S&P Global Ratings lowered its debt ratings outlook on Dick’s Sporting Goods after the retailer reported second-quarter results that came in lower than expectations due to “a highly promotional environment from industry-wide inventory build-ups across key brands and fewer footwear launches, which affected its Foot Locker business.”

The rating agency also noted that legacy lifestyle silhouettes are “not resonating the way they once did along with costs of turning around Foot Locker eroded profitability, leading to leverage rising to the mid-2x area on a pro forma basis.”

S&P revised its base-case forecast downward and now expects leverage to remain above 2x through fiscal 2027. It previously forecasted a decline to below 2x in fiscal 2026.

As a result, S&P revised its outlook on Dick’s to stable from positive and affirmed all the ratings, including the ‘BBB’ issuer credit rating.
The stable outlook reflects its expectation that Dick’s will manage leverage at 2x-3x over the next 12 to 24 months. It also incorporates S&P’s forecast for modest topline growth and weaker profitability metrics from a promotional pricing environment and costs to revitalize Foot Locker.

S&P said in its analysis, “The outlook revision reflects weakening credit metrics and challenges revitalizing Foot Locker. We now forecast S&P Global Ratings-adjusted leverage to remain elevated at approximately 2.4x by year-end 2026 compared with our previous expectation of 1.7x. Although we anticipate ongoing sales growth in Dick’s core business could support margin expansion, we expect these gains will be more than offset by discounting initiatives and weaker profitability at Foot Locker, resulting in sustained pressure on consolidated EBITDA margins through fiscal 2026.

“Management targets cost-savings synergies of $100 million–$125 million, primarily through procurement, sourcing, and operational efficiencies at Foot Locker. However, we view these synergies as a longer-term benefit rather than a near-term driver. The key factor will be Dick’s ability to stabilize Foot Locker’s sales and margins, which would enable synergies to more visibly support earnings over the medium term.

“Consequently, we forecast S&P Global Ratings-adjusted EBITDA margins will contract to 14.8% in 2026 from 15.1% in 2025. While we maintain a favorable view of Dick’s core business positioning, we believe that the incremental promotional investments required to preserve market share amid intensifying retail competition, together with the ongoing weak earnings contribution from Foot Locker, will slow the pace of deleveraging relative to our prior expectations.

“Foot Locker, which Dick’s acquired last fall, reported a 3.6% drop in same-store sales, as product launches lacked innovation and underperformed both industry and management expectations. In our view, this suggests that Foot Locker’s challenges extend beyond the current promotional environment and continue to point to a broader issue around product relevance and merchandising. We believe the lack of compelling newness across key footwear brands is particularly problematic for Foot Locker given 85% of its sales is in footwear. We expect the business to remain under pressure until inventory in stores reflects newness that resonates with consumers and there is some product diversity to offset competitive footwear dynamics. As such, we expect the key focus will be on whether the company can stabilize Foot Locker’s comparable sales and improve product performance.

“On a stand-alone basis, however, Dick’s achieved a 4.9% increase in same-store sales, as it benefited from World Cup-related traffic and broader product offerings. While we expect the core Dick’s business to remain relatively well positioned, we believe Foot Locker will require meaningful investment. As of the second quarter, performance continued to diverge between North America and international markets. North American comparable same-store sales declined 3.6%, while international sales across EMEA fell 3.3%. We expect EMEA stores will face greater challenges to profitability due to ongoing geopolitical uncertainty, which has weighed more heavily on consumer spending outside North America.

“We view Dick’s liquidity as adequate, as high capital expenditures are pressuring cash flows. As of the end of the second quarter of 2026, the company had approximately $914 million in cash on hand and no borrowings under its $2 billion revolving credit facility. We forecast the cash balance is seasonally high and will be used to purchase inventory during its peak third quarter.

“We project free operating cash flow (FOCF) of roughly $165 million in fiscal 2026 compared with approximately $391 million in fiscal 2025, with the year-over-year decline attributed primarily to higher capital expenditures. This incorporates capital expenditures of roughly $1.6 billion, which represents a year-over-year increase in capital spending of about $463 million from fiscal 2025. The increase is primarily to fund the ongoing rollout of experiential store formats like House of Sport and Field House, continue integrating and upgrading its recently acquired Foot Locker store fleet, and advance core digital and technology infrastructure.

“We expect Dick’s will continue funding shareholder returns and project it will pay cash dividends of $430 million–$450 million and repurchase a total of $750 million–$850 million of shares. As of Aug. 1, 2026, the company had $3 billion remaining under its existing share-repurchase authorization. Declines in equity value could prompt shareholder returns, especially if the Foot Locker turnaround is delayed.

“The stable outlook reflects our expectation that Dick’s will manage leverage at 2x-3x over the next 12-24 months. It incorporates our forecast for modest topline growth and weaker profitability metrics from a promotional pricing environment and costs to revitalize Foot Locker.”

Image courtesy Foot Locker