good job of using technology the price optimize size optimize they also increase your private label penetration as a result of some of those factors that drove significant amount of merchandize margin. Are those initiatives having doubt at this point?
Ed Stack
No I don’t think so I think we still get some opportunities and doing a better job with our inventory our pricing strategies in that inventory and we have an initiatives that we started last year which will be to start to grow our product development our private label strategy. I think you can see that with the launch of this clear brand which everyone in the organization is very excited about.
Operator
The next question will come from Sam Reed of Barclays. Please go ahead.
Sam Reed
Quick one here regarding square footage allocation, would you be able to kind of give us a sense us is to how much that helped you during the quarter specifically in some of those stronger categories that you guys have been highlighting over the past few quarters. Thank you so much.
Ed Stack
It helps significantly as I said the women's and kids business the apparel business grew at a faster rate than couple of years and average those categories have higher margin rate in the category which they displaced higher return over rate. So this has been a very big benefit to us.
Operator
And our next question will come from Stephen Tindall of Goldman Sachs. Please go ahead.
Stephen Tindall
Thanks a lot for taking my question. The softer one to the outlook impairment of the sales just want to be clear that it sounds like you're seeing that’s embedding an expectations that trends will slow because of the West Coast inventory issues is that sort of correct.
Ed Stack
We said that there is two things it's impacting that so the guidance in the first quarter is looking at how weather is impacted our business in the month of February. And we expect to have some improvement in that and there is also some portion of this that we're just slower getting some products into the stores because of what's going on the West Coast.
If I had to length them one two I can't make give you a percentage between one but if I had to rank which is the more significant piece of this it's the weather pieces that shut down a lot of stores that is the biggest driver that more than the port strike.
Stephen Tindall
So could you clear than store closure days in February are worsen over a year ago?
Ed Stack
It's not any better there is issues with store closing days. You had to take a look at we're not getting to get over a granular detail here but store closing days depends on what date the week it is.
What week did the store closure happen because all weeks and all days are not created equally?
Stephen Tindall
And then on the gross margin guys for 1Q is any of that most margin pressure at all related to the West Coast is that’s also the promotional activity.
Ed Stack
That’s promotional activity just clean out this inventory a bit more than we I guess said where historical low levels from a current standpoint. But there is something we just feel we got the opportunity to clean a little bit deeper and then there is still some promotional activity out there as people are trying to clean up fourth quarter whether that’s from an outwards standpoint and certain parts of the country if it’s the gun business is still some promotional activity out there.
But we're seeing and we're seeing in moderate and we think that it will be margin rate expansion in quarters to Q4.
Stephen Tindall
And then lastly occupancy leverage looks really good down like it was 50 basis points or so or right around there face on the disclosures is given. You remind us these days we're point you start leveling occupancy and compare to same stores sales growth.
Andre Hawaux
We look at it Steven this Andre we look at it really total sales basis it's a little accepted to just look at comps for that but we're looking at that 9% to 10% range as we typically would see occupancy leverage for us on a four year basis. It's going bump around quarter to quarter but on a full year basis that those are kinds of numbers we're looking at.
Ed Stack
And that 9% to 10% total volume, total sales not drop.
Operator
Our next question will come from Joe Feldman of Telsey Advisory Group. Please go ahead.
Joe Feldman
Thanks for taking my question most have been asked. But I'm wondering get follow up with something remembering that couple of years ago there were a few like equipment changes or rule changes.
And was just wondering if there is anything like that on the horizon that might actually help spur some sales or even hurt sales? I think there was like some kind of gun down on I think it was type of riffle and ammunition that maybe I wondered if that’s something that you guys have told.
So, I think kind of equipment changes that you could talk about?
Ed Stack
No, there is no equipment changes or any significance on the horizon. The biggest impact we had a couple of years ago is when the high school associated changed the bat standards for using a baseball bat from the 3-BBCOR bats which would allow the ball to come off the bat slightly slower to help reduce injuries and California was the first to adapt that and in the next year the rest of the country did.
So every young man or young girl who played high school baseball had to buy a new bat and that was always great for our business but there is nothing on horizon like that in the near future.
Joe Feldman
Got it and then the only question I want to ask you, given the improving trend that we all seeing in the economy, I was just wondering are you seeing any difference in what people buy in terms of like our people stepping up maybe from the good to the better or from the better to the best, within categories are you noticing any changes or creep up in ticket?
Ed Stack
I think we see something where technology has really made a difference such as baseball bats. Some of the higher end baseball bats are proceed to be real value that's helped some of the apparel products where the apparel is much technologically is been better, they're buying that but we don't see them stepping up just to step up there has to be a perceived value in order to step up.
Operator
The next question will from David Magee of SunTrust, please go ahead.
David Magee
I guess I have another question on competition, if you look at to your stores that you're opening now with your core concept, is that the overlap percentage with other chain competition, is that a number that's increasing over time or decreasing would you say?
Ed Stack
I'd say it's probably pretty much the same, I think it hasn't change a whole lot.
David Magee
So, you all haven't changed your strategy as far as -- want to be to like competition, is that sort of changed upon?
Ed Stack
We haven't changed that at all.
Operator
Our next question will come from Chris Svezia of Susquehanna Financial Group, please go ahead.
Chris Svezia
Good morning and -- thanks for taking my questions. I guess Ed, first for you, just on the – business relative to your expectation in the fourth quarter, how does that perform relative to the average for Dick stores for you guys that's footwear and cold weather apparel?
Ed Stack
It was okay. It was combining our expectation.
It came later than we'd have liked it to be it come which means that there is little margin rate pressure there because it came later but all in all we're pretty pleased with it.
Chris Svezia
Okay, you've a question -- but just on the – when you mention ability to chase in inventory and inventory available for opportunistic buys, just how do we think does that more than what we're seeing in the past, is that a way for you guys maybe to drive traffic and comp and product margins in subsequent quarters just maybe talk about that if you could for a sec.
Ed Stack
Yes, we've got -- we 'd be trying to do that a bit more than we've in the past and we will buy that product and use it to generate traffic as a promotion at different times of the year so we're getting out ahead of this and buying this product further in advance than we have in the past. So it's a much more important part of our program that may have been over the last couple of years.
Chris Svezia
And is it across -- is it any category specific or is it just kind of across the board?
Ed Stack
It's across the board.
Chris Svezia
Okay.
Ed Stack
We're taking a look at this as the ability to buy some short one close outs that we have really done in the past that it could be used in a grand opening campaign or could be used in seasonally in a particular market so we're looking at these close outs a lot more aggressively than we've in the past.
Chris Svezia
Okay, fair enough and two questions for you Andre real quick, just on the deferred construction allowances which I think it doubled year-over-year I'm just curious, the increase about timing and then the other question that -- just what either from -- the level of comp or to a level of sales growth do you need to leverage SG&A with the additional investments in '15?
Ed Stack
Sure, so let's talk about the first piece. So, the deferred construction allowances are going to be a couple of things.
One is, there is a little bit of timing there, the other is there is a sort of nature of some of the way we're building stores today. So little bit of a mix difference between built-to-suits and reverse built-to-suits.
So that's going to effect a little bit about what the landlords typically give us in construction allowances, so that's what the movement that you've got there and with respect to SG&A I think we're in that again total sales not comp but total sales in that probably that 8% to 9% range is what we start to see leverage in total.
Chris Svezia
Okay, even with the additional investments in '15?
Ed Stack
Yes, we see that and as we mentioned in my prepared remarks we’ll see a little bit of deleverage in SG&A in 2015 as a result of some of the additional investments we are making in e-commerce independent.
Operator
Ladies and gentlemen, that will conclude our question-and-answer session. I would like to turn the conference back to Edward Stack for his closing remarks.
Ed Stack
I’d like to thank you everyone for joining us today as we review our fourth quarter call. And look forward to talking to everyone on our first quarter call.
Thank you.
Operator
Ladies and gentlemen, the conference has now concluded. We thank you for attending today’s presentation.
You may now disconnect your lines.