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Dick's Sporting Goods Inc (NYSE:DKS)
Q1 2019 Earnings Call
May 29, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning and welcome to the Dick's Sporting Goods First Quarter Earnings Call and Webcast. All participants will be in listen-only mode. (Operator Instructions). After today's presentation, there will be an opportunity to ask questions. (Operator Instructions) Please note this event is being recorded.

I would now like to turn the conference over to Nate Gilch, Director of Investor Relations. Please go ahead.

Nate Gilch -- Director of Investor Relations.

Good morning everyone and thank you for joining us to discuss our first quarter 2019 results. On today's call will be Ed Stack, our Chairman and Chief Executive Officer; Lauren Hobart, our President; and Lee Belitsky, our Chief Financial Officer. A playback of today's call, will be archived on our Investor Relations website located at investors.dicks.com for approximately 12 months.

As a reminder, we will be making forward-looking statements, including our 2019 outlook for sales and earnings, 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 10-K and 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 non-GAAP financial measures referenced in today's call.

With that, I will now turn the call over to Ed.

Edward W. Stack -- Chairman and Chief Executive Officer

Thanks, Nate. Good morning, everyone. This morning we reported first quarter non-GAAP earnings per diluted share of $0.62 compared to earnings per diluted share of $0.59 last year. We're very enthusiastic about our business and are raising our full-year earnings per diluted share guidance to a range of $3.20 to $3.40 from $3.15 to $3.35. First quarter consolidated sales increased 0.6% to approximately $1.92 billion. Within this, our consolidated same-store sales were flat. This was near the high end of our expectations and represented another quarter of sequential improvement.

Our e-commerce business remain strong and increased 15% over last year. As a percent of the total net sales, our online business increased 13% compared to 11% in the same period last year. Same-store sales, turned positive in March and remain positive in April as we started to see the benefits of our key strategies and investments. By design, we made strategic inventory investments into key growth categories as prior year inventory levels were running to lean. This resulted in our inventory increasing 16% at the end of the first quarter compared to the end of the same period last year. Our inventory is clean and well positioned and we're confident in our ability to continue the sales momentum and delivered positive same-store sales throughout the remainder of the year.

Additionally, our merchandise margin rate increased 20 basis points in the first quarter reflecting a healthy business. As expected, our comp decline in hunt lessened after we anniversaried our announcement at the end of February. However, hunt comps were still meaningfully negative throughout the remainder of the quarter as the hunt industry faces continuing headwinds. As previously announced, in light of these difficult industry trends, we are evaluating our strategy for this category across all banners. As an initial step in this review, late in the third quarter last year, we removed the hunt category from 10 Dick's stores, where it underperformed and replaced it with a more compelling localized assortment.

Following strong fourth quarter results last year, I'm pleased to report, we have continued to see strength in these stores. During the first quarter, they again generated positive comp sales including positive transactions and saw merchandise margin rate improvement. We remain on track to reallocate floor space in approximately 125 additional Dick's stores during the second quarter. Like the initial stores, hunt will be replaced with merchandise categories that can drive growth each based on the needs of that particular market. Looking ahead, we will complete a holistic strategic review of our hunt business including our field of same-stores.

During the first quarter, we expanded our bold merchandise presentations, which we call strike points across the chain. Our athletes have responded positively and we've been pleased with the results, driving positive comps in key categories. We also expanded our HitTrax technology in batting cage experience to approximately 150 stores. We've been pleased with the early results and plan to add this fund interactive experience and another 20 stores during the second quarter.

Our private brands are source of strength and this business continues to outpace our Company average delivering positive comps in the first quarter. We continue to focus on growing existing brands and also launching new brands, as part of our reaching $2 billion -- our $2 billion sales goal in private brands over time. During the quarter, we expanded CALIA's footprint across 80 stores giving this important brand more premium floor space. Additionally for back-to-school, we will round out our athletic assortment when we launched DSG, our new high-quality, value-oriented performance brand across men's, women's and kids athletic apparel. DSG will only be available at Dick's and will put us in a much stronger position to compete against other similar offerings in department stores and other sporting goods stores. We've been very pleased with the feedback we've received from initial focus groups and are excited for the upcoming launch.

In closing I'm pleased with our first quarter results and I'm very enthusiastic about our business in the future. I would also like to thank all of our teammates for their hard work and commitment to Dick's Sporting Goods.

I'd now like to turn the call over to Lauren.

Lauren R. Hobart -- President

Thank you, Ed. And good morning everyone. Before getting started, I want to take a moment to talk about a few important leadership changes that we announced earlier this month. First, Ed Plummer was appointed our Chief Marketing Officer. As CMO, Ed will lead our overall marketing strategy and implementation including brand building, traffic driving and continued digital transformation across all athlete touch points. Ed joined the Company in 2010 as our Vice President of Customer Relationship Management and most recently served as our SVP of DICK's Team Sports HQ.

In addition, we announced Steve Miller joined Dicks's as our Senior Vice President of Strategy and Analytics. In this role, Steve will be responsible for driving strategic initiatives across the Company and adopting a centralized test and learn approach across all channels. Steve joined us from Joann Stores where he served as Senior Vice President of Marketing and E-commerce. Both Ed and Steve will be tremendous assets to our leadership team and will help continue our strong track record of innovation and success.

Now turning to our business. I want to start by echoing Ed's enthusiasm. We remain focused on building the best omni-channel experience in sporting goods and as Ed discussed, our strategies and investments are starting to pay dividends. This morning, I will review some of the great progress we've made due to key investments in our teammates and in e-commerce and also provide an update on our marketing efforts and our sports matter program. First, our teammates are critical to bringing our improved store experience to life. Therefore, as I outlined during our last call, we are making important investments to dial-up our training and education, particularly in our stores. As part of this last month, we introduced our new service standards with an in-person simultaneous nationwide training event to over 35,000 store teammates at one time.

Our new service standards will help ensure we create confidence and excitement for our athletes in a more consistent manner, while empowering our teammates to personalize each experience. We are already seeing the positive impact of this initiative. Stories from across the country are pouring in, highlighting the ways in which our teammates have provided exceptional service. Our teammates are our greatest asset and we believe our new service standards will help create lasting relationships with our athletes, increasing their loyalty to Dick's.

Turning to e-commerce, during the first quarter, we were pleased to deliver 15% growth in the channel. As part of the success, we completely redesigned our Baseball and Softball landing pages. These redesigned pages reinforced our elevated in-store experience for those strategic categories.

Additionally, we continue to improve the functionality and performance of our website. During the first quarter, we launched a new search engine that has dramatically improved page load times for search results across both desktop and mobile. We also delivered significant growth in the number of orders our athletes purchase online and pickup in-store. This growth was accomplished via improved site messaging, inventory availability and in-store execution. Bates is a strategic priority to help enhance our e-commerce profitability, increase store traffic and very quickly get products into the hands of our athletes. In fact, today, nearly 90% of all Bates orders are filled and ready for athlete pickup within just 30 minutes.

Lastly, we remain on track to open our two new dedicated e-commerce fulfillment centers in New York and California during the third quarter. Next in marketing, during the first quarter, we launched our Better Star to Year (ph) campaign as a platform to communicate the exciting changes in our stores, including our new impactful strike point presentations and our elevated assortments. We've been pleased with how our athletes have responded as we've invited them to check out the new Dick's Sporting Goods.

Looking at the second quarter, our assortment will be even more compelling and our marketing will amplify Dick's as the go-to destination for Father's Day and back-to-school. We also continue to strengthen our alliances with partners like Google and Facebook to ramp up our digital marketing efforts and enable more meaningful and effective personalized communications. Lastly, in partnership with the Dick's Sporting Goods foundation, we remain committed to our Sports Matter Program, which raises awareness about the importance of youth sports and provides funding to youth sports teams in need.

As part of this commitment, earlier this month, the Dick's Sporting Goods Foundation announced a $1 million grant to the LeBron James Family Foundation. This grant will report -- will support the construction of a new Gym to be named to be I Promise School Sports Matter Gymnasium on the grounds of the I Promise School in Akron, Ohio. This was a very powerful event with LeBron joining us for our announcement with the school district and the I Promise students. This new gym will provide students with a safe place where they can take part in physical education classes and other recreational activities, creating more opportunities for kids to play and to learn important skills they can carry with them throughout their lives. In closing, as we continue to execute against our strategic priorities, we are enthusiastic about our business and remain optimistic that our investments will drive differentiation in the marketplace and strengthen our leadership position.

I will now turn the call over to Lee to review our financial results and outlook in more detail.

Lee J. Belitsky -- Chief Financial Officer and Executive Vice President

Thank you, Lauren and good morning, everyone. Let's begin with a brief review of our first quarter results. Consolidated sales increased 0.6% to approximately $1.92 billion. Consolidated same-store sales were flat, as average ticket increased 1% while transactions decreased 1%. Our e-commerce business remain strong increasing 15%. During the quarter we saw strong sequential comp sales improvement following a slow start in February, we drove positive comp sales in both March and April. We were particularly pleased with our athletic apparel business, which delivered a mid-single digit comp increase. The private brands also continue to comp positively with higher penetration.

As expected, we continue to see meaningful sales declines in hunt. For the quarter, hunt negatively impacted our comps sales by 1% with the largest impact coming in February. We continue to affect as a category to be negative throughout 2019 as the overall industry is in decline. However, we are actively taking steps to decrease our exposure. As Ed discussed, we are on track to remove hunt from approximately 125 additional Dick's stores during the second quarter, replacing it with faster growing merchandise categories. Additionally, the anniversary -- the Philadelphia Eagles Super Bowl win as well as last year's baseball bat regulation change were both headwinds to our comp sales during the quarter. However, neither of these headwinds will carry forward into the second quarter. Gross profit in the first quarter was $563.8 million or 29.3% of net sales, which was approximately flat compared to the same period last year. Within this, we saw higher merchandise margins, which increased 20 basis points, as well as occupancy leverage.

These benefits were largely offset by higher shipping and fulfillment costs as a result of our strong e-commerce growth as well as inflationary headwinds driving the freight costs. Importantly, while gross margin rate of our e-commerce business is lower than our stores, we continue to be very pleased with the overall profitability of this channel. Non-GAAP SG&A expenses were $485.9 million or 25.3% of net sales. This deleveraged 67 basis points from same period last year. 40 of the 67 basis points are attributable to expense recognition associated with the change in value of our deferred compensation plans resulting from the significant increase in the overall equity markets during the first quarter. This expense is fully offset in other expense or income and has no impact to earnings.

Additionally, we made strategic growth investments in our business, while also remaining on track to achieve our 2019 productivity objectives of eliminating approximately $30 million of expenses. These savings helped offset a portion of our investments. In total, we delivered first quarter non-GAAP earnings per diluted share of $0.62, compared to earnings per diluted share of $0.59 last year. On a GAAP basis, our earnings per diluted share were $0.61, for additional details on this, you can refer to the non-GAAP reconciliation tables of our press release that we issued this morning.

Now looking to our balance sheet, we ended the first quarter with approximately $92 million of cash and cash equivalents and $369 million outstanding on our revolving credit facility. Our inventory levels increased by 16% in the quarter compared to the same period last year and as Ed discussed our prior year inventory levels were running too lean and therefore, by design, we made strategic investments in support of key growth categories. Looking ahead, our inventory is clean and well positioned. Additionally, I should mention at the beginning of fiscal 2019, we adopted the new lease accounting standards which resulted in recording net lease assets and liabilities of $2.5 billion and $3.1 billion respectively, on our balance sheet. The new standard did not materially affect our P&L or statement of cash flow.

Turning to our first quarter capital allocation, net capital expenditures were $30 million and we paid approximately $27 million in quarterly dividends. During the quarter, we also repurchased 2.97 million shares of our stock for $107.3 million at an average price of $36.15. Taking into account $78.5 million of additional share purchases subsequent to quarter end through May 24th, we had approximately $248 million remaining under our authorization.

Now turning to our fiscal 2019 outlook. As discussed for the first quarter, we delivered flat consolidated same-store sales, which was near the high end of our expectations. Given this performance, we are raising the low end of our consolidated same-store sales guidance to a range of slightly positive to up 2% for the year from approximately flat to up 2% previously. Additionally, we are raising our full-year earnings per diluted share outlook to a range of $3.20 to $3.40 from from $3.15 to $3.35. Our updated earnings guidance is based on an estimated 91.5 million diluted shares outstanding from 95 million as contemplated in our prior earnings guidance.

Before concluding, I'd like take just a moment to provide an update on tariffs. In September 2018, the US imposed a 10% tariff on $200 billion of Chinese goods. For us, these tariffs are mostly concentrated in our hard lines categories and were factored into our original 2019 guidance. Effective May 10th, this tariff was increased to 25%. We're still working through the impact of this increase with our manufacturing and brand partners and how this may influence our overall pricing strategy. As a result, we have not specifically contemplated this into today's guidance. Like others, we are closely monitoring the situation and are hopeful a trade agreement can be reached. This concludes our prepared comments. Thank you for your interest in Dick's Sporting Goods.

Operator, you may now open the line for questions.

Questions and Answers:

Operator

We will now begin the question-and-answer session. (Operator Instructions) The first question is from Michael Lasser of UBS. Please go ahead.

Michael Lasser -- UBS Investment Bank -- Analyst

Good morning. Thanks a lot for taking my question. Was the improvement that you saw over the course of the quarter really about lapping some of the easier comparisons in the hunt category and some of the challenges you saw with certain vendors last year or was it more about a significant improvement in the other parts of your business? Can you give a little more flavor on how the (inaudible)?

Lee J. Belitsky -- Chief Financial Officer and Executive Vice President

Hi, Michael. It's Lee. So, February was a tough month, both from a weather perspective and the hunt pressure was concentrated in February as well as the Philadelphia Eagles. So those were lapped, but we are also really encouraged by the pickup in some of our key businesses going through February, March, particularly in apparel and footwear and Team Sports improved as well. So some of the areas we're making our inventory investments in apparel and Team Sports, which really did well, as we got -- as we worked our way through the quarter. So it's a little of both, lessening headwinds and improved business in the core go-forward business as well.

Michael Lasser -- UBS Investment Bank -- Analyst

And as we look out over the next couple of quarters you're comparisons remain particularly easy. And so, if we take the midpoint of your guidance it assume -- it implies that you'll do 1% to 1.5% comp over the next couple of quarters. Is the high end of the guidance more in line with keeping the 2-year stack relatively stable? Why shouldn't it be better than that with all the initiatives that you have going on? In along those lines, it looks like your updated guidance for the full year profitability is coming down a little bit, can you address that?

Lee J. Belitsky -- Chief Financial Officer and Executive Vice President

Yes. So I think that in light of a little bit of the uncertainty that we've got going forward particularly on the tariff front and what impact that might have overall on the consumer. I think we are being a little bit cautious on the sales outlook for the back half of the year. We're still confident that it's going to be positive, the rest of the year and we feel good about that. But we are being a little bit cautious on the sales side and that flow through our earnings.

With respect to the share buyback, just our math on it and I'll do it for -- here for everybody, because everybody is going to have the question, but with the reduced share count, kind of the gross impact on earnings per share would be about $0.13. We've got about $0.04 of extra interest expense related to the share buyback. So the impact on earnings per share from the share buybacks is done so far, net is about $0.09. We've taken up the guidance by $0.05 and I think that's just a little reflective of how the consumer may react as we get into the back half of the year, really around the impact of tariffs. So that's our thought process around it.

Michael Lasser -- UBS Investment Bank -- Analyst

That's very helpful. Thanks Lee.

Lee J. Belitsky -- Chief Financial Officer and Executive Vice President

Okay.

Operator

The next question is from Robbie Ohmes of Bank of America Merrill Lynch. Please go ahead.

Robbie Ohmes -- Bank of America Merrill Lynch -- Analyst

Hey guys, nice quarter in a world where there hasn't been a whole lot of nice quarters in retail. Just two quick questions. A follow-up, you called out apparel, I wanted to see if we can get more color on athletic footwear. I think, Lee maybe mentioned it improved as you move through the quarter but did it -- was it significantly underperforming apparel and just sort of what are you seeing on the athletic footwear side of your business? And then the other question, whether also it sounds like it was the most challenging in February for you. I know you don't like to talk about weather, but was weather also not as good as you would have hoped in a lot of regions in the -- sorry, in April -- March and April as well and was it working against you this quarter beyond just February? Thanks.

Edward W. Stack -- Chairman and Chief Executive Officer

Robbie, I think we're very pleased with our athletic footwear business and we've got -- we've made some real changes to our footwear presentation in the stores content. So we continue to be pleased with what's going on from an athletic footwear standpoint. And from a weather standpoint, February the weather was -- was a tough weather comparison and number of other retailers you saw do that, weather impact us a bit in March and April, not significant. We didn't really look at that as a weather issue, but February was off to a slow start and we comped positively in March and April both and we were very pleased about that.

Robbie Ohmes -- Bank of America Merrill Lynch -- Analyst

And just one other follow-up, Ed, so you've probably seen some other players out there having some challenges -- this quarter relative to their expectations, as you look at their inventory positions, a lot of them -- in some of the family channel areas, do carry a lot of athletic footwear and some of them carry a lot of athletic apparel in the department store space. Any thoughts on how you think the competitive environment may play out over the summer and into back-to-school?

Edward W. Stack -- Chairman and Chief Executive Officer

Well, I think if you take a look the family shoe channel where we made our investments are not in the same SKUs that may be having. We've moved ourselves up. We've got more allocated product. We've gotten very aggressive in the running category. So I don't think there is as much overlap and where their inventory investments versus our inventory investments and the same from an apparel standpoint.

Robbie Ohmes -- Bank of America Merrill Lynch -- Analyst

Great, thanks so much.

Edward W. Stack -- Chairman and Chief Executive Officer

Thank you.

Operator

The next question is from Simeon Gutman of Morgan Stanley. Please go ahead.

Simeon Gutman -- Morgan Stanley -- Analyst

Thanks, good morning everyone. My first question. I want to ask about the spending investments versus the savings. I think you reiterated the investments, and I think in the release this morning. Can you talk about, are they going as planned? Are you spending where you expect to spend? And then I think the savings -- correct me if I'm wrong, those have already been taken or the run rated and this ties into my second question. So, Lee you mentioned the cushion that you've built in or the conservatism you've built in, that reflects uncertainty over flow through, it sounds like around tariff not reflecting, we're not getting enough for the savings to offset some of the spending?

Lee J. Belitsky -- Chief Financial Officer and Executive Vice President

Well, our investments are on target in e-commerce and fulfillment, and our savings are on target as well. So we're pleased with with the direction there. I would be -- with respect to the tariffs. I would say we're a little bit more general on that as opposed to the flow through on specific items for us, because we're still working through negotiations with vendors and pricing strategies and so on, with respect to some of our hardlines inventories. But I would say it's more a little bit of general concern around where the consumer will be through the back half of the year, particularly at the tariffs ramp-up going forward.

Simeon Gutman -- Morgan Stanley -- Analyst

Okay. My second question is on sales. I'm not sure these were our words or yours at some point, but if we strip away hunt and electronic headwinds, I think the run rate of the business is somewhere in the -- already within your comp range and the business has been inching toward that. And so if -- I think that's a fair assessment and you're about to turn into positive comps, and so maybe back to Michael's earlier question, why shouldn't comps or what are the chances that comps end up north of two at least in a given quarter here in the next couple of quarters? Is there good likelihood that happens?

Edward W. Stack -- Chairman and Chief Executive Officer

We're not going to guide to that or comment on that. We've kind of laid out our guidance and we're comfortable with that. It's -- we are uncertain of what -- as we said, what's going to happen with tariffs and what effect they're going to have on the consumer. Nobody knows and as we said, we're trying to be a bit conservative here because we don't have enough information of what's going to happen.

Simeon Gutman -- Morgan Stanley -- Analyst

Fair enough. Okay, thanks. Good luck.

Edward W. Stack -- Chairman and Chief Executive Officer

Thanks Simeon.

Operator

The next question is from Christopher Horvers of JPMorgan. Please go ahead.

Christopher Horvers -- JPMorgan -- Analyst

Thanks, good morning. I'll stick to the top line questions for the first question. Can you talk about what the bad headwind was? Presumably that was more of a March-April laps for you, considering it was Little League and just the timing of opening day for literally across the US? And then also related to a previous question, do you think weather was actually that positive in March and April, given how bad April was overall a year ago?

Edward W. Stack -- Chairman and Chief Executive Officer

Well, so we'll talk about the bad piece first. The bad piece was a challenge right from the beginning of the year. Actually it was a bit of a challenge into holiday last year and Little League starts at different times throughout the entire country, down in Florida it is very different than what it is in upstate New York. So the bad challenge was difficult in the entire quarter. As far as April weather goes, I think it was relatively the same. We don't think it was a positive or negative, it was neutral.

Christopher Horvers -- JPMorgan -- Analyst

Any sort of -- coming down in March and April, sort of leads us down the past of the obvious question is, how are you feeling about the quarter-to-date in May here?

Edward W. Stack -- Chairman and Chief Executive Officer

Well, we don't comment on how a particular quarter is going. But we've indicated that we think our sales guidance is flat to plus 2% for the year. So that's where -- we're comfortable with that.

Christopher Horvers -- JPMorgan -- Analyst

Understood. And then last question. So the merchandise margin being up on a tough compare with really lean inventory a year ago and a lot of investments this year. Can you talk about what drove this? How much of this was mix driven? I know you've been working on the mix side to help drive the merchandise margin. How much of this was lower promotional levels year-over-year, and any other big factors that you would call out?

Edward W. Stack -- Chairman and Chief Executive Officer

Well, I think it's a combination of a couple of things, lower promotional levels as we've for the most part, we're still trying to determine what we're going to do in the fourth quarter. We've eliminated the Sunday circular, if you will -- we ran no circulars in the papers. We still did some direct mail promotional pieces, but that was a bit less. But the main thing that drove it is really content and mix, which we think is sustainable going forward.

Christopher Horvers -- JPMorgan -- Analyst

Thanks. Best of luck, everybody.

Operator

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

Seth Sigman -- Credit Suisse -- Analyst

Hey guys, thanks for taking the question. A couple of follow-up questions on the hunt category. I think somebody said that the impact lessened, but was still meaningfully negative in the quarter. If I recall there are periods last year where this was over 100 basis point headwind to the comps. Just wondering if you could size up how impactful is it now? Obviously, the category is lot smaller than it has been historically. So how meaningful is that to the overall comp? And then the second part of the question is, you mentioned evaluating options for the category across all the channels, could we actually see an exit from Field & Stream and how are you thinking about that concept specifically? Thanks.

Lee J. Belitsky -- Chief Financial Officer and Executive Vice President

With respect to the impact on comps, I did mention the script that it did impact comps by 100 basis points. But the bigger -- I would say the largest piece of that was in February. The hunt business continues to comp negatively -- continue to comp negatively throughout the quarter, but the big headwind was in February, leading up to the anniversary of our announcement of changing our policies last year. With respect to our strategic review, we are looking at all of the hunt businesses, both within the store and how to better use that -- utilize that space as well as determining what the future path will be for Field & Stream. So we're looking at that as well and we were looking at both pieces.

Seth Sigman -- Credit Suisse -- Analyst

Okay. Have you said historically whether or not Field & Stream is profitable on its own?

Edward W. Stack -- Chairman and Chief Executive Officer

We have. We said that it's relatively great -- relatively breakeven from a cash flow standpoint, it's cash flow positive. So it's not necessarily hurting the business.

Seth Sigman -- Credit Suisse -- Analyst

Okay. And then my follow-up question is about the margin outlook for the rest of the year. I think the guidance implies that Q1 would have been the worst in terms of the EBIT margin decline this year. Can you just remind us how to think about gross margin, SG&A, the progression as we move through the year? Thanks.

Lee J. Belitsky -- Chief Financial Officer and Executive Vice President

We're not giving kind of the quarterly guidance on the progression. We're sticking with our SG&A guidance that we had for the full year. It's still right in the range where we expect it. So no changes from the prior guidance with regard to SG&A.

Operator

The next question is from Scot Ciccarelli of RBC Markets. Please go ahead.

Gustavo Gonzalez -- RBC Capital Markets -- Analyst

Hi, this is actually Gustavo on for Scott this morning. Thanks for taking the question. So as it relates to the 125 stores that you plan to fully remove the hunt category, how much of that is the progress year-to-date? And also as you currently see it, is there sort of a potential for expanding the remodels beyond the initial 125 this year?

Edward W. Stack -- Chairman and Chief Executive Officer

So to expand this year, very small. There might be some, but I wouldn't say that we're going to do a lot more. As far as where we're at right now we're just clearing through that merchandise, but we haven't made any meaningful change yet that will be later in this quarter. It'll be all set for back-to-school in most of the stores.

Gustavo Gonzalez -- RBC Capital Markets -- Analyst

Got you. And then just a follow-up. So assuming things sort of you go according to plan, what is your sort of optimal percentage of total store base that you think you need to get to sort of get positive store level comp?

Edward W. Stack -- Chairman and Chief Executive Officer

I'm not sure I understand the question. Can you repeat it?

Gustavo Gonzalez -- RBC Capital Markets -- Analyst

Sure. So, what is your sort of optimal percentage of the total store base that you're sort of aiming I guess in the long term, in terms of the refreshes?

Edward W. Stack -- Chairman and Chief Executive Officer

Do you mean to take hunt out of --

Gustavo Gonzalez -- RBC Capital Markets -- Analyst

Correct.

Edward W. Stack -- Chairman and Chief Executive Officer

Yes. So we haven't guided anything more than 125 right now. We do feel that our comp store sales for the year will be somewhere between 0% and 2% for the year.

Gustavo Gonzalez -- RBC Capital Markets -- Analyst

Got it. Thank you.

Operator

The next question is from Peter Benedict for Baird. Please go ahead.

Peter Benedict -- Robert W. Baird & Co. -- Analyst

Hey guys, thanks. A quick another one on hunt here. Just, I mean, if we exclude the Field & Stream stores. I mean there are a number of stores I would imagine that do a meaningful hunt business for you guys. Can you give us a sense, under the core Dick's banner. So I'm just trying to understand, maybe what that number might be or how you might size that as we think about potential outcomes here? Certainly Field & Stream is one decision and then hunt within the Dick's banner is another. Could you maybe comment on maybe what percentage of your stores in Dick's do what you would maybe consider a meaningful hunt business? That's my first question.

Edward W. Stack -- Chairman and Chief Executive Officer

Sure, and I'm going to disappoint because I'm not going to answer it. But right now, we're not ready to do that as we said we're doing a complete strategic review of the hunt business and I would suspect in the near future in the next call or two. We'll give you a sense of exactly what that's going to be.

Peter Benedict -- Robert W. Baird & Co. -- Analyst

Okay, that's fair enough. Thanks. Lee, maybe just a comment on -- maybe the cadence of the SG&A investments, you said you're on track. Can you give a sense or maybe how much landed in 1Q? Whether it be the gross hit or even net after some of the productivity savings?

Lee J. Belitsky -- Chief Financial Officer and Executive Vice President

I think the SG&A investments are relatively ratable over the course of this year.

Peter Benedict -- Robert W. Baird & Co. -- Analyst

Okay, perfect. And my last question, just you had mentioned and I think in prior calls maybe efforts by Under Armour to better segment, some of their product. I think 2Q was kind of a timing where you thought maybe that was going to come. Can you maybe give us an update on what you're seeing with Under Armour and how you kind of planning that over the balance of the year? Thank you.

Edward W. Stack -- Chairman and Chief Executive Officer

Well, I won't get specific to how we're planning it, but we are very pleased with the progress that Under Armour is made ,especially in our men's businesses is really quite good. So all in all, we're very pleased with what's going on with Under Armour and in direction forward.

Peter Benedict -- Robert W. Baird & Co. -- Analyst

Okay, thanks guys.

Operator

The next question is from Steve Forbes of Guggenheim Securities. Please go ahead.

Steve Forbes -- Guggenheim Securities -- Analyst

Good morning. So I wanted to follow up on the planned removal -- of the 125 stores. So if you can maybe provide some color for us on the reallocation of space? What categories are poised to get more space and sort of how do you envision right productivity ramping or sort of a maturation of some sort of return profile tied behind this initiative?

Edward W. Stack -- Chairman and Chief Executive Officer

Each of the stores will be -- could be different, as we said, it will be based on what's happening in that local market. So I can't give you a blanket peanut butter spread, what is going to take that space. As we go forward, how these mature, we would expect them to mature similar to what we did with those 10 stores and we indicated that those 10 stores both in the fourth quarter and again in the first quarter comped positively.

Steve Forbes -- Guggenheim Securities -- Analyst

And then maybe a follow-up on this topic as well. I believe all the stores we're going to be reset ahead of Father's Day, is that still the plan? And then is there -- you just mentioned sort of that there is a sort of run rate of the expense investments sort of baked into the P&L already, but just wanted to confirm that, right, given this initiative is concentrated within the second quarter.

Edward W. Stack -- Chairman and Chief Executive Officer

Well, Lee can kind of comment -- has already commented that we are on track and are comfortable with our expenses and the investments that we're making. And I'm not sure where it might have been confused, but we never indicated that this would be done by Father's Day. We indicated it will be done in the second quarter. So look at this that -- the vast majority of these would be done by back-to-school.

Steve Forbes -- Guggenheim Securities -- Analyst

Thank you.

Operator

The next question is from Tom Nikic of Wells Fargo. Please go ahead.

Tom Nikic -- Wells Fargo Securities -- Analyst

Hey, good morning. Thanks for taking my question. Lee, just something from a modeling perspective, you mentioned the 40 basis point impact on the SG&A and now you have some expenses shifted out of other expense into that line, is that something that will happen throughout this year? Was that like a one-time thing in Q1?

Lee J. Belitsky -- Chief Financial Officer and Executive Vice President

We've got lot of kind of retirement plan assets, deferred comp assets out there for our management team and they have to get revalued every quarter based upon market movement there. So that number is going to move around, it could go up, it could go down on the SG&A side and then there will be an offset in other expense. So it has no impact on net earnings.

Tom Nikic -- Wells Fargo Securities -- Analyst

Got it. Okay, that's helpful. And just a higher level question about some of the things you're doing to enhance the in-store experience, the batting cages and things like that. Is there any sort of color or clarification about the response that you've seen from customers in those stores or what that's done for traffic or attachment rates on to the batting cages or anything like that?

Lauren R. Hobart -- President

Yes, we've been very pleased with the reaction to the batting cages and we've been very pleased with our baseball business as a result, as Ed mentioned earlier. So you will see us -- as we've already noted that we're expanding that and looking for other areas where we can add experience to the store.

Tom Nikic -- Wells Fargo Securities -- Analyst

All right. Sounds good, best of luck this year.

Lauren R. Hobart -- President

Thank you.

Operator

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

Camilo Lyon -- Canaccord Genuity -- Analyst

Thank you. Good morning. And I was just curious about your comments about the is DSG apparel line. More specifically, I'm curious to know if you can provide some details around the specific type of customer that you're targeting with this value line. This is a customer that you -- new customer that you hope to attract. I think you mentioned this was (inaudible) department store customers, it seems like it is? Or is this a line that you hope will more directly compete with the branded options that you offer that would result in a stronger profit profile for you within that category, kind of similar to how clear it has performed for you over the years?

Edward W. Stack -- Chairman and Chief Executive Officer

We really look at this is white space and a new customer that we can attract into the store. This is not a brand that we expect to compete with Nike, Adidas, those brands, of which we're very pleased with our Nike business, we're very pleased with our Adidas business right now. And this is outline we think that is white space for us, it's more value-oriented. We think it's a very good quality. Our team has done a wonderful job with this. Our focus groups have indicated that they're very pleased with this and I think this really creates a new reason to come and shop at Dick's Sporting Goods, who have not shopped us traditionally in the past.

Camilo Lyon -- Canaccord Genuity -- Analyst

I'm assuming that there's going to be more targeted marketing efforts around those to attract that new customer into the Store?

Lee J. Belitsky -- Chief Financial Officer and Executive Vice President

If there are, yes.

Camilo Lyon -- Canaccord Genuity -- Analyst

Okay. And so we should plan for those investments to materialize in that back half period around March or a little bit before it?

Edward W. Stack -- Chairman and Chief Executive Officer

Second quarter and into third quarter, but they're all baked into our guidance. There's nothing that's going to surprise you.

Lee J. Belitsky -- Chief Financial Officer and Executive Vice President

The one thing I'd add to that Camilo is that it's a new apparel customer for us, but we already have a lot of these customers in our stores, their families are buying sports equipment in our stores and they might be looking to save a little bit of money on their athletic apparel purchases, they might have been going to some other players to buy athletic apparel. So we want to capitalize on those customers who are already in stores and sell them some more apparel. It's in addition to attracting some new customers.

Camilo Lyon -- Canaccord Genuity -- Analyst

Got it. And then I guess this is on the CALIA piece, was this a similar roadmap that you launched CALIA with way back a few years back and it just has evolved into a much stronger brand? Is this a same positioning that you're taking or was there a distinct difference between the two and how you're from -- like the starting point that you are positioning the introduction?

Edward W. Stack -- Chairman and Chief Executive Officer

We're being more aggressive with this. We're starting off with a broader store count, bigger investment and this replaces and augments what we used to do with our Reebok licensing agreements. So we have a significant business in this category already that we think we can be much bigger than it is right now, but there is already a baseline where when we launched the CALIA brand, there was no baseline. We started that from really from scratch without transitioning any other brand or category into CALIA. So we're going to be much more aggressive out of the box with this than we were with CALIA.

Camilo Lyon -- Canaccord Genuity -- Analyst

Got it, great. And then just on the CALIA piece, I think you said you're looking to expand that offering. Could you elaborate on that expansion?

Edward W. Stack -- Chairman and Chief Executive Officer

Yes, we are continuing to expand what we're doing with CALIA, broadening the price points will be taking price points up to better quality product in this category. We will be doing some things around travel apparel. So we're taking CALIA and making sure that not only from a travel standpoint, but also getting it back to the gym and really focusing on what's going on the gym, to and from the gym and we've starting to expand some price points, we've seen some good response there. So we think we've got some AUR opportunities with the CALIA with better product and higher price.

Camilo Lyon -- Canaccord Genuity -- Analyst

Fantastic. Best of luck.

Edward W. Stack -- Chairman and Chief Executive Officer

Thank you.

Operator

The next question is from Brian Nagel of Oppenheimer. Please go ahead.

Brian Nagel -- Oppenheimer & Company -- Analyst

Hi, good morning. Thank you for taking my questions. So the first topic I wanted to just address a bit more is just inventories, and Ed I know you talked about this in your prepared comments, but maybe some more color on really the makeup of the inventories you've been building now for -- within this quarter we saw elevated growth in Q4 -- it is a bit makeup there, but also how should we think about inventory growth as we progress further into 2019? Are you got a position now, -- are you happy with position now or will there still be -- should we expect continued outsize earnings growth in Q2, Q3, then I will follow-up? Thank you.

Edward W. Stack -- Chairman and Chief Executive Officer

I think you would take -- look at this is kind of the baseline might be a little bit higher depending, but nothing significant, not meaningfully higher. These are some key categories, which we really think is what's bent the curve in our comp store sales, where we had inventory a bit too low. And what we've done with Nike with a double table of the Nike Legend Tee or the Hyper Dry Tee, which is exclusive to us has done extremely well. We've taken some big bets and some basic key merchandise. We've done this around baseball gloves. So it's around inventory that for the most part, is it going to be toxic, and A2000 baseball glove has been an A2000 baseball glove for the last couple of years that will be the same as next year. Some of the basic Nike apparel -- key item Nike apparel, key item Adidas apparel, it is going to be very similar, some color changes, but it's pretty similar on a go-forward basis. So we haven't gone out and really invested in inventory that could become easily toxic. So it's really basic product that we want to make sure we stay in stock in and it's starting to pay dividends. We're really quite pleased with it.

Brian Nagel -- Oppenheimer & Company -- Analyst

Got it, thanks. The follow-up I had is with regard to tariffs. I'm understanding that, the dynamic remains quite fluid, but to date, so the tariffs that have impacted Dick's. Help us understand what the size of that so far and what's basically been the course of action? Has it been a function of lifting prices in your stores, pushing back or working with suppliers or some combination of the two?

Lee J. Belitsky -- Chief Financial Officer and Executive Vice President

Really, thus far it hasn't had a major impact on us. There are few categories of hard lines, some are within hunt space, which we've been reducing already little bit in Team Sports, little bit in the furniture category like folding chairs and things like that and the tariffs are increasing on those. It's not across a broad swath of our stores at this point -- a broad swath of the assortment in our stores at this point. We've handled it through a combination of negotiating better deals well. This is concentrated in our private brands in those categories, like in the furniture and hunt equipment and so on. So we've been able to negotiate some better deals with vendors and so far we've only been dealing with 10% increases. So it hasn't had a significant impact. But we'll continue to work through this with our suppliers, whether they be our private brand suppliers or a national brand and get some sharing of the cost there and selectively we'll have to address price, but at this point based upon the items at the tariffs are on it's not having a major impact on the Company.

Brian Nagel -- Oppenheimer & Company -- Analyst

Got it. Thanks.

Operator

The next question is from Sam Poser of Susquehanna. Please go ahead.

Sam Poser -- Susquehanna Financial Group -- Analyst

Hi, good morning. Thank you for taking my question. I just wanted to follow up on the tariff and the impact. You're saying that you --just to clarify the guidance -- you're not flowing through all of the be and part of that is because you're concerned about the consumer reaction if the prices go up, is that in effect correct?

Edward W. Stack -- Chairman and Chief Executive Officer

Correct.

Lee J. Belitsky -- Chief Financial Officer and Executive Vice President

Correct.

Sam Poser -- Susquehanna Financial Group -- Analyst

And then, what percentage of your current mix is sourced in China?

Lee J. Belitsky -- Chief Financial Officer and Executive Vice President

Yes, it's so hard to get it that, because we've to -- we got over 1,000 vendors right now that we're buying from and I would say our China Sourcing is more concentrated in our hard line and soft lines, but it's difficult to go through all 1,000 as vendors and get back to where they bring the product in. On the private brand side, very small amount of apparel for us and a pretty good amount of our hard lines on the private brands.

Sam Poser -- Susquehanna Financial Group -- Analyst

And then if -- I mean with the existing product that's going from 10% to 25%, that's exactly the same because the apparel and other things haven't been hit yet. So it's your hard lines and so when you think about that from a mix perspective, I mean if this past quarter it had gone to 25% on those goods, what would that have done to the earnings?

Edward W. Stack -- Chairman and Chief Executive Officer

We haven't -- It depends on what the vendors are going to do and how you're going to negotiate with the vendors and how much they would try to get us to eat, how much they would take. So, Sam it's going to be negotiation and nobody really knows what's going to happen with these tariffs right now. So as we said early on, very upfront and transparent, we're trying to be conservative here because not only do we not know what's going to happen, nobody knows what's going to happen.

Sam Poser -- Susquehanna Financial Group -- Analyst

So. Okay, so I mean this is your guidance in the discretion, is the better part about for lack of a better term?

Edward W. Stack -- Chairman and Chief Executive Officer

For the most of --

Sam Poser -- Susquehanna Financial Group -- Analyst

Is that a fair assessment?

Edward W. Stack -- Chairman and Chief Executive Officer

It is and we're trying to be very transparent to say that we think this is conservative. And it depends on what's going to happen from a tariff standpoint, which would be, what are our cost of goods, how much of this might we have to eat. We're going to try not to have to take much of that? Can we pass someone from a price standpoint? And what's going to happen to the consumer? The consumer is going to go into sticker shock (ph) get some of the stuff and just kind of take a pause for a minute. So we don't know. We wish we did. If you know, we'd be happy to talk to you about it.

Sam Poser -- Susquehanna Financial Group -- Analyst

Well, I appreciate that. Let me just ask you this conceptually. Conceptually, if the tariffs have -- it goes to 25%, I mean do you try to maintain gross margin dollars or do you try to maintain your gross margin at that point?

Edward W. Stack -- Chairman and Chief Executive Officer

Well, we will have to take a look at that. It depends on where it goes and it depends on what our conversations are with each of our vendors. So you can -- I understand what you're trying to get and you can ask the question in a number of different ways, but it's still going to be the same answer. We really don't know what's going to happen and we've tried to take a more conservative approach to our guidance going forward. So we don't know what the cost will be, we don't know what the price sensitivity will be and we don't know how the consumer will act.

Sam Poser -- Susquehanna Financial Group -- Analyst

All right. Well, thank you very much and good luck with all that.

Edward W. Stack -- Chairman and Chief Executive Officer

Yes, thanks.

Operator

The next question is from John Kernan of Cowen. Please go ahead.

Krista Zuber -- Cowen and Company -- Analyst

Good morning, this is Krista Zuber on for John. Thank you for taking our questions. Could you just give us an update on how -- I believe you said that ticket was up 1% in Q1. Could you just give us a little sense of how AUR's are trending and -- is this still sort of supported your prior guidance for AURs to be higher for fiscal '19 and I have one follow-up? Thank you.

Lee J. Belitsky -- Chief Financial Officer and Executive Vice President

Yes, AURs are running up fairly well and that's really what's supporting the higher ticket.

Krista Zuber -- Cowen and Company -- Analyst

Is there a possibility do you think with all the initiatives that you've been doing on store experience and investing behind some of these key strategic growth areas that -- there is potential for traffic to turn positive potentially as early as the second half?

Edward W. Stack -- Chairman and Chief Executive Officer

I think we don't want to get to in the habit of providing guidance from a traffic standpoint. We think between traffic and ticket, between now and the balance of the year, our comps will be somewhere between flattened in plus 2%.

Krista Zuber -- Cowen and Company -- Analyst

Okay, great, if I could just slip in one more, just on the e-commerce fulfilment of start-up costs. I believe the sort of the prior guidance is that -- that was largely going to be sort of the embedded in Q4, is that pretty much the same thinking and are we thinking about that correctly?

Edward W. Stack -- Chairman and Chief Executive Officer

That's really Q3 into Q4 event, because we'll be opening in Q3. So yes, primarily Q3.

Krista Zuber -- Cowen and Company -- Analyst

Great, thank you.

Operator

The next question is from Chris Svezia of Wedbush. Please go ahead.

Chris Svezia -- Wedbush Securities -- Analyst

Good morning, everyone and thanks for taking my questions. I guess, Lee, just to go you for one moment, just on the guidance real quick, I think on the prior call, you mentioned SG&A, we'll be able to more elevated in Q2 as you kind of roll out the 125 or so store remodels, is that still the case? And then secondarily that -- I'm sorry come again

Lee J. Belitsky -- Chief Financial Officer and Executive Vice President

That is still a case. It'll be slightly elevated in Q2.

Chris Svezia -- Wedbush Securities -- Analyst

And then similarly, just on gross margin, I think it was guided for kind of flattened out probably for the year with second half having some negative impact as you rollout the new fulfillment center, that's still the case as well?

Lee J. Belitsky -- Chief Financial Officer and Executive Vice President

Still the case.

Chris Svezia -- Wedbush Securities -- Analyst

Okay. Easy, no change. And then just on the power situation, not to be suggest, but I guess some -- how do you guys think about the ability, because your inventory levels are where they are to bring in products or have you brought in product early enough so that power's (ph) impact is somewhat mitigated -- some of that -- most of that product is already onshore and how do you think about as you kind of plan forward to reduce your exposure in China with regard to private label and hard line product, if you take about 2020 purchases?

Lee J. Belitsky -- Chief Financial Officer and Executive Vice President

Well, certainly having the elevated inventory levels that we have right now provides a little bit of cushion against the tariffs for this year. Because we have more inventory on hand that hasn't incurred the significant tariffs. As we look forward to next year, it's just going to be a matter of what the final tariff deal is. This is a long time between now and next year in terms of our trade negotiations and what will happen -- ultimately happen with tariff. So it's hard to look forward to next year.

Chris Svezia -- Wedbush Securities -- Analyst

Okay and then just final question real quick. Just on the -- once you get fulfillment centers up and running as we go particularly into that fourth quarter, how agnostic will you be from a consumer purchase perspective, whether they buy in store or buy online? In other words, will online purchase fulfill from the new facility, the at or above, from an EBIT margin perspective, which are getting from a direct purchases store or we need to wait until 2020?

Edward W. Stack -- Chairman and Chief Executive Officer

The store will still be more profitable. But we are agnostic as to where that athlete buys from us. We just want to make sure we have the market share. We want to service them the best we can. However, they want to shop with us, whether it be online, whether it be in the store, whether it be online pick it up in the stores. So we are truly agnostic. We want to have a great consumer experience and we'll work through the profitability as we continue to move what we do with our online business. But we are truly agnostic.

Lee J. Belitsky -- Chief Financial Officer and Executive Vice President

Just adding to that, we're really pleased with the profitability of our e-commerce business. It's a profitable channel for us and we make money on all of our e-commerce sales. But as Ed said, an incremental sale in our stores is still more profitable than incremental sale in our e-commerce business. So, we'll take the business, however, we can get it and it's additive to earnings for the Company and it's really good business for us.

Chris Svezia -- Wedbush Securities -- Analyst

Understood. Okay, thank you very much and all the best.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Ed Stack for closing remarks.

Edward W. Stack -- Chairman and Chief Executive Officer

I'd like to thank everyone for joining us on our quarterly call and we'll look forward to talking to you all in the next couple of months. Thank you.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Duration: 57 minutes

Call participants:

Nate Gilch -- Director of Investor Relations.

Edward W. Stack -- Chairman and Chief Executive Officer

Lauren R. Hobart -- President

Lee J. Belitsky -- Chief Financial Officer and Executive Vice President

Michael Lasser -- UBS Investment Bank -- Analyst

Robbie Ohmes -- Bank of America Merrill Lynch -- Analyst

Simeon Gutman -- Morgan Stanley -- Analyst

Christopher Horvers -- JPMorgan -- Analyst

Seth Sigman -- Credit Suisse -- Analyst

Gustavo Gonzalez -- RBC Capital Markets -- Analyst

Peter Benedict -- Robert W. Baird & Co. -- Analyst

Steve Forbes -- Guggenheim Securities -- Analyst

Tom Nikic -- Wells Fargo Securities -- Analyst

Camilo Lyon -- Canaccord Genuity -- Analyst

Brian Nagel -- Oppenheimer & Company -- Analyst

Sam Poser -- Susquehanna Financial Group -- Analyst

Krista Zuber -- Cowen and Company -- Analyst

Chris Svezia -- Wedbush Securities -- Analyst

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