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Dick’s Sporting Goods Inc. (DKS) Q2 2020 Earnings Call Transcript

DKS Earnings Call - Final Transcript

Dick’s Sporting Goods Inc. (NYSE: DKS) Q2 2020 earnings call dated Aug. 26, 2020

Corporate Participants:

Nate Gilch — Senior Director of Investor Relations

Edward W. Stack — Chief Executive Officer and Chairman of the Board

Lauren R. Hobart — President and Director

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

Analysts:

Robert Ohmes — Bank of America Merrill Lynch — Analyst

Kate McShane — Goldman Sachs — Analyst

Chris Horvers — J.P. Morgan — Analyst

Michael Lasser — UBS — Analyst

Paul Lejuez — Citi Research — Analyst

Simeon Gutman — Morgan Stanley — Analyst

Michael Baker — D.A. Davidson — Analyst

Adrienne Yih — Barclays — Analyst

Seth Sigman — Credit Suisse — Analyst

Brian Nagel — Oppenheimer — Analyst

Tom Nikic — Wells Fargo — Analyst

William Gaertner — Susquehanna — Analyst

John Kernan — Cowen and Company — Analyst

Warren Cheng — Evercore ISI — Analyst

Peter Benedict — Robert W. Baird — Analyst

Scot Ciccarelli — RBC Capital Markets — Analyst

Chris Svezia — Wedbush Securities — Analyst

Presentation:

Operator

Good morning and welcome to the DICK’S Sporting Goods Second Quarter Earnings Conference Call. [Operator Instructions]

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

Nate Gilch — Senior Director of Investor Relations

Good morning, everyone and thank you for joining us to discuss our second quarter 2020 results. On today’s call will be Ed Stack, our Chairman and Chief Executive Officer; Lauren Hobart, our President; and Lee Belitsky, our Chief Financial Officer. A playback of today’s call will be archived 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 the Form 10-K and cautionary statements made during this call. We assume no obligation to update any of these forward-looking statements or information. Please refer to our Investor Relations website to find the reconciliation of any non-GAAP financial measures referenced in today’s call.

And finally, a couple of admin items, first, a note on our same-store sales reporting practices. Our consolidated same-store sales calculation include stores that were temporarily closed as a result of COVID-19. The method of calculating comp sales varies across the retail industry including the treatment of temporary store closures as a result of COVID-19. Accordingly, our method of calculation may not be the same as other retailers. Furthermore, recall during our Q4 call, we announced our intent to move away from providing e-commerce sales growth and e-commerce penetration metrics beginning in Q1.

Given the circumstances surrounding our store closures, we provided these metrics last quarter and are continuing to provide these metrics for Q2. We will revisit this decision for the third quarter. And lastly for your future scheduling purposes, we are tentatively planning to publish our third quarter 2020 earnings release before the market opens on November 24th, 2020 with our subsequent earnings call at 10:00 AM Eastern Time.

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

Edward W. Stack — Chief Executive Officer and Chairman of the Board

Thanks, Nate. Good morning, everyone. As announced earlier this morning. We had an exceptionally strong second quarter in which we delivered our highest ever quarterly sales and earnings. We achieved record consolidated sales of $2.71 billion, consolidated same-store sales increased 20.7%, even with approximately 15% of our stores closed on average during the period. This followed our 3.2% comp increase last year. Our second quarter non-GAAP earnings per diluted share of $3.21 represented a 155% increase over last year and was also an all-time record.

Before we get into the details, I want to take a moment to thank our teammates, whose hard work and dedication to our Company and to the athletes we serve made these significant results possible. Concurrent with our strong business performance, I’m pleased to report that, during the quarter we returned our teammates from furlough, restored previously reduced salaries and repaid teammates for their lost wages.

Now back to our Q2 results. Our 20.7% comp sales increase was driven by the continued success of our industry leading omnichannel experience. Our e-commerce sales were tremendous, increasing nearly 200%. More than 75% of our online sales were fulfilled by our stores, which serve as localized distribution points and are the hub of our omnichannel experience. By the end of June, we reopened 100% of our stores to the public, while continuing to prioritize the health and safety of the teammates and the athletes we serve. We saw increases in both average ticket and transactions as well as growth across each of our three primary categories of hardlines, apparel and footwear.

Lastly, our private brands continue to be a significant source of strength and growth, outperforming the Company average by approximately 500 basis points. This broad-based performance is a testament to the flexibility and dedication of our teammates who reacted quickly to meet favorable shifts and consumer demand throughout the quarter. During this pandemic, the importance of health and fitness has accelerated. Participation in socially distant outdoor activities has increased and there has been a greater shift towards athletic apparel and active lifestyle product with people spending more time working and exercising at home. The majority of our assortment sit squarely at the center of these trends.

Over the past few months, the partnerships demonstrated by our strategic vendors has been unparallel. During Q2, we leveraged the strong vendor relationships and our private brand supply chain to aggressively chase product in the most in-demand categories. Certain categories in the marketplace where supply-constrained therefore less promotional and our margin rates increased by 325 basis points during the quarter. This merchandise margin expansion drove significant improvement in gross margin, which increased 456 basis points.

Now, let me touch on our third quarter performance. The favorable shifts in consumer demand that drove our strong comps during Q2 have continued into Q3, partially offset by softness in the key back-to-school categories. With the significant part of back-to-school already behind us, through the first three weeks of Q3, our consolidated comp sales have increased 11% with continued margin rate expansion. As I look at our business, we’re in a great lane right now. We have reopened our stores and remained committed to the procedures to protect our teammates and athletes’ health and safety, we have enhanced our e-commerce offering with curbside pickup and faster shipping, our product assortment is well tailored to the recent consumer trends supported by strong relationships with our key brands. And importantly, we’re in a strong financial position having paid our line of credit to zero and have approximately $1 billion in cash, we’re really in a great position.

In summary, we are extremely pleased with our Q2 results and look forward to the remainder of the year. I’d now like to turn the call over to Lauren.

Lauren R. Hobart — President and Director

Thank you, Ed and good morning, everyone. I want to start by also thanking our teammates. You are the foundation of our Company and your efforts helped us continue to execute a seamless omnichannel experience and deliver a record-setting comp sales increase for Q2. This morning, I will review our strong brick and mortar and online results and I’ll also provide updates on our marketing efforts in our private brands.

First, we experienced a very strong athlete response to our store reopenings. We saw momentum build throughout the quarter and delivered positive double-digit brick and mortar store comps during both June and July. Our teammates have worked tirelessly to adapt to a constantly changing landscape and have demonstrated an unrelenting commitment to serve our athletes and communities safely. In recognition of our hourly store and DC teammates’ efforts, we recently announced the 15% paid premium will be extended through the end of the year. In total, during the second quarter, we invested $42 million across increment of COVID-related compensation and safety measures. Going forward, we expect approximately $50 million of similar cost per quarter through the end of this year.

Turning to e-commerce. During the second quarter, our online sales increased 194% with over 50% mobile penetration. This included curbside pickup where we focused on improving speed and convenience and the athlete response remains very strong. E-commerce merchandise margin expanded meaningfully which along with higher penetration of curbside and BOPIS sales drove a significant improvement in e-commerce gross margin. We also continue to reduce delivery times to our athletes, even as e-commerce demand remained at unprecedented levels. This success online is a direct result of the technology and fulfillment investments we have made over the years, as well as better integration of our digital and store channels, as we work to relentlessly improve the athlete experience, enhance our profitability and build the best-in-class omnichannel platform.

Moving to marketing, where one of our largest assets is our ScoreCard loyalty program. We have over 20 million active users in the program, accounting for more than 70% of our sales. The data from this program drives our digital and direct marketing efforts, which we continue to enhance during Q2, enabling more personalized communications with our athletes. Throughout Q2, we also maintained a strong voice through several compelling marketing initiatives. Our See You Out There campaign inspired athletes everywhere filling them with hope and motivation to get outside. Our golf specific marketing was also successful as we focused on our fitting experience and product offerings.

Most recently at the end of Q2, we launched our back-to-school campaigns, which addresses the ever-changing landscape and acknowledges that no matter how you going back to school, whether it’s in-person or on camera, we still need to have the best styles. We paired these larger brand campaigns as more tactical marketing around store reopenings and curbside pickup to ensure our athletes knew we were there to get products to them [Phonetic] wherever and whenever they wanted it.

Lastly, across our stores and online, our private brands remain a key source of strength and differentiation within our assortment. As I mentioned, they outperformed the Company average by approximately 500 basis points in Q2. We’ve been particularly pleased with CALIA and DSG which represented our second and third largest women’s athletic apparel brands during the quarter. And in total, across all categories, after only one year following of its launch, DSG has surpassed Field & Stream to become our largest private brand.

In closing, we remain very excited about the future of DICK’S Sporting Goods as we continue to leverage our best-in-class omnichannel platform to serve our athletes. I’ll now turn the call over to Lee to review our financial results in more retail.

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

Thank you, Lauren and good morning, everyone. Let’s begin with a brief review of our second quarter results. Consolidated sales increased 20.1% to approximately $2.71 billion. Consolidated same store sales increased 20.7% driven by a 17.9% increase in average ticket and a 2.8% increase in transactions. Our e-commerce sales increased 194%, and as a percent of total net sales, our online business increased 30% compared to 12% last year. And as Ed mentioned, during the quarter we delivered growth across each of our three primary categories hardlines, apparel and footwear merchandise.

Gross profit in the second quarter was $936.9 million or 34.53% of net sales, a 456 basis point improvement compared to last year. This improvement was driven by merchandise margin rate expansion of 325 basis points and leverage on fixed occupancy costs of 204 basis points. The merchandise margin rate expansion was primarily driven by fewer promotions as well as better-than-anticipated sales and margin on merchandise nearing end of life. This was partially offset by shipping expenses and e-commerce fulfillment costs as a result of our meaningfully higher e-commerce sales growth, as well as the fixed costs associated with our two e-commerce fulfillment centers that opened in the third quarter last year.

Gross profit also included $10 million of incremental COVID-related compensation and safety costs. SG&A expenses were $543 million or 20.01% of net sales, down 305 basis points from the same period last year due to the significant sales increase. SG&A dollars increased only $22 million from the same period last year. This includes $32 million of incremental COVID-related compensation and safety costs and $12 million associated with the change in value of our deferred comp plans, resulting from the significant increase in overall equity markets in the quarter which fully — which is fully offset in other income and has no impact on earnings.

These expenses were partially offset by expense reductions, following our temporary store closures, driven by our strong sales and gross profit margin non-GAAP EBT was $397.8 million or 14.66% of net sales, up $246.7 million or 797 basis points of operating margin expansion versus same period last year. In total, we delivered non-GAAP earnings per diluted share of $3.21 compared to earnings per diluted share of $1.26 last year, a 155% year-over-year increase. On a GAAP basis, our earnings per diluted share were $3.12. This included $6.6 million in non-cash interest expense as well as $1.1 million additional shares required in the GAAP diluted share calculation, both related to the convertible notes we issued in Q1. For additional details, and as you can refer to the non-GAAP reconciliation tables of our press release that we issued this morning.

Now, I’ll briefly review our 2020 first half results. Despite temporary store closures during March, April and May, consolidated sales decreased only 3.2% to approximately $4.05 billion. Consolidated same store sales decreased only 2.3%. Within this, our e-commerce sales increased 154%, and as a percent of total net sales, our online business increased 33% versus 12% last year. Non-GAAP earnings per diluted share were $1.60, and this included $76 million or $0.65 per diluted share of incremental COVID-related compensation and safety costs and compares to non-GAAP earnings per diluted share of $1.86 for the first 26 weeks last year.

Now, moving to our balance sheet. As Ed stated, we’re in a strong financial position, and during the quarter, we leveraged our cash flow from operations, as well as cash on hand to repay $1.4 billion of outstanding borrowings on our $1.855 billion revolving credit facility. We ended Q2 with $1.1 billion of cash and cash equivalents and no outstanding borrowings on our line. Our quarter-end inventory levels decreased 12% compared to the end of the same period last year, and looking ahead, our inventory is clean and we will continue to optimize our assortment to improve our in-stock positions in the most in-demand categories. As previously announced, in light of our strong business results, we reinstated, our dividend program, and during the quarter, we paid $26 million in quarterly dividends.

Net capital expenditures were just $12.5 million and we did not repurchase shares. With respect to our full year outlook, there is still a high degree of uncertainty surrounding the scale of duration of several key external factors. This includes the COVID-19 pandemic and economic stimulus as well as employment and consumer confidence and their potential impact on our business. Given this uncertainty, we will not provide a 2020 outlook for sales and earnings at this time. We will continue to reassess the practicality of resuming the guidance in future quarters. While mindful of the uncertainty in the current environment, we are extremely pleased with our significant Q2 results as well as our Q3 sales trends. We remain very enthusiastic of future DICK’S Sporting Goods.

This concludes our prepared comments. Thank you for your interest in DICK’S Sporting Goods, and operator, you may now open up the line for questions.

Questions and Answers:

Operator

We will now begin the question-and-answer session. [Operator Instructions] And our first question will come from Robby Ohmes of Bank of America Merrill Lynch. Please go ahead.

Robert Ohmes — Bank of America Merrill Lynch — Analyst

Good morning, guys. I’ll say great quarter, but I really don’t have a word for a quarter like this, it’s pretty unbelievable. See, Ed, my question I think for you is, these categories that are doing so great, I think you’re not the only ones that are seeing this unbelievable sell-through rate. How are you thinking about in-stock levels in a lot of these solitary leisure categories for the balance of the year, given that others are running short? And, do we need to be concerned about your inventory positioning when we think about, how we think about your sales run rate going forward? And maybe, Ed, could you tie into that, has anything changed in how you guys are thinking about the hunt category? I know you’ve exited in a lot of stores, is that expected to continue? And then lastly, some comment — comments on the golf category, maybe some insights on how Golf Galaxy comps are doing?

Edward W. Stack — Chief Executive Officer and Chairman of the Board

Sure. Robby, thanks. Let me start with the hunt category first, so this has not changed our view towards the hunt category, we’re still planning to significantly reduce that exit, what we’re doing with Field & Stream, and so really nothing has changed, although that business from what I understand has really been quite good, we’re not changing our position on that. As we take a look at stock levels, Rob, we’re going to be somewhat inventory constrained on some of these categories, but we’ve got a flow of product that, as it comes in, it goes right back out, and we actually think we’re going to be in a better positioned from an inventory standpoint going forward, in the fitness category, in the bike category and a little bit in the golf category, beginning towards the end of September and into October. So we’ve — our team has done a great job working to supply chain, a number of these products that we talked about from a fitness standpoint bikes, our own private brands. So we control the supply chain, and the team has done a great job of being able to service the athlete or the customers. If you’re going to walk in our store, it’s still going to look like our fitness business has really depleted, but the flow of product we have coming in, it’s kind of going out as fast as it’s coming in. We expect the trends from a sales standpoint in those categories to continue.

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As far as the golf business, golf is one of those categories that you’re outdoor social distancing. There’s — it’s — the golf business has been great at both DICK’S and at Galaxy. There is a number of young people who have come into the game, because they’re not playing football or soccer or some other sports. So they’re out playing, guys are out playing golf, because they’re not at their kids games, men, women and kids of all really have jumped into this game, and we expect that to continue through the balance of the year too. The golf season is being extended with what’s going on right now with the playoffs and the PGA Tour, followed by the US Open in September and then the Masters in November. So we think golf is one of those categories that’s going to be really very good.

There is some concerns about people saying, well, what’s going to happen when it gets cold and people go inside. Well, up north, that’s a concern, if it gets really cold in November and December, but we have so many stores that are in the south, in the West that the weather is going to be, you’re going to be able to get outside 12 months a year. So we’re pretty — we continue to be pretty excited about our business.

Robert Ohmes — Bank of America Merrill Lynch — Analyst

Ed, that’s great. Thanks. And just, do you give the Golf Galaxy comps?

Edward W. Stack — Chief Executive Officer and Chairman of the Board

We don’t, Robby.

Robert Ohmes — Bank of America Merrill Lynch — Analyst

All right. Thanks so much. And…

Edward W. Stack — Chief Executive Officer and Chairman of the Board

But they’re good. But they’re good.

Robert Ohmes — Bank of America Merrill Lynch — Analyst

That’s great. Thanks so much.

Edward W. Stack — Chief Executive Officer and Chairman of the Board

Thanks, Robby.

Operator

Our next question comes from Kate McShane of Goldman Sachs. Please go ahead.

Kate McShane — Goldman Sachs — Analyst

Hi, thank you. Good morning.

Edward W. Stack — Chief Executive Officer and Chairman of the Board

Hi, Kate.

Kate McShane — Goldman Sachs — Analyst

The first question I had was around team sports. I wondered if you could maybe go through a little bit more, what you’re seeing within maybe certain team sport categories? And how much maybe that can affect Q3? And then my second question was just about the fulfilling from store. I think you mentioned 75% of the e-commerce fulfilled by store. What was that in previous quarters? And was it higher because of the curbside pickup option? And do you expect it to be elevated going forward?

Edward W. Stack — Chief Executive Officer and Chairman of the Board

Look, Kate, I will take the one on team sports, and then I’ll let Lauren talk about e-com. So from a team sports standpoint, the team sports business is not very good right now, with the exception of baseball. The baseball businesses continue to be pretty good. But other sports have been difficult. We expect them to continue to be difficult through all of Q3, but we’ve got the majority of this business behind us. And I think people should understand that the back-to-school business and the team sports business is going to be difficult through this back-to-school time frame. But we are more than offsetting that with comps at 11% so far this quarter. And the back-to-school business and the team sports business will become less important as we go forward. So, but team sports is going to be difficult. The way we’re looking at this is, that we’re just banking comps for next year with the team sports business. We hope it will be better next year.

Lauren R. Hobart — President and Director

Great. And I’ll take your second question, Kate. So in terms of the percentage of e-commerce business that was fulfilled out of the stores, I do think it’s meaningful to point out that 75% is a large increase in the past, we’ve indicated it with the majority — the majority, over half. But this is a meaningful increase that’s being fulfilled from the stores. And yes, you’re right that a lot of that business is going out, the front door as well as what used to be just the back door in terms of curbside and ship from store, curbside remains really strong, even as we open the stores, it’s the business that we believe strongly is here to stay and we believe it will be an important player throughout the back half of the year and into holiday, and into the future.

Kate McShane — Goldman Sachs — Analyst

Thank you.

Operator

Our next question comes from Chris Horvers of J.P. Morgan. Please go ahead.

Chris Horvers — J.P. Morgan — Analyst

Thanks. Good morning, everybody. So first a follow-up question is, Ed, you just talk about team sports is getting behind us and back-to-school is peaked as well and you have in a number of school districts and opening later in then taxes and delayed sports programs in New York State, high school sports are delayed till September 21st. So I guess, how do you think about the potential acceleration of the business? Can you maybe peel away, what’s going on in the — these non — like what’s going on in the comp base ex back-to-school and team sports.

Edward W. Stack — Chief Executive Officer and Chairman of the Board

Well, we won’t get into quite that level of detail. But as I said, the team sports and back-to-school business has been soft so far, and even with that being soft and we have a big part of it, behind us, the comps are still plus 11%. As we take a look at some of the school districts and states that have indicated that they’re going to delay sports, we’ve got some inventory to be able to service them, but we’re not sure that that’s actually going to happen, when it gets right down to it. Are they going to play, are they not going to play, so are we’re being cautious as we go forward from the — from a team sport standpoint in these fall sports.

Chris Horvers — J.P. Morgan — Analyst

Understood. I guess maybe the other way to try to cut the question is, you talked about strong trends accelerating obviously over the quarter, because of how you report comps including closed stores and then double digit brick and mortar, in June and July. So our rough math, you said that you were down 4% quarter-to-date when you reported last time, it looks like you comp 30 in those months. Is that — is that accurate?

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

That’s pretty close. Yes.

Chris Horvers — J.P. Morgan — Analyst

Understood. And my follow-up is we — on the SG&A, obviously a lot of puts and takes in there. You did have furlough savings, presumably some, maybe some rent, not rent, but maybe some other reduced hours affecting that SG&A line as well. So what’s the right pace of SG&A to sort of look at our back half estimates on a go-forward basis? Last year, you were $515 million in SG&A, and $600 million in the third and fourth quarters, are we now building off that or what’s the right base that we’re building from?

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

I think last year is the right base, except you guys take a look at, in Q3, we had a big — a big piece of incentive comp in there that, unless we have really extraordinary results here, we won’t anniversary that kind of level of incentive comp, but I think the last year base is good one to build off of and then we talked about the incremental COVID expenses, $50 million a quarter, probably split around $40 million will be on the SG&A line, and $10 million in the gross margin, will hit gross margin.

Chris Horvers — J.P. Morgan — Analyst

And just maybe a kind of different way, what, how much was the furlough savings that was an offset in the SG&A line?

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

Yeah. There were lot of — there were a lot of pieces in there, furlough savings, we had some small reductions in force that are involved. We cut travel, we cut consulting costs, we really batten down the hatches in Q1 and cut capex and cut other SG&A expenses along the way. So we did have some pretty significant savings, particularly in the first half of the second quarter.

Chris Horvers — J.P. Morgan — Analyst

Understood. Thanks very much.

Operator

Our next question comes from Michael Lasser of UBS. Please go ahead.

Michael Lasser — UBS — Analyst

Good morning. Thanks a lot for taking my question. Was the entirety of the slowdown from 30% comps in June, July to 11% comps, quarter-to-date in August due to weakness in back-to-school and team sports or did other categories flow as well?

Edward W. Stack — Chief Executive Officer and Chairman of the Board

It was pretty — it’s pretty much played by back-to-school, the back-to-school categories. And then those back-to-school categories is footwear is all the team sports, which is a pretty violent peak in the month of the first part of August, much more — a much higher percent of our total sales. In August, then it will be in September and October. And so those back to school categories. The team sports, the cleat business, backpacks, all of those have been soft, but even with that comps are still running 11% with margin rate expansion.

Michael Lasser — UBS — Analyst

And to borrow the term that you used, very eloquently, Ed, it’s not only fair to think about banking some comp for next year from the team sports business getting better or next year, whenever we get back to normal. But also back-to school, getting back to normal. So, is that the right way to think about it?

Edward W. Stack — Chief Executive Officer and Chairman of the Board

Yeah. I think so, Michael. I think the back-to-school business next year, we hope it will be — will be better, because we hope kids are actually going back to school in the classroom and playing sports, which we think is really important for the kids, but let’s face it, there will be some offset to that too, if some other categories that might not be quite as strong. But we think, we are in a great lane for what’s going on right now in the country. From an outdoor standpoint, the golf business, the camping business, kayaking, fitness, running. We think we’re in a great lane, and a lot of these — these activities are going to continue into next year. Even when hopefully next, sometime next year covered is behind us with a vaccine and therapeutics, etc. So…

Michael Lasser — UBS — Analyst

[Technical Issues] it’s how you’re thinking about that consumers have adopted all these new behaviors and habits, whether it’s working out at home or kayaking or fishing or golfing. And they wouldn’t necessarily be gives back next year, these habits are here to stay and under what conditions would you change — would your thinking change? And then I’ll turn it over. Thank you.

Edward W. Stack — Chief Executive Officer and Chairman of the Board

I don’t — so I think these things are pretty sticky. I think people are going to continue to do these activities. There are some great family activities that have taken place here. And I think people are going to continue those for some time into the future. What would make us think differently about that? If the trends change, but right now we don’t see them changing significantly.

Michael Lasser — UBS — Analyst

Okay, thank you very much, and good luck.

Edward W. Stack — Chief Executive Officer and Chairman of the Board

Thanks, Michael.

Operator

Our next question comes from Paul Lejuez of Citi Research. Please go ahead.

Paul Lejuez — Citi Research — Analyst

Hey, thanks, guys. Just a follow-up on the last couple of comments about comp opportunity, next year and also maybe some offsets to that. Can you maybe talk about some of the stronger specific categories that you [Technical Issues].

Edward W. Stack — Chief Executive Officer and Chairman of the Board

We lost you.

Lauren R. Hobart — President and Director

Stronger categories that we see.

Edward W. Stack — Chief Executive Officer and Chairman of the Board

Paul, are you still there? Operator, if we can go to the next call, and then when Paul resumes, we can jump him in the front of the line.

Operator

Okay. Our next question will come from Simeon Gutman of Morgan Stanley. Please go ahead.

Simeon Gutman — Morgan Stanley — Analyst

Thanks, everyone. Good morning. I wanted to ask first on gross margin. If you look back to 2019, it ended at around 29% and changed and that once peaked at about 31.5%. So it’s about 200 basis points below the peak. Does the channel mix explain most of this gap? And I think if we got the math right, it was about a 40 basis point or 50 basis point channel mix headwind this quarter. What would be the reason, it can’t inch closer to that prior peak. I know e-commerce is probably extra good, because of pickup in store, but should it narrow back over time, assuming the merch margin continues to stay healthy?

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

It should edge back toward that level. There has been a channel shift, and the gross margin is lower, because we have the delivery expense, we have the shipping expense in e-com, which is a structural difference, but we are leveraging some of the fixed expenses and e-com and fulfillment along the way. And a lot of it comes down to have promotional. We’re going to have to be. So we haven’t had to be terribly promotional over the last three or four months or so in e-com. I don’t expect we’re going to be able to maintain the same levels of gross margin coming out of our e-commerce business indefinitely. But you know, for some time going forward, we should be able to maintain elevated levels of gross margin.

Edward W. Stack — Chief Executive Officer and Chairman of the Board

I think it can move — it can move closer to that also too, Simeon, based on what’s happening with our private brands. Our private brands are doing extremely well, whether it’d be CALIA, the DSG brand, what we’re doing in a number of other categories to fitness brands. So as our private brands continue to improve, our margin rates will continue to improve.

Simeon Gutman — Morgan Stanley — Analyst

Yeah. And any sense on the stickiness of using this curbside model, which I’m sure a lot of customers have been introduced to, which this wasn’t an option before, but obviously it should be pretty powerful going forward. But how do you — do you sense that will continue and that these pickup rates will stay high going forward?

Lauren R. Hobart — President and Director

Hey, Simeon, it’s Lauren. We do think that curbside is here to stay. It’s been a fundamental shift in consumer behavior and we anticipated originally, that we would see a large drop-off when the stores reopened. But that is not the case. Curbside remains very strongly penetrated and very high percentage of the mix. So it’s — we are — we think curbside is a behavior with Tier 2 stay, and just an added element to restore. So that the store becomes the omni hub of the whole ecosystem.

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

And we’re expecting curbside to continue to be strong for the balance of the year. We’re thinking that with COVID around, there might not be down like interest in getting into crowded stores in the Christmas season, so we’re planning on a big curbside fall season. We’re forward deploying inventory out to our stores to satisfy that demand, and setting up all the parking lots to operate that way and it will be ready for a big curbside about the rest of the year.

Simeon Gutman — Morgan Stanley — Analyst

Okay. And just to sneak this in, just in terms of the fluidity of the environment, this transition to other seasons as even though the weather will change, in categories like bicycles and fitness, is it still literally, the stuff comes in the door and is out that same day? Is it that type of demand environment still?

Edward W. Stack — Chief Executive Officer and Chairman of the Board

Well, I’m not sure it’s that day, Simeon, but it’s a few days, that sales up pretty quickly as soon as we have the — have the product in there.

Simeon Gutman — Morgan Stanley — Analyst

Right, okay.

Edward W. Stack — Chief Executive Officer and Chairman of the Board

So we’ve got a nice flow of this. We’ve got — we’ve got an increasing level of supply coming in for fitness product over the next several months, for bikes over the next several months. The boat business is going to be a bit more constrained, although we do have some more product coming in, it, but we’re — we’re pretty comfortable on the flow, we’ve got coming in. It’s just going to come in and go right back out.

Simeon Gutman — Morgan Stanley — Analyst

Yeah, thanks. Good luck.

Edward W. Stack — Chief Executive Officer and Chairman of the Board

Thanks.

Operator

Our next question will come from Paul Lejuez of Citi Research. Please go ahead.

Paul Lejuez — Citi Research — Analyst

Hey, thanks. Sorry for the phone cutting out there. I was just there asking about maybe if you could talk about some of the stronger performing categories that you saw specifically in the second quarter. And just how do you plan, F ’21, you’ve got the comp opportunity perhaps in the back-to-school and team sports categories, but then maybe difficult comparisons in some others. So just curious how you’re thinking about it from an inventory perspective. And then also and some of these categories that you’re chasing, are you seeing higher average unit costs in some of those trending categories — to what extent are prices may be moving higher if at all? Thanks.

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Edward W. Stack — Chief Executive Officer and Chairman of the Board

We really haven’t seen higher cost in any meaningful way coming out of these products and some of these categories, we’re talking about, whether it’d be the camping business, the fitness business, the boat business, a lot of these are our own brands. So we control the supply chain and we’ve done — we’ve done a pretty good job with that. As we look into next year, what we really are is, we’re looking at ’19 as the year to plan off of. And we’ve talked to a number of other people who are in our industry that’s what they’re doing all also. Other people — brands that we do business with, lot of them are looking at kind of planning off of ’19, and that’s what we’re planning to do.

We think next year the — if a lot of the — this pandemic is behind us and kids are back in school and playing sports and everyone feels safe, we think there is a big upside in the team sports in the back-to-school business next year.

Paul Lejuez — Citi Research — Analyst

Got it. Thank you. Good luck.

Operator

Our next question will come from Michael Baker of D.A. Davidson. Please go ahead.

Michael Baker — D.A. Davidson — Analyst

Hi, thanks. I know you guys aren’t going to give guidance per se, but it sounds like, correct me if I’m wrong, the implication with back-to-school and team sports becoming smaller over the coming weeks and months is, that would tell me that comps would accelerate. Is there an offset to that such that comps wouldn’t accelerate? And excuse me, working from home, my dog barking exactly when my question comes up.

Edward W. Stack — Chief Executive Officer and Chairman of the Board

Michael, we can all relate to barking dogs and working at home.

Michael Baker — D.A. Davidson — Analyst

It’s unbelievable. No barking at all today, until you called on me. Okay.

Edward W. Stack — Chief Executive Officer and Chairman of the Board

Yeah.

Michael Baker — D.A. Davidson — Analyst

Like my kids.

Edward W. Stack — Chief Executive Officer and Chairman of the Board

Yeah. I understand. No worries. Yeah, so you would, that’s not inappropriate assumption. But last year too, we were exiting the hunt business last year and there is a couple of offsets to that, but we’re really comfortable and excited about where we’re at. And we couldn’t be happier that with the back-to-school kind of shaping up the way that it is, which is going to be back-to-school is going to be a disappointment for, I think for a lot of people, but we’re fortunate that we’ve got this broader based portfolio that we can offset that. And comps at plus 11% right now, we’re pretty happy with and these back-to-school items will become a smaller percent of the balance of the quarter.

Michael Baker — D.A. Davidson — Analyst

Yeah, makes sense. Understood. Two questions for Lee, real quick, if I could. One, Lee, you said that your cycling is set to comp in the third quarter unless you have a really strong third quarter this year, well, your comping at 11% and things could get better. So I guess, how should we think about potential incentive comp in the third quarter of this year? And then I hate that it’s type of boring question, but the structure you put in place with the convertible in the offsetting hedge, I think it’s $52.40 — $52.42 is our call that starts to become dilutive, you’re above that now. So could you give us any color on how we should think about the share count going forward? Thanks.

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

So I will take on the expense question, first. I mean we do have some significant additional expenses that we’re incurring here that could, with the COVID expenses that we have that — that could impact, the payout of incentive comp for this year. So, we have to have some really strong comps in order to get to the level of incentive compensation pay that we had last year. So probably greater than the 11% that we’ve got quarter-to-date. With regard to the convertible notes, we did put the bond hedge structure in place. And you’re right, the notes economically, excuse me, the convert becomes economically dilutive at around $52, 52.40 or so, order of magnitude at $55, on $55 on average for the quarter creates about 900,000 shares of dilution. So it’s about 1% dilutive at $55 a share on a non-GAAP basis. On a GAAP basis, it’s about 5.9 million shares on average for the quarter. If we are at $55 price for the quarter, it would be 5.9 million. Yes.

Michael Baker — D.A. Davidson — Analyst

Okay. That’s good color. And then presumably, the dilution goes up as the stock price goes higher.

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

Correct.

Michael Baker — D.A. Davidson — Analyst

Understood. Thank you.

Operator

Our next question comes from Adrienne Yih of Barclays. Please go ahead.

Adrienne Yih — Barclays — Analyst

Good morning. Congratulations on the progress in the quarter to date.

Lauren R. Hobart — President and Director

Thank you.

Adrienne Yih — Barclays — Analyst

My first question is on the digital. You’re welcome. Well deserved. My first question is on the digital business. As that grows, obviously you can see the data on new customers you’ve acquired since the pandemic began, can you share any of those metrics or statistics there? For, Lauren, can you talk about CALIA, DSG penetration? And probably more importantly going forward, your physical brick and mortar channel, it’s such a competitive advantage, given your end of all and big boxes. Are there opportunities for you to be the distribution channel for digitally native brands in athleisure footwear or maybe other categories? And then, Lee, my last question is, last quarter, inventory had been shipping out of the stores to keep inventory clean, what happened in the third quarter? And what should normalize ship from store be? Thank you very much for taking my questions.

Lauren R. Hobart — President and Director

Okay. Adrienne, it’s Lauren. I’ll try to tackle the first few. So as digital grows, we do have new customers joining the DICK’S ecosystem, meaningfully — a meaningful number of new customers and a meaningful number are coming into the digital channels, and those customers are repeating. So we’re very pleased with — with new customers, generally speaking, I don’t think I’m, going to go deeper than that at this point. But generally speaking — we’re very focused on retaining those new customers this quarter. CALIA and DSG are doing amazingly well as I mentioned, CALIA has been — CALIA is number 2 and 3. They are the number 2 and 3 women’s athletic and DSG brand is number 1 across the Board. We’re very focused on private brand growth.

I don’t want to share a penetration goal with you at this point, but we are — we are very, very, very enthusiastic about those brands as well as some other brands in the future. And then opportunities for us to be distribution channel for digitally native brands is a very interesting thing as in our longer-term horizon, not something I would say short term, but certainly, we do believe that the omnichannel strength that we have in the fact that we have 800 points of pickup and distribution, getting those to home could really be an advantage for us, first and foremost, and possibly in the future, but not media plans on that.

Adrienne Yih — Barclays — Analyst

Great, thank you.

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

Adrienne, with regard to the fulfillment channels in Q2, obviously, when you have nearly 200% comp increase, all of our fulfillment channels lifted in terms of volume. So our market fulfillment centers had significant increases year-over-year, curbside was huge, our ship from store picked up as well. Our vendor direct programs picked up. So, and we talked about, total mix 75% was fulfilled by the stores between ship from store and curbside. So all channels lifted in volume. The good news is, we had the infrastructure in place to handle kind of holiday level e-commerce sales for months on end with all the different fulfillment channels, we have turned on. So, as Lauren said earlier, a lot of the investments we made over time both in technology and in fulfillment really paid off for us during the quarter.

Adrienne Yih — Barclays — Analyst

Great. Thank you very much. Best of luck.

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

Thank you.

Lauren R. Hobart — President and Director

Thank you.

Operator

Our next question comes from Seth Sigman of Credit Suisse. Please go ahead.

Seth Sigman — Credit Suisse — Analyst

Hey guys, good morning. Congrats on the quarter. I wanted to follow up on that last point around the e-commerce economics, obviously in this environment, consumer adoption of online is accelerated probably by many years, do you de-elaborate on the efficiencies and the operating leverage that you’re seeing, that perhaps is more encouraging as we think about the scalability of e-commerce, does it change at all, how you think about the profitability of online over time? I realize that it has been improving in recent years, but does it give you any more confidence in what the profitability could look like over time?

Lauren R. Hobart — President and Director

Yes, it definitely does give us confidence, as we have this quarter, been able to leverage all of the fixed expenses, all the investment that you mentioned in order to drive more flow through on the bottom line. We also had increased merch margin and then reduced shipping costs on a per package basis, because of the increased BOPIS and curbside penetration. So overall a very, very meaningful improvement in our — in our e-commerce P&L, and something that we think we can continue to leverage. All of the investments that we’ve made over time to be able to scale the platform are coming to fruition at this point.

Seth Sigman — Credit Suisse — Analyst

Okay, that’s helpful. And just to clarify, with the profitability has improved even without the merchandise margin improvement.

Lauren R. Hobart — President and Director

Yes, meaningfully.

Seth Sigman — Credit Suisse — Analyst

Okay. Okay. And then just around merchandise margin, you had been bracing for more promotional activity later in the quarter in Q2. It doesn’t really seem like that happened. Can you just update us on what you’re seeing now? How are you planning for promotional activity for the balance of the year? And I’m just wondering, how much of the constraint promotional activity is tied inventory versus perhaps a more structural change in how vendors are controlling distribution now?

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

We don’t really see — the majority of what’s driving our business today, we don’t see that becoming more promotional. There are inventory constraints across a number of categories. And with those constraints, we don’t think it’s going to be very promotional. I think vendors are being very cautious and to make sure that the market doesn’t get flooded with products that needs to be cleaned up going into next year. So, I think everybody’s taking a pretty conservative approach from an inventory standpoint. And inventory will be in very good shape, I think, by the — at the end of the year. I don’t think there’ll be a glut. I don’t think there’ll be a meaningful margin rate erosion.

Seth Sigman — Credit Suisse — Analyst

Okay, great. Thanks a lot.

Operator

Our next question will come from Brian Nagel of Oppenheimer. Please go ahead.

Brian Nagel — Oppenheimer — Analyst

Hi. Good morning. Great quarter. Congratulations.

Edward W. Stack — Chief Executive Officer and Chairman of the Board

Thanks, Brian.

Brian Nagel — Oppenheimer — Analyst

And I apologize, I had just for getting to near-term focus. But just when we look at the performance here so far in the third quarter, and I understand that it’s extraordinarily fluid and there may be really no normal markets. But in markets that have opened up more, where you may be seeing more teams — regular team sports activity? Is there — are you seeing a different performance in the category there than the rest of the chain?

Edward W. Stack — Chief Executive Officer and Chairman of the Board

Meaningfully.

Brian Nagel — Oppenheimer — Analyst

Okay. Then the second question I have, I guess, as we look into the back half of the year, look, DICK’S is not terribly fashion focused, but there are new product launches from your key vendor partners who help to drive sales. So, as you’re talking to your partners, given the fluidity, the disruptions in the environment, how are they thinking about product introductions in the back half of the year? How do you think about that as a sales driver?

Edward W. Stack — Chief Executive Officer and Chairman of the Board

It depends on the category and it depends on the brands. There’ll be some — CALIA is launching a new driver in a few weeks, the — which we think is going to be great. Some other people have delayed launches to clean up some inventory. And so that there’s not a glut of inventory or they’re not doing product launches until — some people are talking about not doing any new product launches until actually ’22 in some categories, which I’m not going to get into what those are with those particular brands. I’ll let them talk about them.

But we — where there’s going to be newness, I think it’s going to be very good. I think some people that have had some newness now, but for reasons that business slowed down, whether that’s in some of the team sports area or backpack, some of that kind of stuff. Or there’s not going to be as much newness going into next year, we think that’s perfectly fine. So we have — we think the brands are being very thoughtful and appropriate in how they’re looking at this going forward.

Brian Nagel — Oppenheimer — Analyst

Thank you.

Operator

Our next question comes from Tom Nikic of Wells Fargo. Please go ahead.

Tom Nikic — Wells Fargo — Analyst

Hey, good morning, everyone. Thanks for taking my question and congrats on a great quarter. Yeah, I want to ask, there has been some news out there about stripping cost increases and some of the carriers levying surcharges for the key holiday season in November and December. Do you have any sort of, thoughts around that or mitigation strategies or how we should think about the gross margin impact from potential shipping in, especially in Q4?

Edward W. Stack — Chief Executive Officer and Chairman of the Board

The freight markets are tightening up out there, both truckload, intermodal and package delivery. So we are starting to see some increases in rates there on the package side. UPS is announced across the board rate increases. We are — we all do a very small part of our business with UPS. Most of it is done with FedEx at this point. But with the higher level of e-commerce business that is likely to occur in the back half of the year, both with us and with everybody else, I would expect there would be some level of surcharges from both FedEx and UPS, going forward for the fall. We don’t know the extent of that, at this point. But it is a potential headwind for later in the year. And that’s partially offset by, the tremendous amount of curbside pickup that we’re doing, which should mitigate some of that expense on the e-commerce side. So we’re excited about being able to offer that to our athletes as well.

Tom Nikic — Wells Fargo — Analyst

Got it. And when we think about, the — moving to another topic, when we think about the strong performance in Q2 and pretty solid quarter-to-date trends despite the back-to-school headwinds, and then certainly, when I think about it in terms of new customer acquisition versus something like wallet share among existing customers?

Lauren R. Hobart — President and Director

This is Lauren. I think it’s actually a little bit of both. We know we got new customer acquisition, but we also drove higher AURs and more sales within our existing customer base. So it was both.

Tom Nikic — Wells Fargo — Analyst

All right, great. Thanks very much and best of luck for the rest of the year.

Edward W. Stack — Chief Executive Officer and Chairman of the Board

Thank you.

Operator

Our next question comes from Sam Poser of Susquehanna. Please go ahead.

William Gaertner — Susquehanna — Analyst

Hi everyone. Good morning. This is Will on for Sam. I just wanted to follow-up on, this — that, you guys are taking you’re obviously taking market share, adding new customers. What are you guys doing to keep these new customers and make them quite a look sticky?

Lauren R. Hobart — President and Director

We are really, really focused on trying to get customers into the family and then to retain them. So we are — we’ve got a on a database of over 20 million athletes, every time we get a new athlete, it’s an opportunity to try to personalize and customize. And I would say the main change in what we’re doing versus what might have done in the past is that, it’s not just a promotional basket offer. It’s a targeted incentive for people to come into the store. So we — it’s — and we also have a ton of brand marketing out there to drive brand also very personalized and data driven.

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William Gaertner — Susquehanna — Analyst

That’s helpful. And then, you guys — you said that, your private brands, private label outperformed, company average by 500 bps. How does the private the private the private label business, specifically for DSG and CALIA, compare — how the performance compare online versus branded?

Edward W. Stack — Chief Executive Officer and Chairman of the Board

So, they’re not started right now, we are not going to give you a lot of detail but that is penetrated online yet is some other brands. But we’re moving in that direction. CALIA is making some real progress, and DSG is really only launched last year. But DSG will be — this year will be, our largest private brand across men’s, women’s kids and then into some of the hardlines categories that we have it in, so we’re really pleased with what’s going on with it. It hasn’t — it’s not as strong online yet. But we’re working through that. And no different than what we expected, really.

William Gaertner — Susquehanna — Analyst

Got you. And just one more for me, so Lee, as far as the SG&A savings, how much of that savings do you expect to continue, over into 2H and then into next year. How much of that is sticky?

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

In the short-term, over the next quarter or two. We’re going to continue to have some savings around travel expenses and consulting and things like that as we’re not — obviously not travelling as much as we had, due to the pandemic. But, from a staffing perspective, we are out aggressively hiring right now. So, I would expect some of the savings that we had from Q2 to mitigate as we work our way through the year and into next year.

William Gaertner — Susquehanna — Analyst

Fair enough. Thank you.

Operator

Our next question will come from John Kernan of Cowen. Please go ahead.

John Kernan — Cowen and Company — Analyst

Yes, thanks. Good morning, Ed, Lauren, Lee, congrats on a phenomenal quarter.

Edward W. Stack — Chief Executive Officer and Chairman of the Board

Thank you, John.

John Kernan — Cowen and Company — Analyst

I wanted to talk on ScoreCard. Lauren, I think you dropped the number, 20 million members, 70% of sales, obviously, driving data driven, personalization, marketing, etc. Can you talk about the future of this business, what it means the type of growth you’re seeing in members and what you’re able to accomplish from a sales per member versus non-member? Thank you.

Lauren R. Hobart — President and Director

We have a big push behind our ScoreCard program. We’ve recently, in the past year, launched a Gold program to reward our best customer and just keep driving a benefit to them that’s better than the standard ScoreCard or the standard customer benefit. So we’re driving membership. We have that enhanced online now, so that’s easier to apply online, which used to be a barrier. And then, just working on the value proposition, so that our best customers know how much we value them, and just putting everything through that lens when we make any decision to make sure that it’s right for our customers and right for specifically our best customers.

John Kernan — Cowen and Company — Analyst

Got it. Maybe one follow-up question. It feels like despite your private label success, a lot of the relationships with your key vendors across a lot of different categories, whether it’s softlines, hardlines have been strengthened recently. And you’re getting top level product, whether it’s CALIA drivers or Nike on the footwear side of things in the footwear deck, that really helps you grow and build.

I’m just wondering, can you talk about the strengthening relationship you have with a lot of your key vendors as we head into next year, certainly, it feels like on their own conference calls, they’re mentioning you more. It’s we can see it when we walk the stores. And just talk about the strengthening with the key vendors at this point as we go into holiday.

Edward W. Stack — Chief Executive Officer and Chairman of the Board

Yeah, I think we’ve always had great relationships with our vendors. So this isn’t something new. We’ve worked on this for a number of years and we’ve got great partnerships with the people that we do business with. I think one of the reasons that they’re strengthening going forward is that we have a footprint that allows us to showcase kind of a brand’s entire brand, whereas some other retailers that they do business with, they can showcase a portion of a brand, we can showcase an entire brand. If you take a look at some of the athletic companies, we can showcase the apparel footwear in the hardline side of their business, where some others can’t. When you take a look at a golf standpoint, what we can showcase across Callaway’s brand for clubs, bags, balls, gloves, the accessory piece of the business.

And I think they’re looking at us as somebody who can showcase their entire brand, give a great presentation to the consumer walking in that they can’t get. A couple of people have said to us, the way you guys present and the space that you dedicate to and the way that you service it and the way that you merchandise it, is how we would want to do it if we were doing our own store. And I think they just see us as a great gateway to the consumer. And the relationships have just continued to strengthen. And our vendors do what they say they’re going to do, and they know that if we say we’re going to do something, we’re going to do it.

So, I think the one thing that’s really helping to strengthen the relationships with the vendors is the trust and communication on both sides. And there’s been more communication, more strategic planning and more trust between us and our key vendors than I think there ever has been in the past. And we see that continuing.

John Kernan — Cowen and Company — Analyst

That’s great to hear. Thank you.

Edward W. Stack — Chief Executive Officer and Chairman of the Board

Thanks.

Operator

Our next question comes from Warren Cheng of Evercore ISI. Please go ahead.

Warren Cheng — Evercore ISI — Analyst

Hi. Good morning. I had a question on the new overtime and warehouse outlet stores that have been — they are half way through the quarter. How much of the store base is able to utilize the centers for clearance? And is it changing the realizations that you’re getting on some of the end of the like merchandise?

Edward W. Stack — Chief Executive Officer and Chairman of the Board

So, it’s definitely — this is a very — this concept is very much at its infancy stage right now. We don’t have many of them out there, but we’ve got — they can take a lot of the clearance merchandise, we can get out of the stores, the traditional stores and make room for the new product, which is really — is another thing that’s helping our margins. And we’re able to realize a higher-margin rate in these stores. And if we kept it in our store and tried to clean it out. So it’s been — it’s early on, we’re really pleased with what’s going on here with these stores.

Warren Cheng — Evercore ISI — Analyst

Okay. And then just going forward beyond this year, how do you see that fitting into your overall clearance strategy? How many more — or how much larger can that footprint be going forward?

Edward W. Stack — Chief Executive Officer and Chairman of the Board

Right now, we really don’t know. We’re just in the test phase. We’ll see how it goes. There’s — we’re working through this right now. Early on, we’re very pleased with it. But we’re not really ready to guide what this can be or how we’re going to go with the — going forward. It’s still really much — very much in the test phase.

Warren Cheng — Evercore ISI — Analyst

Got it. Thank you.

Operator

Our next question comes from Peter Benedict of Baird. Please go ahead.

Peter Benedict — Robert W. Baird — Analyst

Hi, guys. Thanks for taking the question. Two questions. First, just may be — may be an update on occupancy cost reduction, your cost — your progress on that front with some of your landlords. And I’m curious, how does Curbside figure into those discussions all — the enhanced use of this Curbside fulfillment, does that influence those discussions? And then secondly, the BOPIS attachment rates when folks are coming into the store to pick up an order, what have those attachment rates been historically? And are you seeing any change in that in the current environment what people are doing BOPIS? Thanks.

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

So, with regard to the occupancy costs, we made some pretty good progress in the second quarter on negotiations of occupancy cost in cases where the stores were closed. And a number of the leases, we had opportunity to abate our rents during a period of time that the stores were closed. From an accounting perspective, we’ve elected to defer those gains and spread the gains over the remaining life of the lease. So we didn’t pick up those earnings in — during the quarter. Most of those discussions have wrapped up by now, and we’re back to paying rent — pretty much everywhere at this point. So, relationships are pretty good right now, I’d say, with our landlord community.

Lauren R. Hobart — President and Director

On the BOPIS question, in terms of attachment rates, we are — we haven’t done something we’ve disclosed in the past, but we are actually trying to drive reasonable attachments and UPT with every transaction, be it in store, curbside or buy online pickup in store. And if you go see some of our curbside expressions, you’ll see relevant attachment items sometimes out on the curb that people can buy and/or offered on the website when you place the orders, if you’ll also need this system as well. So we’re definitely focused on that.

Peter Benedict — Robert W. Baird — Analyst

All right. Yes. Thank you. I’ve used curbside. It’s been fantastic experience. So, well done on that. Thank you very much.

Lauren R. Hobart — President and Director

Thank you.

Edward W. Stack — Chief Executive Officer and Chairman of the Board

Thanks.

Operator

Our next question will come from Scot Ciccarelli of RBC Capital Markets. Please go ahead.

Scot Ciccarelli — RBC Capital Markets — Analyst

Good morning, guys. Scot Ciccarelli. Thanks for squeezing me in. You mentioned that you have seen some meaningful performance differences in various geographies. Can you guys provide any more color on that? And I guess, I’m really curious, do you actually start to see a countercyclical effect where the sales of personal fitness and outdoor products actually accelerate enough where it more than offsets the team sports, where we’ve had additional COVID-19 outbreak?

Edward W. Stack — Chief Executive Officer and Chairman of the Board

We’re not going to get into kind of the geographic piece of this. What we did say is, we’re their playing team sports, we’ve seen the team sports business meaningfully outperform where they’re not, which is not surprising. I think the fitness business is going to be very good all over it. And people are just know that in order to fight the pandemic or whatever comes next, people need to be healthy.

And that doesn’t mean that, we’re going to have a lot of marathon runners, but people are going to get out and they’re going to walk, they’re going to buy threadmill, they’re going to lift some weights, even if they’re lightweights, kettle bells, this whole fitness trend is just people are going to try to be healthier. And we don’t see that changing even when COVID-19 is in our rearview mirror for quite a while.

Scot Ciccarelli — RBC Capital Markets — Analyst

Okay. Thanks for that. And then, I guess, a follow-up here. I’m just curious, if your field teams are starting to see any competitive closures. It just seems like a lot of the biggest economic pressures we’re seeing within the retail landscape or on smaller private companies, one-off businesses and the like. I wonder, if you started to see any of that in your particular sector.

Edward W. Stack — Chief Executive Officer and Chairman of the Board

Well, we’ve seen some closures. I mean, models is — even before COVID, they were going to close. So models is closing. I think, we’ll see a number of competitors close their — close stores, and we think we’ll be a beneficiary of some of this as it happens.

Scot Ciccarelli — RBC Capital Markets — Analyst

Got it. All right. Thanks, guys.

Edward W. Stack — Chief Executive Officer and Chairman of the Board

Sure.

Operator

Our next question will come from Chris Svezia of Wedbush. Please go ahead.

Chris Svezia — Wedbush Securities — Analyst

Good morning, everyone. Congratulations. Thanks for squeezing me in. I’ve got two. I guess, first, just on the — just curious, the 75% that’s e-commerce fulfilled in stores, did you call out for any chance how much of that is actually, what percentage of that is actually curbside? I’m curious about that, number one.

And number two, I guess, Ed, for you, overall, when you made a comment earlier that you’re playing the business off of 2019. I guess, I’m curious, as we look at the business model from a financial perspective, is that a way we should be looking at it as well, just given a lot of the sort of abnormality and fluctuations we’re going to see in 2020, some things stick around, some things don’t. Is that a fair way to kind of look at it? Or do you feel like they’re structurally going to be revenue benefits, margin benefits that will carry into 2021 over and above how we should think about looking at 2019?

Lauren R. Hobart — President and Director

Hi, Chris. So in terms of your first question, we haven’t specifically broken out how much curbside is of percent of that 75%. But we did say that it used to be majority right around cap, and it’s now 75% of the coming through the store, so you can do some rough interpretation there in terms of curbside, it’s very meaningful. And Ed, do you want to take the second one?

Edward W. Stack — Chief Executive Officer and Chairman of the Board

And as far as we go into ’19, I think you’ve got to look at your model, however, it works for you. We’re going off ’19 because we suspect next year in the first quarter, if you just look at it versus ’20, our comps will be positive. I’m not sure that our comps will be positive in the second quarter next year just because in the second quarter — our team did a great job. There was some pent-up demand from Q1. So this is a really odd year of how this is all going to play out. And hopefully, ’21 will be a more predictable year, let’s put it that way. And the best way we think to do this is to go off of ’19 from not only a sales standpoint, inventory standpoint.

It’s been our job to make a decision of what we think is going to happen category-by-category, department-by-department in region of the — country by region of the country. And so we’ve already started talking about this. We’ve started planning for ’21 already, as you would expect. And we’re really using ’19 as the base of where to go.

Chris Svezia — Wedbush Securities — Analyst

And just a follow-up quick one just on — and that’s helpful. Thank you. But just from a margin perspective, e-commerce, things like curbside pickup, just the sustainability of those to structurally impact the margin for the better as we move forward, how do I — how to maybe do we think that? And against the offset to a degree as we start to think about that as well?

Edward W. Stack — Chief Executive Officer and Chairman of the Board

I think the e-commerce business is going to continue to accelerate. I think the curbside piece is going to accelerate. So I think the curbside piece is what I think some people miss about this is it started off as a safety piece. People wanted it because they didn’t want to come in contact with anyone else. It’s now becoming a convenience piece.

There was a number of people have said to me, hey, curbside was great. I called, I got there, I sent the text, or I made the phone call. In a couple of minutes, they brought the product up, and I was on my way. So, this is really getting to be a convenience piece. I think it will be more a convenience piece in ’21 than that is a health and safety concern as it is today. So we think that’s going to continue. And I think that will accelerate. The one thing everybody — I’m not — maybe not right now, but the one thing everybody felt time constrained was their time. And I think curbside gives people some time back, and I think it’s going to continue.

Chris Svezia — Wedbush Securities — Analyst

All right. Thank you very much, and all the best.

Edward W. Stack — Chief Executive Officer and Chairman of the Board

Sure. Thank you.

Operator

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

Edward W. Stack — Chief Executive Officer and Chairman of the Board

I’d like to thank everyone for joining us on our Q2 call, and we look forward to talking to everybody when we release earnings for Q3. Thank you very much, and everybody stay well and stay safe.

Operator

[Operator Closing Remarks]

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