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DICK'S Sporting Goods, Inc. (NYSE:DKS)

Q1 2014 Earnings Conference Call

May 20 2014 10:00 AM ET

Executives

Anne-Marie Megela – VP of Treasury Services and Investor Relations

Ed Stack - Chairman and Chief Executive Officer

Joe Schmidt - President and Chief Operating Officer

André Hawaux - Chief Financial Officer

Analysts

Robbie Ohmes - BofA Merrill Lynch

Christopher Horvers - JPMorgan Chase & Co.

Matt Fassler - Goldman Sachs

Brian Nagel - Oppenheimer & Co.

Camilo Lyon - Canaccord Genuity

Dan Wewer - Raymond James & Associates

Seth Sigman - Credit Suisse

Kate McShane - Citigroup

Scot Ciccarelli - RBC Capital Markets

Sean McGowan - Needham & Company

Sam Poser - Sterne, Agee & Leach, Inc.

Michael Lasser - UBS Investment Bank

Michael Baker - Deutsche Bank

Paul Swinand - Morningstar Investment Research

Mark Miller - William Blair

Rick Nelson - Stifel

Matt Nemer - Wells Fargo Securities

David McGee - SunTrust

Jim Chartier - Monness, Crespi, Hardt & Co

Peter Benedict - Robert W Baird & Company, Inc

Jay Sole - Morgan Stanley

Lee Giordano - CRT Capital

Operator

Good morning, and welcome to the DICK'S Sporting Goods' First Quarter 2014 Earnings Conference Call. All participants will be in a listen-only mode. (Operator Instructions) Please note this event is being recorded.

I would now like to turn the conference over to Anne-Marie Megela, Vice President, Treasury Services and Investor Relations. Please go ahead.

Anne-Marie Megela

Thank you. Good morning and thank you for joining us to discuss our first quarter 2014 financial results. Please note that a rebroadcast of today's call will be archived on the Investor Relations portion of our website located at www.dicks.com for approximately 30 days. In addition, as outlined in our press release, the dial-in replay will also be available for approximately 30 days.

In order for us to take advantage of the Safe Harbor rules, I would like to remind you that today's discussion includes some forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which include, but are not limited to, our views and expectations concerning our future results. Such statements relate to future events and expectations and involve known and unknown risk and uncertainties. Our actual results or actions may differ materially from those projected in the forward-looking statements. For a summary of the risk factors that could cause results to differ materially from those expressed in the forward-looking statements, please refer to our periodic reports filed with the SEC, including the company's annual report on Form 10-K for the year ended February 1, 2014. We disclaim any obligation and do not intend to update these statements except as required by the securities law.

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 website at www.dicks.com.

Leading our call today will be Ed Stack, our Chairman and Chief Executive Officer. Ed will review our business drivers, strategy and outlook. Joe Schmidt, our President and Chief Operating Officer will review our omni-channel development program and specialty concepts. After Joe's comments, André Hawaux, our Chief Financial Officer, will provide greater detail regarding our financial results, capital allocation and expectations.

I will now turn the call over to Ed Stack.

Ed Stack

Thank you, Anne-Marie. This morning, we announced our first quarter results including consolidated non-GAAP earnings per diluted share of $0.50, below our guidance of between $0.51 and $0.53. There were two major issues that significantly affected our business in Q1 offsetting strong performance across many product categories. One issue we believe to be temporary, the other may be longer lasting. We are going to provide more granularity on how we built our plan and performed against it than we normally would, as we believe it is important to help our investors understand these drivers.

Our hunting business missed the first quarter plan by approximately $15 million, a comp down high teens to last year. We had anticipated this category to be below last year, as did others in this space, but we underestimated the decline. We all knew the significant increase in sales during the past couple of years was temporary and driven by concerns about legislative action that would broadly change our gun laws.

The hunting business is anticipated to continue this negative first quarter trend through the second quarter, and improve slightly from this trend in the third quarter and be relatively flat in the fourth quarter. We continue to be enthusiastic about the outdoor business for both DICK's and Field & Stream longer term. As we are confident, the results here are just rightsizing the business from the panic buying that began in 2012. To illustrate this point, sub categories of the outdoor business such as paddle sports, hunting, and fishing apparel all grew double digits. The more concerning and unpredictable issue is the golf business. We anticipate softness, but instead we saw a significant decline with Golf Galaxy down 10.4% and the DICK'S Sporting Goods golf business off by high-single digits. Our overall golf business missed our first quarter 2014 sales plan by approximately $34 million. We don't feel we’ve found that bottom yet in the golf sales number. We now expect this trend to continue for the balance of the year and will impact our prior guidance, which assumes a slight improvement in the golf business for the balance of the year. As you know, the second quarter is the most important quarter for our golf business.

The issues in golf are threefold. First, there is glut of inventory in the market at both wholesale and retail as a result of the lackluster sales over the past 15 months. The vendors have been more aggressive in pricing discontinued and cascaded product. For example, we are selling drivers in our stores this spring for $99 that were $299 approximately 20 months ago. The big price reductions combined with the increase in inventory of cascaded products caused our AUR on men's drivers to drop 16% in Q1, while our units were only down 2%. The second issue is the core golfer doesn't seem to understand or has not yet fully embraced the new technology our vendors have brought to market. The technology in game improvement possibilities, especially in drivers are fantastic, but since it is not yet completely understood or embraced, the core golfer has not replaced his equipment, and the more casual player has elected to buy closeout products at a lower price. Third, continue to be concerned about the structural issues of the decline in rounds played. As an industry, all parties are looking ways to reverse this trend. The effect from both the golf and hunting issues is that our earnings were and will continue to be significantly impacted as these two businesses represent close to 30% of our annual sales. Their miss to our sales plan impacted our earnings in Q1 by approximately $0.06. If these trends continue, it could have an approximate $0.30 impact on our annual EPS. Normally, we don't discuss how the business is performing during the quarter, but given the magnitude of our revised expectations, I believe it is important to share current trends in these categories. Recognizing that we are only approximately two and half weeks into the quarter, golf comps are trending in the negative low teens while hunting is still in the negative high teens. For Q2, these categories were approximately 30% of our sales. It is because the hunt and golf businesses along with some buildup in inventory partly due to our sales miss that we are revising our full year EPS guidance from $3.03 to $3.08, to $2.70 to $2.85 per share. With all of the above said, the balance of our business is quite good. Our women's athletic apparel initiatives, which is providing great results with comps in the low teens range, our youth athletic apparel businesses are even better than the women's business, although off a smaller base. Team sports along with footwear have been strong as well.

If we take out golf and hunt, which we know we can't, our first quarter comps would have been 6.6%, our eCommerce business is also doing well growing to 7% of our overall business, up from 5.8% last year, and we have moved up to number 72 on the Internet Retailer Top 500 list, up from 94 last year. We are excited about the progress and the key strategic elements of our business such as eCommerce and performance of such categories as women, youth, footwear, and the license business; however, the balance of this year is expected to be difficult because of trajectory of golf and hunting businesses. Be assured our associates, management team, and others will be working tirelessly to make this a successful year while continuing to make the right investments and decisions for the long-term growth of our business.

I would like now turn the call over to Joe.

Joe Schmidt

Thank you, Ed. In the first quarter of 2014, we grew our omni-channel platform by expanding both our store network and our eCommerce business. We opened eight new DICK'S Sporting Goods stores bringing our store count to 566 stores. We also relocated one DICK's store to a new location. New store productivity for our DICK'S stores was 98.1% as our new stores performed in line with our existing stores. On the eCommerce side, we took steps to drive further awareness of our online business by improving our search engine optimization capabilities. We continue to enhance our mobile and tablet sites and are pleased with the increases in conversion we are seeing. We also continued the pilot of our buy online, pick up in the store capability. We are in the process of reallocating space within our DICK's stores. This involves dedicating more square footage to higher growth and higher margin categories such as youth apparel and women's apparel while shifting more space away from golf equipment and fitness equipment. We have completed the transformation of the youth apparel in most of our stores to date and expect to complete the remaining stores as well as extend our women's apparel area in time for back-to-school.

All of our DICK's stores include ship-from-store fulfillment capabilities. As we believe that stores are a critical piece of our omni-channel strategy. As I stated earlier, we continued building our buy online pick up in store capabilities. We've rolled out additional pilot stores during the quarter and are currently testing this capability on select products in stores in three states. As we have learnt from the pilot, we will rollout additional product categories and locations. We are also integrating our stores and technology in other ways. In addition to our existing in-store kiosks, we are testing the program that equips our associates with tablets to offer customers an endless aisle experience. This enables associates to check inventory across our network and order items for customers without leaving the sales floors. Looking at our specialty concepts, we are very excited about our growth opportunity with Field & Stream. We continue to learn more about Field & Stream in our two stores and identified additional opportunities to drive sales and margins. There were approximately eight new stores expected to open into 2014, including one store scheduled to open in the second quarter. At Golf Galaxy, we completed the relocation of our store in Paramus, New Jersey in the first quarter. These relocated stores in our new format with a greater focus on golf services and experiential shopping.

Now I'll turn the call over to André to discuss our financial performance, capital allocation, and outlook in more detail.

André Hawaux

Thank you, Joe and good morning to everyone. Today, I want to focus my comments on our first quarter financial performance, our balance sheet and capital allocation and our outlook for the second quarter and the full year.

In this first quarter our total sales increased 7.9% to approximately $1.4 billion. Consolidated same store sales increased 1.5%, compared to our guidance of 3% to 4% same store sales growth in compared to shifted comps of negative 3.8% in the first quarter of last year. DICK'S Sporting Goods consolidated same store sales increased 2.3%, while Golf Galaxy decreased 10.4% in the first quarter.

The same store sales increased in the DICK'S Sporting Goods business was driven by 0.2% decrease in traffic and by 2.5% increase in sales per transaction. eCommerce penetration was 7% of the total sales in the quarter compared to 5.8% of sales in the first quarter of last year.

Moving on to gross profit. First quarter consolidated gross profit was $440.9 million or 30.64% of sales and was down 23 basis points from the first quarter of 2013. Merchandized margin expanded 30 basis points. This was offset by occupancy de-leverage and increase shipping expense as our eCommerce penetration continue to increase.

Excluding a $14.4 million gain on an asset sale, SG&A expenses in the first quarter of 2014 was $337 million or 23.42% of sales (see press release $322.5 million or 22.42%) compared to 23.45% in the first quarter of 2013. This leverage of three basis points is primarily due to lower administrative expenses as a percentage of sales. Our pre opening expenses were $6.2 million, a $4.9 million increase from the first quarter of 2013. As we discussed in our last earnings call this was due to an increase in a number of new store opening relative to last year's first quarter.

So the first quarter we generated non-GAAP earnings of $0.50 per diluted share which exclude a $0.07 gain from the sale of corporate aircraft. This compares to non-GAAP earnings of $0.48 per share in the first quarter of last year.

Now turning to the balance sheet. We ended the first quarter with $139 million of cash and cash equivalents. Last year we ended the first quarter with $114 million of cash and cash equivalents. We did not have any outstanding borrowings under our $500 million revolving credit facility. Over the past twelve months, we have invested in omni-channel growth, repurchase shares and pay quarterly dividends.

Total inventory increased 12.8% at the end of the first quarter this year compared to the end of last year's first quarter. The increase in our inventory reflects investments in strategic growth categories including key sports, youth and women's apparel, new concepts and excess inventory in golf and hunting.

Net capital expenditure was approximately $40 million or $64 million on a gross basis, this compares to the net capital expenditures of about $27 million or $34 million on a gross basis in the first quarter of last year. During the first quarter of 2014, we repurchased $25 million of our common stock. As we said in the past we will continue to repurchase shares to both offset dilution and opportunistically repurchase shares. To date we repurchased approximately $280 million under our $1 billion share authorization.

I am now going to speak about guidance. Many of the comments around guidance are going to be related to how we built our plan and the difference between our initial expectations of $3.03 to $3.08 to now $2.70 to $2.85. We now anticipate consolidated earnings per diluted share of approximately $2.70 to $2.85 for the full year compared to our previous guidance of $3.03 to $3.08 per share. We expect same store sales to increase 1% to 3% for the year compared to our previous expectations of 3% to 4% increase. The $0.23 change in the high end of EPS guidance is primarily driven by 1% lower comp and lower operating margins relative to original expectations. We anticipate approximately 40 basis points lower gross profit margin from increased promotional activity and a 20 basis point increase in SG&A relative to sale due to lower total sales and increased spending. The above factors lead to lower operating margins by approximately 60 basis points relative to our original expectations.

Turning now to the second quarter. Q2 is the largest quarter for golf and the anticipated hunting weakness is not expected to moderate until later in the year as Ed mentioned. Additionally, we plan to aggressively manage our higher than planned inventory level so that as we enter the back half of the year we are well positioned for the holiday season. Taking these factors into consideration, we anticipate second quarter consolidated earnings per diluted share of approximately $0.62 and $0.67. We expect same store sales to increase approximately 1% to 3%, although we had not provided second quarter guidance, our internal plans call for EPS on the high end of approximately $0.78 on a 3% to 4% comp. The $0.11 change in the high end of the second quarter EPS expectation is primarily driven by a 1% lower comp and lower operating margins relative to original expectations. Gross margin is anticipated to be approximately 60 basis points lower due to the increased promotional activity stemming from the high inventory in level that I just mentioned as well as to address the challenges in the golf business. We now anticipate SG&A relative to sales to be approximately 50 basis points higher due to the lower total sales number and increased spent. The anticipated increase in expenses is expected to support traffic driving initiatives within the quarter. Combined these results to an approximately 110 basis points decline in operating margin relative to our original expectations.

In conclusion, we saw strength in key strategic areas and categories in Q1. Our eCommerce business continues to show exceptional growth and we are excited about the results we saw in categories including our athletic apparel and team sports. Our results were impacted by the challenges in golf and hunting that we talked about in detail and because of the issues -- because of these issues we revised our full year outlook as discussed. Despite these near-term challenges we are working to drive the long-term growth of our business, I would like to thank all of our associates for their dedication and efforts.

These conclude our prepared remarks. Thank you for your interest in DICK'S Sporting Goods. Operator, you may now open the line for questions.

Question-and-Answer Session

Operator

(Operator Instructions)

The first question will come from Robbie Ohmes of BofA Merrill Lynch. Please go ahead.

Robbie Ohmes - BofA Merrill Lynch

Hello, thanks, good morning guys. Hey, thanks, couple of quick questions. First question, just you called out women's and youth apparel, can you sort of speak to what's going on in men's apparel and if it is -- and maybe even the golf apparel business, maybe work that in year. The second question is -- Andre on the guidance you gave, I think it also will cause lot of analysts to take the back half down, is the -- can you help us think about how golf and other clearance -- how you are thinking about the back half in general? I know it is early, but any sort of color in terms of the annual guidance you gave there and then just on the -- last question just on the promotional activity or managing -- I should call managing the higher inventory levels, how much of it is just golf and hunting or is there other areas that you are going to be more promotional and outside of golf and hunting to manage inventory levels down? Thanks.

Ed Stack

Robbie, the men's business has still been strong. We talked about in the previous call the change we are making in our women's business and in our youth apparel business and reallocating floor space to those areas, actually taking space away from golf. When we saw what happened in golf, we underestimated how significant the decline this would be, but we talked about this, so we just called out what's happening in the women's business as doing extremely well, the youth business is actually doing better than the women's business, and as I said, from a smaller base. Our men's business, we are still very pleased with. On the promotional activity, I am glad we’ve built up some inventory based on the miss of sales, some of that is -- it was the golf business, some of it is just other businesses with our clearance inventories actually below what it has historically been, a little bit higher than it was last year but lower than what approximately five years trend has been. We are going to take this opportunity to clean up that inventory also.

André Hawaux

Robbie, your question relative to what our expectations were for Q3 and Q4. We have taken them down certainly a lot more modestly than what's happening in Q2. As we said, the golf business’ the biggest impact for us is in Q1 and Q2, and obviously Q2 was the biggest one. We do see ourselves though taking as a result of the golf and the hunt business, we are taking our comps down, so most of the flow through in Q3 and Q4 is largely comp driven with a little bit of extra margin pressure as we clear through but the lion’s share of it sits in Q2 and a little bit of it in Q3, Q4, but after Q1 and Q2, we’ve gotten through a pretty significant piece of our miss with a little bit more in Q3 and Q4

Operator

The Next question will come from Christopher Horvers of JPMorgan.

Christopher Horvers - JPMorgan Chase & Co.

Thanks. Good morning. I wanted to follow up on that back half question, so as we think about that change in the back half, this is basically saying that the lag in hunting and golf or the pressure in hunting and golf is going to last longer than it previously did, and as we think about the mix of hunting and golf, how do they proceed throughout the year? Is 4Q pick back up from a mix perspective in those two categories relative to 3Q?

Ed Stack

When you are taking a combination of the two, it is not a lot different, it just becomes more based to hunting less to golf, and in the second quarter it is more golf and less hunting.

Christopher Horvers - JPMorgan Chase & Co.

Okay so net-net, is that 30% lower in the back half in both categories?

Ed Stack

Combined, yes.

Christopher Horvers - JPMorgan Chase & Co.

And is 4Q lower than 3Q or higher?

André Hawaux

Let me try to get that for you right now.

Ed Stack

What do you -- you mean is the -- is Q4 or Q3 higher as a percent of the total?

Christopher Horvers - JPMorgan Chase & Co.

Yes.

Ed Stack

It will be relatively the same. They won't be meaningfully different. Q3 is a smaller quarter, but Q3 might actually be a little higher than Q4, but it's a small quarter.

André Hawaux

Yes, Q4 -- just on the golf business, Q4 is obviously -- is our small quarter. At that point in time, it represents about 10% of our business. Just to put it in perspective just because we do want to provide you all a little bit more granularity, in Q2 -- it's about almost 25% of our business and overall that's the kind of dimensions you have with golf.

Christopher Horvers - JPMorgan Chase & Co.

I got you, that's very helpful. So then just to clarify the overall 30% is smaller in the back half for both categories or similar? 30% --

André Hawaux

In total Chris, it is a mix out difference, it is slightly smaller but you have more, as you probably have more hunt and less golf, you get almost to 30%, but it is a little bit less than that in the fourth quarter.

Christopher Horvers - JPMorgan Chase & Co.

I got you. So then as you think about planning the business you expect -- it sounds like the golf pressure is you expect to be more persistent versus or hunting has lasted a little longer here used to think that flattens out by 4Q?

Ed Stack

We feel that it does. The golf business -- we think this is going to be longer-lasting and as I said we really don't know where the bottom is in golf. A couple of the golf manufacturers have come out and talked about what is going on in their golf business. It hasn't been good. Adidas announced that is tailor-made business was off 34% in the first quarter. That's a big difference and tailor-made is to the golf business what a couple of the real big athletic guys are to the athletic business. TaylorMade is off 34% -- the industry has a real issue.

Joe Schmidt

So just to reiterate what Ed said in his prepared comments, we have taken the golf business and we have model that like the performance we had in Q1. We have not made the alternations. What we have altered is the hunt business which as Ed mentioned is Q2 will be about the same as Q1; it gets slightly better in Q3 and flattens in Q4. So that's the way we've built our models for the balance of the year.

Christopher Horvers - JPMorgan Chase & Co.

And then on the golf, does it change you're moving some space out of golf, as I think about that section of the storage probably 10%-15% of the square footage in the store might could not but does it change your view, do you start to accelerate the space reallocation and what is your latest thoughts on that?

Ed Stack

Well, I think we continue to see how this plays out, there could be some additional reduction in golf space as we go forward because -- part of it is because the golf business being the way it is we don't know where the bottom is but we've also seen other areas of our business that have big upside such as the women's business and youth business and we are trying to invest more heavily in that. So yes we are looking at that allocation and space inside the big stores and what we are going to do with it.

Christopher Horvers - JPMorgan Chase & Co.

And then the last one -- do you think on the golf the clubs themselves do you think it's just we've reached a resistance points on you are and the drivers and the irons space?

Ed Stack

No. I don't think so because the prices really haven't gone of very much from the last couple of years. So TaylorMade top end driver is 399 and it's been 399 for the last couple of years. There's just such a glut of inventory out there that the AUR's have come down. Selling last year's product were two years ago product some of that is still in the -- what we're trying to clean out from a couple of different vendors and the AUR's have gone down. Some of the new technology that the brand have brought out is really I believe terrific technology but it's very different than the way people view ups in the past especially on the driver side and people just haven't quite understand or quite have accepted what they should do with these drivers from a technology standpoint and they've slowed the replacement process and as I said the casual golfer has just decided to go to lower-priced product for right now.

Operator

The next question will come from Matt Fassler of Goldman Sachs.

Matt Fassler - Goldman Sachs

Thanks a lot and good morning. My first question relates to golf and hunting. As we think about sales -- long run sales. I know you are going to have some space reallocation. Should we think about 2014 in your view as being essentially a new base for both of those businesses? Or the business would be kind of flat to up in the ordinary course off of 2014 levels? You clearly give us a lot of granularity for this year but if you think about 2015 and beyond.

Ed Stack

Well, Matt, I think that is kind of read between the lines and we are not trying to make it so that you have to read between the lines, through we are trying to be pretty granular here for you. The hunt business we think is temporary. We think it gets relatively flat at the end of the year, so I would say that 2014 is a good base year for that hunt business going forward. But as I said in my remarks, we don't know where the bottom is in golf. We may be at the bottom. We are not sure. You got to bottom out before you can start to -- with sales increasing again and we are not sure where the bottom is in the golf business right now.

Matt Fassler - Goldman Sachs

Understand. My second question is off to Andre, couple of times there was some increase spending I think in the second quarter in particular to drive traffic but some of the SG&A where your movement seemed to be incremental dollars into the business, often times when sales were under pressure companies might cut back, you have done that often times as well. Could you just get some clarity as to where those incremental SG&A dollars are going?

André Hawaux

Yes. The incremental SG&A dollars -- so we have got a couple of issues that are impacting a negative leverage in SG&A. One is obviously as Ed mentioned just in Q1 alone we took our sales, sales time in those categories were down $50 million so we are getting some reduced sales pressure on SG&A. Investments we are making are very surgical, they are around in Q2 specifically, around marketing activities to promote and move the inventory we have talked about the excess that's been built up so we are going to try to create some events in our stores to be able to move and plus that inventory on Q2 so that's where a bit of that spending is going to happen so combination of marketing activity to do that.

Matt Fassler - Goldman Sachs

Got it. And then finally, you talked about first quarter de-leverage from occupancy and shipping. Can you quantify how much, how big the drive was from the mix shift online and I just want to figure out how persistent of a drag to gross margin that will be when you think about free shipping or other distribution costs?

André Hawaux

Yes. Again, I mentioned where we were. We had a favorable KPI margins in Q1 as our business performed well on the KPI margin side. Our shipping expense decline was -- I'm going to give you some approximate numbers and it's going to get you close from a de-leverage standpoint versus a year ago, about 20 basis points and that would be where the shipping number was. Occupancy number was a little bit higher again as we missed -- we build out a lot of new stores in the first quarter year-over- year, so you had a little bit of that in terms of a timing standpoint. So those are the rough numbers.

Operator

The next question will come from Brian Nagel with Oppenheimer. Please go ahead.

Brian Nagel - Oppenheimer & Co.

Hi, good morning. I just wanted to delve little further into the golf business and may be with the bigger picture question to start. But you have been around the golf business for a long time; DICK's has obviously been big seller of golf equipment for long time. As you look at what's happening right now, I appreciate the color you have given so far but do you -- is this -- do you think this is a cyclical bump in the golf business or is there something structurally shipping that may be unprecedented given the history of the category?

Ed Stack

I think it is a combination. I think there has been a structural modification been happening with the less rounds played over the last couple of years. So I think there is something structural miss although I think that's a smaller piece of this issue right now. I think the issue right now is a: you are dropping the way that they are with this glut of inventory makes a big difference. Setting of driver which is a very key category in this business and where people, everything golf was probably replaced the most the core golfer that AUR is going to 15% , inventory down too but the AUR were down 16% so I think this is lower cyclical than it is structural, although there is structural component to this. But I don't know how-- I don't know where the bottom is yet on the cyclical issue which is not like us, we are usually have a pretty good sense of this but right now we think that it is -- we are not sure where the cyclical bottom is to be for the golf business.

Brian Nagel - Oppenheimer & Co.

Got it. And then with respect to the stores and I would just go back you discussed some reallocation space within your stores. I think in the golf categories, two other categories. But could this lead you to go one step further and actually rethink the size of the store? And DICK's still opening a large number of stores annually that if golf and then this I guess is apply to hunting as well if the golf and hunting trends are going to be weaker for a while and permanently weaker, would you start to consider maybe smaller stores?

Ed Stack

Well, so we said the golf business could be weaker. We think that the hunting businesses was just temporary and is kind of a right sized so to answer your question, because the hunting business I think will stabilize. And even if we take a little bit of square feet out of the golf business, our average store has from a sales standpoint, maybe 4500 square feet of golf. You can take -- even if you to 1000 square feet out of that, we've got categories that we would expand such as the women's business, the youth business, the footwear business, the team sports business. So I don't think these results in any meaningful reduction in our store size.

Brian Nagel - Oppenheimer & Co.

Got it. And then just one follows up. Just in terms of golf and how it relates to the rest of the businesses, is golf typically a business in itself in DICK's stores or is it services more of traffic driver leading to sales of other products?

Ed Stack

Well, as you would have imagine, the more traffic you bring into the store, the more business you give. But I would say that the golf business is primarily a DICK'S of business on to its own but the traffic in there does have some impact on every other business we do. But first and foremost it is the business on to its own.

Operator

The next question will come from Camilo Lyon of Canaccord Genuity. Please go ahead.

Camilo Lyon - Canaccord Genuity

Thanks. Good morning everyone. Ed, I wanted to get your thoughts on -- what this shortfall in the golf and the hunt as to how you view your 2017 target and your achievability of the $10 million in sales and then 10.5% EBIT margins targets that you laid out?

Ed Stack

I think we still feel that we can do that. We can meet those targets. As I said the hunt business is going to be -- we think it will stabilize. The golf business is going to be a bit more of a challenge but we have got opportunities in other areas. I've said such as the women's business, the youth business, that can make up -- we think a meaningful part of the sales and at a higher gross margin. So what we might be missing in sales -- the women's business and some of these other categories are at a higher margin rate than the golf business. And if you remember when we talked about our sales, the 2017 plan, we had very little growth from the Golf Galaxy standpoint there.

Camilo Lyon - Canaccord Genuity

That was my follow up question. What was embedded in the expectations for golf in those longer-term targets? Was it more of a flat business or was it more of a business that was in a low single-digit decline to that four or five year period?

Ed Stack

Well, it would be relatively flat. So we feel we got something that we need to make up with golf continues to decline. That we have something that we have to make up but we think we have the categories as I said in women's business, youth business and footwear and team sports business that we can make that up and at higher margin rate than we did at the golf.

Camilo Lyon - Canaccord Genuity

Got it. And then just as it pertains to the hunt category, it sounds like the biggest attractive comp there was the guns and ammo business comparing off of the strong growth year. Were there any other categories within hunt that also contributed to that decline? And if not, then it sounds like by the way that you're talking about the guidance for the rest of the year, that we're -- once you get to the back half that the tougher comparisons on the guns and ammo business really start to anniversary. Is that the right way to think about the specific part of hunt category?

Ed Stack

So the answer to the second part of your question. Yes. We think that moderates in the comps that were up against the back half of the year are significantly different than the first half of the year. And the gun and ammunition business was really the main driver to this sales decline in the hunt and ammo business there were some other categories that didn't -- were down a little bit but we really think that that's a traffic piece, traffic category.

Camilo Lyon - Canaccord Genuity

Okay and just finally just larger picture question on golf. In that the volatile performance that it's had over the last year and year and half. Does this make you reconsider your commitment to the category, or do feel that you need to be exposed to this category?

Ed Stack

Well, we think we need to be exposed to the category just because it is part of the sports industry. That we need to be as exposed as we are today that’s what we are thinking. But after -- we are not quite ready to make that decision and we need some more information, we need to see where is the sale fall off, we need to see where the bottom is, but we manage of the business best we can and we like a decision as to how exposed we wanted to be in the golf business. I would expect that we would be less exposed to the golf business a couple of years from now than we are today.

Operator

The next question will come from Dan Wewer from Raymond James. Please go ahead.

Dan Wewer - Raymond James & Associates

Thanks. Ed, I wanted to follow-up on the 2017 financial goals as I recall last September we were talking about improving EBIT rate 150 basis points over five years. In light of today's guidance, it looks like we'll have to make up about maybe 220 basis points of operating margin over four years and given your a bit more skeptical on the secular outlook for golf, would it not make sense to be thinking about a 9.5% or 10% operating margin goal for 2017?

Ed Stack

Well, I think Dan I don't think we have enough information for that yet. We still feel that we've got some upside as I said in some of these other categories such as the women's business, footwear business, youth business which carries significantly higher margin rates than the golf business. By hundreds of basis points difference. So I think it's too early for us yet to look at that. But as we get through the next couple of quarters, we'll update you if we think that's appropriate.

Dan Wewer - Raymond James & Associates

And then regarding golf, as I recall couple of years after you purchase Golf Galaxy I think it was $190 million or $200 million impairment charge but given what's happening, was that division, Andre, do you expect another impairment charge related to Golf Galaxy this year?

André Hawaux

No. We do not. And we won those numbers, Dan, every quarter to ensure along with our independent orders that there is no impairment forthcoming and there is no -- we looked at cash flow and things like that. So we don't see that happening at all.

Dan Wewer - Raymond James & Associates

And just the last kind of our housekeeping -- André, you called out the gain on the aircraft during the quarter. And in last year's 10-K you talked about an impairment charge of $7.9 million on a golf stream for the -- just kind of confused as to why there would be a write-down and then looking to gain for those different aircraft or just not sure.

André Hawaux

They are -- you are correct, Dan. They are different aircraft so there were two different transactions.

Operator

The next question will come from Seth Sigman of Credit Suisse. Please go ahead.

Seth Sigman - Credit Suisse

Okay. Thanks. A couple questions here. I guess first as following up on the outdoor business, obviously the comparisons have been pretty difficult but any other changes there relative to your initial expectations and specifically some other retailers have called up being a little bit more promotional this quarter, I'm just wondering if that's something that you guys also and maybe responded a bit too.

Ed Stack

Nothing of any significant.

Seth Sigman - Credit Suisse

Okay. And I guess just in general as you look out over the next few quarters, I mean what kind of gives you comfort that business can start to normalize, is it just comparison, anything else you are seeing at this point?

Ed Stack

I think it is comparison then we are taking a look at what happened before this run up of this panic buying because of concerns on legislation so we are getting back to more historical levels and we think that we will -- we think that it will be fine.

Seth Sigman - Credit Suisse

Okay and then just one other question I guess you're really one of the only retailers that have a actually called out weather this quarter explicitly and the 6.6% comp excluding hunting and golf, it seems like a pretty good trends but maybe weather held that back a bit so any more color there would be helpful and then given that you did get some color on Q2, how does that trend look so far this quarter? Thanks.

Ed Stack

We are not going to comment on Q2 anymore than we already have but we didn't call out weather. We -- based on the fact that we've got some real issues in this industry has some very big issues in the golf business per se, and what was going on in the hunt business, we didn't -- we didn't want it to look like we were hiding behind the weather and in fact that we did do a very good job in the other categories of business kind of mitigated what that weather was. If the weather had been better with those other categories have been a little the better? It probably would've been but we are not -- in this case here we are not sitting hiding behind weather. We are just step up and kind of let you know that our golf business is difficult right now and the reasons of what's going on in hunting this is really golf hunt story.

Seth Sigman - Credit Suisse

So just on that golf point. I mean you have been very clear on some of the product issues you are facing. Is there a way to pass out may be how online versus DICK's stores versus Golf Galaxy are performing? I am just wondering that beyond the product issues, is there also an eCommerce underline theme here to be thinking about?

Ed Stack

No. I don't think the golf business is impacted because of online anymore than any other categories so this is not an online issue.

Operator

The next question will come from Kate McShane of Citi Research. Please go ahead.

Kate McShane - Citigroup

Thanks. Good morning. Ed, how you did see more cautious on golf when you gave your guidance back in March but this is obviously a lot worse than what we last heard from you. So what do you think was the tipping point? Did you see a significant deterioration than in April that you haven't been seeing in March? And what really was the biggest driver of the inventory build that deteriorated from the last time we heard from you?

Ed Stack

I think one of the biggest issues is that the glut of inventory and kind of what happened from a promotional standpoint in golf. Like I said the AUR is engulfed because of some cascaded product and product from a couple of years ago took those AUR down significantly. When we first looked at this, we really thought that the technology that the customer -- I mean that our brands brought forth such as the SLDR driver from TaylorMade , the Big Bertha Alpha and some of these things would really drive a lot more replacement purchases than they did. And I think the customer just doesn't yet quite understand -- doesn't quite feel comfortable with this technology which it really is great technology but it's very different than how you would fit a driver or how you would look at a golf club from a couple of years ago. So we just thought that the replacement business would be better.

Kate McShane - Citigroup

And with regard to that I mean has there been another example in recent history where technology or a new technology and innovation has not been understood by the customers and when that does happen, how much control do you have in taking the messaging of what the technology can do for the customers and how much of the vendors trying to take control of that messaging?

Ed Stack

Well, I think the vendors are trying to take control of that messaging specially with TaylorMade with their whole walked up campaign. But there is a difference between new technology and technology that's almost the opposite of what people originally thought. So TaylorMade and few people moved to center of gravity on these drivers higher and forward which makes you have to a hit higher lofted driver and which is very different. People always thought if I have nine degree lofted driver or I hit that further than a ten and half degree lofted driver now with this new technology they are saying if you have a 12 degree driver, off to driving you hit that further then you may have had further than your 10.5 and so you have that more loft, just a very different view of golf clubs in that core golfer has a quite -- hasn't quite accepted that yet. I think when they do it, it could get better but we are not planning anything like that right now. As I said we just kind of feel we are seeing the bottom in golf.

Kate McShane - Citigroup

Okay. Thanks. And then my final question is just with regards to the Golf Galaxy stores, do you have a notable amount of leases coming up for renewal over the next year or two with Golf Galaxy? Specifically which could allow you to maybe shut some doors or reduces the square footage?

Joe Schmidt

Yes, Kate. This is Joe. We do have a fair amount of leases coming due in the next couple of years and as we do with our DICK's stores we look at each one of those leases carefully to determine whether or not we have a relocation potential, potential closure. Or a potential remodel so we'll take a quick close look at these leases as they come due over the next couple of years.

Operator

The next question will come from Scot Ciccarelli of RBC Capital Markets.

Scot Ciccarelli - RBC Capital Markets

Hi, guys. Golf and hunting I believe are both bigger tickets each categories golf in particular it is very discretionary. Are there any other high ticket kind of very discretionary products you can kind point to that are selling well to kind of tell us -- this is really a golf technology issue or is it a high ticket discretionary item type issue?

Ed Stack

Well, there's a number of things that relatively high ticket items. Our boat category has been very good. Our baseball business around bats and all that has been very good. High ticket basketball hoops have been good. The GPS monitoring products, Fitbit, the Nike Fuelband, all of those categories, that technology has been very good. So I really don't think this is an -- this is not a big ticket issue. This is a technology issue with golf. This is a -- it's a glut of inventory issue with golf and in guns it is not an AUR issue either because the biggest part of -- there's a big part of the fault is in ammunition which is not expensive at all. It's just nobody's -- nobody feels they have to stockpile ammunition because there's really no concern about any meaningful change in gun legislation.

Scot Ciccarelli - RBC Capital Markets

Got it, that's helpful. And then any kind of color you guys can provide kind of year-over-year profitability trends in eCommerce phase will be great? Thanks.

Joe Schmidt

Our eCommerce business is to continue to grow as we have indicated and it continuous to become more profitable.

Scot Ciccarelli - RBC Capital Markets

And how does that profitability kind of compared to the store level that something that you compared it to in the past?

Ed Stack

Go ahead

André Hawaux

This is Andre. Currently as we've talked about because of the GSI season and things like that we are slightly below where our stores are but currently as we talked about in our roadmap, we would see ourselves getting to shrinking that different and actually exceeding its alternately eCommerce would be more profitable as we bring that in house if that continues to be what we do our teams continue to look at how we assort that but product and how we move it to using our stores and our shipment store continues to grow very nicely so our probability in the channel -- growth is very good and our profitability continues to improve quarter in and quarter out.

Operator

The next question will come from Sean McGowan of Needham & Company. Please go ahead.

Sean McGowan - Needham & Company

Thank you and these is basically a couple of clarifying questions. When you were talking earlier about hunting and golf, being 30%, I assume that you mean all of hunting. Right? Not just the gun portion?

Ed Stack

Correct.

Sean McGowan - Needham & Company

Okay and on the question of weather -- I appreciate your not wanting to hide behind that, it is commendable but would you say that weather did have an impact on golf? I mean is that one of the things going on with rounds played?

Ed Stack

I think that's a portion of it but I don't think that's a biggest issue. And the biggest issue is around some of the new products not doing as well as we had thought. And AUR decline to 16% in drivers is not a weather issue.

Sean McGowan - Needham & Company

Okay, clearly. Okay. And then finally, André, your comments on going through the model in detail was very appreciated but when you compare what your expectations are -- you would say 50 basis point reduction or whatever -- was that -- all of those comments were against your previous expectations were some of those also against last year?

André Hawaux

They were all as I prefaced it they were all against our expectations. Because I think people and what you would want to know what we have model than what the differences in that model so what the model that got us to them $3.03 to $3.08 and now is giving us to the $2.70 to $2.85, so it is versus our internal expectation.

Sean McGowan - Needham & Company

Just wanted to be clear that all that cover all of those comments. Thank you.

Operator

The next question will come from Sam Poser of Sterne, Agee. Please go ahead.

Sam Poser - Sterne, Agee & Leach, Inc.

Good morning, thank you for taking my question. I just was wondering what percent of the excess inventory is golf, I mean when you look inventories up 13%, sales are up 8%, and yourself per square foot are up quite a bit as well. What percent is that as we look at that?

Ed Stack

We are not going to get that granular level there, Sam.

Sam Poser - Sterne, Agee & Leach, Inc.

Okay and then so you say you feel comfortable -- what is giving you the confidence that the hunting business will stabilize towards the end of the year above the fact that the comparison ease because you are up against easier comparisons, fairly easy comparison to golf as well and that's not getting any better.

Ed Stack

Well, Sam, I am not sure what the comparison golf has to do with the comparison of hunt, I am not sure how you draw that.

Sam Poser - Sterne, Agee & Leach, Inc.

I am just wondering what makes you comfortable it is going to get better.

Ed Stack

I understand but you kind of tied golf to hunt from comfort level, I think they are two entirely different concerns. We feel that the -- and we all know and I know you are student of this industry so we all know that a comp previously have been driven by panic buying around what would happen with gun legislation after the election and then more recently and tragically what happened at Sandy Hook. So there was a lot of panic buying which you know. The golf business we have indicted we don't know where the bottom is, we think if there is a real issue here and we take a look at the hunt business, other categories in the hunt business are doing -- are doing reasonably well or quite well. And this is really a big issue around gun ammunition, put people to panic buy, people were buying guns and ammo in a panic session right, they won't buying a hunting apparel and boot in a panic way. So as we kind of come through this whole time period as we get into the fourth quarter of last year which was where the panic buying basically stopped, we don't think that there is going to be any meaningful deterioration and we think we will get to low to mid flat, may be a up a little may be down a little, but relatively flat.

Sam Poser - Sterne, Agee & Leach, Inc.

Thank you and then lastly, could you -- you commented that in the first quarter -- could you give us -- you commented in the first quarter the 30% of the business was hunt and golf, is that correct?

Ed Stack

Correct

Sam Poser - Sterne, Agee & Leach, Inc.

And that seems fairly steady but it is just sort of moves around more

Ed Stack

Correct. The composition of it changes between --

Sam Poser - Sterne, Agee & Leach, Inc.

And then in the first quarter the golf business in the DICK's stores proper, could you like I mean really to take away Golf Galaxy because I was just trying to figure out the comp of that, the make up of that two three comp. Is that where you said that it was down high singles in the big stores and --

Ed Stack

That's right. It was high single digit down in the DICK's stores.

Operator

The next question will come from Michael Lasser of UBS Investment Bank.

Michael Lasser - UBS Investment Bank

Good morning, thanks a lot for taking my question. Ed, I think if we look back over the last couple of years, the comprehensive has been volatile. We have seen different categories exhibit strength; different categories exhibit weakness, would you say that this is just an endemic to running a big box sporting goods retail business? That you are always going to have categories doing well and some are not doing as well and therefore it is incumbent upon the company to maybe nimble and manages the portfolio of what's coming in and out and do you feel like your competency is doing -- company's competency is doing that is where it needs to be?

Ed Stack

So I think yes. It is our job to manage that portfolio business and for years there have been some categories that have done well and some others that have struggle from a cyclical standpoint. And this year this first quarter we kind of hit the perfect storm with -- anything with 30% of the business being affected like this and we have done in ammunition business, we anticipated that will be headwinds, it wasn't, it was more than we had anticipated which I think is we met from some other retailers. And we thought that the golf business would have some headwinds we didn't anticipate it would be this significant. And you can see that from kind of comments that Callaway made going forward in the fact that Adidas indicated that the TaylorMade business was down 34%. So yes it is incumbent upon us to manage that portfolio. This is one of those perfect ones where the portfolio the gun and ammunition business both hit at the same time. And you couldn't make that up to these other categories. Even though the other categories are doing extremely well with comps over 6% in those other categories.

Joe Schmidt

And we typically see this movement around but the depth of this movement is probably has this -- has showing the numbers through Q1. It is typically have a category up one or two and others -- and that balances itself up that is a nature of the business but the depth in which we saw the golf business and the hunt business all coming together in one quarter was so it was pretty big.

Ed Stack

And we are in the process of managing this portfolio which is why you heard us talk in recent quarters that we are slowing back the space in golf and adding space to women's apparel business and the youth apparel business which of all that's working out very well but golf business caught us by surprise. And number of other people as well.

Michael Lasser - UBS Investment Bank

No doubt and that make sense. I think some of the confusion probably rests with what you are now expecting for the rest of the year because it does seem your updated guidance that seems to imply that you are not expecting golf to get much better in the recent maybe some counteractive measure to not necessarily have that much of an impact.

Ed Stack

It is going-- golf is going to be a very difficult business to overcome through the balance of this year. What we indicated what we missed the sales plan by in the first quarter we gave you that kind of granularity and you can from your model and see what that number is for the balance of the year. That's difficult to overcome in a short period of time.

Michael Lasser - UBS Investment Bank

Okay. My last question is, does this experience cover your view on mergers and acquisitions at all? I think if you look back would you have taken the same approach with Golf Galaxy? And moving forward does this business experience change the way you look at M&A?

Ed Stack

Well, I think that the going back to Golf Galaxy, that was very long time ago. And would it cover our thought process, no, we kind of laid out why we did what we did, the benefits that we get from it, I think we still feel the same way. We are going through a difficult time in the golf business right now. And we will assess over a reasonable time period what that mean. Where is the bottom? What is this business means going forward? But right now we are happy that we are in the golf business. We are just not -- we are happy long -term we are in the golf business. We are not just happy today that it is having the impact on is that it is.

Operator

The next question will come from Michael Baker of Deutsche Bank. Please go ahead.

Michael Baker - Deutsche Bank

Hi, thanks, guys. So I just a bigger picture question. Why do you think the golf business has weakened so much? I understand there is glut of product in the market. And that you're -- it sounds like you are attributing that glut of product to people not understanding technology. So is it really just that simple? Golf is weakened because people don't understand the technology and they have got product out there or is it economic, you don' want to blame weather I understand that but it seems to me that there is got something bigger going on here than just people not understanding new technology.

Ed Stack

Now if you listen to my comments, I didn't say that it was just the people not understand new technology. I said they didn't embrace the new technology which didn't -- people didn't replace new clubs as they normally would. But else we indicated that there is a glut of inventory which is a real and was significant and took a large 16% while units only down 2%. So if you take you're a large down 16% and any significant business in the unit goes down 2% that's a difficult business.

Michael Baker - Deutsche Bank

Sure, I understand, so I guess one --

Ed Stack

It's really that simple. So there is glut of inventory

Michael Baker - Deutsche Bank

So that glut of inventory is being caused by something beyond just the not embracing the technology and so I guess if that's my question is that's what you are saying. My question is why that glut of inventory? Is that an economic thing do you think?

Ed Stack

Golf business has been difficult for the last 15 months which is what we have indicated. And there is going glut of inventory both at retail and the wholesale side, that's because this inventory, the glut inventory there is going to be significant markdown, price reduction from the vendors for us to buy new product and the AUR are down 16%.

Michael Baker - Deutsche Bank

Not to beat it but why do you think the industry has been weak for 15 months? Is it something beyond the technology I guess? That's the crux of my question.

Ed Stack

I talked about the technology for this quarter. They launched for last 15 months the business has been difficult. And there has been too much inventory manufactured, there is a glut of inventory in the system. We had two years of pretty good business when the -- when TaylorMade launched a white driver and came out with rocket ball all of that did very well. Last year it -- number of people surprised that rocket balls too and some of the new technology that came out wasn't as embraced as they thought it would be, so they had too much inventory with all part of business technology would be more readily accepted and it wasn't so inventory is backed up, it is simple, it is not -- it is really, they don't try -- we always try to break in terms of the slowest kind of denominator, it is that sort of -- it is too much inventory in the market and the replacement cycle has it happened this year because people are somewhat confused about this technology

Michael Baker - Deutsche Bank

Okay, that actually does help so it is jut overbuilding after some success with that white driver couple of years ago, so it seems like a big impact, okay, and thank you.

Operator

The next question will come from Paul Swinand of Morningstar. Please go ahead.

Paul Swinand - Morningstar Investment Research

Good morning. And we were just shifting gears away from the golf a little bit. Just thinking longer term about your eCommerce business. I'm trying to think, do you have some kind of advantage being national versus the regional? In other words, when you've mentioned proposed promotional pressures, if a regional player is advertising something and your advertising -- it comes down to a price game, or do have some kind of advantage in the products you get or the reach that you guys the way that you buy the online advertising? Is there something that's structurally different there?

Ed Stack

No, I think being national and scope and the numbers of stores we have certainly helped us as we have indicated when we open the store, we see a meaningful increase in our eCommerce sales in that trade zone or in that market. So I think we do have an advantage that way. Or else we have an advantage over the regional guy with what we do from a marketing and national basis. Lot of people who know we are even if we don't have the store in their particular market at the present time so yeah I think we have a very significant advantage over the regional player.

Paul Swinand - Morningstar Investment Research

So would you say when we are looking at your store base and you are saying people are discovering that brand even outside the stores but what percentage of the white space is under penetrated in e-com?, Is it about half way there or how would you characterize that?

Ed Stack

I am not sure I understand the question.

Paul Swinand - Morningstar Investment Research

Well, another words your store base has not penetrated the full country yet. You are getting discovered from your national advertising, how much further long is your e-com penetration in the national?

Ed Stack

Well, I think it is probably a bit less than what the store growth could be. We think we could grow our store base by 20% in those markets. I think our eCommerce growth could be 15% because we are doing some business in those markets already. If you understand that. I am not saying those are great numbers, I am just saying take that directional.

Operator

The next question will come from Mark Miller of William Blair. Please go ahead.

Mark Miller - William Blair

Hi, good morning. Little bit of longer-term question here and I'll try to avoid including golf in this. Is there point Ed where you would consider slowing the pace with store expansion and customers are shopping online with DICK's, with turnout capitals been tracking lower now and it is seemed like this would help you bring more focus to your existing operations.

Ed Stack

Well, I think we've -- we think we are opening the appropriate amount of stores. We still have a lot of space where we don't have stores. So our growth will probably slow a little bit-- where our stores are probably slower would be in competitive market. But if you take a look at our new store productivity, that new store productivity still continues to be very good. So until -- so we don't think we hit that saturation point yet. And again we have been in a number of markets so we have more stores or -- are very under penetrated. I don't think we are there yet.

Mark Miller - William Blair

And a separate question on the cadence of hunting in 2014. If we look at the industry, firearms sales began to slow during the second quarter of 2013 based on the NICS or FBI background check so it does seem like the comparison ought to be easier in the July quarter, I guess I am asking why would the hunting comps be down as much in 2Q as 1Q.

Ed Stack

Well, it is just taking a look at what happened in that industry and the gun business may have slowed a little bit and I have to go back and take a look and see how much it really changed with that and ammunition is still very, very hot commodity back in 1992 which is in a big part of this driver.

Operator

The next question will come from Rick Nelson of Stifel. Please go ahead

Rick Nelson - Stifel

Hi, good morning. You mentioned that 4,500 square feet allocated to the golf, so I am curious how that compares to the prior year and if the environment remains challenging what sort of square footage you think that department deserves?

Ed Stack

Well, we are not ready to make that decision yet. But we took roughly 1000 square feet out of the golf business.

Rick Nelson - Stifel

And if could also ask you about the footwear business, how that performed and what you and your expectations as we look forward?

Ed Stack

We don't give that granular with the footwear business. We are pleased with footwear business and we expect to be pleased with that going forward.

Operator

The next question will come from Matt Nemer of Wells Fargo Securities. Please go ahead.

Matt Nemer - Wells Fargo Securities

Thanks so much. I got two questions. First, in the hunting category the background checks do flatten out this summer, some of your public peers have stated that they expect firearms to turn positive, in late summer you can see that in the street expectations, so I am just wondering is there something different about you that what you have done in Q3 or do you think the market -- the market is changed in the last few months and we are kind of tracking below where you would have originally expected?

Ed Stack

I think there is -- we need to be careful not to-- this is a whole blend of business and we need to remember that there is a gun and ammunition piece to this. So we are just taking a look at what -- we think the trend is right now what we think is going to be and we are going to be careful not to get over our skis.

Matt Nemer - Wells Fargo Securities

Okay, fair enough. And then secondly if you look at stores that has reallocated space away from golf and fitness, could you just remind us how many stores have gone through that change and then how did performance might differ in those stores versus the rest of the chain?

Ed Stack

Virtually all the stores have gone through that change and we are seeing similar results in all the stores that the youth business, the women's businesses have some nice gains, we are very really pleased with what's going on there, as we said women's and now the team.

Operator

The next question will come from David McGee of SunTrust.

David McGee - SunTrust

Yes, hi, good morning, everybody. First question on the hunt category. Beyond this year how concerned are you about all the new square footage that is being put out there by specialists in the space and including your own chain? How concerned are you about the impact on the core stores?

Ed Stack

We know that they will impact the core stores. And we have been dealing with that for a year, so we don't think that's any real -- anything really different than what it is or what's going on right now. We think that's going continue to be impacted and as we take a look at -- we've got some store, we have talked a lot about in-depth in stores and we have taken space out of the hunt switch category and replaced it with team stores and some other categories.

David McGee - SunTrust

And secondly, what would the downside of taking the store size going forward to 40,000 square feet, give or take?

Ed Stack

Well, I think part of that issue is we still think there is a number of a category inside our store now that is squeezed from footage standpoint. The women's business could still take more square footage, the youth business can take more square footage, team sport business can take more square footage so we may continue to modify the allocation of space but we don't think to go down significantly in store size right now is the appropriate thing to do. If we do that some of these other areas that are having such great sales gain at much higher margins than the company as a whole, will impact that growth rate.

David McGee - SunTrust

Thank you. And just lastly would you comment on the baseball business this spring, particularly the markets may be in the south that had turned warm?

Ed Stack

We have been pretty pleased with our baseball business. And the whole team sports business was very good as a whole and baseball was a big driver of that.

Operator

The next question will come from Jim Chartier of Monness, Crespi, Hardt.

Jim Chartier - Monness, Crespi, Hardt & Co

Thanks for taking my call. Can you just tell us what percentage hunting account for in terms of your overall lodge business? And then how did the lodge business overall performed relative to expectations?

Ed Stack

Well, the overall lodge business didn't perform to our expectation as we said because we had such big miss in the hunt; I mean the gun and ammunition business. But we are not going to get that granular to provide that level of detail. We are kind of laid out that we missed the sales by $15 million in that category and for us that's pretty granular.

Jim Chartier - Monness, Crespi, Hardt & Co

Hunt, camp and fish were also below expectation?

Ed Stack

I am not going to get to that level of granularity but it was and I would tell you that fish customers more are hunt customers than the camp customers are hunt customers and that like traffic impacted that business with them.

Jim Chartier - Monness, Crespi, Hardt & Co

Okay and then is hunting about 50% of the overall outdoor business? Is that about right?

Ed Stack

Yes. We have indicated we are not going to give that level of granularity.

Operator

The next question will come from Peter Benedict of Robert W Baird.

Peter Benedict - Robert W Baird & Company, Inc

Yes, hi, guys, thanks. Just one for André, can you update us your thoughts on capital allocation strategy? And I am thinking specifically to the excess free cash flow for dividend and buyback, just how do you think about that going forward?

André Hawaux

So as we talked about in the past, Peter, we are committed to use of our cash in the following kind of order is really to drive the growth of our business, to build of our stores and new contracts et cetera and then obviously opportunistically taking a look at a minimum handling the dilution issue and then opportunistically going into the market for shares. We do have a June Board meeting that's coming up where we will be discussing with our Board our entire capital allocation strategy including our capital investment model as well as share buyback and also our dividend program. So that will be forthcoming in the month of June we have our next Board meeting.

Operator

The next question will come from Jay Sole of Morgan Stanley. Please go ahead.

Jay Sole - Morgan Stanley

Hi, good morning, thanks for taking my call. I just want to ask about market share trends. Do you believe that you gained share versus your brick and motor competition in the quarter and the same question for your online pure play competition.

Ed Stack

In our pure play competition I think we did extremely well as we said we moved up the internet 500 list by pretty wide margin last year. So we are really pleased with what's going on with that. Do we think that we gained market share versus our competitor? Actually we do kind of our channel checks and what we see other retailers doing, we think we did. We had a comp gain, we are not happy with what happened in the golf business, in the hunt business but we actually had campaign so we think overall we do think we gained much.

Jay Sole - Morgan Stanley

Okay, interesting and let me just ask you about the same youth sports competition, obviously golf participation is down, what do you see happening in the youth sport business -- sorry in the youth sports participation, how much that impact your team sports business going forward?

Ed Stack

We still think that business is continued to be strong, kids are still playing sports. Sports are really part of our culture. We don't see meaningful impact there.

Operator

The next question will be from Lee Giordano of CRT Capital. Please go ahead

Lee Giordano - CRT Capital

Thanks, good morning, everybody. Can you give us a quick update on what's happening in the fitness category? Are you seeing any improvements there? And then secondly on the marketing strategy currently how are you thinking about the back half of the year as far as TV versus online versus print et cetera and may with your overall marketing spend expectation might be versus historical levels? Thanks.

Joe Schmidt

Lee, I will take the first one on fitness. I think the team has done a really very nice job with the space allocation. The last few quarters in both in Q4 and Q1. We actually comp positive in fitness so we feel that we got that spacing correct, we think we have the assortment correct and so we feel very good about the work that we have done there in this part of our space allocation strategy. I'll let Ed talk about the marketing.

Ed Stack

Well, marketing standpoint TV, online and print, we continue to look to ways to reduce print advertising and increase what we are doing from an online standpoint and TV. So the overall dollar as a percent of sales will be relatively even this year versus last year.

Operator

And ladies and gentlemen, this will conclude our question-and-answer session. I would like to turn the conference back over to Mr. Stack for his closing remarks.

Ed Stack

I would like to thank everyone for joining us today in our quarterly earnings call and we look forward to talking to you about the second quarter. Thank you.

Operator

Ladies and gentlemen, the conference has now concluded. We thank you for attending today's presentation. You may now disconnect your line.

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Source: DICK'S Sporting Goods' (DKS) CEO Ed Stack on Q1 2014 Results - Earnings Call Transcript
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