TLDR
- Dick’s Sporting Goods missed Q2 earnings expectations and cut its full-year EPS guidance to $11.00-$12.00, down from $13.50-$14.50.
- Telsey Advisory Group downgraded DKS to Market Perform and slashed its price target to $145 from $255.
- The newly acquired Foot Locker business posted a Q2 operating loss of $31.9 million, with pro forma comps down 3.6%.
- The core Dick’s banner performed well, with comparable sales up 4.9%, helped by World Cup product.
- An industry-wide promotional environment and inventory glut are expected to persist through at least Q4.
Dick’s Sporting Goods (DKS) is under pressure after a mixed Q2 earnings report sent analysts scrambling to revise their outlooks. The stock slipped roughly 1.2% following the results.
DICK’S Sporting Goods, Inc., DKS
Full-year non-GAAP EPS guidance was cut to $11.00-$12.00, well below the prior range of $13.50-$14.50. That reset was enough for Telsey Advisory Group to downgrade the stock to Market Perform from Outperform, slashing its price target from $255 to $145.
The headline revenue number looked strong on the surface. Consolidated net sales jumped 53.2% to $5.59 billion, largely driven by $1.74 billion in revenue from the Foot Locker acquisition.
Foot Locker Weighs on Results
But the Foot Locker business is proving to be a heavier lift than expected. Pro forma comps fell 3.6% in Q2, and the segment posted an operating loss of $31.9 million. For the full year, management now expects Foot Locker pro forma comps of minus 2% to flat, with an operating loss of $80 million to $40 million.
That’s a sharp reversal from earlier expectations that pointed toward profitability.
Telsey analyst Cristina Fernández said the Foot Locker turnaround is now delayed “at least a few quarters,” citing weaker demand in lifestyle footwear and shifting consumer tastes toward dressier styles.
Brands like On and Hoka are holding up better. But the slowdown is hitting adidas and New Balance too, not just Nike.
The broader footwear market is dealing with an inventory glut, particularly in older silhouettes. Management expects a highly promotional environment to persist at least through Q4, with Q3 flagged as the toughest quarter for margins.
Consolidated non-GAAP gross profit came in at $1.9 billion, or 34.06% of sales, down roughly 300 basis points year over year. Non-GAAP operating income fell to $453.3 million, or 8.11% of sales, compared to 13.02% a year ago.
The Core Dick’s Business Held Up
Away from Foot Locker, the core Dick’s banner had a decent quarter. Comparable sales rose 4.9%, with World Cup product helping drive traffic. Two-year and three-year comps of 9.9% and 14.4% show the chain continuing to outpace the broader industry.
Gross margin within the Dick’s banner actually expanded about 79 basis points year over year, helped by contributions from the Dick’s Media Network and GameChanger, plus tariff refunds recognized in the quarter.
The ScoreCard loyalty program now has around 30 million active athletes. A new paid tier, ScoreCard+, priced at $99 per year, launched to deepen customer engagement.
On the real estate side, five new House of Sport and eight Field House locations opened during the quarter, with around 14 and 20 openings expected for the full year respectively.
The company ended the quarter with approximately $914 million in cash and no borrowings on its $2 billion credit facility. It returned $111 million to shareholders through dividends.
Management still expects to achieve $100 million to $125 million in medium-term cost synergies from the Foot Locker integration, with $516 million in integration charges recognized so far out of an expected $750 million total.
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