DICK'S Sporting Goods Q2 Earnings Call Highlights

Key Points

• Core DICK’S performed well: Comparable sales increased 4.9%, while consolidated sales rose 53.2% to $5.59 billion, including $1.74 billion from Foot Locker. However, earnings per share and operating margins declined as the company invested in competitive pricing.
• Promotional pressure hurt footwear and Foot Locker: Excess inventory and weaker demand for legacy footwear styles weighed on margins, while Foot Locker reported a 3.6% pro forma comparable-sales decline and a $31.9 million operating loss. EMEA conditions were particularly challenging.
• Full-year guidance was reduced: DICK’S lowered its consolidated non-GAAP earnings outlook to $11-$12 per share from $13.50-$14.50 and cut its Foot Locker forecast to an operating loss of $80 million-$40 million, while maintaining core comparable-sales guidance of 2.5%-4%.

DICK'S Sporting Goods NYSE: DKS reported strong second-quarter sales growth in its core business but lowered its full-year earnings outlook as a more promotional athletic footwear and apparel market pressured margins and weighed more heavily on its recently acquired Foot Locker operations.

Consolidated net sales rose 53.2% to $5.59 billion, including a $1.74 billion contribution from Foot Locker. The core DICK'S business generated comparable-sales growth of 4.9%, driven by a 3.6% increase in average ticket and a 1.3% increase in transactions. The company said its DICK'S comp growth outpaced the broader industry by nearly 200 basis points.

However, consolidated non-GAAP earnings per diluted share fell to $3.53 from $4.38 a year earlier. Consolidated non-GAAP operating income was $453.3 million, or 8.11% of sales, compared with $475 million, or 13.02% of sales, in the prior-year period.

Promotions Pressure Footwear and Apparel Margins

Executive Chairman Ed Stack said inventory built across parts of the athletic industry as consumer preferences moved away from certain legacy footwear silhouettes and apparel franchises. Brands began using more promotions on their own websites, he said, with those discounts spreading through the wider marketplace.

“The consumer is looking for products that are new, innovative, different in the marketplace,” Stack said. “Some of these older legacy silhouettes and franchises that have done so well have slowed and slowed relatively quickly.”

DICK'S said it chose to invest in competitive pricing to preserve market share and its leadership position, even though that decision created margin pressure. Stack characterized the pricing actions as a long-term investment and said the company expects the promotional environment, particularly around legacy footwear styles, to continue at least through the fourth quarter.

The core DICK'S business was less affected because of its wider category mix and more balanced brand portfolio, management said. Team sports and licensed merchandise were particularly strong, while running footwear, cleats and outdoor products remained healthy. The company also pointed to demand for newer apparel brands and products, including Gymshark, Free People Movement and Nike Solo Swoosh fleece.

Management said performance footwear remains healthy, while pressure has been concentrated in lifestyle-oriented legacy styles. Stack cited Nike running products, Adidas women’s offerings, On, HOKA, UGG and Birkenstock as areas where the company sees demand and future opportunity.

Foot Locker Results and EMEA Challenges

Foot Locker’s pro forma comparable sales declined 3.6% during the quarter, reflecting declines in North America and international markets. The business posted an operating loss of $31.9 million in the quarter, compared with operating income of $485.2 million for the DICK'S business.

Stack said Foot Locker was more exposed to the legacy footwear silhouettes facing demand pressure and was more dependent on product launches and retro styles. There were fewer launches during the quarter, and the launches that did occur performed below management’s and the industry’s expectations, he said.

Conditions in Europe, the Middle East and Africa were also more difficult than anticipated. Stack said EMEA has been more promotional and competitive than the U.S., with excess inventory and a more cautious consumer amid geopolitical conditions. Those dynamics have delayed the expected pace of Foot Locker’s improvement, although executives said they remain confident in its long-term turnaround opportunity.

The company is continuing to invest in Foot Locker’s brand marketing, store employees known as Stripers, and the Fast Break store format. DICK'S exceeded its back-to-school objective of operating about 250 Fast Break stores globally and said it expects to have more than 300 to 350 such stores by year-end. Stack said Fast Break locations have outperformed legacy Foot Locker stores, though their assortments still include some pressured legacy products.

Management also reiterated its expectation for $100 million to $125 million in medium-term cost synergies from the Foot Locker acquisition, primarily through procurement and direct-sourcing efficiencies. DICK'S expects up to $750 million in total pretax charges tied to its “clean out of the garage” actions and broader merger and integration work; it has recognized $516 million so far.

Growth Investments Continue

Despite the tougher market, DICK'S said it is continuing to invest in growth initiatives across its store fleet, loyalty platform, media network and youth sports ecosystem. During the quarter, the company opened five House of Sport locations and eight Field House locations. For the year, it expects to open about 14 House of Sport stores and 20 Field House stores.

Chief Executive Officer Lauren Hobart said the company’s World Cup marketing investments, primarily through its Adidas partnership, delivered strong results and could support long-term soccer participation and demand in the U.S. DICK'S also relaunched its ScoreCard loyalty program, which includes about 30 million active athletes, and introduced ScoreCard+, a $99 annual paid membership tier.

The DICK'S Media Network and GameChanger continued to contribute to earnings and helped offset some promotional pressure, Hobart and Chief Financial Officer Navdeep Gupta said. Gupta said DICK'S merchandise margin expanded by about 150 basis points before considering other factors discussed during the call, supported by those businesses.

The company also received approximately $59 million in tariff refunds during the quarter, including $57 million related to DICK'S and $2 million related to Foot Locker. About $21 million was included in non-GAAP second-quarter results, while $38 million was excluded as a one-time benefit related to tariff expense recognized in the prior year.

Outlook Reduced as Margin Pressure Persists

DICK'S maintained its full-year comparable-sales outlook for its core business at growth of 2.5% to 4%, but reduced its expected operating margin range to 10.6% to 10.9% from 11% to 11.4%. The company now expects core DICK'S gross margin to decline slightly for the full year, with the greatest pressure expected in the third quarter.

For Foot Locker, DICK'S now expects pro forma comparable sales ranging from a 2% decline to flat for the year, down from prior guidance for growth of 1.5% to 3%. It now forecasts a Foot Locker operating loss of $80 million to $40 million, compared with its earlier expectation for operating profit of $110 million to $150 million.

At the consolidated level, the company lowered its full-year non-GAAP earnings outlook to $11 to $12 per diluted share from $13.50 to $14.50. It expects a full-year effective tax rate of about 29%, roughly 200 basis points above its previous outlook, partly due to expected persistence of current conditions in EMEA.

DICK'S ended the quarter with approximately $914 million in cash and cash equivalents and no borrowings under its $2 billion unsecured credit facility. It expects net capital expenditures of about $1.4 billion for the year, split roughly 70% toward DICK'S initiatives and 30% toward Foot Locker.

About DICK'S Sporting Goods (NYSE:DKS)

DICK'S Sporting Goods is a leading U.S.-based sporting goods retailer that sells a broad range of sports equipment, apparel, footwear and outdoor gear. The company operates an omnichannel business combining physical stores with digital sales, offering products for team sports, fitness, hunting and fishing, golf, and general active lifestyle categories. In addition to its flagship DICK'S stores, the company operates specialty formats such as Golf Galaxy and branded service offerings including team-sports sales and custom equipment solutions.

The company traces its roots to a single sporting goods outlet founded in 1948 and has since grown into a national retail chain serving customers across the United States.

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