When Dick’s Sporting Goods Inc. (DKS) Executive Chairman Ed Stack, President & CEO Lauren Hobart, and CFO Navdeep Gupta hosted their conference call with analysts on Tuesday morning, August 25 to discuss fiscal second quarter results, the conversation became more about staying the course, the company’s commitment to the acquired Foot Locker business, and how the trio expects to weather the storm that hit earlier in the morning when the company released its earnings for the most recent period.

As DKS shares approached $126 per share at mid-day, or 70 percent of their value before the market opened to heavy trading on Tuesday, it became clear that the sell-off suggests investors and analysts were more focused on the full-year guidance cut provided to the market and weakness in the Foot Locker Business than on the strong top-line growth in the Dick’s Business.

Stack appeared to be unwavering in his view of the business going forward and the opportunities for the business.

“While these near-term dynamics have led us to revise our expectations for 2026, our confidence in the long-term opportunities ahead for both Dick’s and Foot Locker remains unchanged,” he said in the early morning earnings release. And that perspective played out through the conference call as well even as the executives were challenged on the health of the business.

The bottom line: the company believes it has levers to pull that may not be available to other retailers due to their relationships with vendors and the more diverse nature of the Dick’s Business that sees athletic footwear – notably stale lifestyle silhouettes – as part of the puzzle and not the complete picture. Footwear in the Dick’s Business, which includes the Dick’s Sporting Goods, Dick’s House of Sport, Golf Galaxy, Going Going Gone! and Public Lands banners, as well as GameChanger and Dick’s Media, represents only 40 percent of the total business across banners.

According to the last 10-K filed by Foot Locker with the SEC, footwear represented 84 percent of total sales for 2024, the last full year as a public company Apparel and accessory sales were 16 percent of the business. Further, Foot Locker purchased 85 percent of its merchandise from its Top 5 suppliers in 2024. Approximately 59 percent of all merchandise purchased by Foot Locker in 2024 was purchased from one supplier: Nike, Inc. “Each of our banners is highly dependent on Nike,” the company wrote in it Risks section on the 10-K.

If this was Foot Locker standing alone this story would be far worse and far uglier than the drop in DKS shares experienced for the day. DKS has a history of operational excellence and financial management that goes far beyond that of the former Foot Locker business and that will become important as investors make decisions over the next six months.

So what happened? What hit the bottom line so hard?

“While the Dick’s Business delivered the sales and profitability we expected, as the quarter progressed, it became clear that inventory levels were building up across parts of the industry, leading to a much more promotional environment,” explained Ed Stack as he brgan his prepared remarks. “This pressured our overall company earnings. Consumer preferences are evolving, with athletes increasingly responding to newness, innovation, and a broader set of brands.”

He continued, “As demand continued to shift during the quarter, inventory built up in parts of the industry, particularly within certain legacy footwear silhouettes and apparel franchises that simply are not resonating the way they once did. The inventory built up across the industry supply chains and across the retail marketplace, which led to an increasingly aggressive promotional environment. In response to these changes in the market, we felt it was important to remain competitively priced to protect our leadership position. We have always managed our business for the long term. We believe protecting our leadership position will create long-term value, and we view the pricing investments we are making today as an investment in the future strength of our business. These challenges affected both Dick’s and Foot Locker, but to different degrees. At Dick’s, our diversified business model, broad category mix, and balanced brand portfolio helped us navigate much of this pressure.”

Stack went on to say that many areas of the Dick’s Business, such as team sports and license, were particularly strong in the quarter. He said new emerging apparel brands generated strong athlete engagements, and footwear categories such as running, cleats, and the outdoor category remained healthy.

“As Ed discussed, while we drove positive footwear and apparel comps in Q2, parts of the industry became more challenging as the quarter progressed, and we’ve adjusted our expectations to include our assumption about these ongoing dynamics for the balance of the year,” the CEO explained. “That said, nothing we’ve seen changes our strategy or our confidence in the Dick’s Business, and our sales expectations remain unchanged.”

Stack said the promotional environment created pressures on margins, but the company continued to gain share and deliver strong sales growth.

“As you would expect, given its greater exposure to many of the legacy footwear silhouettes, the impact was more significant at Foot Locker. In addition, Foot Locker is more dependent on launch and retro product. Not only were there fewer launches in the second quarter, but the launches we did see performed below industry and our expectations.”

He said this intersection of issues had a meaningful impact on the results across the Foot Locker Business, which includes the Foot Locker, Kids Foot Locker, Champs Sports, WSS and Atmos banners.

When asked by an analyst why these trends were not evident when DKS reported Q1 results, Stack noted that “a number of brands got very promotional on their sites, and those promotions spilled into the broader marketplace.” He said they expect that to unfortunately continue through the balance of the year.

“But on the Dick’s [Business] side, we have got a very broad category portfolio, and Dick’s is not nearly as reliant on the footwear business as Foot Locker,” he noted.

“We are taking action to shift the mix toward in-demand brands, and while we expect the launch calendar to be more favorable in the back half of the year, the quality of those launches will be critical,” Stack suggested. “We expect the broader promotional environment, particularly around legacy silhouettes, to remain challenging at least through the fourth quarter.”

In addition, he said the Foot Locker Business in EMEA has been more challenging than expected.

“While our turnaround efforts are underway, we always anticipated EMEA to have a longer path to recovery than North America,” Stack explained. “The promotional environment remains very aggressive in EMEA. The industry is carrying too much inventory, and the consumer has been even more cautious than expected due to the geopolitical environment. The combination of the softness in EMEA and these marketplace dynamics has delayed the pace of improvement that we expected to see in the Foot Locker Business.”

Across the company overall, macroeconomic and geopolitical concerns also weighed on profitability during the quarter and impacted fuel, supply chain, healthcare, and other costs.

Along with the marketplace pressures we have discussed, this led us to revise our expectations for the balance of the year.

“We are still early in the Foot Locker turnaround,” the company’s executive chairman said. “We continue to invest to strengthen the business for the long term. That includes investing in the Foot Locker brand through its first major brand campaign in more than a decade, which is being incredibly well-received, as well as investing in our Stripers who remain central to the consumer experience and a key differentiator for the brand.”

Stack said the company’s brand partners continue to be highly supportive of both the Dick’s and Foot Locker Businesses.

“We believe they see us as the most important player in the global athletic ecosystem. The connection between sport and culture has never been stronger,” he said.

CEO Lauren Hobart said that growth in the Dick’s Business outpaced the broader industry by nearly 200 basis points, reinforcing its ability to strengthen its leadership position and gain market share. She said comps were driven by growth in average ticket and transactions, and noted that they saw broad-based growth across footwear, apparel, and hardlines.

The Dick’s Business also delivered gross margin expansion during the quarter.

“Growth businesses like Dick’s Media Network and GameChanger continue to generate strong returns and further diversify our earnings stream,” the CEO said. “Together, the contributions from these businesses, plus tariff refunds recognized during the quarter, helped offset the promotional pressure we saw across parts of the athletic footwear and apparel marketplace” as she outlined the upside in diversity not only in product categories but in business models as well.

Hobart said they are encouraged by the strength of the Dick’s Business, the momentum they are seeing across many areas of the company, and the opportunities ahead.

“We’ve been through marketplace transitions before, and each time we’ve strengthened our competitive position,” she noted. “We believe our differentiated athlete experiences, strong brand partnerships, disciplined execution, and long-term investments will allow us to do that again.

Stack added, “We did participate and expect to participate in this promotional environment, and we really believe that that’s one of the best investments we can make in this business, is to keep that leadership position and not give that market share,” Stack said in response to an analyst question. “Because this is going to subside at some point, and we’ll keep that market share when things start to get better. But we think the promotional environment out there, we need to participate in that, and it’s one of the best investments we can make in our business.”

It would be interesting to have been a fly on the wall in that meeting room with the offending brands that went promotional online.

But think of the opportunity now afforded to other brands that are offering freshness to the consumer. Not just from the standpoint of new models and silhouettes but also in materials, color and other elements that can bring a classic to life. Have you seen the latest Samba?

2026 Second Quarter Summary
Consolidated net sales increased 53.2 percent to $5.59 billion in the second quarter ended August 1, driven by a $1.74 billion contribution from the Foot Locker Business and a 4.9 percent comp increase for the Dick’s Business.

The Dick’s Business comp reflects a 3.6 percent increase in average ticket and a 1.3 percent increase in transactions, with the broad-based growth across footwear, apparel, and hardlines, including strong results from the World Cup.

On a 2-year and 3-year basis, comps for the Dick’s Business increased 9.9 percent and 14.4 percent, respectively.

Pro forma comps for Foot Locker Business declined 3.6 percent for the quarter on top of a 2.2 percent comp decline in Q2 last year. The decline this year reportedly reflects declines in both North America and the International business. Results were said to be impacted by challenging conditions in athletic footwear marketplace, as well as fewer launches and weaker consumer response to key launches during the quarter.

Profitability & Expenses
Consolidated non-GAAP gross profit was $1.9 billion, or 34.06 percent of net sales, in the quarter, down 300 basis points versus Q2 last year. The year-over-year decline was reportedly driven by the mix impact from the Foot Locker Business.

Within the Dick’s Business, gross margin expanded 79 basis points y/y, reportedly driven by strong growth in the Dick’s Media Network and GameChanger businesses, as well as the benefit from tariff refunds recognized during the quarter.

“These benefits helped offset increased investment in pricing due to promotional marketplace, particularly in athletic footwear and apparel, product mix, and higher fuel and supply chain costs,” added company CFO Navdeep Gupta.

He said the company received approximately $59 million of tariff refunds during the second quarter, including $57 million related to the Dick’s Business and $2 million related to the Foot Locker Business.

“Of the total amount, a benefit of approximately $21 million was included in our non-GAAP results for Q2, and $38 million was excluded as one-time benefit as it related to the tariff expense recognized in the prior year,” the CFO explained. “The $21 million included in our non-GAAP results consisted of a $19 million benefit to the Dick’s Business merchandise margin and a $2 million benefit to the Foot Locker Business merchandise margin.”

Gupta said DKS has reinvested these benefits into the business to remain competitively priced and help offset ongoing fuel, supply chain, and other inflationary cost pressures.

On a non-GAAP basis, consolidated SG&A expenses increased 65 percent, or $562 million to $1.43 billion, in Q2, and deleveraged 183 basis points compared to last year’s non-GAAP results. The CFO approximated that $477 million of the SG&A increase was attributable to the addition of the Foot Locker Business.

As expected for the Dick’s Business, SG&A deleveraged 96 basis points, driven by what Gupta said were “strong investments” in FIFA World Cup marketing, as well as continued investments in the retailer’s digital and in-store experiences.

“In addition, we are experiencing higher teammate healthcare costs,” he detailed.

Due to the timing of new store openings, pre-opening expenses were $23.5 million, an increase of $11.2 million compared to the prior-year period. This expense supported the opening of five new Dick’s House of Sport and eight Field House locations in Q2.

Consolidated non-GAAP operating income was $453.3 million, or 8.1 percent of net sales, in the quarter, compared to $475 million, or 13.0 percent of net sales in Q2 last year. This includes operating income of $485.2 million, or 12.6 percent of net sales for the Dick’s Business, and an operating loss of $31.9 million for the Foot Locker Business.

“The Foot Locker results reflect both the challenging promotional environment we have discussed earlier and our decision to continue investing in the business, including brand marketing initiatives designed to support the long-term turnaround,” Gupta explained.

Consolidated non-GAAP income tax expense was $124.3 million, or a rate of 28.1 percent, for Q2. Gupta said the effective tax rate for the quarter was shaped by the mix of earnings in foreign jurisdictions.

DKS delivered consolidated non-GAAP earnings per diluted share of $3.53 for the quarter, which includes the dilutive impact of the 9.6 million shares issued in connection with the Foot Locker acquisition. This compares to non-GAAP earnings per diluted share of $4.38 in Q2 last year. On a GAAP basis, earnings per diluted share were $3.50 for the quarter, which was short of the $3.80 per diluted share expected by Wall Street analysts.

Gupta said the GAAP figure includes approximately $40 million of pre-tax income related to the tariff refunds and approximately $29 million of pre-tax Foot Locker acquisition-related costs. He added that it also includes approximately $15 million of costs associated with redesigning the store labor model for the Dick’s Business.

Balance Sheet Summary
DKS ended the quarter with approximately $914 million of cash and cash equivalents and no borrowings on the company’s $2 billion unsecured credit facility.

Inventory was $5.57 billion at quarter-end, reflecting the addition of the Foot Locker Business. Inventory for the Dick’s Business was up 6 percent, in line with total sales growth.

Net capital expenditures were $325 million in Q2, and DKS paid $111 million in dividends.

Additional Foot Locker Integration Charges

As part of what Gupta said was the “clean out of the garage” actions and broader merger and integration work, DKS expects total pre-tax charges of up to $750 million.

“To date, we have recognized $516 million of these charges,” he shared. “The remaining pre-tax charges will be incurred through 2026 and over the medium term as we complete this work. We continue to expect approximately $200 million of acquisition-related charges in 2026, which have been excluded from the company’s non-GAAP EPS outlook.”

In closing his prepared remarks on expenses, the CFO said the company remains confident in achieving its previously announced $100 million to $125 million of cost synergies over the medium term, primarily from procurement and direct sourcing efficiencies. He said a portion of these synergy benefits are expected in 2026 and are reflected in the company’s outlook.

Outlook
Dick’s Sporting Goods, Inc. continues to expect 2026 full-year comp sales growth in the range of 2.5 percent to 4.0 percent, but now expect operating margins in the range of 10.6 percent to 10.9 percent, compared to prior expectation of 11.0 percent to 11.4 percent.

The 2026 net sales guidance of $21.9 billion to $22.2 billion was cut from the prior guide of $22.1 billion to $22.4 billion.

The company lowered the operating income outlook for both the Dick’s Business and the Foot Locker Business.

DKS cut its full-year outlook for diluted earnings per share to $10.94 to $11.94, down from its previous forecast of $13.27 to $14.27 per diluted share.

“While second quarter results met our expectations and we believe that underlying trends remain healthy, we are taking a more cautious view of the second half of this year given the marketplace conditions we saw in Q2,” Gupta noted.

The “cautious view” comment during the conference call and also included in the Tuesday morning earnings release is what appears to be the line that set off the warning bells for analysts and investors. No one likes caution in this current market.

For the full-year, Gupta said the company now expects gross margin to decline slightly.

“This reflects our expectation for ‘a more promotional marketplace’ through the balance of the year, as well as higher expected fuel prices and supply chain expenses,” he added. That reference to a more promotional marketplace could have come from the CEO of across the pond rival JD Sports Fashion, which owns the Hibbett, Finish Line, JD, DTLR, and Shoe Pavilion banners in the U.S., who last week issued a trading update that called out the exact same issue with their U.S. business.

Gupta said they expect gross margin pressure to be most pronounced in the fiscal third quarter.

“We also expect SG&A expenses to deleverage for the full year, including, at the midpoint, nearly 50 basis points of deleverage in Q3, primarily reflecting the investments and cost pressures we have discussed,” he continued.

For the Foot Locker Business, DKS reduced its full-year outlook to reflect the same footwear marketplace pressures, which are having a more significant impact on the Foot Locker Business, as well as continued challenges in the EMEA region.

“We now expect full-year pro forma comp sales to be in the range of negative 2 percent to flat, compared to our prior expectation of 1.5 percent to 3 percent growth,” he outlined. “We now expect an operating loss for the Foot Locker Business in the range of $80 million to $40 million, compared to our prior expectations of $110 million to $150 million in profit.”

DKS is maintaining the Dick’s Business comparable sales outlook of 2.5 percent to 4.0 percent growth for the year but lowered the pro forma comparable sales outlook for the Foot Locker Business to a range of negative 2.0 percent to flat.

Store Count and Square Footage
As of August 1, 2026, the company operated 3,104 store locations across the Dick’s and Foot Locker Businesses.

For the Dick’s Business, this table:

  • Includes 37 Golf Galaxy Performance Centers, with four new openings during fiscal 2026, three of which were conversions of prior Golf Galaxy store locations.
  • Reflects stores converted between concept or prototype through store relocations or remodels as part of the company’s strategy to reposition its store portfolio. In addition to stores that converted between concepts, the company relocated or remodeled four stores during the current year period, consisting of three Golf Galaxy and one Dick’s House of Sport store locations.

For the Foot Locker Business, this table:

  • Represents store locations in the United States and Canada and related square footage.
  • Represents Foot Locker store locations in Europe, including one Kids Foot Locker store and related square footage, as of August 1, 2026.
  • Reflects licensed stores operating in the Middle East, Asia and Europe.
  • Store closures for the Foot Locker Business during fiscal 2026 includes 67 Foot Locker stores identified as part of the company’s review of unproductive assets. Additionally, the Foot Locker Business relocated or remodeled 41 stores during the current year period consisting of 13 Foot Locker, three Champs Sports, seven Kids Foot Locker and six WSS store locations in North America and 12 international store locations.

 

See below for additional in-depth coverage of the initial Q2 earnings release from the Dick’s Sporting Goods:

DKS Shares Crushed as Q2 Foot Locker Sneaker Business Cuts into the Stronger Dick’s SG Model