Aug 15, 2017
Executives
Nate Gilch - IR Ed Stack - Chairman and CEO Lee Belitsky - CFO
Analysts
Robby Ohmes - Bank of America Merrill Lynch Kate McShane - Citi Research Seth Sigman - Credit Suisse Stephen Tanal - Goldman Sachs Michael Lasser - UBS Simeon Gutman - Morgan Stanley Sam Poser - Susquehanna Adrienne Yih - Wolfe Research Christopher Horvers - JPMorgan Dan Wewer - Raymond James Brian Nagel - Oppenheimer Omar Saad - Evercore ISI Nick Zangler - Stephens Inc. Camilo Lyon - Canaccord Genuity Matthew McClintock - Barclays David Magee - SunTrust Robinson Humphrey
Operator
Good day, and welcome to the Dick's Sporting Goods Second Quarter Earnings Conference Call. [Operator Instructions] Please note this event is being recorded.
I would now like to turn the conference over to Nate Gilch, Director of Investor Relations. Sir, please go ahead.
Nate Gilch
Thank you. Good morning and thank you for joining us to discuss our second quarter 2017 financial results.
On today's call will be Ed Stack, our Chairman and Chief Executive Officer; and Lee Belitsky, our Chief Financial Officer. Please note that a rebroadcast of today's call will be archived on the Investor Relations portion of our Web site 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. During this call, we will be making forward-looking statements which are predictions, projections, or other statements about future events.
These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could materially differ because of factors discussed in today's earnings press release and the comments made during this conference call and in our -- Form 10-Q and other reports and filings with the Securities and Exchange Commission.
We do not undertake any duty to update any forward-looking statement. We have 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 Web site at dicks.com. I will now turn the call over to Ed Stack.
Ed Stack
Thank you, Nate. I'd like to thank all of you for joining us today.
As we announced this morning, our second quarter non-GAAP earnings per diluted share were $0.96, below our guidance of $1.02 to $1.07. Our total sales increased 9.6% to approximately $2.2 billion; within this, consolidated same-store sales increased 0.1%.
The retail market is currently influx. The environment is highly competitive and dynamic.
We continue to believe this disruption translates into opportunity for our business long-term. We like the position we occupy in the sporting goods marketplace.
And as this industry continues to consolidate, we believe we will become stronger. Although, sales and earnings did not meet our original expectations, we still reported a significant increase in our bottom line from last year of approximately 17% increase over the same period last year.
I want to address our outlook for the remainder of this year. As I said, this is a very dynamic marketplace.
Vendor distribution strategies have changed, and pricing in the marketplace has become unpredictable and at times irrational. We will engage to protect and strengthen our leadership position.
We are intentionally joining this battle, and we will aggressively be promoting our business to drive market share to our stores and online. We are also targeting our marketing and pricing efforts in important regions of the country, where the fight for market share is more fierce.
We've conducted extensive consumer research, and the customers have told us they feel our prices are not competitive in today's environment. Consequently, we have become more promotional and competitive, and have launched our best price guarantee where we promised the customer they find a lower price than ours we will match it.
Our outlook on sales includes reduced expectations for the hunt and athletic apparel business. We expect the hunting business to remain extremely tough through at least the balance of this year.
With continued consolidation in this business taking place, we are going to surgically invest in this category to capture as much market share as possible that was left behind by Gander Mountain. This category is very difficult, and even with us capturing displaced market share we expect the category to be negative.
The apparel business has seen meaningful increases in distribution and promotion. This category has been an important driver of sales and margin over the past few years.
We will be aggressive marketing and promoting this category to protect our market share. We are also increasing our development and marketing efforts for our private brands.
Although our consolidated same-store sales were flat in Q2, our private brands comped up nearly 7% in the quarter. Taking all of this into consideration, we now expect our non-GAAP earnings per diluted share to be in the range of $2.80 to $3 a share.
We are a leader in this industry, and we will use our financial strength to aggressively compete in this competitive and disruptive market. We continue to build our business on an omni-channel basis.
Our project to re-launch dicks.com on a proprietary web platform has been a great success. Our digital channel is now more profitable for us on our new web platform, but we need to provide our e-commerce customers with a better experience that is competitive in today's marketplace.
Looking ahead, we are planfully investing in the online experience through faster delivery, better pricing, more targeted marketing, and continued improvements in our digital channels. This is going to be a bit more expensive in the short-term, but it is what we need to do for the long-term benefit of the company and our shareholders.
Our stores are the foundation of our omni-channel business. They provide the best physical experience of sporting goods by a wide margin.
Our stores are where our key partners invest to showcase their brands and these investments work for both of us. Our stores provide us an opportunity to deeply engage in the communities we serve, and build relationships with local teams, coaches, players, and parents.
Furthermore, our stores -- with our stores we have over 700 distribution centers in the communities we serve. I also note that our stores generate meaningful cash flow that allows us to continue to invest in these areas that will drive our business in the future without raising additional capital.
We see our stores as having the ability to generate increased cash flow and profits as we renew and renegotiate many of our leases at reduced rents. We have approximately 25% of our Dick's stores up for renewal over the next three years.
We think this reduced rent trend will accelerate in all, but the True A malls where we actually think rents may increase. Our private brand portfolio continues to be a strong opportunity.
Top-Flite, Field & Stream, and Walter Hagen are all doing quite well, and are developing a following. We are building a competitive advantage in the marketplace with these brands, and CALIA a brand we build in-house is now our third largest athletic women's brand.
We continue to expect our private brand business to reach approximately a billion dollars in sales this year, representing double-digit growth. Over time, we believe this business can double as we explore opportunities to broaden our assortments and distribution channels.
We continue to make significant investments in our Team Sports HQ technology, which is a multiyear initiative. We expect this business to be a growth driver for in-store and digital sales.
It also allows us to better connect with athletes of all ages along with their parents. As I said earlier, we love the position we occupy in the sporting goods marketplace.
Sports are deeply engrained in the culture of our country, and we lead the retail sports industry. Yes, the environment is highly dynamic and difficult at the present today, but we at Dick's are excited about the opportunities that lay ahead of us.
Our leadership position is the direct result of the talented and dedicated men and women who make up our company. I would like to thank all of them for their hard work and effort.
I would now like to turn the call over to Lee to review our financial performance in greater details.
Lee Belitsky
Thank you, Ed. Good morning everyone.
Beginning with our second quarter financial results, consolidated sales increased 9.6% to approximately $2.2 billion. Consolidated same-store sales, which includes all banners, both online and in-store, increased 0.1%.
The comp increase was driven by a 2.1% increase in ticket and a 2% decrease in transactions. And our e-commerce business grew 19%.
In the second quarter, we continue to capture displaced market share from our competitive closures and delivered strong sales results in e-commerce as well our golf and footwear businesses. Our e-commerce results demonstrate our ability to profitability scale our new platform.
Our golf business was favorably affected by a strong new product cycle and retail consolidation. Footwear was driven by our premium full service footwear departments and the improved allocations of key styles that resulted from the investments.
Four areas that were under sales pressure were hunting, licensed, athletic apparel, and electronics. First, the hunting business was very soft as comp sales declined double-digits much worse than our expectations, and gross margin rates also declined as promotions increased.
Second, the license business declined significantly due to the anniversary of the Cleveland Cavaliers win of the NBA Championship last year. This produced record NBA sales for us.
While we had not counted on repeating this win in our guidance, it did negatively affect our comp sales for the quarter. Third, the athletic apparel business was softer and more promotional than we'd expected.
Increased distribution and increased promotions by the brand themselves as well as our traditional competitors negatively affected this business. And lastly, our electronics business, which is primarily fitness tracking continues to be very soft and comp sales were well into the negative double-digits.
Gross profits for the second quarter was 637 million or 29.54% of sales and was down 82 basis points versus last year driven by lower merchandize margins as the marketplace became more promotional than expected, as well as occupancy de-leverage and higher shipping and fulfillment costs as a percentage of sales as our e-commerce business continue to grow. Non-GAAP SG&A expenses were 463 million for the quarter, or 21.47% of sales, leveraging 98 basis points from the same period last year.
This leverage was primarily driven by our new e-commerce operating model and expense reduction initiatives. In total, we delivered non-GAAP earnings per diluted share of $0.96, which represented a 17% increase over the same period last year.
On a GAAP basis, our earnings per diluted share were a $1.03. For additional details, you can refer to the non-GAAP reconciliation in the tables of our press release issued this morning.
Now looking to our balance sheet, we ended the second quarter with approximately 132 million in cash and cash equivalents, and 187 million in borrowings outstanding on a revolving credit facility. Also, as disclosed this morning, we have amended and extended our revolving credit facility thereby benefiting from the attractive interest rate environment.
We've increased our limits by 250 million to 1.25 billion, and we have extended the maturity to August 2022 to support the continued growth of the business and provide additional financial flexibility. Turning to our second quarter capital allocation, net capital expenditures were 83 million, or 122 million on a gross basis.
Additionally, during the quarter we paid 18.2 million in dividends and repurchased approximately 3.4 million shares for $143 million at an average price of $41.56. We have approximately $875 million remaining in our authorization.
Now let me wrap up with our outlook for 2017. As Ed discussed, the retail marketplace is competitive and dynamic.
And to protect and grow our market share, we will aggressively price offerings to improve our price perception with customers and drive traffic to our stores and online. And we have reduced our sales and gross margin expectations accordingly.
As a result, we are lowering our full year guidance, and now expect non-GAAP earnings per diluted share to be in the range of $2.80 to $3, which includes approximately $0.05 coming from the 53rd week. This compares to our previous guidance range of 365 to 375.
We now expect consolidated same-store sales to be flat to low single-digit negative for the year, compared to our previous guidance of positive 1% to 3%. All of this considered, we now expect operating margins to decline year-over-year, driven by an anticipated decline in gross margin rates and an increased marketing expense partially offset by other SG&A expense savings.
As noted in our press release this morning, our full earnings guidance is not dependent upon share repurchases beyond $166 million executed through the second quarter, although we will consider using our authorization to continue to opportunistically repurchase shares. For the third quarter, based on low single-digit negative consolidated comp store sales, we anticipate earnings per diluted share between $0.22 and $0.30.
Operating margin is expected to decline year-over-year, driven by anticipated decline in gross margin, partially offset by SG&A expense leverage. In the balance of the year, we will continue to make previously planned investments in our e-commerce, team sports headquarters and private brand businesses to build on our strengths in these important transformational areas.
This will conclude our prepared comments. We appreciate your interest in Dick's Sporting Goods.
And operator, please over the line for questions.
Operator
Thank you. We will now begin the question-and-answer session.
[Operator Instructions] And our first question comes from Robby Ohmes with Bank of America Merrill Lynch. Please go ahead.
Robby Ohmes
Good morning guys. Thanks for taking my question.
I actually had just a couple of questions, the first, just the -- Ed, on the footwear strength in the quarter, can you maybe talk about the outlook for footwear in allocations that the things that supported that strength in the second quarter, do you see that continuing in the back half in this tougher environment? That's my first question.
And then maybe connected to that, you mentioned, irrational and unpredictable promos, like, is that just in apparel or is that a hunt fish camp thing, you know, maybe -- or is some of that actually going on in footwear, maybe tie together for us, so we have a better understanding of what we should be looking for in the back half?
Ed Stack
Robbie, we hope that footwear continues to be a strength. I think there're some great footwear products out there, and we hope that is going to continue going forward.
As opposed to what's going on from a pricing standpoint, it has gotten really competitive, it's gotten irrational. We've not only seen that in the number of categories on the athletic apparel side, but also on the hunt fish side is -- there's a lot of people right now, I think in retail and in this industry, in panic mode.
It's been a difficult environment. I think people -- I'm not going to speculate what they're thinking, but they seem to be in panic mode with how they are pricing product, and we think it's going to continue to be promotional, and at times irrational going forward.
And I think that's going to be across the number of different sectors. I don't think it's going to be particularly prevalent in the footwear business, but I do see it in the athletic apparel business like we did in the hunt fish camp business, and the electronics business is going to continue to be promotional too.
Robby Ohmes
And just in terms of timing, was this -- was it as you entered back-to-school period you saw more of this or was this sort of playing out a month or two ago?
Ed Stack
I would say probably started in around Father's Day, we started to see this happening a little bit before Father's Day, and it continued to be very promotional not only from retailers but also from some of the brands on a direct-to-consumer basis.
Robby Ohmes
Got it, thanks very much, I'll yield for other people.
Ed Stack
Thanks, Robby.
Operator
Our next question comes from Kate McShane with Citi Research. Please go ahead.
Kate McShane
Thank you, good morning. I have a few questions with regards to pricing and the discounting, I wondered if you could talk through how much of the price match impact to margins could be offset by the vendor changes you announced a couple of quarters ago?
And when you talk about promotions and discounts, did that include your exclusive product from the promotions as well?
Ed Stack
No, we -- I mean the products that are exclusive to us can't be price matched in the marketplace. So, some of those may get caught up in just promotional opportunities around the entire category of brands, but most of our exclusive and our own private brands, we don't see that price pressure on.
And as it relates to the vendors, we see that our vendor strategy is working really quite well, the strategic vendors have been very helpful and supportive of the business. We've eliminated a number of vendors going forward.
What's going on in the marketplace right now is that it's just very promotional, almost panicked in some cases. I think especially in the hunt fish categories, there's a lot of inventory in the pipeline, and people need to move it out, and it's going to continue to be -- it's going to be promotional until this inventory gets moved out of the pipeline.
Kate McShane
Okay, thank you. And in the same note with regards to pricing, you had mentioned, Ed, during your prepared comments that you had taken consumer surveys that there was a perception that your prices were too high.
Were these surveys taken once the tide kind of turned with regard to the discounting, or was this just an in general perception? And then just further to that, do you think that you were too high, or is it more of a function of you being a premium sporting goods retailer?
Ed Stack
I think some of the -- I think that's a good question, I think there're some aspects of this perception that is really perceived versus reality, and part of it was reality. We tried to not be promotional.
We didn't want to be the price leaders in the industry. And as things got competitive and somewhat unpredictable, the consumer told us that they felt that we weren't priced competitively in the marketplace.
Part of it has come from the fact that if we have an expensive athletic shoe or a high-priced jacket, we're not -- we weren't high-priced on that jacket or on that shoe, but it was a high-priced shoe or a high-priced jacket. And we think with the right price guarantee, they'll feel comfortable that we are at the right price, and that we are competitively priced, but as we go forward with this, we need to make sure that we convince the customer that they should be comfortable shopping with us.
And that's the whole idea around the right price promise. And it's gotten some -- it's gotten some traction, we've got a very positive response from it.
Kate McShane
Thank you.
Operator
Our next question comes from Seth Sigman with Credit Suisse. Please go ahead.
Seth Sigman
Thanks for taking the question. The industry was obviously weaker this quarter.
I'm trying to understand if Dick's comps are weaker, because you're taking less share than prior quarters, or if the base business just got a lot weaker? So, do you feel like you're capturing similar market share to prior quarters, did something changed?
Ed Stack
I think we are actually picking up market share. If you take a look at what else is going on in the marketplace, you know, competitor in the outdoor category announced comps negative 9.7.
Take -- a retailer in the Southeast comped negative 10%. You take a look at that we comped positively 0.1%.
I think we are actually taking share in the marketplace. We've got visibility to some other companies that we think have had negative comps.
So we think the sector has gotten weaker as you said, but if you take a look at our sales versus what else is in the marketplace, we think we've actually picked up market share.
Seth Sigman
But do you think you're gaining less share than maybe prior quarters where you've seen all of -- all the disruption, all the benefits from competitors closing, just as you think about the magnitude of the market share benefit?
Ed Stack
I don't. If you take a look, as I said, the outdoor competitor that comps were down negative 9.7%, then the other retailer that we compete with in the Southeast had negative 10%.
There's never been that kind of a difference between our comps and the competitors comps before. Our comps have usually been in the sporting goods industry at the same or higher than our competitors, and never been a 10% difference.
And with that 10% difference, we clearly believe that we are picking up market share, probably at a greater rate than we had in the past.
Seth Sigman
Okay. And then, as you think about the investments that you are making in aggregate, it seems like a step-up from what we've seen at least in the last couple of quarters, and you discussed price, e-commerce, Team Sports, these don't really seem like short-term investments.
So, as we think about next year, would you expect margins to remain under pressure?
Ed Stack
I would. I'm not sure they would become under increasing pressure, but they may, depending on what's going on in the marketplace.
But I think at least for the next some period of time, this is the new normal from a margin rate standpoint.
Seth Sigman
Okay, thank you.
Ed Stack
Sure.
Operator
Our next question comes from Stephen Tanal with Goldman Sachs. Please go ahead.
Stephen Tanal
Hi, good morning guys. Thanks for taking the question.
I guess I could just follow-up a little bit on sort of sale, I'm trying to understand, you know, clearly you got your day quite well relative to some of your competitors, but in absolute, things have slowed, and some of that's the market. But if you could sort of parse out, I mean, what do you think is the bigger driver here of the step change?
Is it the incremental capacity that's come online, whether it's called an underarm or others, or is it the again the liquidations in the quarter or the vendor selling direct? Do you have a good sense of how you could sort of parse through those and think about what maybe the biggest issue or what's changed the most anyway?
Ed Stack
I think it's a combination of all of those. Certainly the distribution changes in the marketplace, the broadened distribution primarily around the athletic area is parsing out market share.
And you know, Coles indicated that they've had great success, and I suspect when you come from zero on something to rolling it out, you're going to have -- you're going to have determined to have success. And so, I think the increased distribution in this category has impacted the business.
We are going to go and aggressively fight to move that market share back to us. That's a high margin area also.
So, as we reduce margin in that area, gets hit a bit from a sales standpoint, that has an impact. And the vendor direct piece is certainly a concern, especially when the vendors start to become promotional on their own sites.
Stephen Tanal
Yes. That's helpful, and I appreciate that.
Now, just thinking of the guidance, it looks fast anyway as the back half EBIT margin is implied down about 120 or 180 bps, and you just levered SG&A close to 100. I guess, part of the question is, does the SG&A leverage continue at a similar pace such that gross margins are actually implied down, you know, call it 220 or 280 something in that neighborhood or is there reason to believe that SG&A gets -- yes, you said yes…
Ed Stack
About the same, you've got a peg and the difference is going to be in the margin rates on -- from a sales and promotional standpoint.
Stephen Tanal
Got it, okay. And then just lastly for me then on the SG&A side, could you give us -- maybe Lee, on sort of the different drivers in the quarter as you try to [indiscernible]?
Lee Belitsky
Well, we continue to benefit from our new e-commerce platform and the leverage that's giving us on e-commerce, which is helpful. And as we get into the -- into the back half of the year, and that becomes a bigger part of the business, we expect that to continue.
We also had a reduction in force that we had here at the corporate office back in May, and we picked up a pretty good chunk of that in the second quarter, but those will continue in the third and fourth quarter as well. And those are the main drivers, and we'll be pursuing some additional expense opportunities and really sharpen our pencil on our expenses for the back half of the year beyond that.
Stephen Tanal
Got it. Okay, thank you guys.
Operator
Our next question comes from Michael Lasser with UBS. Please go ahead.
Michael Lasser
Good morning. Thanks a lot for taking my question.
Ed Stack
Sure.
Michael Lasser
So, Ed, you've been talking about irrational and unpredictable pricing. So, what's the end game?
What do you see as the catalyst to make good pricing become more predictable and more rational?
Ed Stack
That's a really good question, and if -- I don't really know, I think that this whole mindset in what's going on with the business that everybody resetting their business can get more rational. I think there is going to be continued consolidation in this industry.
And as we know it's -- when the consolidation starts to happen, price is the first line of defense if you will or the last line of defense. So I think it's going to continue on.
As I said, I think that this pricing -- how the market is being priced right now in the promotional opportunity, I think it's going to be at least for the foreseeable future, it's going to be the new normal until the industry consolidates further.
Michael Lasser
And your strategy from here to meet the market, or do you intend to try and accelerate some of the consolidation, or -- and some of the damage that might be experienced for the long run by being more aggressive to the market? So, beating to your competitor's pricing.
Ed Stack
There are going to be some areas that we are going to go and be -- we are going to be aggressive, and we will be beating their prices. We are not going to sit back and just watch this happen.
We've got the financial strength and muscle to withstand the storm, and we are going to be very aggressive and take that -- and continue to take that leadership position in the marketplace. We took it in the past, that's how we lead the business from a premium standpoint, how we lead it from a merchandise presentation standpoint.
We are not going to change that. But if we are going to get into a price war, we are going to get into a price war, and that's what's happening and that's why we've taken the guidance down.
We are not going to sit back and just wait for things to transpire in front of us. We are going to completely engage, and we are going to be very aggressive to protect our position.
Michael Lasser
And then, just to frame all this; margins for Dick's who peaked out around 9% in the past, we shouldn't think about that as a realistic margin expectation anytime soon?
Ed Stack
Not in the foreseeable future right now with the marketplace the way that it is today.
Michael Lasser
Thank you very much.
Ed Stack
Sure.
Operator
Our next question comes from Simeon Gutman with Morgan Stanley. Please go ahead.
Simeon Gutman
Thanks. Good morning.
Just a follow-up on margin, to a couple of questions that I will ask, so back half margins are forecasted to be down pretty significantly. If we think about in investment period that's beginning the next couple of quarters or now that should linger at least for the next couple of quarters until 2018.
Is that fair? And I know you are saying it's hard to know if it stabilizes, but do you have a sense if these investments linger basically until we lap them in the middle of next year?
Ed Stack
I would probably look at -- this is going to continue on into '18. I'm not going to predict one that it's going to lapse, but you should look at this, as I said, this is the new normal for a while.
Simeon Gutman
Okay. I guess a couple of parts on price matching, so you intimated that you've seen a little bit of -- I don't know rebound or response, and engagement or maybe on business on the back of price matching, and I'm less concerned about the top line trends more about, is it starting to change behavior.
And then, if that's the case, and then as a component of that, are there any categories where the perception on price was more prevalent than others? And then, I have one more follow-up on the price match.
Ed Stack
So, on the tracks, what I said was that we've gotten a positive response from our consumers. And it's been too early to say it's really having an impact in our business, but we've gotten positive response from the consumer on this.
And I'm sorry, the second part of your question?
Simeon Gutman
Are there any categories that stand out that are more prevalent, has a perception as far as price driving or price perception driving?
Ed Stack
Yes, the hunt business. The gun and ammunition business is difficult.
That is right now -- that's continuing to be promotional. And I think it's going to become more promotional as we get into the meet of the season, which is toward the end of the third quarter and to the beginning of the fourth quarter.
Simeon Gutman
Okay, And I guess then my last piece is then does it makes sense to think about EVLP in some categories? And I don't know there to say, our competitor selling below, what should be EVLP at currently vis-à-vis promotions?
Ed Stack
Yes, it's gotten -- the pricing in the outdoor category, especially the hunt category has become what I would characterize as almost irrational. And part of that is because there is a big -- and you know this from looking at some others through the entire supply chain there is a significant amount of inventory that needs to be cleaned out.
Simeon Gutman
Got it.
Ed Stack
That's just similar to the golf business, probably four or five years ago. And now the golf business is rebounding, and the golf business is terrific.
We'd expect this is going to -- it will happen in the hunt category, but as with the golf business, there is going to be some pain that's going be experienced for the foreseeable future.
Simeon Gutman
Thanks.
Ed Stack
Sure.
Operator
Our next question comes from Sam Poser with Susquehanna. Please go ahead.
Sam Poser
Hi, good morning. Thanks for taking my questions.
First of all, I guess, can you talk about the makeup, you might say this, but can you give us more details on the makeup of the excess inventory, so where you clean, where you don't expect to be somehow shortly, we've already talked about your hunting inventory, but can you give us some more details on that? And then, I have a couple more.
Ed Stack
Our inventory is really in pretty good shape. The supply chain is backed up, but our inventory is in pretty good shape.
We are actually -- we have an open to buy on products across the board. So if we have an opportunity to buy product, what we perceive to be the right price will do that.
So we are not backed up in inventory. We are in a really -- we are in a very good position.
Sam Poser
Okay, thank you. And then, I mean, you are starting the price matching strategy as well as you mentioned that how promotion you anticipated as per the foreseeable over the year, does this make you nervous that to drive the traffic, you needed to be promotional and your consumer may consider -- they continue to think it's promotional as you are going to become a more promotional retailer going forward, or if there is an opportunity maybe they really think about your matching or for the Dick's brand to help drive more traffic to the stores vis-à-vis in-store event that's so on and so forth?
And then, lastly, what kind of variance would say in those A mall versus the C mall, B mall for fleet locations, are you seeing under brick-and-mortar from a comp basis?
Ed Stack
Well, I'll answer the last question first. We don't -- you know, we are not going to get to that level of granularity to kind of layout what our comps are by category A mall, B mall, C mall, but first part of your question, Sam, we really think there is so much price transparency in the market today that those who sit back and hope that it goes away or that it's going to change, I think we are going to have a problem.
You've got to find a way out to -- you got to find a way to compete them, and not only survive, but thrive in this industry in the way that price transparency is today. We think that we are doing that.
And now we think eventually we will continue to make up more market share. We think there will be different -- there will be more consolidation in this industry.
And we like where we are long-term. We don't like where the whole industry is today, but it won't stay here forever.
And we like the position, we aren't going forward. But price transparency is here to stay.
And margins I think are going to be under pressure from what they were a few years ago for a very long time possibly in perpetuity, and if anybody tells you anything different, I don't think they're understanding the new reality.
Sam Poser
Well, thank you, and good luck.
Ed Stack
Thanks.
Operator
Our next question comes from Steve Forbes with Guggenheim. Please go ahead.
Unidentified Analyst
Good morning, [indiscernible] for Steve. Two questions; when you think about the step-up promotional activity, is that likely to be more brick-and-mortar directly to an e-commerce?
And how do you get your arms around an ROIC calculation in an environment, where pricing is irrational, or you really can't, that sort of has to go out the window into rationality returns?
Ed Stack
Yes, the pricing is going to be -- the pricing is transparent in -- it's going to be the same in stores and in online. You are going to have that promotional activity along both of them.
You see people at the grocery stores today walking up and down the aisles with their phone, shooting barcodes and getting prices. So, the price transparency is here to stay, and ROIC calculation we take a look at that, we've got to do a better job of looking at the components of that, we got to do a better job of turning our inventory, we've got to do a better job of how we can manage margins.
We think it can be helpful. What we are doing with our private label, as I said, that was up mid-to-high single-digits in the comps in the second quarter.
And these are all the margin rates that are the higher than the company average. We've got to continue to build those brands, the CALIA brand has been a huge success for us.
And we think that that gives us the opportunity to move into other areas, in other categories, and this is a longer term play, but we like where we are at long-term.
Unidentified Analyst
As a follow-up, somebody in another industry had said to me once that if you go out and kind of smack people around price-wise, you know, it can take that rationality out of the market, but it sounds like this is different because it's an inventory overhang more than anything else?
Ed Stack
Well, I think that the inventory overhang is in the hunt category.
Unidentified Analyst
Yes.
Ed Stack
But the promotional aspects are across a number of categories. So there is a hunt category, the athletic apparel category.
And with the increase distribution in the athletic apparel category, it's become more promotional. We didn't start the promotion, but we can't sit around and pretend it doesn't happen.
We need to engage in that. And our customers have told us, you need to engage here in today's marketplace, the higher price than I can find the product someplace else.
And I'm a firm believer that the definition of loyalty in the retail business for the consumer is the absence of the better alternative. And we need to make sure that we provide the consumer the best alternative, and that's what we are going to do.
It's going be a little expensive and it's going to be a little painful for a short period of time, but it's what we need to do long-term.
Unidentified Analyst
And then, lastly, given your under penetration in footwear, right, in the success of the deck, is there a good likelihood that the pace of installation accelerates in '18, it's probably too late for this year, but the '18 steps up?
Ed Stack
Yes, we are looking at -- the vast majority of the new stores that we open will have the new footwear deck, any of the stores that we model will have the new footwear deck, and we are taking a look at what stores we would want to put that new footwear deck into next year.
Unidentified Analyst
Okay. Thank you.
Ed Stack
Sure.
Operator
Our next question comes from Scott Ciccarelli with RBC Capital Markets. Please go ahead.
Unidentified Analyst
Hi, this is [indiscernible] on for Scott. I was wondering if you could help kind of quantify the impact of the pricing matching program versus overall kind of just lowering prices towards the market.
And then, also if you could remind us what the penetration of the hunt category is in overall sales?
Ed Stack
Okay. Well, we never disclosed what the hunt category penetration is, and for competitive reasons, we are not going to get that granular.
As far as the price match guarantee, we've just started that. But if you want to take a look at a kind of level of impact, the price match guarantee is going to have a much lower impact on the margin rates than the competitive -- being competitive out there in the marketplace.
As we are competitive in the marketplace, we are not going to have to match many prices but the primary driver of the reduced margin rates going forward is the marketplace today and how we need to be competitive for our consumers.
Unidentified Analyst
Thanks. And just a follow-up, I was wondering if you could kind of talk about the position of your ongoing vendor negotiations with strategic partners and some of the broader distribution how maybe that's impacted some of those discussions and how might impact them going forward?
Ed Stack
Our strategic vendors, we've got a very good relationship with, we understand why this broadened distribution has happened and what's going on. We understand that.
And we don't really like it, but we understand that. And that's the way the world, and we need to compete in the real world and not sit around wishing that things were different.
So we have these conversations, and they've been very helpful in trying to find ways to differentiate us in the marketplace. And we expect that will continue.
We try to find ways to move market share, overtly move market share to those strategic vendors, and we continue to have a great relationship with the vendors even though they are marking some decisions that we don't like. We understand the world we operate in, and they are going to do that and if they don't do that, you guys are going to bust them for not doing it.
So it's kind of a catch-22.
Unidentified Analyst
Thank you.
Ed Stack
Sure.
Operator
Our next question comes from Adrienne Yih with Wolfe Research. Please go ahead.
Adrienne Yih
Good morning. I have two quick questions.
The first is on e-com, what's the penetration this quarter, how much did it grow? And if you can give us some color on kind of the digital initiatives and when they'll start to impact digital and personalization?
And then secondly, where do you perceive the impact of sort of Nike partnering testing on Amazon, and how can you ensure that your positioning is still differentiated from that of the Amazon offering? Thank you very much.
Ed Stack
The e-com penetration was 9.2% for the quarter, and it grew 19% year-over-year.
Adrienne Yih
Right.
Lee Belitsky
So from an Amazon standpoint and Nike they -- you know, this is a test, we'll see how this goes, they've been transparent talking to us about this test. And I suspect it will probably go well, and then Nike will decide what they want to do about it and how they want to handle the balance of the market.
Our relationship with Nike has been always been very good. It continues to be very good.
We continue to work with them on shops and our footwear decks and exclusive products. They're a strategic vendor of ours, and we've got a great relationship and what they're going to -- what they're going to test and what to do ultimately is -- we'll deal with that when it happens.
Adrienne Yih
Okay, great. Thanks a lot, best of luck.
Lee Belitsky
Thank you.
Operator
Our next question comes from Christopher Horvers with JPMorgan. Please go ahead.
Christopher Horvers
Thanks, good morning. You mentioned that the inventory overhang is not in the athletic apparel category.
So that's typically a map pricing structure in that category as far as I understand it. So, our brands basically looking are not disappointing on map and looking past it, and with it not being inventory overhang, what's the issue and what brings that map enforced back in line?
Do you think it's -- they just need to get that, the growth rate in the market isn't what it was and once they get that, they'll start being more disciplined? How do you think about that?
Ed Stack
Well some brands have actually modified their map program, number one, number two I don't think there is disciplined at enforcing it and number two map is only for advertised price has nothing to do with what product is sold in the store at. So you've got map is an interesting and a nice idea, it's not as effective as some people think that it might be.
Christopher Horvers
And when you say that some brands have modified map, is that basically loosening the structure?
Ed Stack
Loosening the structure or having more map weeks are everybody promotes it map week or taking in some categories or some products taking off map and so map is, I think map right now is an interesting concept, it's not terribly effective and as I said map is only a minimum advertised price has nothing to do with what the price of the product is sold in the store.
Christopher Horvers
And then, do you think that if you look at some of your big vendors over the past five years, they've expanded sequentially into more and more department store brands and now you have sort of Nike with the new test on Amazon obviously from their perspective they like to grow doors and they like to grow, they've expanded the distribution points chasing growth, do you think that is there any -- is there any hints that they will become more disciplined on channel management given the fact that pricing is just as sounds like just falling apart in the market?
Ed Stack
I think it's falling apart, it's just got more promotional and you'll have to talk to them, I'm not going to comment on what I think some other brands are thinking about doing with their brands and how they come to market.
Christopher Horvers
Understood, thanks very much, Ed.
Operator
Our next question comes from Dan Wewer with Raymond James. Please go ahead.
Dan Wewer
Thanks. During your prepared comments, you did open up the possibility of additional share buyback but during the Q&A session, Ed you talked about the company be willing to enter, I think your words were a price war to protect market share, do you really think this is a good time to be buying back shares if the industry is going into a prolonged price war?
Do you see a scenario where maybe it makes sense to improve liquidity instead of buying shares?
Ed Stack
And we didn't say we're going to we say we're going to leave open the opportunity.
Dan Wewer
That was like.
Ed Stack
We can.
Dan Wewer
Okay this is a follow up question then last year we were expecting 2017 to become a year that began to achieve a payback on the e-commerce investment and we were looking at saving of 25 basis points then I understand your comments correctly that you're saying it made far increased investment in your e-commerce shopping site and..
Ed Stack
Go ahead finish, I thought you were done.
Dan Wewer
I was going to say that, that original forecast 25 basis points in savings kicking off this year no longer what's achievable is that the takeaway.
Ed Stack
Well, actually we did that so, we got the increased profitability that we had talked about in the normal world and what's happened now from a pricing standpoint it's got more promotional so, the reduced, the issues that we have or that, what we're looking at is investments we need to make our pricing online also. So the increase profitability we had between 25 and 30 basis points as we moved into our own e-commerce business we actually achieved, we did exactly what we said we were going to do but no one predicted what was going to happen in the marketplace from a pricing standpoint.
Dan Wewer
And just one real quick question if I could had talked about the golf category I was, I was talking with the other leading of course specially retailer and that they could see a scenario where 2018 could be lower than 2017 with the thought that you will it reach the anniversary of the Golfsmith liquidation. Perhaps calculated them have another product A successful at that that and they talked about it something that they're kicking around inside their corporate office but you know whatever like the plan to down that like what happened next year in the golf category.
Do you see that as a possibility?
Ed Stack
No, we have never commented nor I'm going to comment about 2000 year out. If we're having a very good year from a golf standpoint right now.
Our hope is that the brands continue to bring out a great product were a great product cycle right now and I'm not going to comment or speculate on what the golf business might be next year.
Dan Wewer
Okay, thank you.
Operator
Our next question comes from Brian Nagel with Oppenheimer. Please go ahead.
Brian Nagel
Hi, good morning.
Ed Stack
Hey, Brian.
Brian Nagel
Sorry to be repetitive or be dead horse here but I guess you talked a lot about price promotions but I guess my big question is are you are the promotions coming primarily from retailers struggling with excess of inventories in categories like hunting or you've seen new likely online only tech companies push into this space with lower prices is a means or is it an effort to disrupt the margin structure.
Ed Stack
If so, as one of those two buckets and is once -- definitely more than the other.
Brian Nagel
So the new retailer is online with lower prices not a big deal we don't see that is, is a big new on line retailers. Existing online retailers and what happens with Nike and Amazon will have to wait and see but inventory is backed up in the hunt channel.
I don't think it's backed up that much in the athletic channel but maybe a little bit but nothing I don't think it's in a short time that can be done. I think the pricing is from additional significantly increased distribution and everybody fighting for their share of what now is the same size market but with more competitors in there and we're going to be very aggressive taking trying to retain that market share and so, I think that's the pricing on the athletic side, of the hunting side it is very slow growth there is no concern about any gun reform right now based on the political situation that is in Washington today.
And the inventory is backed up, people need to get rid of the inventory and then some people are panicked as to what's going to happen with their business from a growth standpoint so, I think it's just the perfect storm right now in retail and I think Sporting Goods in the center of it right now that will be further consolidation we're seeing Gander Mountain closing right now. We'll see what happens with some other some other retailers.
But it, it's a perfect storm right now, we're not particularly happy that we're in it but we think we are the one we are one of the few that are very well positioned to come up the other side very strong and continue to be the leaders in this industry and we think it's there and we think it'll be great on the back side but it's going to be painful for a while and we're fortunate that we've got the financial strength in the balance sheet to get through it all without having to raise additional capital.
Brian Nagel
Got it and so then the next question I've made this is early but clearly you're talking on this call and released about adjusting your pricing to this environment but it's Should we start to think about changes in your store so, it means you think about how if you have environments or how the sectors transitioning with like it come out the other end are there changes you could make in your stores either to the format or delay others, with the delay of the stores I know you'd like to know you mentioned before is a golf example with through that period of people you did reformat that area of the stores or that's something else we could see happening there.
Ed Stack
Yes, so we're taking a look at that we're really enthusiastic about what we've done from a footwear standpoint. You'll also start to see that we've showing to for reform at the center of the store, you'll find clear on the front of the power aisle going forward in a lot of stores now and going forward.
In some stores we've tested having clearly, have a much bigger footprint in having both sides of the, what we characterize as the pads and the power of both the front and the back of that. So, yes, and we will probably move different brands into those areas.
Moving some brands in and out and we've also talked about, what we're going to do with the store that we got some thoughts about the meaningful changes that we're going to make in the store that we're not ready to talk about yes.
Brian Nagel
Got it. And then it's one more you mentioned clear so, with this whole discussion of pricing and more, more aggressive pricing in the category how does were as clearly fit into that.
Ed Stack
We don't feel that, there will be maybe some promotion with clear but very little this is a brand that's pretty hot right now. Our design team has done a great job from a pattern standpoint, performance standpoint, fabrication standpoint and this is a brand that's pretty hot in the marketplace for us right now and we do not see a need to promote the, promote that brand aggressively.
Brian Nagel
Yes, good. Thanks.
Ed Stack
Sure.
Operator
Our next question comes from Omar Saad with Evercore ISI. Please go ahead.
Omar Saad
Thanks. Good morning.
Thanks for taking my question.
Ed Stack
Sure.
Omar Saad
And you guys talked last quarter about slowing the store growth down taking advantage of what you expect to be lower rental rates. We'd say with the change is accelerating in the industry in the pricing pressure which you've obviously talked a lot about today, are you rethinking in the kind of the long term goal of the footprint of the Dick's franchise.
As a result what seems to be now a President decision to slow down the store growth?
Ed Stack
Yes. Remember we've talked about slowing down our store growth not because we're not happy with our new store performance or new store performance has been very good.
We slowed the store growth down because we think real estate prices a couple years from now are going to be less expensive than they are today. We're starting to we're seeing that as we renegotiate leases or relocate stores.
The rents are coming down in all but the truth A mall so, if you take a look at the true A malls we actually think rents in those malls might actually go up we're not in a ton of those, we think in and we've got long term option so it won't affect us. But we actually think those rents may go up because they're going to be in such high demand but some of the secondary locations and we're destination shop so, we can take that kind of the B Mall location in the rents have continued to come down in those and we think they're going to continue to come down.
We've got 25% of our stores over the next three years that are up for renewal and the renewals there are options. We have an option to extend for another five years, another five years after that probably another five years after that so we control these building for a long time and if there is another alternative we have an opportunity to go to a different alternative.
The rents have come down pretty significantly and we expect that to continue.
Omar Saad
Got it, got it but you're sticking with the kind of longer term 1,100 store target.
Ed Stack
No, I mean, we still think that we're kind of in that zone yes. But it's just going to be, it's going to be a longer ramp to get there and we've also taken a look at what we're going to do with the Field & Stream stores and the Combo stores in the triple plays, when we've lined up the three banners all together the Field & Stream, Dick's and Golf Galaxy all lined up together, it's a powerful shopping experience and we're very happy with that.
So when you take a look at that is that one store is or is that three stores. So overall boxes, we think that that 1100 is probably pretty close.
Omar Saad
Got it and then maybe one quick follow up on the pricing, when you look at the illogical irrational behavior you alluded to, does that more would you lay to blame there more of the retailers feed or the brands feed or both sides kind of guilty of going down that path?
Ed Stack
I'm not going to lay that at anybody's feet, I think it add someone else there too in the - I'm not going to lay that in anybody feet, that's just the way the marketplace is, and that's the environment we have to operate in and that's the -- that's how we're going to operate, we're going to engage in this and protect our market share.
Omar Saad
Thanks for the color, Ed.
Ed Stack
Sure.
Operator
Our next question comes from Rick Nelson with Stephens. Please go ahead.
Nick Zangler
Hey guys, Nick Zangler on for Rick here. Thanks for squeezing me in.
The e-commerce performance improved in the quarter up 19% versus 10% last quarter, I'm assuming associated marketing was stepped up in the quarter and drove some traffic but can you just detail the drivers of the sequential improvement and then should we continue to expect 20% growth on the e-commerce side like we've seen historically even despite some of this broader vendor distribution?
Ed Stack
We're not going to comment on what we think that e-commerce business is going to be going forward in guide to that, but the sequential improvement was due to marketing if you remember we said that we were as we got the sites up and running, we had kind of scaled back some of the marketing not distressed site to make sure that everything was fine as we felt that the site was up and running and stable, we increased the marketing which drove that those sales numbers. And also the pricing, I mean we were very competitive from a pricing standpoint and promotion standpoint on the online.
Nick Zangler
Was there normalized, I guess normalized marketing throughout the entirety of this quarter or did that take some time to adjust?
Ed Stack
That was pretty much normalized for the quarter.
Nick Zangler
Okay, all right. Thank you, guys.
Operator
Our next question comes from Camilo Lyon with Canaccord Genuity. Please go ahead.
Camilo Lyon
Hi, good morning. Thanks for all the candor this morning, most of my questions have been asked, but I just want to get your thoughts on whether what the feedback has been with respect to going after that TSA clients via the intellectual property that you secured from the TSA bankruptcy?
Has that been successful, have you been able to track that consumers' migration to that and toys and seemingly sort of changes in their shopping behavior relative to your core consumer?
Ed Stack
Well, we don't see them shopping much differently than our core consumer. But yes we've been aggressive in targeting that and continue to pick up market share with those stores have closed.
And I think our marketing team, the operations team has done a really good job with that.
Camilo Lyon
Okay. And then just a question that's been asked many times on a call from slightly different perspective on the brand impact, on the promotional environment on the payer front.
What do you think from their perspective is the leading cause for being incredibly promotional in today's market, what's driving that, what do you think is driving their decision to carry that level of promotion in their own product?
Ed Stack
Are you talking about the brands?
Camilo Lyon
Yes.
Ed Stack
I think everybody -- so the category has slowed down a little bit and I think that and not every brand is doing this but I just think there is the thirst for growth or the requirement for growth and that has broadened the distribution, broadened distribution channels and as your broaden distribution channels, you've got relatively the same pie and more people going after it, it's going to be the marketplace is going to be disrupted and people are going to be more promotional trying to drive consumers to their store and their shop and that's what we're seeing. The market is - market was disrupted from a distribution standpoint and then everybody in the market is going to try to grab their share of the market and usually they do that with either -- if it's not truly differentiated content, it's going to be service and price and all of our research, service is important, price trumps service.
Camilo Lyon
Do you think it's a role of innovation on the product front, or appreciation on the consumer's behalf in terms of how much athletic apparel we have in their closet?
Ed Stack
I think it's a combination of the tow, and I think that -- I think most of it is just broadened distribution.
Camilo Lyon
Okay. Thanks very much, good luck.
Ed Stack
Thanks.
Operator
Our next question comes from Matthew McClintock with Barclays. Please go ahead.
Matthew McClintock
Hi, yes, good morning and thanks for taking my question. Ed, might have take a different angle at this, and maybe start with an area of somewhat strength, which was premium footwear for the quarter, you know, can you talk what specifically is different about the premium footwear business relative to the rest of your business and maybe why it's outperforming the other categories right now?
Thank you.
Ed Stack
Well, the footwear business has been good. We hope that it's going to continue, and there's been really differentiated product out there, in product that has been hot, the consumer really wants to buy.
We've worked with the brands -- we have that product in our store, we have done a -- our teams have done a great job merchandizing it. The stores have done a great job servicing it.
And content is king. In footwear, the content is more exciting right now than the athletic apparel business.
And it's more exciting than other areas of this business that we occupy in the outdoor category, in the hunt category. Footwear is still pretty exciting out there.
And the brands are doing a really -- the brands are doing a very good job of bringing out innovative and new product that is resonating with the consumer.
Matthew McClintock
Thank you for that color.
Ed Stack
Sure.
Operator
Our last question for today comes from David Magee with SunTrust. Please go ahead.
David Magee
Yes. Hey, good morning.
Just a quick one on the loyalty program, and I'm just thinking about ways you could differentiate yourself in this environment. Is that shop approving to be more sticky at this point in time, or is there more you can do in the area to stand out?
Ed Stack
Yes, it's interesting they bring that up. So, yes, that customer is still pretty -- is pretty good with us.
But we have talked about it, we are looking at ways that we can make that more exciting in -- to keep -- get a bigger share of that customer's wallet. So, what we are doing right now is relatively basic in our loyalty program, and we are looking at ways that we can ramp that up to give the consumer a better reason to shop in our store than other stores.
So we don't have any color on that yet, we are working through that, but we do expect to come out with something that will enhance our loyalty program pretty significantly.
David Magee
Okay, thanks. Good luck.
Ed Stack
Sure, thank you.
Operator
That concludes our question-and-answer session for today. I would like to turn the conference back over to Ed Stack for any closing remarks.
Ed Stack
I'd like to thank everyone for joining us on the call, and we look forward to talking to everyone on our third quarter results. Thank you.
Operator
That conference has now concluded. Thank you for attending today's presentation.
You may now disconnect.