The following is the unofficial transcript of a CNBC interview with Dicks Sporting Goods Inc (NYSE:DKS) CEO Lauren Hobart from the CNBC Evolve Global Summit, which took place today, Wednesday, June 16th. Video from the interview will be available at cnbc.com/evolve.
Interview With Dicks Sporting Goods CEO Lauren Hobart
BECKY QUICK: Lauren, thanks for being here today. I was thinking about it beforehand, and I thought that you were probably the perfect candidate to be talking about this Evolve conference. It started as a way we were going to be talking to companies and how they had to evolve gradually over time. And I realized you weren't the perfect candidate because you didn't evolve over time, you basically evolved overnight. I think it's hard to realize -- or to remember back to how bad things were at the beginning of the pandemic and how incredibly different things were literally from one day to the next. I thought maybe you could kind of walk us through some of the steps of what happened. When things first shut down at the beginning of the pandemic, how many stores did you have to close and how did you react?
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LAUREN HOBART: Yeah. Thanks, Becky and thanks for having me. It is hard. I was talking about this just the other day, it's hard to go back and remember just exactly what a crisis was going on in early March of last year. And we decided just for the safety of all of our consumers and our teammates that we were going to close our stores, which we did on March 18th, nationwide. So we closed all of our 800-plus stores, which immediately put us into a situation where we had hundreds of millions of dollars trapped in inventory in the stores. And while we could do "ship from store," we didn't have an ability to access the product for consumers in the market. So thanks to a long-time investment in technology, where we were able to really get our platforms ready for such a crisis that we were not anticipating, we were able to spin up this curbside pickup in less than two days. So by the time we decided on a Sunday to close all the stores voluntarily, which we thought would be for two weeks and turned into a much longer time, but by Wednesday when we closed the stores, the curbside pickup was up in a very scrappy MVP -- you know, you had to still call when you got there, we couldn't text to let the stores know that you were there. But it worked, and people started to adopt it and it really changed the trajectory of our business. So it was really great. But it wasn't just a short-term evolution, I do want to say. It was years and years of planning for the unexpected that we did not know was coming.
QUICK: Although when you started talking about curbside pickup at the stores, didn't your team tell you it would take something like 18 months to get it up and running?
HOBART: Yes, yes. I think that's the other lesson that we learned from the pandemic is when you have a burning platform, we can move mountains. And, actually, I think a lot about how we want to save and keep some of that scrappiness that we got. We use the term "scrappy" a lot at DICK'S. But during the pandemic, it was never more obvious. Because that project was on our roadmap, it was on our long-term roadmap to try curbside, other retailers were having some success with it. But it wasn't the first priority, and we had multiple other priorities and it was going to be an 18-month lead time. So it was pretty exciting to see when everybody put everything else down and the tech team started working on this with everybody all in, it really came together in 48 hours, which was just amazing, amazing teamwork.
QUICK: Yeah, I was reading through everything that you all had done, and it really did take me back to kind of the bad ole days where we didn't know what was happening next, didn't know how things were going to happen day to day, let alone being able to plan a week at a time. You did some pretty drastic things, though. You took your salary to zero, Ed Stack took his salary to zero, and you had to furlough a lot of employees.
HOBART: Yeah, we did.
QUICK: How many employees? How did it move through? And walk us through, I guess some of those early weeks and months.
HOBART: Yeah, yeah. It was an unbelievably scary time. We have always been a financially conservative company, we have a lot of cash on the balance sheet, but when you start to close all your doors -- and we didn't have curbside at first until we did close the stores, you start to worry about how long the cash can last. And we immediately started preserving cash. So Ed and I did cut our salaries to zero, and the entire executive team cut salaries proportionally at different levels. But everybody took a pay cut in order for us to desperately try not to furlough our 40,000 store teammates and DC teammates, our distribution center teammates, because we knew how vital they were and how important their paycheck was. We did a two-week furlough at the beginning. We did pay people for those two weeks. We paid for health insurance the whole time, and then we extended it. We were really just trying desperately not to put people on some sort of a temporary unpaid furlough. We extended one more week for the team. And at that point we just thought we can't keep employing 40,000 people. But we did hold on to our values throughout the whole thing, and I think that that's actually really been a beautiful thing to watch, how the company has come together. So we did that by protecting people's health insurance throughout, and then the entire team that was here was working actively, like with a mission of let's get our teammates back to work. And so we were -- we did that as just as absolutely quickly as we could, and it's actually ended up being something that has improved morale in some ways. The family dynamic that we have here is pretty special.
QUICK: Where do things stand right now with the 800 stores and with your 40,000 employees?
HOBART: Oh, we're back, Becky. We're definitely back. We were closed on average for about eight weeks across the chain. We -- obviously we have different teams looking at different local ordinances and different rules by state. And you know, it was really, really complex, but once we were able to open, a funny thing started happening with our business. You'll remember back in the day that team sports crashed immediately, and -- both professional sports and then all youth sports. So there was no baseball season last year and so things were really, really tough. During that time when we were concerned about cash, we raised convertible debt of $575 million. We really were in preservation mode. But then this really interesting thing happened where the world started to want to get active and outdoors. And so we first saw it in the golf business. The golf business started taking off and has not slowed down since. The first activity you could really do outside, which was great. But biking. You probably saw people walking and running in your neighborhood more than you ever have before, and then home fitness became a huge, huge business. People were trying to build home gyms. You couldn't go out anymore. So it was this really neat motion that the whole country had towards being outside and being active. And so our business started to respond to that. We've been chasing inventory all year, as everybody has. It's been a challenging year to keep in stock, but we've gotten really good at managing and trying to chase things and trying to provide people with what they need. So people are -- at this point, the business is great. We've had three quarters of record-breaking comps and earnings. In this last quarter we announced a few weeks ago, we actually had such a stellar Q1. We made more in Q1 of this year than we had made in all of 2019 the whole year put together. And that's just because the categories are surging, but I do have to say our team is just unbelievably knocking it out of the park. They are so pumped, so excited, and just really working on the service aspects and conversion, and so things are good.
QUICK: Yeah, as Tyler was mentioning, he's definitely been back spending. Same story for our kids. Because as sports opened up again, we replenished and replaced everything from the old sports they had been playing and then they picked up some new sports too because that was basically the only outlet that anybody had. And I guess the question becomes at this point, your sales have been phenomenal, profits have been unbelievable, can you comp that a year from now? How much of this do you think is this rush for people to spend as we get back out there again? How much of this is they have more money in their pockets from the surplus spending coming from the government, too? And how much of this do you think is a new lifestyle that actually sticks around long after the pandemic leaves?
HOBART: Yes, I wish I could apply percents to all of those things, but I think they're all somewhat true. I mean, we definitely saw an impact of the stimulus checks and people were out buying. We saw an impact of team sports coming back and some pent-up demand there. But the businesses that were surging during the heart of the pandemic, so the outdoor businesses, golf and outdoor, lifestyle, biking, they have not really slowed down. So I actually do think people have fundamentally changed their lifestyle. People will certainly go back and take vacations, there may be less discretionary income in the market, but I think there's been a permanent shift towards outdoor living and active living. And also athletic apparel. I mean, people are wearing, you know, athletic apparel now to the office. So it's just ongoing. I do believe that this will continue. And we're certainly going to do everything we can to, quote-unquote, comp the comp.
QUICK: You had an article in The Wall Street Journal last month where you talked about how you guys are chasing all the time, and you kind of alluded to that some, with just how your team is out there trying to make sure that this is happening, firing on all cylinders all the time. Are people tired? Are they invigorated by this? How do you keep up with this breakneck pace?
HOBART: Our team is working really, really hard, and that's chasing product, that's working in the stores. But they're energized, too, so we definitely, like we need to work -- we need to watch work-life balance, we need to watch, like everybody in America concerned about people maintaining happiness and mental health, and so we're focused on team building and surrounding people with what we feel like is a family. But I would say equal parts, the hard work is matched by the energy and the excitement. And if you go into any of our stores right now, you will feel it. I really do feel like there's a different level of service and engagement and energy and so, you know, it's nice to be on a winning team. And so the team's energized.
QUICK: Some of your biggest brands, like Nike, have developed a little bit more of a direct consumer relationship during the pandemic, too, just through what they were selling on their own websites. How does that affect you when you consider that those are some of your biggest brands, too?
HOBART: Yes, yes. All of the brands have a direct-to-consumer strategy, which makes sense for them. So it's somewhat similar to how we have, what we call our vertical brands -- it used to be our private brands, but our vertical brand strategy where we also need to diversify. And so we have got products in the stores, like Calia, and this new VRST line that are really attractive to consumers, as well. But we have -- our partnerships with the Nikes of the world are at an all-time high in terms of the fact they are actually trying to narrow their distribution. They have been pretty public about that and really placed bets with partners who are going to bring their brand to life in the best way possible. And we have a very, very strong relationship, and so I do think this actually does open up some market share for us, even though DTC will be growing, I think it's actually a win for DICK'S, as well.
QUICK: Lauren, there's a question from the audience. Brad is asking -- and this is something you've answered a little bit, but this is a little more direct: How do you feel about consumer spending right now, and do you expect the spending boom to remain for the rest of 2022?
HOBART: I wish I had a crystal ball. I can't answer that question, other than I do think some of the underlying categories will continue to be adopted and will continue to drive spending. I do think consumer behavior will shift a little bit as the world normalizes and truth be told, we have to see what that looks like. But our outlook is we're going to bet on, you know, on the future, we're going to buy so we can fulfill any demand that comes, and we're ready for it. And so it will be an interesting year, but it's been an interesting year. If anything, we've gotten really good at adapting to new and different challenges.
QUICK: "Interesting" is one way of kind of putting it. You have overcome challenge after challenge, everything from the pandemic to the inventory to kind of running through issues with labor and trying to find them. I guess I would ask what your biggest challenge is right now. What do you spend the most time on, what do you spend the most time kind of planning for?
HOBART: That's a great question. I do think the supply chain issues, they never cease to amaze me. The challenges that we've had, the whole world has had, right, so this is not a DICK'S specific thing. But it just keeps going where we think we've got things back in stock and under control and then, you know, there's new issues, some challenges in Vietnam right now and a few other places. That's what -- you know, if I were to say we have any sort of an attack team out still really working on pandemic-related issues, it would be supply chain. That said, we really managed through all of last year to drive these comps with the inventory being constrained as it was. So we've developed, I think, a pretty good muscle at this, so it keeps me up, but not for very long at night.
QUICK: I heard Mary Barra earlier on CNBC this morning talking about how they, at GM, also have a team that's really designed to attack some of the problems they've had with a chip shortage in supply in particular. How do you guys do it? How do you work that? Does it work with your relationship and your partnership with FedEx? Are there other ways? How do you go about securing the hard to get inventory?
HOBART: Yeah, it's actually a multi-pronged very cross functional effort. It is everything. I mean, FedEx is super helpful, but it's also using our supply chain expertise at times to help our brand partner. So if somebody's got -- there have been issues this year where things have been stuck at ports. We will take truckloads, and we're not requiring them to stop and be, you know, disbursed to different distribution centers for us. We are working -- we will pick up product wherever it is. We will airship product if it needs to happen and if it makes economic sense. So there's a lot of levers in our toolkit that we can use when things go wrong. And I think we actually have been helpful to our brand partners in that way by being very flexible. Another example is, you know, oftentimes they are supposed to send things neatly hung and on hangers. We'll just take all that work off of our plates. If we can just get product, we will pick it up. So we have become very adept at this.
QUICK: You know, we started this conversation talking about Darwin and survival of the fittest. Maybe we should end it quoting Nietzsche and his thought that that which does not kill us, makes us stronger. Is that a phrase you believe in more or less having lived through this last year and a half?
HOBART: Oh, my gosh, I think it's the perfect quote. I think this crisis, I look back on this year as a year of unbelievable growth and unbelievable effort and incredible learning. And if we can hold on to some of what we've learned in terms of how to stay nimble and really meet consumers where they are, wherever that is, across our entire ecosystem, we absolutely are stronger now than we were before. They say never waste a good crisis. And it was a very tough year, but I do think we've come out stronger.
QUICK: Lauren, I want to thank you very much for your time this morning. It's been really great talking to you.
HOBART: You too, Becky. Thank you so much. I really appreciate it.
QUICK: Take care.