Hello, everyone, welcome to the Q3 2022 DICK'S Sporting Goods, Inc. Earnings Conference Call. My name is Emily, I'll be your operator for today's call. At the end of the presentation, you will have the opportunity to ask a question by pressing star followed by the one on your telephone keypads. I will now turn the call over to our host, Nate Gilch, Senior Director of Investor Relations. Please go ahead, Nate. Good morning, everyone, thank you for joining us to discuss our third quarter 2022 results. On today's call will be Lauren Hobart, our President and Chief Executive Officer, and Navdeep Gupta, our Chief Financial Officer. A playback of today's call will be archived in our investor relations website located at investors.dicks.com for approximately 12 months. As a reminder, we will be making forward-looking statements, which are subject to various risks and uncertainties that could cause our actual results to differ materially from these statements. Any such statements should be considered in conjunction with cautionary statements in our earnings release and risk factor discussions in our filings with the SEC, including our last annual report on Form 10-K and cautionary statements made during this call. We assume no obligation to update any of these forward-looking statements or information. During this morning's call, we will discuss earnings per diluted share on a non-GAAP basis, which eliminates the impact of certain items related to our convertible senior notes issued in Q1 2020. For additional details on this, or to find the reconciliation of any non-GAAP financial measure referenced on today's call, please refer to our investor relations website. Finally, for your future scheduling purposes, we are tentatively planning to publish our fourth quarter 2022 earnings results on March 7, 2023. With that, I'll now turn the call over to Lauren. Thank you, Nate. Good morning, everyone. As we announced earlier this morning, we delivered an exceptionally strong quarter. Our Q3 results demonstrate the continued success and strength of our business based on our transformational journey and the foundational improvements we've made over the past five years. Our strategies are working and are clearly resonating with our athletes. While consumers continue to face macroeconomic uncertainties, our athletes have held up very well as we continue to offer them a compelling and differentiated assortment, as well as a best-in-class omni-channel experience. In fact, during the quarter, we saw three important consumer trends. More athletes purchased from us, they purchased more frequently, and they spent more each trip compared to the same period last year. Our industry has strong momentum given a lasting shift in consumer behavior and our differentiated assortment, elevated service standards, and best-in-class omni-channel athlete experience are setting us apart in the marketplace. This Q3, we achieved record sales of $2.96 billion, and our comps increased 6.5%, driven by increases in both transactions and average ticket. This strong comp was on top of a 13% comp last year, a 23% comp in 2020, and a 6% comp in 2019. As you've heard us say many times, DICK'S is a growth company, and our Q3 results are powerful evidence of our sustainable growth story. As we indicated on our last call, at the end of Q2, our inventory position was strong, and we were back in stock in key items. This enabled us to deliver a very strong back-to-school season and meet robust consumer demand. Additionally, we also mentioned that we had pockets of apparel inventory to address, and we have addressed much of that over this quarter. As a result, and as expected, we saw a merchandise margin decline of 438 basis points versus last year. Importantly, our merchandise margin remained elevated compared to 2019, and looking ahead, we continue to be very confident that our merchandise margin will remain meaningfully higher than pre-COVID levels on an annual basis. We achieved double-digit EBT margin of 10.3% in the quarter, over 3x our 2019 rate on a non-GAAP basis. This was driven by our structurally higher sales, expanded merchandise margin, and greater operating efficiency. In total, we delivered non-GAAP earnings per diluted share of $2.60, significantly ahead of any pre-COVID third quarter in our history. Looking ahead, our inventory is healthy and well-positioned, and we're excited about the assortment that we have in place for the holiday season. Because of our continued strong performance, quality of inventory, and the confidence we have in our business, we're raising our full-year outlook. We now expect comparable store sales for the year to be in the range of -3% to -1.5% and non-GAAP earnings per diluted share to be in the range of $11.50-$12.10. In closing, I'm very pleased with our strong third quarter results and remain enthusiastic about the future of our business. I'd like to thank all of our teammates for their hard work and commitment to DICK'S Sporting Goods, which helped make this performance possible, and for their upcoming efforts during the holiday season. I'll now turn the call over to Navdeep to review our financial outlook and results in more detail. Thank you, Lauren. Good morning, everyone. Let's begin with a brief review of our third quarter results. We are excited to report a consolidated sales increase of 7.7% to $2.96 billion. As Lauren noted. Comparable store sales increased 6.5% on top of a 12.8% increase in the same period last year, a 23.2% increase in Q3 of 2020, and a 6% increase in Q3 of 2019. Our strong comps were driven by a 3.7% increase in transactions and a 2.8% increase in average ticket. Within our portfolio, the back-to-school categories did very well, driven by our differentiated assortment across footwear, apparel, and team sports. When compared to 2019, sales increased 51%. This reflects a significant sequential acceleration in our sales trends versus 2019 from recent quarters. Gross profit in the third quarter was $1.01 billion, or 34.22% of net sales, and declined 423 basis points versus last year. However, it increased 463 basis points over Q3 of 2019. As expected, the year-over-year decline was driven by a merchandise margin rate decline of 438 basis points. During the quarter, we focused on cleaning up some targeted inventory overages due to late arriving spring product. We moved excess apparel inventory to our value chain concepts and have been very successful in liquidating much of this product. We intend to continue addressing this overage in Q4 in order to start 2023 clean. Our Q4 merchandise margin expectations are appropriately reflected within our annual outlook. Compared to 2019, our merchandise margin rate is 141 basis points higher, driven by our differentiated assortment, combined with our sophisticated and disciplined pricing strategies and a favorable product mix. Because of these structural drivers, we continue to expect our merchandise margin rate to remain meaningfully higher than pre-COVID levels on an annual basis. SG&A expenses were $679.7 million or 22.97% of net sales and leveraged 3 basis points compared to last year on the increase in net sales. The $48 million increase in SG&A dollar was driven by investments in hourly wage rates, talent, and technology to support our growth strategies. Interest expense was $26.1 million, an increase of $20.1 million on a non-GAAP basis compared to the same period last year. This increase was primarily due to $13.8 million of interest expense related to our $1.5 billion senior notes issued during Q4 of 2021. The current quarter also included $8.8 million of inducement charges related to our exchange of approximately $221 million of outstanding principal of our convertible senior notes. Driven by a structurally higher sales, expanded margins, and operating efficiency compared to pre-COVID levels, EBT was $304.1 million or 10.28% of net sales. This compares to a non-GAAP EBT of $59.9 million or 3.05% of net sales in 2019, an increase of $244.2 million or 723 basis points as a percentage of net sales. In total, we delivered non-GAAP earnings per diluted share of $2.60. This compares to a non-GAAP earnings per diluted share of $3.19 last year and represents a 400% increase over 2019's non-GAAP earnings per diluted share of $0.52. Looking to our balance sheet, we ended Q3 with approximately $1.4 billion of cash and cash equivalents and no borrowings on our $1.6 billion unsecured credit facility. Our quarter-end inventory levels increased 35% compared to Q3 of last year. As a reminder, we were chasing inventory last year amidst industry-wide supply chain disruptions. Therefore, the better comparison is against Q3 of 2019. Compared to Q3 2019, our 51% increase in sales was well ahead of our 31% increase in inventory. Our inventory is healthy and well-positioned. Turning to our third quarter capital allocation, net capital expenditures were approximately $100 million, and we paid $41 million in quarterly dividends. During the quarter, we exchanged approximately $221 million of outstanding principal of our convertible senior notes for cash and unwound the corresponding portion of the convertible note hedge and warrants for 4.3 million shares of our common stock. After completing this exchange, we have taken out approximately $421 million with approximately $154 million in aggregate principal of the convertible notes still outstanding. Beyond retiring nearly three-quarters of our convertible notes, year-to-date, we have returned $485 million to shareholders through dividends and share repurchases while continuing to invest in the profitable growth of our business. Let me wrap up with our outlook for 2022. As a result of our strong Q3 performance and the quality of our assortment for the holiday season, we are raising our 2022 guidance. Our updated outlook continues to incorporate an appropriate level of caution given the uncertain macroeconomic backdrop. For the year, we now expect comparable store sales in the range of -3% to -1.5%, compared to our prior expectation of -6% to -2%. We now expect non-GAAP earnings per diluted share in the range of $11.50-$12.10, compared to our prior expectation of $10.00-$12.00. EBT margin is now expected to be approximately 11.4% at the midpoint, more than double our 2019 rate. Our earnings guidance assumes an effective tax rate of about 25% and is based on approximately 88 million average diluted shares outstanding. In closing, we are very pleased with our Q3 results, and we remain very enthusiastic about the future of DICK'S. This concludes our prepared comments. Thank you for your interest in DICK'S Sporting Goods. Operator, you may now open the line for questions. Thank you. We will now begin the question and answer session. If you would like to ask a question, you may do so now by pressing star followed by one on your telephone keypads. If you change your mind and would like to be removed from the queue, please press star and then two. Please limit yourself to one question and one follow-up. Our first question today comes from Simeon Gutman with Morgan Stanley. Please go ahead, Simeon. Your line is open. Hey, good morning, everyone. My first question is on merch margin or gross margin. I think you've been saying that we expect to retain a majority of the COVID gains. I wanted to ask if that's still the case. I guess the fact that you're getting through this period relatively well, where your vendors have excess inventory, does that build your confidence around that forecast of being able to retain a majority of this gross margin? Thank you. Hi, Simeon. Thank you. Yes. We still believe that we will be able to retain a significant amount of our merch margin gains. This particular quarter, if you look back at Q2, we had indicated that we had gotten a lot of late receipts in from spring that came in on top of our back-to-school inventory, and we were heavy in apparel. We aggressively took care of that this quarter to clean up our inventory so that we could maintain. We take in holiday merchandise and start 2023 clean. We absolutely believe in the structural changes in our overall margin. I would point to the fact that our EBT margin, even with that investment that we made to clean up apparel, was 10.3%, so over 3x what it was pre-2019. We have tremendous confidence in the long-term sustainability of our profitability. My follow-up is on sales. Some of the categories or the overall business either normalizing at a higher level or just performing better than, you know, maybe the market would have thought if you look back a couple of years. I know you're prepared to talk about 2023, can you just talk about some of the categories where there's been some reversion? Has that stabilized and rebounded? Does the business digest, or can the business keep growing next year? Yes. The categories in Q3 that are our core categories are the ones that we are the most focused on. Team sports, apparel, footwear, all key back-to-school categories and our top categories, and they performed extremely well. If you look across every single one of our key categories, everything except Hunt, which is not a key category anymore, we have meaningfully re-baselined versus pre-COVID levels. We see no reason why long term, we should not be able to continue to grow from this level. Okay, thanks. Happy Thanksgiving. Take care. Thank you. Our next question comes from Adrienne Yih with Barclays. Please go ahead, Adrienne. Good morning. Congratulations to the team. This stellar execution, as always. Thank you. You're welcome. Lauren, I guess my first question is gonna be on the promo environment. Is it only apparel? It sounds like you've actually made your way through that. Are you seeing any, you know, kind of spillage spill over into, say, footwear? How much vendor support are you getting for those promos? How long do you think that lasts? For Navdeep, you're clearly you're buying for spring of next year. You know, you had that build up of safety stock in transit, whatever you wanna call it. How are you thinking about unit buys excluding, right, outside of that, in transit inventory? Thank you so much. Thanks, Adrienne. We work very closely with our vendor partners, as always, to make sure that the inventory in the marketplace is at the levels that we all want it to be. We continue to move products when it needs to be moved, that's in every category. Apparel was an issue this past quarter, we will be aggressive to clean up whatever needs to be cleaned up in Q4 in partnership with our vendor partners. Our main priority right now is to start 2023 clean, we're really thrilled that we have in stock for Q4 inventory for the first time in a few years that's going to be robust and that people will be able to find exactly what they're looking for with great holiday gifts. Navdeep. Adrienne, good morning. Thanks. For 2023, I'm not gonna be able to provide any early guidance, but as Lauren indicated, we are very confident about the core aspects of the business as you think about apparel, footwear, team sports, and even the outdoor category. We are appropriately being cautious about with the macroeconomic outlook, but overall, we are very confident about the sales expectations on a long-term basis. We'll provide our 2023 outlook as part of our fourth quarter earnings release. Okay, great. Thank you very much. Happy Thanksgiving. Thank you too. Thank you too. Our next question comes from Robby Ohmes with Bank of America. Robby, your line is open. Hey, good morning. Thanks for taking my question. My question is on the basket uplift that you guys saw in the third quarter. Should we look for that to continue, you know, into the fourth quarter? Maybe more color on, you know, what is driving the increase in the average transaction size. Is it better in-stock levels in the high-ticket items, or is it because you were out of stock last year? Like, more of the dynamic on what's driving that would be helpful. Our comp this year, this quarter was really strong, driven by... More than 50% was driven by transactions and the rest by basket. Within the basket, there was some impact of inflation and passing some costs along to consumers, some of which we absorbed ourselves. There was also a shift in terms of the mix that we provide to consumers and some premiumization of what people are buying. Consumers are absolutely signaling that a healthy, active outdoor lifestyle is important to them, and they are buying what they're considering discretionary items to keep that lifestyle going. It... Really across the entire basket, things were improved. Yeah, Robby, maybe I'll add one more comment. The consumer income demographic that we have within our store did really, really well in third quarter. What we saw was that highly engaged and loyal athletes that we have in our ScoreCard Gold customer, those customers actually did even better. We continue to be really optimistic when we look at the core aspects of the business about the fourth quarter. We are balancing that against the macroeconomic constraints that we see right now. We overall, we were very pleased with the results that we saw in Q3. Maybe just a quick follow-up. Can you remind us, how holiday played out last year in terms of pull forward of spending and how you're planning against that this year for the fourth quarter? Yeah. In... We probably, Robby, saw a little bit, pretty much like every retailer, that there was a little bit of a early start to the season, both last year and if you look in 2020 as well because of the overall constrained inventory levels that were existing. However, as we look to the business, we look at it as the overall holiday season, so not too focused on the first few weeks or late October. Got it. Thank you very much. Thanks, Robby. The next question comes from the line of Kate McShane with Goldman Sachs. Kate, please go ahead. Hi. Thanks. Good morning, and thanks for taking our question. I'm just trying to reconcile what one of your vendors said with regards to the amount of inventory that they had in transit, and wondered if there was any risk of further late deliveries, you know, over the next quarter or two that you might have to manage as a result. Hi, Kate. Thank you. We are working very closely with our vendor partners. We've got great flow of product right now, and everything has been factored into our guidance, which we're feeling really, really good about. Thank you. Yep. Our next question comes from Paul Lejuez with Citi. Please go ahead, Paul. Hey, thanks, guys. Any way you could frame for us the amount of excess inventory that you had to clear through in 3Q, how that compares to what you think you have to clear through in 4Q? Any help you can provide on the merchandise margin side. I guess just related to the clearance, I'm curious if, as you know, picked up the promotional cadence, if you saw a lift in sales. Was it a traffic and sales driver during the quarter? Thanks. Yeah, Paul, I think that there are two questions there. In terms of the quantification of the clearance inventory, I would say it was not a material portion of our driver of the sales in third quarter. What we saw, and like Lauren alluded to, we saw the gain in our comp sales come more from the transaction growth and the AUR increase. AUR increase also came from kind of the high heat and the highly allocated assortment that we have. In terms of, you know, the potential markdown risk for fourth quarter, much of the inventory that had been moved into clearance was activated and quickly moved through in third quarter. There is some pockets of inventory here in fourth quarter, which we will continue to address. However, all of that has been contemplated in our fourth quarter guidance. With this guidance that we have given, we are very confident that we'll be able to maintain the meaningful gain in our merch margins compared to 2019. Thank you. Good night. Thank you. Thanks, Paul. Our next question comes from Christopher Horvers with JP Morgan. Please go ahead, Christopher. Thanks. Good morning. Can you digging in a little bit on the gross margin side? The 438 basis points, does that include the mix benefit if footwear and apparel did really well relative to other categories? You know, as you think about the freight line, how are you thinking about freight costs? Were they still a pressure year-over-year? Is there any sort of capitalized inventory cost that'll flow through on a delayed basis as we look over the coming quarters? Yeah, Chris, in terms of the mix, there was a probably a small benefit, but it wasn't material to call that out, and that's the reason it was not included. In terms of the freight costs, yes, we are seeing that the freight costs have continued to come down, and have come down since the beginning of this year, but still not down versus when you compare it to 2019. In terms of the flow of the product, yes, it'll take some time. Or the benefit of this reduced cost will be realized into 2023. As a follow-up, you know, you mentioned trying to be prudent and conservative around the guidance in the fourth quarter. You are degraining your sort of three-year CAGR or growth relative to 2019. I guess, can you talk about what informs that point of view? I know there's some normalizing seasonality that's occurring as we speak, sort of end of October through November. Are you extrapolating the sort of the current trend of the business to arrive at the implied Q4 comp? Or are you know, what degree of conservatism is baked in? Chris, we feel incredibly good about the momentum in our business coming out of a very strong Q3. I would point out we had three really strong months in Q3. Coming into Q4, we see absolutely no signs of any degradation. We're very enthusiastic about Q4. We are being appropriately cautious just because of the uncertain macroeconomic environment and the fact that the consumer is going through a lot right now, but our confidence is as high as it's been. Understood. Have a great holiday. Thank you. Thank you. Our next question comes from Mike Baker with D.A. Davidson. Mike, your line is open. Thanks. Just to follow up on a previous question, on how much inventory is left to clear. The, I think your fourth quarter EBT margin guidance is down 260 basis points. That would be the smallest decline of the year and better than what you saw in the third quarter. Is that because you're now mostly through the markdowns? Or, if not, you know, what, why is the EBT margin decline expected to be better in the fourth quarter than the previous quarters? Yeah, Mike, I won't guide specifically to fourth quarter. I'm sure you can back into it. I would say there are structurally things are expected to be improved as we go into the fourth quarter. Like we said, much of the clearance activity that we were activating in third quarter is behind us, so that's one reason. The other reason is just because we feel confident about our ability to manage our expenses as well as drive higher productivity. Makes sense. If I could ask one more follow-up, a mundane question, but the interest expense and everything that's going in that line with all the convert stuff, it's been about $25 million-$26 million each of the three quarters this year on a non-GAAP basis. Can you just help us, any reason why that should be different? I know there's a lot of moving pieces with the convert there, so just wondering if you can help us with that line. Yeah. You are spot on in terms of the one-time cost associated with the convert. It's over $20 million when you look at it on a year-to-date basis. If we do decide to execute another tranche of the convertible note transaction in fourth quarter, that was not contemplated in our guidance. you know, we will continue to look at on the convert and take that out in fourth quarter on an opportunistic basis. Okay, awesome. Thank you. Understood. Our next question is from Warren Cheng with Evercore ISI. Warren, your line is open. Hey, good morning. Great execution this quarter. I'm sorry to keep hammering on this merchandise margin question, but I think it's just really important to understand the dynamics here. If I just look relative to 2019 levels, it looks like the merchandise margins degraded about 300 basis points from second quarter to third. Can you just give us a little bit better sense of how much of that came from that apparel clearance? Maybe so we can understand, you know, what merchandise margin would have looked like excluding this issue with the late spring receipts. Warren, the vast majority of the decline that we saw here in third quarter came from the activation that we had around the apparel overages, that Lauren indicated at the end of Q2. Got it. Okay. My follow-up is, just any color on the process of clearing these inventories. You know, I know a lot more is running through your own clearance concepts or your own value chain concepts. Can you just give us a sense of the margin uplift when it runs through your own concepts versus, you know, the old way through your own mainline source? Yeah. We've had great success with our value chain concepts, both Going, Going, Gone! and our warehouse stores. We do see that we can optimize our margin on our clearance better. We also have great success when we clear product online. It also enables us to bring product, fresh product into the DICK'S stores, which also helps us drive margin. Navdeep, I don't think we're gonna answer specifically. Yeah. Warren, I would say that we are very pleased with the strategy that we have of leveraging the Going, Going, Gone! concept as well as the warehouse locations. Like Lauren indicated, the recovery on this, on this product from a clearance perspective is significantly better than what we used to have in 2019, and we have called out that as one of the key structural drivers of our confidence of us being able to maintain a meaningful portion of the margin gains compared to 2019. Thanks, Navdeep. Thanks, Lauren. Good luck. Thank you. The next question today comes from Michael Lasser with UBS. Please go ahead, Michael. Good morning. Thanks a lot for taking my question. The message that you're offering this morning is that the margin degradation that you experienced in the third quarter is transitory in nature because it's associated with having excess inventory that presumably will be cleared out by the end of the fourth quarter, and you will not have this moving into next year. Next year you might experience a softer overall demand environment such that you will have to increase your promotional activity to work harder to drive in customers. This will offset some of the benefits next year that you'll have from cleaner inventory. Is that the right way to think about it? Partly, Michael, but not all. No, the margin degradation, we expect to be clean going into next year. Correct, that these were investments that we made to get our inventory clean, and we'll continue to do that. We're not guiding to next year, but I would just point to the fact that we've had significant athlete growth. We've had growth in the number of athletes, over 16.5 million new athletes in the last two years, and this year- to- date, 4.5 million new athletes joining, and they are driving, transactions. Our Gold customers are growing. I would not say that we're expecting, at this point in time, any sort of an overall demand change that would require a heavy promotional environment. Yeah, Michael, I'll add one more thing. Go on, yeah. As we have called out, one of the structural drivers- Go ahead. That we have talked about in our in merch margin continuing to remain significantly elevated is the assortment that we now have in our stores. That assortment is highly allocated, high heat, and typically not, you know, impacted by the promotional activity that might be happening. That's another factor that gives us a tremendous amount of confidence as we look to 2023. My follow-up question is, objectively, DICK'S is gonna put up one of the strongest results across retail and within sporting goods retail in the quarter. Presumably, some of that is related to the unique content that DICK'S has, where it's got a great assortment of footwear. There's a footwear cycle going on, and that's drawing in a lot of the traffic. This is happening at a time where back to school was good in part because kids hadn't been in school or known to be were gonna know to be in school ahead of time for the last few years. Is there anything unique, given those set of circumstances, that is, you would hold responsible for driving demand that may not persist into next year, especially at a time where the overall consumer environment is likely gonna soften? Yeah, Michael, you have essentially just laid out what I would say is our transformational journey over the past few years, where we have really changed the allocation of products that we have, what we're offering to consumers. We've got higher heat and more differentiated product, and at the same time, we've been working on our omni-channel athlete experience of elevating service in the stores, elevating our digital experience, elevating, having a product available close to the consumer when and where they want it. There's nothing unique about how we drove demand that won't persist into next year. The back-to-school season happens to be a showcase of our very strongest categories in footwear, apparel, and team sports, but nothing unique about this quarter that shouldn't persist. Thanks a lot, and have a good holiday. Thank you. Thank you. Our next question comes from John Kernan with Cowen. Please go ahead, John. Excellent. Good morning, everybody, and congrats on nice quarter. Thank you. Just on inventory. Yeah, John. $3.3 billion on the balance sheet in Q3. Some of that's obviously just from higher costs, but how should we think about the growth of inventory year-over-year in Q4, where you think you might finish and what you think inventory levels look like in the spring of 2023? Yeah, John, let's go a little bit deeper into the Q3 results in terms of the inventory. As we called out, it's much better to look at inventory growth versus 2019, as we were chasing our inventory all of last year, including fourth quarter, with plenty of product remaining in transit, as we were getting ready for the holiday season. When you look at the growth in our inventory in third quarter, our sales grew versus 2019 51%, and our inventory grew 31%. We'll continue to manage the inventory the same way. You know, we wanna make sure that there is right availability and in stock available for the athletes for the important holiday season. There are pockets of inventory, like we said. We will actively work on that in the fourth quarter. Overall, we feel our inventory is healthy and is very well positioned for the holiday season. Got it. Maybe one quick follow-up as it relates to supply chain costs. Obviously, everybody can see that some of the inbound freight costs have come down pretty significantly. How do we think about some of the domestic freight and shipping costs as we go into Q4 next year? You know, you meant Q4 of this year? Yes. Okay. Yeah, I think so. [audio distortion] No. No, that's helpful. No, we agree with you. On the international freight side, that definitely there is a continued lowering of the cost that we have seen, probably I would call it from third quarter onwards. However, the domestic side still continues to be volatile, and we are working very closely with our vendor partners as well as our supply chain team works very closely with the domestic partners as well. That still continues to be volatile. We are paying close attention to it. Right now, our focus is to make sure that the inventory is available in stores and available for athlete to buy as they are looking for good opportunities here for the holiday season. Excellent. Thanks. Our next question comes from Brian Nagel with Oppenheimer. Brian, your line is open. Hi. Good morning. This is William Dawson on for Brian Nagel. Congrats on a nice quarter. Thank you. Our question is actually just on product mix over time, how you're balancing between your national accounts and your vertical brands. Can you provide an update on the performance in the quarter for your private label brands and how this customer is behaving? Yeah. Our vertical brands continue to do very well, and outperformed our fair this year, in Q3. The DSG brand in particular has done incredibly well. It's a high fashion, high function product at a very attractive price point. It's perfect for the consumer right now. At the same time, CALIA and VRST are filling white space in our, in our assortment and really leaning toward that athletic male, athletic female, and more of a performance and lifestyle brand. We're very, very pleased with the vertical brands. The last time we gave an update that we do it annually, and it was 14% was our vertical brand penetration, and so we'll update that again at the end of this year. Yep. Okay. I appreciate that. Just to follow up, do you see any variability across geographies and across other product spectrums? Nothing meaningful in the quarter. No. Okay. Thank you, and best of luck. Thank you. Thank you. The next question today comes from Sam Poser with Williams Trading. Sam, please go ahead. Thank you. Thank you very much for taking my questions. A bunch of them have been answered, I have a few more. What was your DT or your e-commerce penetration or e-commerce sales for the quarter? Sam, we no longer break that out. As we think about the athlete, we look at the athlete on an omni-channel basis because the athlete is making the channel agnostic decision, and that's the way we wanna operate our business. We no longer are giving that breakout. Actually, that's been going on since the beginning of this year. Okay. I missed that. Okay. Maybe I'll add that we were very, very happy with the overall performance that we saw across both channels. Yeah. Let me just follow-up. Okay. Back to inventory, what is your forward weeks of supply, optimum forward weeks of supply with what you're seeing right now, or optimum annual turn target that that would be...? You know, 'cause it's up from... it's up from pre-COVID. You know, How are you? It's turning a little slower than pre-COVID. How should we think about sort of what it should be on an optimum basis? You know, should you be having, like, 14 or 15 forward weeks of supply, or should you be running at 17 or 18? Yeah, Sam, we haven't given that level of guidance, but the way to think about this is, we are comparing our inventory growth and sales growth compared to 2019 because that is probably the last time we had some normalized level of inventory. You know, probably that's the easiest and the best comparison right now you could do. Okay. The loyalty members make up how much of your business these days? It's over 70% of our business. Importantly, we've got over 25 million loyalty members, over 32 million active members both outside of our loyalty and within, and then over 150 million athletes who are in our database overall. They comprise that over 70%. Last... Okay. Yep. Thank you. Lastly, there's a lot of questions asked about the macro. My question for you is about what you guys have done and, you know, about the long-term growth of the business. Where are you in the continuum of the improving the levels of engagement, the personalization process and so on, to overcome the macro? Because I wouldn't call it necessarily a direct competitor, but another athletic retailer reported you put up significantly better numbers. We're gonna hear from somebody else next week. Can you talk about your the use of your CRM and how everything is evolving and, you know, sort of the reason why from the perspective of what you're doing that the business is rebasing over and can grow from here, over 19-? Yeah. No. Great question. Yeah. It's a great question. Our database and our knowledge of our athletes is at an all-time high, and we continue to have what I would say is the best data set in sports, and I'm not the, you know, I'm not the only person saying that. We have an amazing data set. We are more personalized than ever before. We're driving engagement both online and also, I would say, in our stores in terms of how we serve athletes, so very focused on the athlete experience. At the same time, I would say we're in early innings. I think we've got a long way to go with personalization. We continue to gain new athletes. We're very focused on using that CRM database to provide people with the best experience for them. That's so I think early innings still for a lot of this, despite how far along we've come. All right. Thank you very much. Happy Thanksgiving and happy holidays. Thank you. Thank you too. Our next question is from Steven Forbes with Guggenheim. Steven, your line is open. Good morning. I wanted to revisit the acceleration in transaction trends. Really, if we look at it on a three-year basis, it was a meaningful sequential improvement. I was curious if you could just expand on, you know, what drove that, if it had anything to do with new athletes that were acquired. You mentioned $4 million, but is that $4 million more heavily weighted to the third quarter? Really just trying to get any insight on the sustainability of the step-up in transactions on a multiyear trend. Yeah. Steven, thank you for the question. Our growth in transaction came from several important trends. First of all, we did have new athletes come in. I mentioned $4.5 million year- to- date. $1.5 million of those were in the past quarter, so it's been fairly consistent throughout the year. They are also driving increased transactions and increased dollars per transaction. I think it's important to dive into how our consumers are doing and how they're responding to our industry in our stores. Every single one of our income demographic levels has grown meaningfully in the past quarter, so it's clear that we are providing something for everybody so they can meet their needs and still deliver that outdoor lifestyle. We are not seeing people trade down. Between our athlete database growing, our increased personalization efforts, which will continue into next year, we expect, you know, that will be a key driver for us going forward. Maybe just a quick follow-up for Navdeep. Yep. You know, obviously, right, you're sort of a net share issuer with the settlement and unwind of the convertible notes, hedges, and so forth. I'd love to just maybe if you can expand on the decision to pause the repurchase activity last quarter. You know, any current updates on capital allocation as we look forward here over the NTM? Let me start with your second question first. As we think about capital allocation, you know, we continue to have a really strong balance sheet with more with $1.4 billion of cash and cash equivalents. In addition to that, maintaining the investment grade is an important part of the criteria as we think about the capital structure. We are continuing to invest aggressively in our business and the growth opportunities that we have. To your question, on a year-to-date basis, we have returned $485 million of excess cash on the balance sheet between the share repurchases, which we guided at the beginning of the year, a minimum of 300. We have already eclipsed that. In this quarter, we focused on taking out the convert. We took out $221 million of convert. How deep the convert is in the money, it trades pretty much like an equity. Like you said, you know, we are taking that potential future dilution as the stock price continues to rise by taking the convert out right now. Overall, we'll continue to be flexible in our capital allocation in terms of buying more shares back, and we'll be opportunistic as we look to the share buyback about the balance of this year. Thank you. Best of luck. Happy Thanksgiving. Thank you. Our next question comes from Joe Feldman with Telsey Advisory Group. Joe, your line is open. Hey, guys. Good morning. Thanks for taking the question. kind of wanted to ask about the layout in the store. At least the couple of local stores around me, it feels like you've done some things to adjust the layout, maybe emphasizing private brands a bit more, the vertical brands, I should say, more front and center, and in fact, you know, even replacing where you used to keep the big brands, the national brands. I'm just curious if that's something you're testing and what you're learning from that test, and is that something we should expect to see in more stores in the future? Hi, Joe. I think what you're picking up on is that we have adopted a very flexible approach to how we lay out product, based on in-stocks, based on what's hot with the consumer at the moment. No longer are the days where you're gonna walk into a DICK'S store and see everything laid out the same way. We are constantly optimizing. We do space optimization frequently and move things around as needed. Got it. Okay, thanks. Just, you know, wanted to get an update on maybe House of Sports and Public Lands, just latest learnings and expansion plans for those two concepts. Yep. House of Sport has been absolutely tremendous, both in terms of how the locations themselves are doing, they've far exceeded our expectations, also in terms of what we're able to take from House of Sport and bring down to the rest of our chain in terms of service levels and products and, even, you know, we have some new products that have launched there that have done really well the rest of the chain. Really, really excited about House of Sport. Public Lands, also equally really excited about. We have just launched, I think five new Public Land stores. In the past month. They are meant to tap into a very broad outdoor consumer, and they are doing an incredible job serving those explorers very well. We're very excited. Public Lands, still in test phase. House of Sport definitely a key part of our roll-forward strategies. Got it. Thanks, and Happy Thanksgiving. Good luck this quarter. Thank you. The next question comes from Seth Basham with Wedbush Securities. Please go ahead. Thanks a lot. Good morning. I'm sorry to parse words. Maybe this is just a nuance. Regarding the merchandise margin improvement that you've seen since 2019, you're indicating now that you expect to retain a significant amount or meaningful amount of it versus previously expecting to retain a majority of it. Is that accurate? Seth, I would say we are still guiding that we will maintain a meaningful portion of that margin gain. Again, maybe I'll recap some of the structural reasons that we are seeing, and we have that confidence. If you look at Q3, the performance that we saw in Q3 from the highly allocated product is what drove a significant amount of our success in third quarter. To me, that's kind of a go-forward strategy, and that will be a continued benefit that we will keep. The tools that we have, whether it is Going, Going, Gone! or the promotional and the pricing capabilities that we have delivered, is something that is really, really strong compared to where it was in 2019. That again gives us a tremendous amount of confidence. Then the product mix, I know there was a question on vertical brands. The vertical brands have 600-800 basis points of higher margin. These brands again resonated really well in third quarter. The Hunt penetration, you know, that used to have almost about 1,700 basis points lower margin, and that has become a meaningfully small piece of our business. When you look back at all of these structural drivers and you look at the performance that we delivered in Q3, you know, that's what gives us the tremendous amount of confidence that we can maintain a meaningful portion of those gains versus 2019. That's helpful. Just to clarify, you don't expect to necessarily maintain majority anymore, just a meaningful amount? Yeah, you can parse the words, we are very confident that we'll maintain a meaningful portion of those gains versus 2019. I think, just to add on this, it's important to look at our full year results. We've all been talking about full year, we absolutely expect to maintain a significantly meaningful amount of our margin improvements. Wonderful. Just as a follow-up question regarding the promotional environment outside of apparel, how would you characterize that relative to pre-pandemic levels and your expectations into the holiday season? Yeah, our approach to the holiday season is very different from how it was pre-pandemic. We are being much more surgical. We're making sure we have great gifts for people at great value. No longer are we doing whole household sites on sale, that sort of a sledgehammer approach to promotion. We're being much more targeted, much more item-focused and much more surgical. We're really excited about the in-stock levels that we have and that our approach to holidays is gonna be very well received by athletes. Wonderful. Thanks a lot, and best of luck. Thank you. The next question comes from Justin Kleber with Baird. Please go ahead, Justin. Good morning, everyone. Thanks for taking the questions. Wanted to ask a follow-up on merch margins. Given your comments on largely working through the apparel inventory here in 3Q, do you expect your merchandise margin decline to moderate in 4Q, based on the guidance? Yeah, Justin, I would say it's been implied in our annual outlook. You know, when you look at the merch margin, there are a couple of factors you have to keep in mind. You know, comparing to 2019, we definitely feel very confident that we'll maintain a meaningful portion of those gains as we go into the fourth quarter. You have to look into the commentary that we gave in fourth quarter around the promotional landscape last year compared to where our expectations that Lauren just laid out. Overall, on an annual basis, like we have said, we'll maintain a meaningful portion of the gains versus 2019. Okay. Maybe a follow-up, Navdeep, on just SG&A flexibility. Your sales based on the guidance are gonna be up to 38.5% at the midpoint. Looks like SG&A will have leveraged maybe around 150 basis points versus 2019. Clearly you've been reinvesting some of the top-line upside into SG&A the past few years, whether that's marketing or wages. I guess my question is, in the event demand does soften, how much flexibility, you know, do you have within your SG&A structure to maintain EBT margins at this level, you know, without of course sacrificing service levels in the store? Yeah, Justin, I think that you've read the SG&A profile really well. We agree that we are investing in the long-term growth strategies of the company. In addition, the wage pressures continue to remain elevated compared to 2019. Those are the big areas of investment in SG&A as you looked at this year. In terms of the forward-looking view, first of all, you know, the variable expense is always flexible to sales. If the sales are volatile for whatever reason, you know, we believe that our variable expenses will definitely flex. In addition, we have flexibility in our fixed as well as the discretionary expenses as well. As you called out, you know, we will balance these actions with what is the right thing to do for the long-term aspect of the business versus keeping the company in really healthy conditions. We could look also at our growth strategies and the investments required. Internally, we feel really confident that we will be able to navigate macroeconomic conditions really well and drive the long-term sales growth and the profitability growth of the company. All right. Thank you, and best of luck over the holidays. Thanks. The next question comes from Jim Duffy with Stifel. Please go ahead, Jim. Thank you. Good morning. Thanks for taking my question. I have a few questions about the warehouse store strategy. You have about 50 locations. These look like temporary locations. Is that how you think about this, or is that a permanent part of the strategy? I'm curious how that fits with the Going, Going, Gone! concepts. Great question, Jim. The way we're thinking about the value chains in general is that we have a try before you buy strategy where we do a pop-up, and that's what you're seeing as the DICK'S warehouse stores, see how the consumer reacts, see how we like the real estate, and then a portion of those are converted into a Going, Going, Gone! permanent location. That will be our ongoing strategy. We find a great deal of success, try before we actually sign a long-term lease. Got it. A question around the inventory in those stores. The footprints for the ones I've seen are large. Are you opportunistically buying to populate these stores, or is there inventory in these stores simply excess from regular away business? I'm also curious, is that inventory in the outlet store strategy, is that visible and shoppable online, or are those, you know, kind of brick-and-mortar silos? Yeah, they are shoppable online. In fact, they really help us by consolidating all of the clearance inventory into one location. We can easily find it and light it up online, not worrying about safety stocks and things like that, so that's a key part of it. We do buy a little bit opportunistically for the Going, Going, Gone! and warehouse stores, but by and large, they are primarily clearance channels for DICK'S Sporting Goods. Our main goal is to clear that product so that we can bring fresh new receipts into DICK'S. Thank you. Thank you. Our last question today comes from Daniel Imbro with Stephens Inc. Please go ahead, Daniel. Yep. Hey, thanks, guys. Thanks for taking our questions. I wanted to ask one, Lauren, just on the consumer. You know, it doesn't sound like you're seeing any trade down yet, but just as the consumer weakens, are there levers you can pull other than price to kind of increase the value offering DICK'S has to retain that customer? Just as you think about the box, you know, what categories would you expect to slow first, or where would be the signs of weakness you're looking for to get a sense of the health of the consumer? Daniel, the way we approach the assortment is that we wanna have something for everyone. We are not seeing people trade down, but we do offer a range of opening price point of fantastic apparel and gear all the way up to the most premium. I mean, sure there's levers we can pull. Our ScoreCard engagement is really high. That's a great tool for us. It enables us to get a personalized message out to our athletes. Across the board, we're not seeing. I can't predict because I don't see any slowdown in any of our key categories. They're all healthy. That's helpful. I think just to dig in on the inventory a little more detail or ask a different way, is your inventory equally strong or healthy across maybe vertical brands and national brands or are you more exposed? Just thinking about if there was a trade down, could you get stuck with more national brand inventory that maybe the consumer is opting out of or how is your inventory health across the different kind of subsets of inventory? Yeah. Overall, I would say our inventory is very healthy and very well positioned for the holiday season. The only, you know, lump that we called out was on the athletic apparel side. Much of that has been already activated here in third quarter, and we'll continue to work through that. Overall, you know, like I said, we feel really strong about our in-stock levels going into this important holiday season. Okay. Thanks for the color, and good luck. Thank you. Those are all the questions we have for today. I'll now turn the call back to Lauren Hobart, President and CEO, for concluding remarks. Thanks, everybody, for your interest in DICK'S Sporting Goods. I hope you have a happy, healthy, and safe holiday. Bye-bye. Thank you, everyone, for joining us today. This concludes our call, and you may now disconnect your line.