Dick’s Sporting Goods’ Core Business Grows 4.9%, but Foot Locker Losses and Weak Guidance Send Shares Tumbling

A double miss on fiscal second-quarter estimates and deep guidance cuts for an important business unit were the key factors crushing Dick's Sporting Goods (NYSE:DKS) stock on Tuesday. Investors were particularly concerned that a recent high-profile acquisition by the sporting goods retailer wasn't nearly as valuable as some had imagined, and they sold the company's shares aggressively.

By the end of the trading day, Dick's stock had declined by more than 30% -- its worst single-session drop on record.

Image source: Getty Images.

A tale of 2 business units

For the period, Dick's earned just under $5.59 billion in net sales, up 53% year over year. That isn't as impressive as it seems, though, since this quarter included results from Foot Locker, the storied athletic apparel retailer the company acquired last year, whereas the year-ago frame did not. Stripping that business unit out of the current-quarter number, Dick's net sales were $3.85 billion, up nearly 6%. The company's non-Foot Locker comparable sales increased 4.9% for the quarter. Alone, Foot Locker suffered a 3.6% decline in "comps."

As for profitability, Dick's net income not under generally accepted accounting principles (non-GAAP, or adjusted) sank by 10% to $319 million, or $3.53 per share. In terms of segment pretax results, Dick's core operations posted a profit of over $485 million, while Foot Locker recorded a loss of nearly $32 million.

Both headline figures were notably under the average analyst estimates. The professional pundit consensus for revenue was $5.65 billion, and for adjusted net income was $3.78 per share.

Dick's attributed the top- and bottom-line gains to a rise in average ticket (i.e., spending per visit), more transactions, and the galvanizing effect of the 2026 FIFA World Cup on sales of sports equipment and apparel. The company explained the drop in Foot Locker comparable sales by saying the athletic footwear market was "challenging."

Overall, management sounded a confident note despite the double miss and the sluggishness of its recent acquisition. It quoted CEO Lauren Hobart as saying that the latest figures "reflect the strength of our athlete-focused strategy, broad differentiated assortment, strong brand partnerships and continued focus on profitable growth opportunities."

Among these opportunities, according to her, are the House of Sport experiential store concept and the proprietary Dick's Media Network, which sells in-store and digital ad spots to partners.

The wrong foot?

Hobart didn't mention Foot Locker as being a business full of potential. That's not surprising, as her team substantially cut its guidance. Dick's now feels that Foot Locker's comps will probably be negative for the entirety of 2026, ranging from a 2% decline to flat compared to 2025's results. That's well below the 1.5% to 3% growth it anticipated for Foot Locker merely one quarter ago.

By contrast, the forecast for Dick's core business was maintained at 2.5% to 4% growth for the year.

Compounding that, the company reduced its forecast for Dick's segment profit and now expects Foot Locker to post a loss of $40 million to $80 million (it had previously expected a meaty profit of $110 million to $150 million).

With those adjustments, consolidated net sales guidance for the full company is now $21.9 billion to $22.2 billion, and the adjusted earnings per share outlook is $11 to $12. Last quarter, those ranges were $22.1 billion to $22.4 billion and $13.50 to $14.50, respectively.

In the conference call discussing the quarter, the company's executive chairman, Ed Stack, explained that excess inventory led top footwear brands to increase promotional activity, which directly and negatively impacted specialty retailers like Foot Locker. Another factor hammering the brand was its operations in the Europe, Middle East, and Africa (EMEA) region, which were affected by geopolitical developments and, relatedly, more cautious consumer spending.

Personally, I don't think Dick's deserved the investor drubbing it received post-earnings. However, it's clear that Foot Locker is a problem, and it'll be quite the project for the new(ish) owner to spruce it up. Hopefully, the athletic footwear industry as a whole will work through that inventory overhang; this should go some way to improving Foot Locker's viability.

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.