Good morning, everyone. Welcome to the Morgan Stanley Global Consumer and Retail Conference. I'm Simeon Gutman, hardline broadline food retail analyst. Thanks for being here. We're going to start. We have these 40-minute sessions. I was chatting with Navdeep, and we're going to open it up after we start. So feel free, once we get into dialogue, to ask questions along the way. I'm going to read disclosures, make a quick intro, and get started. For important disclosures, please see the Morgan Stanley Research Disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. I'm pleased that DICK'S Sporting Goods is here with us, represented by Navdeep Gupta, EVP and CFO. Thanks for being here. DICK'S has been a regular attendee at this event for several years. I'd say this is one of the more controversial, but yet performing companies over the last few years. Much higher margins post-COVID, and the debate rages on, whether some of these trends, these habits, these lifestyle movements, will continue, and so far, the company continues to prove it right, and we think ultimately they will. So with that, I'm going to sit down and get started. Again, feel free to raise your hand, and we can chime in along the way. Thanks again for being here. So, we were here a year ago. We talked about the top line, we talked about the margin for 2023. Talk about what surprised you for 2023, you know, from when we were making predictions a year ago. Yeah. Good morning, Simeon. First of all, thanks for having us, and, Nate reminded me that I need to make another disclosure from similar to you, that you did. So, so our, safe harbor statement is posted on the IR's website. If anybody has more questions on that, we'll take that separately. But Simeon, I, I think so... You said it, you know, the word that you used was controversial. We see it, that, you know, our performance this year has been pretty much consistent with what we said last year. What we said was, we couldn't be more excited about the long-term growth opportunities that we see ahead of us. The differentiation that we have been able to establish very clearly, not just from the product perspective, but the service and the experience that we are providing in our stores, continues to resonate really well. I will give a lot of credit to how well the overall team has managed the business in the current economic climate. You know, if you look at the comps that we have delivered, 2.6% comp in just the recent quarter, 1.7 comp, on top of a 6.5% comp from last year. It continues to show how well the team is navigating the macroeconomic landscape and how well our strategies are resonating. The two quick further thoughts on the top-line performance. What we have seen is the fact that we continue to resonate, our product, our service, and our experience continue to resonate really well with the athletes, as kind of, evidenced by the fact that we saw in Q3 growth both in our transactions and in our ticket. And then lastly, I would say is that, you know, everything comes down to are you gaining share or not? And not just this year, but actually I would say in the last several years, we have consistently gained share in a highly fragmented industry. So that kind of gives you not just the consistency of the performance, but what we were excited about a year ago, we continue to remain really excited. In terms of the second part of your question, in terms of what has surprised us, I would say shrink is one element that definitely surprised us. You know, we saw an elevated level of theft happening within the stores, and we saw that manifest through the P&L in Q2 with about a 50 basis points of headwind that we saw in shrink. That has remained in line with our expectations, with the Q3 comps that we have done, so that, I would say, definitely surprises us. The other, I think, so we have become so much more focused around keeping our inventory clean. So the discipline of having the inventory really be clean, well-positioned, bring the exciting assortment to our stores, to our athletes, is a core tenet of how we do the business. I would say we became a little bit more focused about that starting in Q2, with the actions that we took in the outdoor category. Coming back full circle, as I sit here today, I look at it and say that the excitement that we have about the company, about the industry that we are in, the core strategies like House of Sport, the Next Gen 50K, the work that has been done around the Golf Galaxy Performance Center, and the investments that we are making from personalization within the technology. You and I talked this morning about GameChanger platform, are all significantly differentiating opportunities that give us tremendous amount of confidence as we look to the future. Durable goods, as a percentage of PCE, is roughly 50% of the way back reverted. That's on a nominal basis. Sporting goods is 20. And if you look at the rest of the durable categories, closer to 80, so sporting goods is the outlier. First, you look at reversion in that same way. Are there categories that have, you know, fully reverted? Because sometimes the definition of the data that we look at is different. And then why has sporting goods theoretically not reverted, or why won't it? Well, I think it goes back to what did the consumer or our, as we call them, our athletes, learn through COVID? And I would say the propensity for an active lifestyle, the propensity towards more, kind of an active form of lifestyle has continued to remain really high. You look at it, the casualization of the workplace that has happened, the propensity of wearing more casual apparel, footwear, the team sports has started to come back again. So the core aspects of the business, or the core categories, as we call them, continue to do really well. And even some of the COVID surge categories like the fitness and the outdoor categories, even those continue to remain elevated versus 2019. So this-... The work that, you know, what we have been seeing from the industry, as well as the adoption of this active lifestyle, continues to remain kind of an ongoing theme. Then as we look at internally, we see this as a great opportunity. When you look at the overall industry, it's $140 billion. It's highly fragmented. So when we think about our core capabilities, what we can control, we see a great opportunity for us to continue to differentiate ourselves and continue to gain share. So some of these big-ticket categories, the COVID winners, those have, I don't know, bottom leveled off and not getting worse, and whereas these other habit-forming categories, those continue? Yes. Fair enough. So before COVID, DICK'S was going through a transformation, which I think got lost in the shuffle. A few things, product assortment, vendor narrowing, de-proliferation of vendors, and some changes on marketing. Can you talk about those changes just on the cusp of COVID and what they meant for the business? Yeah. No, I think so it's a good reminder for everybody. Like, sometimes this, that our transformation story gets combined along with, "This happened all during COVID." Actually, if you go back in 2019, in the H2 of 2019, we were already delivering a +6% and a +7% comp. Going into when all the stores were closed in early part of, of 2020, we were actually delivering a +7% comp. So our transformation was already taking hold as we were going into COVID. And in terms of the category performance, we, we continue to focus on the four core key categories for us, which is athletic apparel, athletic footwear, team sports, and golf. And as you talk about it, those include both the hard lines and the soft lines category. So, when we look across the portfolio, we are really excited about the combined overall portfolio. Our focus, as you have seen, the investments that we are making in premium full-service footwear decks allows us to not only get very differentiated access, but actually builds a very deeper level of an engagement with the athlete, where you can provide the sit and the fit type of an experience to the athlete. And then, just on the vertical brand side, the investments that we have made in growing our vertical brands portfolio like HOKA, VRST, DSG are all differentiating products that we are able to showcase to our athletes. And then the team sports, you know, that's key part of the core of how we have gone to the business. Golf, we continue to remain really excited with the investments that we are making in the Golf Galaxy performance centers. The private brands, where is that as a percentage of your business today? So it's an annual metric for us. So, at the end of 2022, it was 14%. But if you can imagine, that has totally transformed because hunt was a big piece of that business, and over the last 4 years, we have significantly, actually, totally transformed out of the Field & Stream brand that we had. That was a very big category for us and gone into more of these vertical brands have actually become number one or the number two brand across all of our categories, except for footwear. Yep. Age-old question, we've talked about Nike and for the past decade, is the dependence on a supplier. There's more brands now that have grown rapidly. Just generically, talk about brands and then the threat of those brands going to DTC and how this business has managed that over time. Yeah. I think so there's a three-part question there. I'll take in individual pieces. Our relationships with not just the national brands, but I call them the emerging brands and some of the really high-growth brands, like HOKA and On, FP Movement, continue to be really, really strong. We couldn't be more excited about the relationship that we have established with, with Nike, with Adidas, with Under Armour, including some of the golf brands. You know, really excited about the relationships there. The work that we have consistently done in that differentiates us, not just from a wholesaler perspective, but in the minds of our brands, is the fact that there is nobody that can showcase the brand that we can, the way we can do that in our stores, right? We can bring not just your athletic apparel, but the footwear, including the hard lines. There are no, there's no other retailer that can showcase the brand like the way we are able to do. The work that we have done between the Golf Galaxy Performance Center, House of Sport, the way we can not just showcase the brand, but actually bring the experience and the engagement with the community to life, is again, a very differentiating aspect of the business. And then, you know, the Nike Connected Membership is kind of an evidence of the fact that how well do we know not just about our consumer, but how kind of robust capabilities we have between e-com and on the technology side. So we look at it and say, across these elements of the business, we are differentiating ourselves significantly, which is allowing us to build very deep relationships with the brands. And then the last question was in terms of the DTC. You know, if you-- the more and more you read and you, you listen to the brands, they themselves talk about it, that they need key wholesale retailers to be able to be part of the overall solution as they look to the future. And that's, you know, continuing to be the case, that they will focus on select few wholesale partners, especially that are gonna be able to allow them to differentiate. Yeah. One piece of the transformation marketing- Mm-hmm. More personalized, data-centric marketing has helped target and retain customers. Can you talk about how that's helping the business? I would say it's night and day different compared to just where we were about 4 years ago, not just from a capability, the databases that we have. So our, our athlete database is 150 million athletes right now. We have acquired almost about 20 million, over 20 million athletes in, in last 2 years, 1.6 million athletes just in the last quarter. So not only is our database growing, it's becoming actually more diverse. We have acquired more female athletes, more urban and younger.... So that's another differentiating aspect on how well and how wide our product and the assortment is, is resonating. And then if you tap on that, the capabilities that we have built between personalization, some of the work that we are able to do from the localized assortment perspective, allows us to look at this collective ecosystem and actually address the athlete's demands in a very differentiated way than we were able to do before. Where it is evidence is allowing us to have a much more localized assortment. We can look to our shipping efficiencies within our e-commerce channel. And then the lastly is around the pricing and promotion optimization work that we can do associated with this data. How localized is this? I would say we are in. Well, it's a journey. You're never ever at a destination. I would say the work that has been done over the last several years, as evidenced by the fact that as we were exiting hunt, which was a key category for us, as we were exiting, it wasn't a single solution that we said: "Okay, we are going to replace this 5,000 sq ft with this type of product." We actually created localized solution based what was regionally relevant and locally relevant to that athlete, and we actually created customized solution as we went across that chain, across our whole over 800 store portfolio. So the work that was done starting in 2019, we have significantly advanced that over the last several years. House of Sport. We haven't had a lot of innovation in retail, new concepts. This is one of them. Sports seem to matter, no pun intended. It's a concept that seems that should resonate with a lot of folks. I'm trying to get some economics out of you with that intro, but if not, can you talk about what have you shared on House of Sport? You know, what can we talk about the future, whether it's comp uplift, economic model, et cetera? Yeah. So I'll start with the macro view. We couldn't be more excited about the work that we have done with the House of Sport concept. As you called it, it's the best expression of retail, I would say, in totality. In sports retail, there is nothing like this anywhere else. Where you are combining not just the product, the experience, the engagement with the community and experiences, is something that we feel not just excited about what we are bringing to the industry, but actually how well it is resonating with the community. We only have 12 of them right now. 9 of them were opened, I would say, less than 6 months ago, so still early in our journey. But we are excited about the overall return that we see. And we look at return as everybody looks at it from a financial point of view, but we are looking beyond. We look at it and say: How well is it resonating with the athlete? How far an athlete is willing to travel to come to this type of a destination than they were in normal DICK'S store? How well is it resonating with the, with the brands? The access that we have gotten in terms of the partnership with new brands, and especially emerging and innovative brands, is very different. The last thing that I would add is the community engagement. At the end of the day, you have to make sure that this is not just a place for you to come and buy. You have to be able to engage deeper with the community. Having an ice rink, having a field that is attached to the store, having a climbing wall, where it can be a much more social experience than just coming and buying your product, is really resonating well with the community. And yes, the financial returns are good. Otherwise, we would not be saying that we will open 75-100 by 2027. So we'll share more as we learn, and our goal is to share as these things mature out. But be assured, we are very happy with the financial returns as well. May I ask, this 75-100, those are conversions or those could be new boxes? There'll be a combination of new boxes and conversion, but I would say that more and more of these would be relocation. One of the kind of not well understood fact about our business is the flexibility that we have in our portfolio. So almost about 100 stores each year come up for lease renewable for us, which gives us tremendous amount of flexibility to decide do we want to renew in the existing location, just reimagine how we want to serve the community, or go and put together a very different form of an experience. So the work that we did this year, where we converted 8, combo locations into House of Sport, I don't see those opportunities going forward, so you will see more of relocations or brand-new store openings. We are excited about the Prudential Center opening in early part of next year and which will be in downtown Boston. We're gonna have a store in Tampa. You're gonna have a store in Pittsburgh, in our hometown. That'll be our first House of Sport location in hometown, Pittsburgh. The total store network several years from now, and, you know, and how do the 75-100 fit in that number? I would say that will... it fits within that number if you start to think more of a relocation opportunity and reimagining of the existing footprint. Yeah, community engagement, curious, these sports facilities continue to be busy around the clock, the participation rate? Yes, we are very excited. As a matter of fact, the community starts to learn about these capabilities over time, more than they learn in the first year. We are seeing a different form of an engagement with the community, as the store, like Victor, has gone into the second year of their operation. What about the vendor engagement? Has it changed the conversation where they wanna, you know, think about innovating even more for that concept? Yes. So we have this curated section within the store, call it 4,000-5,000 sq ft, where they can showcase their full brand, and it's more of a curated assortment that we pull together, just dedicated to the brand. And there is a lot of excitement about, you know, showcasing new and innovative and more engaging form of an experience that we can provide to the athletes from the brands. Yep. Want to pivot back to the category. And how do you think of the drivers and whether it can continue to grow year in, year out? I know there's a lot of consumer headwinds. Yeah. So I think the only time will tell how the category continues to evolve. What gives us excitement is the fact that, you know, when you look at some of the core drivers of the business, like, the athletic apparel, the footwear, the team sports, and the golf categories, continue to resonate really well with the athletes. The work that we have done to differentiate ourselves in this $140 billion, highly fragmented industry, where we only have 8% share, we feel there is tremendous opportunity for us to differentiate ourselves, even if the industry is moderated in its growth expectation over the next few years. We feel we have a tremendous opportunity to just differentiate ourselves and continue to gain share. Gonna shift to gross margin. Just remind everyone, we have 20 minutes. If people have questions, feel free, along the way. So gross margin, I think, peaked almost at about 800 points higher than pre-COVID. Now, I think ex rent, maybe we're sitting 200 or 300, so it's still higher. Can you talk about the factors that enable you to stay at that level and not revert the entire way? Well, that's kind of the key part of the earnings thesis. As things that we have structurally talked about, and I'll talk in two parts of this answer. So the first part would be on the merch margin side. Things that we have consistently said that allows us to keep our merch margins elevated, and we have said, right, excluding shrink, will maintain 50% of the gains that we have delivered over the last several years, continue to be consistent. The first and foremost is the product. The access that we have, how differentiated that access is, how less exposure we feel because of that product or the overall promotional landscape, is really different than where we were, call it, even in 2019. Second, the work that has been done in terms of the vertical brand penetration, the mix itself, right? Hunt was a big piece of the business, 1,700 basis points lower margins, compared to the rest of the category. We have exited that business, and we have replaced that business and those sales with more normalized margin. So the mix associated with hunt going away, as well as the work that has been done on vertical brands. Vertical brands, just to remind everybody, carries 600-800 basis points of higher margin rate than the national brands that have. So the more penetration we are able to drive, allows us to continue to drive margin gains. And then, as we talked a little while ago, the work that has been done from the data analytics perspective, from a pricing, promotions, management, the work that has been done on personalization, those, I call them as the secular drivers of the margin expansion as we look to the future, including the drivers that have driven our margin gains this year. And then, turning to the gross margins, the scale of the business in terms of the revenue profile of the business is significantly different. We don't talk right now about our e-commerce business, but be assured, we are very happy with the returns that we are seeing and how much of work that we have done around the e-commerce profitability. The last mile, that, which is a pretty, expensive part of the business, the work that got done during COVID around curbside pickup, the ship from store capability that was launched, as well as the overall scale of our e-commerce business. The profitability of the e-com business is the same as that of our stores. So we are indifferent on how we get the sale, and that continues to be a big driver of the gross margin expansion. So we've had two gross margin snafus, hiccups. It was a year ago when a vendor was helping with clearing product, and then this year with outdoor. Is the gross margin now battle-tested? Have we seen where the right level should be, even with the normal clearance of goods? Yeah. So I would say there have been 3 hiccups, including shrink, which is included in our gross margin conversation. So we have said, you know, 50 basis points of headwind and shrink is included in our expectation. In terms of the hiccup, I would say last year was a different one, and probably the continuation of that, what we saw this year. So last year, if you recall, the supply chain was extremely disrupted, right? The spring apparel came very late, not just for us, quite frankly, across the industry. And rather than holding on to this delayed arrival of the spring product into fall, we all became very clear about the fact that we needed to address it and move out of it, and that's what we did. We became very decisive. We addressed that in the last part of 2022. We saw there was a similar situation with a little bit of the overhang of the outdoor category in terms of the COVID buys. What we are very clear about is the core tenet of the business is that we want to keep our inventory clean and fresh, so that not only are we bringing in fresh receipts, but we can actually showcase the innovation that is within the marketplace. Things that are resonating so well with our athletes, that is allowing us to gain, drive more traffic to our stores. Each time the athlete is coming, they are actually buying more, and then continue to drive a deeper level of engagement with our athlete. So, you know, it is, kind of, the focus for us, and if we have to manage margins in such a slightly different way, we'll, we are definitely confident to be able to manage that. Is that meaning being more defensive with inventory? Not necessarily defensive, but being decisive with that inventory to make sure we are not hanging on to something that we feel either will be turning slower than our expectation or just continuing to hold on to it. We want to be very decisive, make sure we are, we are cleaning up that, so that we can bring fresh receipts, we can showcase the innovation that is available to us. You mentioned shrink, I think twice, in some answers. So can we talk about what your experience has been with shrink. Remind us when or how physicals are going to get done, and then anything changed in how you're dealing with shrink? Yeah, I would say, structurally, everything with shrink has changed in terms of not only how we are doing physical inventory. So we, we used to do our physical inventory once a year. That's no longer the case. We are sampling stores. We've sampled, actually counted vast majority of stores in Q3. And, and the results from the physical inventory process with the stores that were counted in Q3 came in line with our expectations of the elevated shrink level that we foreshadowed at the end of the Q2. The work that we are doing right now, is, is focused around three things. One is to make sure that, that our athletes are safe when they're shopping in our stores. Second, that our teammates feel safe. And then third, the product is actually available for athlete to be able to, to buy it. And so we have done multiple things, all the way ranging from higher levels of technology within our store. So, you know, you have RFID capabilities now on some of the products that we have in apparel and footwear, so we have launched that capability to be able to rapidly recognize the product that is actually available to sell within the store. The work from the technology team that I've done in terms of higher resolution cameras that have been installed in some... not every location, but I would say in the select locations where there is elevated level of theft happening. All the way to the other end of the spectrum, where we are addressing this more as an across-the-society type of an opportunity, working with other retailers, working with the local law enforcement. If you follow us on LinkedIn, you will see us talk a lot about Shop with a Cop type of an opportunity, where we bring in the community, we bring in the cops that are local within that community to be able to, one, to experience the store, experience the product, and then actually build deeper relationships within the community. Two, you know, I would say in between that, we are testing out different levels of service standards within our stores, where we are elevating the standards within the store, providing higher levels of service, higher level of engagement with the athletes, especially on some of the brands or the products that have higher levels of shrink. Have you quantified it to us? Now that you're doing these things, should we have seen the peak rate of shrink? I would say it'll take a little bit of time when you will see the impacts of these things. This is not a switch on and switch off type of a thing. What I would say is the 50 basis points of the headwind that we have contemplated in our guidance, we feel good about it. And, you know, we'll continue to monitor and make the right investments to keep the athletes and our teammates safe. Okay. Gonna pivot to SG&A. Again, if people have questions, feel free to raise your hand. Hiring for the holiday, this will be my way of asking about the holiday through staff. Talk about staffing levels through holiday, wage pressures, considering a few initiatives you've done over the past few years in store associates, recognition, more seamless shopping experience, how satisfied are you with the performance of store associates? Yeah. Yeah, we couldn't be more excited. Like I said, you know, if you follow us on LinkedIn, you will see we call something called as a Reindeer Run, where you literally go across the stores, across the country to see the readiness in the store. And we look at it in three different ways, not just how well the product is available, within the store, like how good the assortment is, how deep the assortment is, how quickly can we replenish the product that is sold during the day itself, to the experience that we are able to provide, and then the service with it that is available. We are really excited about the holiday season. The important ingredients that have to be in place from product, service, and associate capabilities, we really feel good about it, including stores and on e-com. In terms of the wage-