Dick’s Sporting Goods executives addressed shareholders’ concerns about its planned acquisition of Foot Locker and its confidence in Nike despite the brand’s plans to return to Amazon on an earnings call Wednesday morning.
It also reaffirmed its guidance after reporting strong first quarter results.
Executive Chairman Ed Stack acknowledged that some shareholders would prefer Dick’s stay focused on its House of Sport and Field House concept expansions rather than acquiring Foot Locker, which it announced earlier this month.
“We’ve got these projects firmly under control, and people would just be wishing we just continue to do what we’re doing,” Stack said. “We don’t think that’s right long-term for the business.”
The Foot Locker transaction presents opportunities to strengthen its relationships with brands on a global level, service a portion of the market it isn’t yet servicing, and and bring operational efficiency to Foot Locker, he said.
“We believe sport and culture have intersected around the globe, and it’s only going to get stronger over time,” he said. “This gives us an opportunity to compete for that market share and not just abdicate it to other retailers around the globe. We just don’t feel that we should do that.”
Dick’s currently has approximately 8% market share, said CEO Lauren Hobart on the call. She declined to say how much market share the company has gained from Foot Locker in recent years, nor would she speak to potential overlap in shopping areas such as malls.
“About 30% of our stores are in malls, and we do believe one of the strong tenets of this acquisition is that we will be acquiring a different customer,” Hobart said. “We’ll have access even within the U.S. to urban locations that we don’t have access to before with large format stores, and we are hoping that this will be incremental to our customer base.”
A small group of Dick’s executives will work with Stack and the Foot Locker team to unlock gross margin improvements, Hobart said.
“Ed, obviously, he’s an incredible retail expert,” Hobart said. “He’s got operational excellence, incredibly strong brand relationships, real estate development relationships. It’s such a wonderful thing that he’s going to be able to bring all that expertise and partner with the Foot Locker leadership team to drive both businesses. We are confident that we’ll be able to execute the heck out of this and really drive that gross margin improvement that’ll drive profitability.”
Nike and Amazon
Dick’s executives previously said Nike’s renewed focus on wholesale added to their confidence in their acquisition of Foot Locker. On Wednesday, analysts asked if Nike’s return to Amazon, which was announced last week, will overlap with its offerings at Foot Locker or Dick’s stores.
“We work very closely with all of our brand partners, and one thing that you can say about Nike time in and time out is that they are very good at segmenting their products, and we have no reason to expect that that won’t be the same,” Hobart said. “So we expect segmentation of the market. We expect minimal overlap with some of the new distribution, and we’re excited about a lot of product innovation coming down the pike.”
Q1 Results
In the first quarter ended May 3, Dick’s reported:
- Net sales of $3.175 billion, a 5.2% year-over-year increase.
- Comparable sales growth of 4.5%.
- Net income of $264 million, a 4% decrease.
- EPS of $3.24 compared to $3.30 the prior year.
Dick’s converted or relocated two House of Sport locations in the quarter, bringing the total to 21. It opened one new Field House location and relocated or converted three locations in the quarter, bringing the total Field House doors to 31. Dick’s has 722 stores in total.
Tariffs and Outlook
Despite shifting trade policies, most notably tariffs on goods imported to the U.S., Hobart reaffirmed Dick’s guidance for the year.
So far, consumers aren’t trading down for lower priced goods, she said, and the retailer saw growth across all income demographics in the first quarter.
“In fact, compared to the same period last year, more athletes purchased from us,” Hobart said. “They purchased more frequently and they spent more on each trip.”
With the impact of tariffs taken into account, Dick’s continues to expect its comparable sales to grow between 1% and 3%, and net sales to be between $13.6 billion to $13.9 billion. The company continues to expect its EPS to be in the range of $13.80 to $14.40. Gross margin will improve by 75 basis points.
Dick’s will not reduce the number of its offerings to mitigate the impact of tariffs, but it will evaluate pricing, Hobart said.
“We are constantly assessing our pricing down to the item level, SKU level, and we do that based on consumer demand and the profitability of the business,” Hobart said. “We have a very advanced pricing capability, much more advanced than we used to have and much more enabled to make real time and quick decisions. And so this is just a core (thing) we do.”
CFO Navdeep Gupta said Dick’s is working with its manufacturing and brand partners and Dick’s will continue diversifying its direct sourcing footprint.
“We have navigated similar environments before, and we are confident we have the team, tools and relationships to manage through this,” Gupta said.
Kate Robertson can be reached at kate@shop-eat-surf-outdoor.com.
