Dick's Sporting Goods (DKS) Q1 2026 earnings call transcript

I will now hand the conference over to Nate Gilch, VP of Investor Relations. Nate, please go ahead. Good morning, everyone, and thank you for joining us to discuss our first quarter 2026 results. On today's call will be Ed Stack, our Executive Chairman, Lauren Hobart, our President and Chief Executive Officer, and Navdeep Gupta, our Chief Financial Officer. A playback of today's call will be archived in our Investor Relations website located at investors. dix. com for approximately 12 months. As a reminder, we will be making forward-looking statements which are subject to various risks and uncertainties that could cause our actual results to differ materially from these statements.

Any such statements should be considered in conjunction with cautionary statements in our earnings release and risk factor discussions in our filings with the SEC, including our last annual report on Form 10K, as well as cautionary statements made during this call. We assume no obligation to update any of these forward-looking statements or information. Please refer to our Investor Relations website to find the reconciliation of our non-GAP financial measures referenced in today's call. And finally, a couple of admin items.

First, a quick reminder on our Comparable Sales Reporting. Foot Locker will be included in our quarterly comp calculations beginning in Q4 of 2026, which will mark the start of their 14th full month of operations post acquisition. And finally, for future scheduling purposes, we are attentively planning to publish our second quarter 2026 earnings results on August 25th, 2026. And with that, I'm going to turn the call over to Ed.

Thanks, Nate. Good morning, everyone. We delivered a very strong first quarter and want to thank our more than 100,000 teammates around the globe for their commitment and execution.

Sport is one of the hottest categories in the country today. We're in the middle of a real sports moment and the intersection of sporting culture has never been stronger. You see it everywhere. From rising valuation to professional sports teams, to the level of investment from streaming platforms and networks, and the strong demand from advertisers to be a part of live sports.

Looking ahead, with major global events like the 2026 World Cup and the 2028 Summer Olympics in LA, we're entering one of the most exciting multi-year periods for sport in this country's history, making it an incredibly powerful and compelling platform for consumer engagement today. This environment plays directly to our strengths, and Dix is leading from the front across our stores, our digital capabilities, and our now expanded global reach. We are connecting with athletes in more ways and with more relevance than at any point in our history. What sets us apart is our ability to create and maintain that connection across performance, lifestyle, and culture throughout the Dix ecosystem. House of sport and fieldhouse are reshaping what retail can be and redefining how brands come to life.

Game Changer keeps us deeply embedded in youth sports, unlocking new levels of opportunity and partnership. Golf Galaxy reinforces our leadership in a category with strong participation and rising cultural relevance, and with footlacker, we reach a different consumer, connected deeply with sneaker culture, basketball, and lifestyle, and extend our influence even further. That's why the best and most exciting sports brands in the world want to partner with us, not just to sell product, but to launch ideas, tell stories, and scale concepts globally during the most important moments in sports. And that's why athlete engagement with us continues to grow. We're investing in our business from a position of strength. We're playing offense for the long term, and it's widening the gap between us and the rest of the industry.

Our vision is to build the best sports company in the world, and we're just getting started. Our leadership showed up clearly with an exceptionally strong performance in our Dix business this quarter, with caps of 6%. Our team executed at a very high level, and we're all proud of their contributions.

Now turning to footlock, we remain highly focused on the transformational opportunity ahead, and on delivering an inflection point in sales and profitability starting with back to school. Our excitement and confidence continue to build as we execute our plan, and in Q1 we saw encouraging proof points.

For the global footlocker business, we delivered slightly positive cops and operating income with merge margin improvement. This marks the first quarter of positive cops for the footlocker business since Q4 of 2024. North America performed even better, with a 1.4% cap growth, and within this, the US footlocker banner capped up 6.4%. The footlocker banners are largest and most critical part of the footlocker business, so it's where we focused first, and the results we're seeing reinforce our turnaround approach. We have a clear plan, and it's working. We're raising the low end of our full-year comp sales expectations for the footlocker business. We now expect comp sales growth of 1.5% to 3% up from 1% to 3% previously.

A major driver of this strong execution is our store teammates. Our stripers and blue shirts are energized by the renewed momentum and investment in our stores. They are deeply embedded in their communities. They're the closest to the consumer because they are the consumer. Wearing the stripes in their own backyard is a badge of honor, and that authenticity shows up every day in how they reinforcing our conviction in this capital light remodel initiative. During the first quarter, we expanded fast break by approximately 90 stores, bringing the total to approximately 100.

Across that expanded footprint, our fast break stores delivered double-digit comps in Q1, and meaningful merchandise margin improvement. By back to school, we plan to have approximately with further expansion ahead of the holiday season. Our fast break initiative is built on retail fundamentals, a more focused shoe wall, improved storytelling, and the reintroduction of apparel with curated and complementary offerings. These updates are fast to implement, typically completed in a few days, and require limited capital. At its core, it's retail 101, and when you execute it with discipline, it works. Looking across the entire footlocker business, we are very excited about our assortment heading into back to school. This marks the first season where our team had full control over the buys, and we feel great about the product that will be in the stores.

This will be supported by a bold brand relaunch designed to bring consumers back to the footlocker brand in a meaningful way. Behind the scenes, we are strengthening the fundamentals of the footlocker business. With improvements in our supply chain, we are moving product faster and getting into the right stores. We are playing greater discipline around pricing and using real-time data to drive better decisions and sharper execution.

Finally, our brand partners remain fully engaged. They want a strong growing footlocker, and they are leaning in with us as their largest global partner. In closing, the early results we are seeing reinforce our conviction in both the opportunity and our approach. We have the right plan, the right team, and the right partnerships in place to unlock the full potential of the footlocker business.

With that, Lauren will walk you through the continued momentum across the Dick's business. Lauren, I'll turn it over to you.

Thank you, Ed, and good morning, everyone. Building on Ed's comments, it's exciting to see sport driving sustained energy and engagement across the consumer landscape. I am so proud of how our team has turned that athlete demand into a very strong quarter of execution for the company. At Dick's, the team continues to excel at bringing our four strategic pillars to life. A compelling omni-channel athlete experience, a differentiated entrend product assortment, a deep engagement with the Dick's brand, and the strength of our teammates and culture.

In Q1, we delivered comp sales growth of 6% in the Dick's business, with growth in average ticket and transactions. These strong comps were on top of a 4.5% increase last year and a 5.3% increase in 2024 as we continued to gain market share. One thing that remains notable is the consistency in athlete behavior. We saw more athletes purchase from us with more frequent We continue to see a healthy consumer across income demographics with no signs of trading down, alongside particularly strong engagement from our younger athletes. Our consumer is really responding to newness and innovation, which is showing up throughout the Dick's business, with broad base growth across footwear, apparel, and hard lines. Given our continued confidence in the Dick's business, we are raising the low end of our expectations for comparable sales, and now expect growth of 2.5% to 4% up from 2% to 4% previously.

At the high end of our expectations for the Dick's business, we now expect to drive approximately 30 basis points of operating margin expansion on a non-gap basis. At the consolidated company level, we continue to expect full-year non-gap earnings per diluted share in the range of $13.50 to $14.50. This continued strength reflects the progress we're making across our strategic priorities.

First, we continue to drive growth in our key categories, supported by national brand partners, new and emerging brands, and our own vertical brands. One of our biggest advantages is the depth of our brand relationships. We are a critical partner to the most important brands in our industry, and that shows up in the access, allocation, and marketing support we receive. Our partnerships span leading global brands like Nike, Adidas, and Fanatics, as well as fast-growing emerging brands such as Viori and Gymshark.

These relationships are deeply collaborative and they continue to bring the best product and innovation to our athletes. Second, we're continuing to reposition and elevate our real estate and store portfolio through House of Sport and Fieldhouse. These concepts are redefining the athlete experience in physical retail and strengthening how our brand partners show up in our stores. In Q1, we open one House of Sport location and two Fieldhouse locations, and our plans are on track to open approximately 13 and 20 more respectively for this year. We also continue to see extremely strong interest from landlords, giving us access to some truly iconic retail locations, including Palm Beach Gardens, Cerritos, and Tyson's Corner. Given these new opportunities, we can be selective in the locations we choose, which will drive greater long-term shareholder value.

Third, we are continuing to enhance how we serve athletes seamlessly across channels. In our stores, we're evolving the experience with a greater focus on elevated service and selling, rooted in deep sport and product expertise. At the same time, we are investing in our digital experience, enhancing our site and our app. We recently announced the upcoming Summer Launch of Coach by DEX, our AI-powered digital agent, representing a significant step forward in how we innovate for the athlete. Coach extends the expertise of our teammates into a personalized, conversational experience, helping athletes make more competent decisions across product, training, and services. We also remain very excited about our DEX Media Network, a high-growth asset that allows our partners to reach athletes in very relevant ways across our House of sport locations and digital channels.

And we're thrilled to have recently opened our Fort Worth Distribution Center, enhancing our ability to serve athletes in the fast-growing Texas market and surrounding areas. Finally, we continue to scale game changer as a key driver of engagement and innovation within the DEX ecosystem. Earlier this year, Game Changer launched the most comprehensive product update in its history, introducing 1080p live streaming, automated game highlight reels, and a new suite of AI-powered coaching tools designed to help coaches coach smarter.

The impact has been immediate and measurable. In Q1, approximately 50% of all games covered on the platform were streamed live, a record for the business. At scale, the reach is significant. In the last month alone, more games were streamed on Game Changer than have been played in the entire history of major league baseball.

In closing, the consistency that we're seeing across the DEX business validates our strategies and the discipline of our execution. We are operating from a position of strength, and we remain confident in our ability to drive sustained growth while investing for the future.

With that, I'll turn it over to Navdeep to share more detail on our financial results and our 2026 outlook. Navdeep, over to you.

Thank you, Lauren, and good morning, everyone. Let's begin with a brief review of our first quarter results. Consolidated net sales increase 62.7% to $5.16 billion, driven by a $1.79 billion contribution from footlocker business and a 6% comp increase for the DEX business as we continue to gain market share. DEX business comp reflects a 5.5% increase in average ticket and a 0.5% increase in transactions, with a broad base strength across footwear, apparel, and hard lines. On a two-year and a three-year basis, DEX business comp increase 10.5% and 15.8% respectively.

Performer comps for the footlocker business accelerated, increasing 0.6% for the quarter, driven by a 1.4% increase in North America. Notably, as Ed highlighted, the US footlocker banner delivered a 6.4% comp growth reflecting strong underlying performance as we focus on driving improvements in this important part of the footlocker business.

From a margin perspective, consolidated non-gap gross profit was $1.73 billion or 33.42% of net sales down 328 basis points from last year. The year-over-year decline was primarily driven by impact from the footlocker business.

Turning to our expenses, on a non-gap basis, consolidated SGNA expenses increased 68.4% or $541 million to $1.33 billion and deleveraged 88 basis points compared to last year's non-gap results. $480 million of this consolidated increase was driven by footlocker business. As expected for the DEX business, SGNA deleveraged 31 basis points driven by investments digitally and in store. Consolidated non-gap operating income was $378.4 million or 7.33% of net sales compared to $360.4 million or 11.35% of net sales last year. For the DEX business, operating income was $361 million or 10.69% of net sales. And for the footlocker business, we delivered operating income of $17.5 million or 0.98% of net sales. Moving down the P&O, consolidated non-gap income tax expense was $106.2 million or a rate of 28.8%.

Our effective tax rate for the quarter was shaped by mix of our earnings and foreign jurisdictions, including the effect of purchase accounting adjustments, particularly in Europe, where losses do not currently generate a tax benefit due to valuation allowances. In total, we delivered consolidated non-gap earnings per diluted share of $2.90 for the quarter, which includes the dilutive impact of the 9.6 million shares issued in connection with the footlocker acquisition. This compares to a non-gap earnings per diluted share of $3.37 last year. On a gap basis, our earnings per diluted shares were $3.54.

This includes $174 million of pre-tax litigation and other settlements, partially offset by $97 million of pre-tax footlocker acquisition-related costs. For additional details, you can refer to the non-gap reconciliation tables of our press release that we issued this morning. Now, looking to our balance sheet, we ended the quarter with approximately $1 billion of cash and cash equivalents and no borrowings on our $2 billion unsecured credit facility.

Inventory was $5.42 billion, reflecting the addition of the footlocker business, while the DICKS business inventory was up just 3%. Importantly, we believe in our inventory remains well positioned to support our growth plans across both DICKS and footlocker businesses.

Turning to capital allocation, net capital expenditures were $289 million, and we paid 114 million in quarterly dividends. We also repurchased 719,000 shares of our stock for $141 million at an average price of $196.38.

Before I move to our outlook, I would like to provide a brief update on the expectations surrounding the footlocker acquisition. First, as part of our clean-out of the garage actions and broader merger and integration work, we previously estimated and continue to expect total pre-tax charges of between $500 million and $750 million.

During 2025, we recognized $390 million of these charges. The remaining pre-tax charges will be incurred over 2026 and the medium term as we complete this work. We now expect approximately $200 million of these remaining charges in 2026 compared to our original expectation of $150 million.

These charges have been excluded from today's non-GAAP EPS outlook. Second, we remain confident in achieving previously around $100 to $125 million of cost energies over the medium term, primarily from procurement and direct sourcing efficiencies. A portion of these energy benefits are expected in 2026, which have been reflected in our outlook.

Now, moving to our outlook for fully at 2026, our guidance continues to reflect the strength of the DEX business and the turnaround efforts underway at footlocker, all within the context of the dynamic geopolitical and macroeconomic environment. Based on our confidence in DEX and footlocker, we are raising the low end of our comp sales guidance for both businesses. Beginning with the DEX business, we now expect fully our comp sales growth in the range of 2.5% to 4%, compared to our prior growth expectation of 2% to 4%. From a pacing standpoint, we continue to expect higher comps in the first half, driven in large part by the timing of the World Cup. We continue to expect pre-opening expenses to be approximately $90 million for the full year for the DEX business.

From an operating margin, we now expect the high end of our expectation for the DEX business to be approximately 11.4%, which is above our prior expectation of approximately 11.2%. From a pacing standpoint, we continue to expect operating margins for the DEX business to decline in the first half and expand in the second half due to the timing of the planned investments and synergy savings.

The most significant pressure is expected in Q2, driven primarily by the timing of planned SG&A investments, including marketing tied to the World Cup and the timing of pre-opening expenses to support a higher number of housesport openings in this year's second quarter compared to the last year.

Now, turning to footlocker business, we now expect fully-air pro-forma comp sales growth in the range of 1.5% to 3%, compared to a prior growth expectation of 1% to 3%. We now expect operating income for the footlocker business to be in the range of $110 million to $150 million compared to a prior expectation of $100 million to $150 million. From a pacing standpoint, we continue to expect comp sales and operating income performance to be back half-waited.

At the consolidated company level, we continue to expect fully-air non-gap earnings per diluted share in the range of $13.50 to $14.50. Our earnings guidance is now based on approximately 90.5 million average diluted shares outstanding, which includes the diluted impact of 9.6 million shares issued in connection with the footlocker acquisition. We now anticipate a consolidated company effective tax rate of approximately 27% for the fully-air. This is approximately 150 basis points higher than our original expectation as the dynamics we saw in Q1 are expected to persist, albeit to a lesser degree. This increase in tax rate unfavorably impacts our non-gap EPS guidance by approximately 25 cents for the fully-air and is included in our updated outlook.

Finally, from a capital allocation standpoint, investing in our business to grow our leadership position and drive profitable organic growth across both Dix and footlocker business remains at our priority. We now expect net capital expenditures of approximately $1.4 billion for the fully-air split roughly 70-30 across Dix and footlocker businesses. For the Dix business, our investment will be focused on store growth, relocations, and improvement in our existing stores as well as ongoing investments in technology and supply chain. For the footlocker business, our investments will be focused on re-energizing our store fleet, including our fast-break initiative.

In closing, we are pleased with the strength in the Dix business and confident in the path to improve the performance at the footlocker business. This concludes our prepared remark. Thank you for your interest in Dix putting goods. Operator, you may now open the line for questions.

Thanks, Simeon. Yes, we are really proud of the quarter and the results we just put out. The Dix comp increased 6%. This was definitely not a result of a one-time factor. We saw a broad base strength across the entire portfolio. We saw strength in footwear and apparel and hard lines. Within hard lines, feeling really terrific about team sports and licensed and trading cards and golfs. There was tremendous growth across the whole portfolio. And really, this is due to the fact that our long-term strategies are working. We've been leaning into differentiated product, elevated product. We're finding that consumers are really resonating with newness, with technical innovation. And at the same time, we've repositioned our portfolio with house support and field house and it's the best expression of retail cascading through our entire business.

Our entire team is completely focused on elevating the athlete experience in our stores and throughout our digital ecosystem. And that is a big factor of our results. The other thing I have a point to is, as I mentioned in his prepare remarks, sport is one of the hottest categories in the country today. And we sit right at the intersection of sport and culture. We're feeling that excitement in North America going into the World Cup. It's going to continue for many years, going into LA 28.

And we happen to just be in a fantastic lane. But for many quarters now, we have seen our consumer hold up really, really well. We haven't seen trade down again this quarter. We didn't see trade down from best to better or better to good. We saw growth again this quarter of all income demographics. And we added 1.5 million new athletes to our database. So really, really pleased with the quarter that we just had and the momentum that signals in our business. And my follow up is on profit and flow through. So the 6% comps, we would have expected a little stronger flow through. For a strong comps typically means more full price selling. So it's good for growth and then nice SGA leverage.

So can you talk about what's unique either to Q1? It may be unique to 2026, given World Cup and the timing of House of Sport. And is it more or less a whole year where we don't get what the operating leverage the business throws off?

And we'll see more strength as we go Our business is performing exactly as we have expected to and as we got it. So in the first half, we said we were going to have higher comps than the second half. And we also were going and making significant investments in our business, which we did. We invested in World Cup and we'll continue to do that in Q2. So for the first half, we did expect stronger comps lower flow through. But when we look at the full year guidance, we just took our high end of our guidance up 20 basis points. So we got it to 10. We're now guiding to 30 basis points of improvement at the high end of the range, 11.4%.

We're absolutely expecting leverage for the full year. Just as we've been planning, it's going to come in the second half. And that's just due to the timing of investment. So again, we feel terrific about the business and really good about the leverage for this year and the already proper flow through.

Thanks.

Thanks, Brian. We're right on schedule with what we plan to do with footlocker. We've you know, through last year, and we've cleaned out the garage from the inventory standpoint. So our inventory is in terrific shape. We've repaired vendor relationships with key brands that were somewhat disenchanted with full locker. We've repaired those vendor relationships, and they're now fully supportive of full locker, really want full locker that in need full locker to be a stable growing retailer as part of their portfolio. So we've repaired those relationships.

We've rebuilt the management teams and we've re-murchinized the stores with what we're doing with fast break. From a fast break standpoint, which are those early stores that we re-conceptualized what the wall would look like is referring to before the footlocker footwear wall was really a run-on sentence. It was just filled with a bunch of shoes and it was nothing important. What we did is we took all those shoes off the wall, we reduced roughly 30% of the skew choices and focused on key styles, key colors, and key stories that when the consumer came in, they knew what was important. In those fast break stores, as we've talked about, have been extremely well, they come double digits in the first quarter.

So we're really excited about that. As I said, the inventory is in good shape. We've augmented some of the assortment that was in the first quarter that helped the business. And remember, we've always said that the inflection point here was going to begin in back to school, which is the first time that the team bought the entire assortment. So we feel that inflection point in back to school is going to happen and we will have bought the product and that's the first time we'll be back marketing and doing the re-launch of the footlocker brand and a big marketing effort, which we are really pretty excited about. And as you said, we did focus our attention on the biggest part of the business, which is the U. S. footlocker locations.

And those stores coped at over a 6% cop in the first quarter. So our plan, we're right on schedule, our plan, our plan is working and we continue to be really excited about the footlocker business going forward.

So I guess it's my fault, but I just want to follow up on the fast break. So I've spent my associate and I've spent a lot of time looking at the four lockers stores that you've repressed, the fast break stores, in which you understand it. So they do look much cleaner, much better organized. But there's no new product. The product we're seeing those stores is still legacy products that are set. You haven't introduced a new product, so what's driving their sales just having a much cleaner, better organized existing product?

For right now, yes. And when you've been into the first fast break stores, you've seen, although it's not perfect yet, you've seen an increase in the apparel business in the apparel presentation that we've got there. You know, full lockers previously won't say they exited the apparel business, but they significantly scaled back the apparel business. So we brought the apparel back in and we've done the best we could cobbling together because we didn't buy this assortment.

We did talk to brands and they got us some additional allocation of products so that we'd be in better stock. But as I've said, the first time that we were able to buy the product and build that assortment is for the back to school season. And that's where you'll see that in flexion point.

Thanks.

This is nothing. So two part question there. Let me start with the outlook that we have provided for the CapEx. We actually gave a little bit of a detail outlook on the CapEx between the buyers. And right now we expect net CapEx for the dicks banner to be about a billion dollars for 2026. And for footlocker to be about 400 million. As you can imagine, vast majority of that $400 million of the capital investment in footlocker will be associated with the investments that they're making in our stores, including the fast break stores. But as Ed called out, the fast break stores are capitalized. But at the same time, when you think about the magnitude of investments in terms of the number of stores will be investing in, that is a significant portion of the CapEx investment for footlocker for 26.

In terms of where the efficiencies came, the efficiency of the decrease in our CapEx outlook by about $100 million came predominantly in the dicks business. It's part of what Lauren talked about, like the confidence that we have on our operating margin expansion on a full year basis. The team hasn't been working on productivity initiatives for that last several years. And it's what you're seeing is the manifestation of that work showing up both in the operating margin, leverage expectation on a full year, as well as the capital efficiency of $100 million of reduction in CapEx outlook for dicks, our full budget.

Yeah, the European businesses, as we expected, is a little bit behind where the U. S. business is. We are just in the process of implementing the fast break strategy into Europe. We've got a couple stores done there. And the results are pretty promising. We're making some similar changes there from a management standpoint. But all the European businesses is about where we anticipated it to be. But it's definitely a bit behind the U. S. business. We expect that to be that way through the end of the year. But we do expect that we'll catch up.

Thanks, Adrian. As we look at the guidance, the macro, we've balanced all the confidence that we have in our business and the momentum that I've talked about in my first answer with some caution, appropriate level caution, about the macro, economic environment, geopolitical environment, and that is why we've left the top end of our comp range to seeing both politics and footlocker. But overall, our strategies are working, the things that we can control are working, and we're feeling really good about them. In terms of the intersection of sports and culture, we see a lot of innovation within footwear in particular. We're really pleased with things like performance running, which is doing really, really, really well. Even basketball, women's basketball is doing really well.

Some of the lifestyle footwear is doing very well with point two retro run in particular, and some of the other brands are doing really terrific and training and recovery. So we're seeing footwear is a very strong business for us. We drove both in the past, in the past quarter, we'll continue to drive both into the future, and we're feeling very bullish.

Sure. I think there's a number of things. The fact that footlocker will now have a different allocation of product that they didn't have before, access to certain products that they didn't have before, and the confidence of these brands that footlocker is a viable go forward business that can help them grow, which a number of them had lost, and we've talked about this and talked to me about this, that they had really lost confidence in footlocker, that they didn't think footlocker was really going to be able to kind of present their product in the way that they wanted it presented, protect their brands and with the relationship that they have, we have between dicks and footlocker, these brands, all these relationships have been repaired.

And what we've got from an allocation standpoint, what we've got from an exclusive standpoint on either styles and or colors going forward, stories that we'll be able to tell around different athletes and around different aspects of what's going on in sport or sneaker culture is very different. And you'll see a lot of that start to come to life to an even greater degree in Q1 of next year, is we're beginning to build those assortment style. But it's an entirely different relationship with the brands. And if you talk to the group and footlocker, the buyers, the strikers, et cetera, they'll see a very different brand relationships going forward in the past and going forward.

Thank you.

I was wondering if you could expand a bit more in the core Dick's sporting goods segment, the gross margin performance and the decline that we saw this quarter.

About the Dick's gross margin, the line about 35 basis points on a year over year basis, two big drivers on that and both in line with that expectation. The first is the headband that we saw on supply chain expenses, one as you can anticipate that the higher fuel cost back was the headband on a year over year basis, as well as we opened our six distributions and into one. And it was in the tail end of Q1. Really excited to be have had that new infrastructure available to be able to service the athletes in a much more efficient way, as well as the server stores are over that debt and with a little bit of a headband on a year over year basis when you open that picture infrastructure.

Outside of that, we saw a little bit of a mixed headband driven by the fact that Lauren talked about the exciting new business and this tremendous amount of growth opportunity we see in the trading card business, it's bringing a new customer, it's allowing us to go and kind of tap the market around the collectibles as well as trading cards, however that does come with a slightly lower gross margin and that was a mix in part that we saw in Q1.

I'll finish by saying if you look at our outlook that we have shared for the full year, we expect that gross margin to expand now that we have updated our outlook that we have provided.

Sure. Basketball business is coming back. You know, basketball had slowed down a little bit. The best ball business is coming back in a really big fashion and really built around women's basketball business, whether it's Sabrina, Asia, that group of athletes have had a real impact and it boys and girls, young men and women are buying that product and we're pretty excited about it around the DIC's business. We're very excited about it around the the full locker business. So basketball is going to be quite good and we're pretty excited about it across both matters.

Good morning, Michael. I would say that there are clicks and takes with a gross margin outlook and like you called out like fuel pressure, you know, we have contemplated at least that pressure persisting into the near future. We have talked about the six DC opening for this year as well as the occupancy headwind as we look to the continually investing repositioning of portfolio and the mixed trade headwind that you called out from quitting cars is also contemplated.

However, the offsetting factors continue to be pretty consistent with what has been driving a gross margin expansion. The first and foremost, the access and allocation that Ed just talked about, that continues to be the key driver of us continuing to have confidence in the gross margin and the gross margin expansion. The work that our pricing team is doing, the work that our vertical brand teams are doing. And again, vertical brands carry 700 to 900 basis points of high margin rate. So as we penetrate more data, those brands are doing fantastic for us. That's the driver. And then outside of that, I'm going to talk this morning about our excitement for the mixed media and our growth, which is continuing to have a strong growth, as well as the growth that we're seeing in our game changer business will be the drivers.

That would be offsetting some of the headwinds that I just mentioned. Michael, if I could just add to that, I wanted to say the collectibles business, the trading car business, are such exciting incremental opportunities. So while they do have a lower margin than our overall mix, I think he gave them as a pressure or any sort of negative thing. He's the wrong way to look at it. It's incremental gross margin dollars, bringing people in more frequently appealing to a younger audience, totally incremental from the rest of our store and driving trips. So we're thrilled about that business and to at least point the math will work so that we can grow gross margin for the full year.

Okay. Well, in that case, my follow-up question is on the economics of the house of the board, the location. This is now more in focus over time as you add more of these flagship stores. How have the economics changed? Are you continuing to see the change for sales growth in the second, third, and fourth year of these locations consistent with the overall chain average? And do you think the return on investment both tangible and maybe intangible because you do get some intangible benefits from your tangible returns, you sustain as you scale this concept to what could be 75 or more locations over time? Thank you. That's a great question. House of sport is everything you just said.

It has a tangible benefit. It has an intangible benefit from a financial standpoint. We're thrilled with the results and we do see comp store growth in years three and years four even. So we've been able to confirm that. So they open fully and then continue to grow and they're driving strong sales and profitability and ROI. So really terrific financial results. But some of the intangibles that you mentioned are really important and that's everything from the consumer, the athlete, who is coming and spending more time in our stores, significantly spending significantly higher than an average applicable fixed athlete, our national brand partners. So this has been an incredible honor ramp for new and emerging brands. You heard us say this quarter, we just added the Oreo to our mixer brands, last quarter of Jim Shark.

That's all been enabled because of the house of sport where people can really bring a brand to life, head to toe, teller story and it's a fantastic way for us all to get to know each other. So that's going to have tangible returns in the future that will impact the whole business. And then lastly, you mentioned the landlord community. Every time we open one of these houses sports, we're seeing incredible impact in the center or the mall or driving traffic or revitalizing different areas of real estate throughout the country. And so that's giving us access to bigger and better, really more premium locations, which we are working really closely to curate and move forward. So I think it's a win win win.

The last thing I'll say is house of sport is translating not just to the house of sport, but our field house concept, which is our 50k prototype is really a mini version of a house of sport. It's got many of the same elements, just a little smaller. And so that's a very tangible return as well. And as we look to the rest of the portfolio where the whole chain is benefiting from things like product access and experiential selling and elevated curated experience across the board. So really, really strong house of sport overall.

Yeah, Michael just built on what Ron said, which was a pretty comprehensive response. The another opportunity that we are now investing into in house of sport is the ingredient network. The weekend, the way we can bring a brand to life and through the experience and have that curated experience and engagement with the athlete is what the brands are really excited about. Our visual team, our marketing team have done a fantastic job, not just creating that moment up to create that interaction, but be able to create that in a way that it's measurable and quantifiable that we can report the metrics back to the brands. And that's what the brands are really excited about as they think about the next media network.

Thank you. Thank you.

Great. Well, I'll start with your first question. I did say we did not see a trade down between good, better and best. And I won't get into specifics about all the three, but I do think it's important to know that we are serving different occasions and different athletes. And within our portfolio, we have everything from opening price points, our DSG brand, which is really tremendously attractive pricing, but high function, high passion, all the way up to if you look at technical apparel or on the equipment side, really performance driving equipment cleats everything. So every single one of those categories is doing well. And they all play a role in a balanced portfolio. And they're all being reacted to by different consumer groups.

And that's what's driving the comp in each of those segments. I'll turn it to not need to talk about the balance sheet.

Yeah, a poll just to build on on your question on the balance sheet itself. We continue to have a very strong balance sheet as you saw in year one, we bought 140 million off shares already to one and still finish the quarter one with a billion dollars of cash on the balance sheet. So we have plenty of flexibility. And from a shared repurchase perspective, I would say we'll continue to be opportunistic.

And that's the approach that we have taken and will continue to take that approach into the balance of this year.

Yeah, we're thrilled with our vertical brand business. We're thrilled with the DSG brand, the Kliya brand, the verse brand, and Matt Spice doing amazingly well. The brands are doing very well versus the rest of the chain and also continuing to expand gross margin. So a vertical brand on average is 700 to 900 basis points, higher in gross margin than the average fixed margin. And that continues, the team is doing a fantastic job continuing to leverage that. So overall, our vertical brands are a keen mix. They're also filling white space opportunities in the portfolio and we're thrilled with how they're doing.

Thanks.

Yeah, I would say, you know, we were very happy with the overall performance that we saw across both the banners, not just Dick's and the put lot of business as well. You know, if you look at it, the outlook that we have provided continues to kind of indicate that level of confidence around the poor strategies and we are balancing that against the microeconomic energy or political landscape. I don't know if I would call out that we saw a significant benefit from the stimulus checks as they were puts in case when if you look at it, but then you won with the stimulus check and high price prices. And even in those economic conditions, we delivered what we considered is a really strong result across both the banners.

Yeah, I think in the gross margin piece, there was certainly still some clearance. There's always going to be clearance in a retail business there. So, you know, products that you think are going to sell don't sell. It's all put all part of the normal aspect of the business. So we were very pleased with what we did with the locker from a we haven't guided right now. We're not going to report this until it becomes come in the fourth quarter transactions in the traffic piece of this.

But we are right on schedule with what we're doing with the locker. We're really excited about it. And we're looking forward to that back to school time period where we have that inflection point where we've had the ability to buy the product and also lay out the relaunch marketing campaign that we've got with full locker that we're pretty excited about.

No, no. Thanks so much.

Thanks.

Sure. So the fast break stores will have 250 of them for back to school. We will continue that program through holiday. We'll have more done for holiday. We're not going to guide to those right now. We're trying to decide how much we want to disrupt the holiday business with this. But there will be more of those that will be done at the end of the third quarter and the beginning of the fourth quarter. So we will continue with this. We're very pleased with how the fast break stores are doing. As it relates to the merchandising plans for back to school season, the categories that we're focusing on, you'll see a better assortment of women's products.

You'll see a better assortment of what's going on from a basketball standpoint and not only performance run but also the retrorun category. We'll see better product and more storytelling around that. And then one of the things you'll see is you'll see better apparel product in there and a better apparel assortment around stories associated with tying back to the to the shoe. So it'll be around four apparel. And some around some key accessory items that full luck are run out of in the past that we will be in stock in.

But for the long time trying now, we've been seeing people leaning in this goes back many years, even post COVID, leaning into a healthier, active lifestyle, outdoor living, team sports, golf. So in general, our consumer is doing really well and leaning into these, but we don't have any specific correlation to deal with ones.

Yeah. In Q1, we didn't, that wasn't a major factor. And we always on both the dicks and the footlocker side will manage through any promotional environment. We do what's best for the consumer and best for our business. And we're very surgical about it. We've got advanced pricing capabilities where we can really, you know, really be curated in how we lean into a promotional environment. But nothing on the horizon that we're particularly concerned with.

Thank you.

I will now turn the call back to Lauren Hobart, president and CEO for closing remarks. Thank you, everybody, for your interest in dicks. And thank you to our 100,000 teammates and associates around the country and around the world. We are the best team in sports and we're very grateful for everything you do.

Thank you all.