DICK'S Sporting Goods, Inc. (DKS) Earnings Call Transcript & Summary

Okay. Good morning, everyone. Welcome to the Tuesday at NRF. Thank you all for joining us this morning, braving the weather to talk about the weather. All right. So we're going to have a bit of fun on this one, aren't we, here today? Well, I'll give them an opportunity to introduce themselves. I should introduce myself as well, Scott Bernhardt, President at Planalytics. Joining me is Josh Niebler, Senior Director, E-commerce Experience at DICK'S Sporting Goods; and Aaron Cano, SVP, Analytics and Marketing Operations for FreshDirect. So we're going to go ahead and get started and go through the obligatory on this one, right? We have to, oops, right? Lawyers, right, go through the appropriate slide. And then, Josh, I'm going to ask you to go ahead and introduce yourself, if you would, please.

So thanks, Scott. So Josh Niebler. Like he said, I lead the e-commerce experience team for DICK'S Sporting Goods. It's a team of program managers across search, browse, attribution, a few programs centered around marketing channel performance optimization. And then the one that I'll probably talk a lot about today is leading our on-site personalization efforts.

So Aaron Cano, so I head up the analytics team at FreshDirect, been there roughly 10 years. At FreshDirect, what that means is that anything dealing with customer data, me and my team gets involved in. So yes, a lot of it is marketing. That also drives around a lot of merchandising, plant production and transportation. Anything dealing with customer data to drive better decisions, we'll get involved in.

Great. Thank you both. Welcome. I'm glad you could be here. Braving the weather to get here. I love that. Okay. So today, just we're going to clear a couple of things, what we refer to as terms and definitions. We're going to be talking a lot about the weather's impact on these different businesses, what it means, what it's about, how to quantify. So there's a couple of just terms and definitions that is very helpful to know. So in our conversations, one of us sort of toss out a term like weather sensitivity, right, you know and understand that is the amount of movement, right, in the business for a product out of store, at online, what have you, but it's that movement possibility or how sensitive could the product rate. Could it be up the side, down the slope is weather sensitivity. Volatility is basically taking that sensitivity and translating that into the economic impact that it's going to mean, right, in a dollars and cents kind of perspective. And then one you're going to hear a lot is weather-driven demand or WDD. So if we say WDD a lot, WDD for this and any other thing, that's kind of the metric. That's the action point, something you can use, something your systems can use, something you can do about the weather, right? It's an old joke, but it's a good one, right? Everyone complains about the weather, right? Now it's time to do something about it. And that's really where the WDD comes in, right? It's that metric that allows you, understand either percentage or a unit lift or drag that the weather and only the weather causes to that intersection of product location and time. We all got that, right? Real easy. So we say WDD, everyone knows who were talking about it. That's fantastic. Okay. So with that out of the way, let's go ahead and get to -- oh, I forgot about the other one. What it means, right? This is kind of important. Talking about WDD is great, but it's really about that value return to the business and how best to use it, how best to action it, how best to, frankly, make money off the weather, right? So there's a lot of improvements for planning, from margin, right, markdown reduction, right, all sorts of opportunities within different retail environments, right, to frankly make money off the weather. And again, a key point to that is the integration. As you know, anything about Planalytics, we have a lot of integration partners and some of the key ones here up on the board and because we make it easy to action the weather. People don't typically want to learn yet another system, right? So if you can plug into an existing environment and just improve it, right, it goes a long way. So happy to talk to you about all of that as we go forth. We are in Booth 4156, right? Happy to have a longer discussion about all of these key points.

All right. So let's go ahead and begin. I'm going to start off with you, Aaron, right? I direct this question towards you. We're coming off the end of the holiday season. Here we are in the start of 2024. We're at the biggest retail show of the year, and all of those points. Anywhere you walk in the show, you hear a lot about artificial intelligence, machine learning, buzzword, buzzword. We get plenty of that, right? So -- but predictive analytics and the outputs, right, that we use similar to Planalytics, right, being AI, right? We're an output, an AI output. What does that mean for FreshDirect right? How do you expand on that? How do you expand on those predictive capabilities? Any action? What do you do about it?

A lot -- so at FreshDirect is very big on data and analytics. The technology today is much better than it was even just 2 years ago. When you think about AI, which to me is a very broad term, right? But you get down to machine learning in terms of automating a lot of processes, but more so about engaging the customer and making that experience and that shopping experience that much better. So as we go into 2024, for us, it's about that. What can we do to enhance that experience? Examples of our loyal customers, which is the most of our customers, shop every week, every other week, right? So why have them put stuff on the cart? Pre-populate the cart. Technology exists today. Put stuff in the cart that they already want. And then when you think about the supply chain, if -- as soon as that truck hits the bay with the salmon from Alaska, automatically, send out the marketing campaigns and the in-app messages, and you can use tools today to automate those things more efficiently than we did even 2 years ago. And they're much more accurate today in terms of the process. And then on the analytics side, it's make it more efficient to process in the supply chain as well as the forecasting. So the analysts can then spend their time doing more complicated things and let the machines do the more mundane processes on information. So for us, it's about automation and the customer experience.

No, it's important, right, to get that action and to make it happen. Make it happen. If you add or should I go on to next?

No, we're really in the early stages and kind of figuring out what AI means for our organization.

Okay. So I'm going to direct this next one to you, Josh, right? We'll start with you anyway, right? Most retailers understand the impact that -- understand that the weather impacts the business, right? And not all of them are measuring how much big today. It's big like today. You stole my joke, Aaron. I was going to -- like walking into the Javits Center this morning, right? There's a significant weather impact that happens, right? And they're a lot different for FreshDirect than for DICK'S Sporting Goods. What are the challenges from DICK'S Sporting Goods' perspective to address, right, that help with your partnership with Planalytics? How does that work?

Yes. We work with Planalytics in a number of different ways across different parts of our organization. But what I'm really excited to talk about is what we're experimenting our way into right now, which is personalizing our online experience. We're very quickly trying to get from a one-size-fits-all website to one that's highly tailored based on everything we know about our customers, which is a lot. And we view weather relevancy as a big part of that strategy. So we're actually working with Planalytics right now in a test to use WDD to put different homepage creatives. So when somebody comes to dickssportinggoods.com, they see a very different message depending on the weather in their area. Obviously, this time of the year, really focused on outerwear, outerwear accessories, product categories like that. But really excited to see what this can do and just make our website more relevant at a local level.

That's great. Getting back to it today, right, hats, scarves.

Should be getting some results today. We'll see how it's going.

Absolutely. Absolutely. Aaron, what about from your perspective? It's a different business, right?

Yes. I mean for the grocery business, the weather has a huge impact on how demand fluctuates, not only day to day, but also [ with their battery ] buying every day. So it can be like today, will be different. And what we're working with Planalytics on is early stages of the analytics in terms of if it snows for 2 inches versus 5 inches or it rains for 1 day versus 5 days a row, how does that really impact the demand? And who are those customers coming in? A lot of customers come in every day, but those new customers come in, what's the demand going to look like? Who are those infrequents? How often do they come back in? But also the media plays part of that. So 2 weeks ago, when it was all over the media, we're going to have a lot of rain and snow on Saturday and Sunday, more to the media, the more it impacts our business, right? So we had an increase of 20% on Thursday and Friday before the rain and somewhat snowed depending where you were in Westchester or Jersey. And it really is very different by geography, right? So Westchester different impact than Manhattan. But the more that we can predict 3, 4, 5 days out when that's going to happen, we can then adjust everything. So it's the supply chain in terms of how much do we bring in, but also what do we bring in, right? So like daily today, yes, it's going to be more booze, right? It's going to be more of the dairy and the milk and eggs kind of thing as well as some berries in. And there was a long period of time, it's the frozen food, right? So you can bring more of those things in first, but then it's about staffing because we know that a day like today, we're going to get 10%, 15% of staffing to call out. So beforehand, we can increase that staff. So the better we can identify what those margins are going to be better for the business because in grocery, the margin is small. So better than we can do operationalize so we get more efficiency out of it, the better. And the Planalytics deal will help us do that.

There's just so much -- a storm like this would...

Yes. It changes everything.

It's such a ripple that goes through, right? Like so much happens. Again, that's why we keep coming back to...

But again, the [indiscernible] (00:09:48) beforehand, there would be 5 weeks, but 2, 3 days before and if you know what that is, you're planning for it.

Well, if you know what it is and your systems know what it is.

Yes, yes, yes.

You can tell the people all day about the weather. They know what to do. The systems don't know what to do. So you got to tell them what to do. You got to need tell the system what to do, it will do it.

Yes, same thing with the machine learning where you can automate, hey, if the machine knows it's going to snow on Tuesday by 3 inches, then do automatically rejiggers the supply chain and demand process.

Exactly. Exactly. A lot easier than the hundreds of people trying to - efficiencies...

That's what we used to do.

Yes, exactly. We want them out loading the truck. So Aaron, I'm going to stick with you for this next one a little bit and talk about -- it's FreshDirect, right? Fresh is in your name, right? So the fresh of the product and frankly, wastage and reducing spoil, waste. There's a lot of different terminologies for it. But it's pretty important to that margin and that bottom line, right? So talking about weather-driven demand in WDDs. How about optimizing inventories, reducing waste, how does that work for you?

Now FreshDirect is a little bit different than -- we're purely online, right? So our warehouse located in the Bronx, but our -- in the building produce, it's 2 days to 5 days. We don't keep a whole lot. So the more that we can understand what that supply needs to be, the less we call it scrap, right, the less waste. So again, like today, we bring in more food for the weather, but we take in less of other things. Therefore, we actually very much reduce a lot of the scrap or the waste and the sustainability of that in the building. So we're giving more things to the customer more what they want when they want it and less waste. Again, it's very much driven by the weather and our ability to predict that, it helps those margins very much.

I like that term, scrap. I want to steal that one.

I think we're the only one who uses that word, right, in the grocery, but scrap.

Wastage, spoilage and all that, scrap.

It's a conversation every day in our building.

Love that. That's good. Josh, turning to you for this one, right? You have a very different business than FreshDirect, but there are some similarities, right? And so can you talk about the impacts of how weather influences customers who shop online, right? How do you see that weather influencing e-commerce, in particular, if you could call that out, look for opportunities? And how do you get that sensing for the sales signals that are coming, WDDs?