When we last looked at the sporting goods retail category, it appeared that visitation trends had normalized following the pull-forward in demand that we saw during the pandemic but that Dick’s Sporting Goods was still outpacing its peers with respect to visitor acquisition and market share gains.
The headlines from this week’s Q2 2023 update from Dick’s Sporting Goods focused more on weaker-than-expected gross margins, as the retailer called out higher inventory shrink/theft as well as markdowns needed to clear excess inventory in outdoor categories (recall that we previously discussed visitation trends to the most visited U.S. national parks have decreased in 2023) as reasons for cutting its full-year profitability expectations. Despite the profitability concerns, three factors suggest that Dick’s Sporting Goods will continue to be a market share winner in the years ahead.
First, the company reported comparable-store sales growth of 1.8% this quarter, including a 2.8% increase in transactions but partially offset by a 1% decline in average ticket. Our data indicated a decline in year-over-year visits to Dick’s Sporting Goods stores during Q2 2023, suggesting that the transaction growth may have shifted more to the digital front this quarter. Nevertheless, we believe Dick’s total transaction growth outpaced the broader sporting goods retail category and indicates continued engagement with existing customers and positive customer acquisition trends.
Second, Dick’s Sporting continues to skew toward a higher-end customer. According to Dick’s CEO Lauren Hobart, “we saw growth across every single income demographic, which I know is different from what you're hearing from other companies. From our lowest income consumer to our higher income demographics, we saw growth across each one. We did not see a trade down from best to better or better to good products. We saw transactions grow 2.8%. So while there was some decline in average ticket, overall, we had more athletes join our database, come into our fold. And they came more often, and they spend more in total.” Placer data validates management commentary about household income trends. Below, we’ve presented consolidated captured market trade area household income visitation trends for Q2 2023 compared to Q2 2022 (for reference, every household income bucket is indexed to 100; a score below 100 indicates that Dick’s Sporting Goods under indexes for that particular income cohort, while a score above 100 indicates that Dick’s over indexes to that cohort group). Below, we see very little shift in under/over index trends between the two quarters, indicating consistent visitation trends among cohort groups. We also see this in the household average and median income totals, which remained relatively consistent. Compared to other discretionary retailers we’ve examined in recent months, Dick’s trade area household income trends have been among the more consistent.
Lastly, Dick’s House of Sport concept–a 50,000 square foot format with an “elevated assortment and service model, premium experiences and enhanced visual expressions”--is yielding positive results. The company has opened 9 new House of Sport locations since May, bringing the total store base for this concept to 12 locations. According to management, these locations are “doing incredibly well”, with double-digit comparable sales growth compared to their prior combo store locations with the same square footage during July. Our data tells a similar story, with visits per location for the previously opened Dick’s House of Sport locations outpacing traditional stores in May and June, and significantly exceeding the rest of the chain in July. Admittedly, several of the new House of Sport locations were opened in July (many of these locations were existing Dick’s locations that were remodeled into the new format) and the visitation trends were certainly helped by consumer curiosity about the new store format. We expect the visit per location figures to normalize after this summer’s “honeymoon phase”, but the longer-term potential for this format remains bright based on visitation, visit frequency, and dwell time. The company plans to open another 10 locations throughout 2024, and expects to have 75-100 House of Sport locations open by 2027.