Dick’s Sporting Goods is ‘confident’ it can prove that buying Foot Locker is the right move
Dick’s Sporting Goods has been on a tear the past few years, reporting five quarters with comps over 4%. Now, it wants to further prove out its operational prowess by taking over a competitor.
On its first-quarter earnings call Wednesday morning, Dick’s Sporting Goods reported yet another quarter of growth, with comparable sales up 4.5%. But many analysts had further questions about Dick’s announcement in mid-May that it intends to buy Foot Locker for $2.1 billion.
On the earnings call, Dick’s executive chairman Ed Stack was asked if there was anything he felt like the market was missing in regard to the acquisition. After Dick’s announced its intention to acquire Foot Locker in mid-May, its stock dropped by 7% in after-hours trading. “We understand that there is really a group of people out there … that would prefer we continue doing what we are doing,” Stack said. But, he added, “We don’t think that’s right longterm for the business.” In turn, he and other executives spent the earnings call laying out their pitch for why they think acquiring Foot Locker is the right move.
Ultimately, Stack said, the company is “confident that we will be able to prove the Foot Locker acquisition is the right decision.”
The impetus behind the Foot Locker acquisition, Stack said, is that “the convergence of sport and culture has never been stronger.” Dick’s believes that acquiring Foot Locker will allow it to get a greater foothold in culture and reach different types of customers than it could on its own. Foot Locker’s offerings are more geared toward a younger shopper interested in sneaker culture while Dick’s is focused on a whole family of athletes — everyone from youth soccer players to people picking up golf in their 30s to marathon runners.
The Foot Locker acquisition will also allow Dick’s Sporting Goods to have an international presence for the first time and to strengthen brand relationships with its vendors.
But beyond the ability to reach new customers and new markets, much of Dick’s sales pitch for this deal essentially centers around the fact that: the company believes it has the operational track record to pull this deal off.
While the rest of the retail industry has been battling inflation and consumer fatigue, Dick’s has seen consistent sales growth since the pandemic. The company reported that average ticket sales and transactions were both up this quarter, a reflection of the fact that “more athletes purchased from us, they purchased more frequently, and spent more,” the brand’s president and CEO, Lauren Hobart, said.
Dick’s, like many companies has been experimenting with new revenue streams. On the earnings call, it pointed to its retail media network and Gamechanger, a mobile scorekeeping app for sports leagues that it acquired in 2016, as two lines of business driving profitable revenue growth. It’s been experimenting with new retail concepts like its House of Sport stores that contain more interactive concepts like a rockclimbing wall and golfing simulators for people to test out equipment. The company said it plans to open 16 additional House of Sport locations in 2025.
Neil Saunders, managing director of GlobalData Retail, said in an email that Dick’s has also “significantly improved the presentation in stores for apparel, in particular.”
“It uses more mannequins and has better displays than it used to,” he said. “It is basically less utilitarian and more lifestyle-oriented.” It also has added products from more fashion-oriented brands like Marine Layer, FP Movement and Vuori, which “has attracted new customers and helped lift sales.”
But Foot Locker is a different beast. Foot Locker operates approximately 2,400 stores across 20 countries, compared to the 850 stores Dick’s has, solely in the U.S., across its various banners.
Saunders said that “Dick’s has good buyers who deeply understand categeories,” plus “it has a very strong supply chain and wields some power with the big brands,” which should be helpful in integrating Foot Locker into the business. During the earnings call, executives were also asked by analysts about the company’s reaction to the news that Nike would soon start selling through Amazon again and how it could impact what inventory Dick’s gets. “Nike and all of our brands do a good job segmenting, and we expect this to be no different,” Hobart said.
But Saunders also noted that Dick’s doesn’t have experience taking over a large business like Foot Locker. “There can be all kinds of problems when doing this, from IT to culture to operational procedures,” he said. “A lot of this will be new to Dick’s, and it will need to navigate these things while keeping its core business humming along nicely.”
Dick’s is betting on the expertise of Stack, who was CEO of Dick’s from 1984 to 2021, to pull off the Foot Locker acquisition. “We have the Dick’s business that has so much momentum, and we are going to keep our Dick’s team fully focused on that momentum,” Hobart said. At the same time, she said Stack and a small team would work with the Foot Locker team to unlock “all of the gross margin that we know is available” in the Foot Locker business. She also emphasized Stack’s operational excellence and the strong brand relationships he has built, given his decades in the industry.
To keep Wall Street happy, Dick’s executives also emphasized that they expect to see results relatively quickly from the deal, stating in a press release that they project the transaction to be accretive to EPS in the first full fiscal year post-close, excluding one-time costs from the transaction. The deal is subject to Foot Locker shareholder approval, as well as regulatory approval, and is expected to close in the second half of 2025.
“We are confident that we will be able to execute the heck out of this and drive that gross margin improvement,” Hobart said.