Dick’s Sporting Goods, Inc. (DKS) is reporting that it will absorb pretax charges of between $500 million and $750 million in future quarters to clear unproductive inventory and close an as-yet-undetermined number of stores in its recently acquired Foot Locker business.

On the company quarterly earnings conference call with analysts, Dick’s Sporting Goods, Inc. Chairman Ed Stack said the first priority is clear. “We need to clean out the garage of underperforming assets.”

The Foot Locker update came as the company reported better-than-expected 2025 third-quarter results, boosted by a 5.7 percent same-store increase at the core Dick’s Sporting Goods business. The results prompted management to lift its guidance for the stand-alone Dick’s business for the year.

DKS shares closed about flat on Tuesday as the continued momentum at the core Dick’s business was offset by news of a recovery strategy for Foot Locker that was longer and more painful than some investors hoped. Shares of Dick’s closed at $206.71 on Tuesday, November 25, up 37 cents, on the New York Stock Exchange.

Stack, who has been guiding the Foot Locker restructuring, also said Dick’s plans to make in-store visual changes and expand apparel offerings at Foot Locker stores, but he stressed that the primary problem driving Foot Locker’s recent weak results is that stores are carrying the wrong product.

“When we announced this acquisition, we knew that business was going to need work,” said Stack. “Let me be candid. Foot Locker strayed from Retail 101 and did not execute the fundamentals. Post-COVID, Foot Locker did not react quickly enough as its largest brand pivoted toward a direct-to-consumer model, leaving Foot Locker with the wrong inventory — too much of what didn’t sell and not enough of what did sell.”

Stack is referencing Nike’s 2022 move to significantly reduce sales to Foot Locker, including pulling back high-heat launch product, as part of its push to emphasize direct-to-consumer sales. Under its new CEO, Elliott Hill, Nike is repairing its relationships with many wholesale partners, including Foot Locker.

Stack said Foot Locker initiated certain pricing actions late in the third quarter and plans to be “more aggressive” in Q4 to clean up unproductive inventory. Said Stack, “Our intent is to get the vast majority of the inventory charges behind us by the end of the year so we can start 2026 fresh and position Foot Locker for an inflection point during the back-to-school season in 2026.”

Stack said the product being marked down focuses on “older underperforming SKUs,” with the merchandise expected to be sold off to jobbers to reach off-price channels at year’s end, to “be able to get a fresh start in 2026.”

Stack said he is hoping to see improvement at Foot Locker in the first half of 2026, but is more confident about an inflection in the second half because it’s the first season the mix will be bought with full support from Dick’s buying team. Said Stack, “We think that there’s going to be some talking to the brands about trying to plug some holes. But the third quarter or the back-to-school time frame is the first time we will have had complete control over the assortment going forward.”

Foot Locker’s Pro-Forma Comps Drop 4.7 Percent in Q3
In the third quarter, comps on a pro-forma basis at Foot Locker declined 4.7 percent, worse than the 2 percent decline analysts on average expected. Comps declined 2.6 percent in North America and 10.2 percent at Foot Locker International, driven by softness in Europe.

With the deal closing on September 8, Dick’s overall results reflect eight weeks of Foot Locker’s results spanning September and October. Foot Locker reported a $46.3 million operating loss over those eight weeks, primarily driven by a gross margin decline, in part tied to accelerated markdowns. On a pro-forma basis for the full quarter, including the profitable back-to-school selling season from August and through Labor Day, non-GAAP operating income for the Foot Locker business in Q3 was approximately $6.8 million.

For the fourth quarter, the margin rate for the Foot Locker business is expected to be down between 1,000 to 1,500 basis points due to markdowns, with pro-forma Q4 comp sales down mid- to high-single-digits.

Excluding the one-time costs associated with the company’s actions to address unproductive assets, including inventory optimization and the closure of underperforming stores, the company expects Q4 operating profit for Foot Locker to be slightly negative.

The markdown pressures aren’t expected to impact Dick’s core footwear business since Dick’s carries different product, asserted Stack. He also does not see promotions overall as “meaningfully different” from the prior year, which would pressure Dick’s core business. Stack said, “We do feel that we’ve got different and innovative product, more premium product that’s not as fully distributed in the marketplace. We don’t see that promotional activity impacting our business a whole lot.”

Navdeep Gupta, Dick’s CFO, said clearing old inventory will take up “quite a decent chunk” of the $500 million and $750 million in anticipated charges. The charges will also cover the impairment of technology assets, some legacy contracts and store closings.

Asked in the Q&A session about how many Foot Locker’s 2,339 stores will close, Stack said Dick’s is” still addressing that.” He noted that “many really need to be closed,” but also said management is exploring “how many can we make more profitable.” He promised more details on closures on its fourth-quarter analyst call.

Planned Merchandise/Visual Changes at Foot Locker
Asked about merchandise changes at FL, Stack said, “We’ll merchandise Foot Locker for Foot Locker, which is going to be a bit more basketball-inspired, a bit more trend-inspired,  definitely more urban than the Dick’s business. Dick’s business will be more sport-led, along with the lifestyle product. We think Dick’s is really kind of at the center of sport and culture. And it’s a more suburban concept.”

However, he reiterated that consumers across categories are seeking products that are “new, innovative, and different” in footwear, and Foot Locker “didn’t have that new and innovative product. As we get into 2026, we’ll start to have more of that product,” said Stack.

Stack also said Dick’s sees a larger apparel opportunity in Foot Locker’s mix. He noted that, with Foot Locker’s previous management focused on private-label apparel, the category in stores overall. Stack sees an opportunity for national brands to have “a meaningful increase in the apparel business in Foot Locker, which will help drive the AURs [average unit retail], and we think it’ll be very profitable.” He believes private label will still “certainly have a place” in Foot Locker’s apparel mix.

More on-trend footwear items and larger apparel assortments are being piloted at 11 Foot Locker doors, with Stack saying he’s “encouraged by what we’re seeing and learning.”

Visually, the piloted Foot Locker doors have realigned the shoe wall to create larger statements around trends. Stack said the look of a typical shoe wall at a Foot Locker has been “kind of merely a run-on sentence of shoes,” and Dick’s is attempting to simplify the storytelling. Stack said, “What we’ve done is we’ve taken and tried to segment it and show the consumer what’s important in the stores.”

He also said Dick’s plans to take out Foot Locker’s upfront “Kick It Club” and “Drop Zone” sections, highlighting launch product to improve sight lines, balance each store’s offerings, and create more space for apparel.

Stack noted that Dick’s has a “world-class management team,” to steer Foot Locker’s recovery, calling out the hiring of former Nike executive Anne Freeman as Foot Locker North America president.

Dick’s also announced on Tuesday, November 25, that it had hired Matthew Barnes, former CEO of grocer Aldi with turnaround experience, as head of Foot Locker International. Stack said, “He’s a Brit, and we think that it truly needs to be run by a European. We’re making some real changes in how we are approaching the international business, which we think is going to be very positive.”

He also cited Foot Locker’s sneaker-loving store employees as “our secret weapon as we go forward,” and said the turnaround has the full support of brand partners. Stack said, “We’ve talked with every brand, and every brand has a renewed interest in being supportive of Foot Locker, and they’ve all talked that they want a stable and growing Foot Locker.”

Dick’s still expects Foot Locker to be accretive to earnings in 2026, including with support from $100 million to $125 million in cost synergies previously signaled over the medium term, primarily from procurement and direct sourcing efficiencies.

Stack is also still confident that the Foot Locker acquisition will enable Dick’s to serve a broader consumer base, deeper brand partnerships, and significantly expand its total addressable market.

He said, “Now, after looking even deeper under the hood as the owners of Foot Locker, our conviction that we can turn this business around has only grown. We will bring our operational excellence, our supplier relationships, and our merchandise expertise to return Foot Locker to its rightful place as a top player in the specialty athletic channel.”

Dick’s Q3 Results Top Analyst Targets
In the quarter, Dick’s consolidated net sales increased 36.3 percent to $4.17 billion, driven by an approximate $931 million sales contribution from a partial quarter of owning the Foot Locker business and the 5.7 percent comp increase for the Dick’s business.

The 5.7 percent same-store gain at the Dick’s business topped analysts’ consensus target of 3.5 percent and was driven by a 4.4 percent increase in average ticket and a 1.3 percent increase in transactions. On a two-year and a three-year stack basis, comps for the Dick’s business increased 10 percent and 11.9 percent, respectively.

Gupta said Dick’s continues to gain market share, with the increase supported by “broad-based strength” across its three primary categories: footwear, apparel and hardlines.

Lauren Hobart, president and CEO, added on Dick’s business, “If you look at Q3, one of the great things we saw was that we had growth across all of our key categories. When you think of back to school, you think of ‘back to sport,’ you think of footwear and apparel and team sports. We knocked it out of the park with those categories. But also, golf and as well as our licensed business and our trading card business are really doing well.”

Consolidated gross profit for the quarter was 33.1 percent of net sales, down 264 basis points from last year due entirely to lower gross margin at Foot Locker. For Dick’s business, gross margin increased 27 basis points, in line with expectations.

On a non-GAAP basis, consolidated SG&A expenses increased 40.8 percent and deleveraged 84 basis points compared to last year’s non-GAAP results. For Dick’s business, expense dollars increased 7.7 percent and deleveraged 45 basis points, in line with expectations and driven by strategic investments digitally, in-store, and in marketing to position the Dick’s business for growth.

Consolidated preopening expenses were $30.6 million, an increase of $13.8 million year over year to support the opening of 13 House of Sport and six Field House locations.

Consolidated non-GAAP operating income was $242.2 million, down from $289.5 million last year, reflecting the $46.3 million operating loss in the quarter from the Foot Locker business. For Dick’s business, non-GAAP operating income was $288.6 million in the latest quarter.

Earnings at Dick’s business on a non-GAAP basis slipped 2 percent to $226 million from $228 million, largely reflecting the House of Sport and Field House openings. Non-GAAP EPS for the Dick’s business of $2.78, up from $2.75 during the prior year quarter and ahead of analysts’ consensus target of $2.70.

On a non-GAAP basis, consolidated earnings declined to $181 million, or $2.07 a share, from $228 million, or $2.75, a year ago. The Foot Locker business contributed a negative 52 cents per share impact, including a gross margin decline and a higher tax rate, as well as a 19 cents per share negative impact from the increased share count.

On a GAAP basis, consolidated earnings were $75 million, or 87 cents a share, down from $228 million, or $2.75, a year ago. The quarter reflects noncash gains from nonoperating Foot Locker stock, as well as $141.9 million of pretax Foot Locker acquisition-related costs.

Outlook
For the full year, Dick’s raised its full year 2025 guidance for comparable sales growth for the Dick’s business to a range of 3.5 percent to 4.0 percent, up from 2.0 percent to 3.5 percent previously. Full year 2025 EPS guidance for the Dick’s business was raised to a range of $14.25 to $14.55, up from $13.90 to $14.50 previously.

Image courtesy Dick’s Sporting Goods