Dick’s Sporting Goods Has a Foot Locker Problem

In this episode of Motley Fool Hidden Gems Investing, Motley Fool contributors Tyler Crowe, Rachel Warren, and Matt Frankel discuss:

• Dick's Sporting Goods earnings and guidance cut.
• Was it "geopolitical concerns" or just Foot Locker?
• The woes of Walker & Dunlop.
• CVS Health's turnaround candidacy.
• Is UPS a value or a value trap?

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. When you're ready to invest, check out this top 10 list of stocks to buy.

A full transcript is below.

This podcast was recorded on Aug. 25, 2026.

Tyler Crowe: Dick’s Sporting Goods stock has a case of athletes' food. Motley Fool Hidden Gems Investing starts now. Welcome to Motley Fool Hidden Gems Investing. I'm your host, Tyler Crowe. Today, I'm joined by longtime Fool contributors Rachel Warren and Matt Frankel. Guys, the earnings season has been winding down a little bit. I'm looking for stories earlier today, though the news was looking a little thin, and then Dick’s Sporting Goods reported earnings. Based on the stock reaction, we had to talk about it. Shares of Dick’s Sporting Goods stock is down about 27% as we're taping right now after the company reported earnings and updated guidance. Now, like most investors, I would assume this means the news was bad, but we've seen a lot of companies post decent results this quarter, only see their shares take it on the chin in ensuing market reaction. Rachel, is that the case here? Give us a rundown of what happened and what were you guys' thoughts and reactions to what Dick’s Sporting Goods had to say here?

Rachel Warren: There was actually some concerning numbers that came in, and it's interesting to chat about. We don't spend a ton of time focusing on retail here on this show. Dick’s actually missed on both the top and bottom wines for the quarter. They had adjusted earnings per share come in at $3.53. Wall Street was looking for $3.76. Revenue dragged a bit, just under 6 billion. Wall Street was looking for a little bit more than that. A lot of this is going back to the Foot Locker business. Dick’s Sporting Goods acquired last year. That's the primary culprit behind this drag and it's interesting because you have the core Dick’s namesake stores. They posted a roughly 5% comparable sales increase. Foot Locker stores actually saw comps slide 3.6%, and you had management saying that they had fewer high profile shoe launches. It's an increasingly competitive discounted market that's actually forcing them to cut prices to protect their market share.

the other thing that's interesting here is this is also tied to the broader what's called the Nike ripple effect. We saw management essentially call out a lack of high-profile sneaker launches. They're pointing upstream to major partners who are, stuck in a creative lull, if you will. You got to bear in mind, Foot Locker has historically relied on these legacy silhouettes, retro launches. Dick’s is really feeling the pain first when consumer hype slows down. Another key number, total inventory, surged 63% year over year. Now, obviously, they're still absorbing the Foot Locker acquisition, but they're carrying a lot of inventory, probably looking for a lot of clearances and sales, and promotions which, great for consumers, not great for the business, not great for investors, and to top it all off, Dick’s slashed its full-year earnings guidance considerably. Really not a great readout for this business.

Matt Frankel: The numbers weren't great, but, you're right. To me, the sharp decline, it's almost as much as what management said. Not just the numbers. The CEO called out the increasingly promotional athletic footwear and apparel market, said that conditions deteriorated as the quarter progressed, which is something you really don't like hearing from management. Also said Foot Locker has a lot of exposure directly to the categories getting discounted the most. Just a couple of things to point out here. Dick’s stock was down 10% year to date going into this. Now it's really underperforming. It's clearly a cyclical problem in the footwear space. I mean, if you look at Nike, Under Armour, even Academy Sports, which is I would call their closest direct comparison and On Holdings, they're all underperforming too. Dick’s has a large buyback authorization, is one of the key things I read in the Earnings report, $3 billion. I'm curious to see if they accelerate their repurchases to send the market a signal here.

Tyler Crowe: One of my favorite things in these conference calls every once in a while is the management word salad that we get of trying to explain why all this happened. One of the best ones I think I saw in this conference call was they mentioned geopolitical troubles, which apparently is affecting shoe sales. Look, some things are believable, but I don't know if closure of the Strait of Hormuz is exactly affecting how many people are buying Nikes before and after the World Cup here. Maybe, but the thing that really pointed it stuck out to me and Rachel, you mentioned it here too, was Foot Locker specifically. This was an acquisition that Dick’s took I don't want to say took a flyer on, that would be a little too flippant, but this was slightly different than what they have normally been doing. Like you said, it's a little bit more fashion trend, very dependent on releases of signatures shoes and stuff like that. It's still I would call it indigestion of the acquisition. Was this acquisition a mistake in your guys' opinion or maybe is it a little too soon to call it that?

Matt Frankel: I'd say it's too soon to call it a mistake, but it's not too soon to say that it's definitely going poorly. Those aren't the same thing. Dick’s cut their full-year earnings guidance, as Rachel mentioned by 18%, and it's almost entirely because of Foot Locker. It's in a deteriorating environment. For the entire footwear industry, as I said, it's not just a Foot Locker problem. This was a turnaround acquisition. You can't judge that after just four quarters. The company's making the right moves. They closed 110 stores in Year 1 after the acquisition. They bought a cyclical turnaround play, and the cycle immediately went against them. It's too soon to tell if it's ultimately going to be a good move long term, but it's not going well.

Rachel Warren: That's definitely the case. To put some numbers to that as well, the slashing of their full-year guidance, they were originally looking for full-year earnings per share between $13.27 and 14.27. Now they're looking for 10.94 to $11.94 on the high end. Significant downgrade there. I agree with Matt. I don't necessarily think that we can see the final story from where we're at now. But it's interesting to see. I think that Dick’s acquired Foot Locker with the idea of tapping into that younger consumer demographic, looking to revitalize the core business. What's interesting as well, is Dick's has historically been a bit more of a retail darling that managed economic headwinds better than its peers, and I think what we're seeing today, it isn't a reaction to a single bad quarter. I think there seems to be this broader concern, maybe a realization that integrating this foot logger acquisition is going to be a much costlier, slower, and maybe more margin-degrading endeavor than initially promised.

I know we've talked a bit about the K-shaped consumer reality on the show before. It's something that's interesting to look at with this business. I don't want to read into the tea leaves too much, but you saw that Dick’s business grow 5%. We're seeing mid to high-end suburban consumers still walking in and buying that premium gear, but a lot of the younger demographic that traditionally we shop at Foot Locker is really getting tapped out by inflation, and I do think that we have to also look at that as a factor here.

Tyler Crowe: Well, I certainly a much more logical conclusion than saying that geopolitical concerns is keeping people from buying their premium athletic wear. I buy your case a little bit more than what management was saying there. Coming up after the break, it's still earning season, so we're going to dip into a couple of earnings that may have slipped through the crack this past quarter.

I was reading the Wall Street Journal this morning, and one of the, lead stories was on Crocs. I felt like that scene in Star Wars, where it's oh, that's a name I haven't heard in a very long time. I was actually interesting. They were talking taking the opposite approach of Dick’s Sporting Goods, where it's like, we're going to hold back some of our production and clear some inventory. We're going to take it down the chin now. But it's a strategy that worked out pretty well, and the stock is benefiting a lot from it. That hey, this is a company we haven't discussed in a while. It was an interesting story. I want to take that a little bit step further.

We're coming to the end of earning season here. We've got Nvidia tomorrow, which we're definitely going to cover, but there's certainly not as many coming to the fore right now. With this quarter coming to the close, I wanted to give you guys an opportunity to maybe highlight a company that may have fallen through the cracks when we were trying to cover stuff with earnings that we didn't get to, but you're like, I really liked or maybe you didn't like what you saw. Matt, I want to start with you. You said you wanted to talk about Walker & Dunlop demo.

Matt Frankel: I feel like I hear Crocs more than you do because that's all my son will wear. They're not yesterday's shoe by any means. But I wanted to call out Walker and Dunlop Eval. It's a stock I've owned in my portfolio for a while, and I feel like it didn't get enough attention or at least the right attention after its earnings report. The headline numbers were ugly and understandably, that's what the market fixated on. Earnings were down sharply year over year. The company had $23 million in charges tied to loan repurchases from a fraud investigation. There was a $21 million credit loss provision, but below the surface, there was a lot to like. You and I have repeated the same thing about not just Walker Dunlop, but a lot of these real estate companies; they just need the real estate market to turn around, and then everything’s going to be fine. We've repeated that line how many times, Tyler?

But their market share is growing. They're a leading originator of multifamily loans guaranteed by HUD, by Fannie, by all the government agencies. Their market share in that went from about 11% at the start of this year to over 14% now. That's the thing that sets itself up nicely for when the market recovers. It's not just, the rising tide lifts all ships. Companies that are growing their market share in the tough times are better set up to capture that rebound. The servicing portfolio, which is part of the business a lot of people overlook, not only it grew 6% year over year, it's predictable revenue. These are just loans they get a little fee every time someone pays their loan, but over 50% of that servicing portfolio, which is about $146 billion worth of loans. Over 50% matures within five years, that creates a built-in pipeline of refinancing where they actually make a lot of money from. The stock trades for less than ten times adjusted earnings right now. It trades there for a reason, but there's more to like in this earnings report than the market gave it credit for.

Tyler Crowe: We do agree when it's like for a lot of these, it's when the commercial real estate market comes back. But I think one thing we have gone back and forth about a lot is with Walker and Dunlop, specifically, it was late 2010, early 2020's. They went on a bit of a buying spree. Not necessarily in their wheelhouse, either, some ancillary and tangential businesses. When I hear things oh, well, they had to buy back some loans because of fraud and, increasing credit provisions, it started to make me go back to that. Maybe some of these acquisitions weren't as good as they had said, and that maybe there I don't want to say asleep at the wheel, but still not quite figured out how to integrate all of these into their company. Is that a fair assessment?

Matt Frankel: Not only did they go on a buying spree, like a lot of real estate companies did at that time, they overpaid for certain acquisitions. They weren't all bad. Their appraisal business, which is called Apprise, is actually a pretty solid business. I just think they overpaid for a lot of the parts. There was the real estate investment banking business that specialized in selling the tax credits that were going on at the time. They overpaid for a lot of this, and that's a big problem. It's not necessarily that the integrated businesses are no good. They went on an acquisition spree, and they paid a lot of money for some of these components.

Tyler Crowe: Like you said, we'll just have to see, maybe when the commercial real estate market turns around, some of these maybe not so great investments or acquisitions can fall into place, I guess, if it will. It seems like the theme is turnaround stories or maybe companies that aren't doing as hot because Rachel, the one you brought to the table here was CVS Healthcare.

Rachel Warren: I thought it'd be interesting to talk about a healthcare business and CVS, I think a lot of people obviously think of the neighborhood, store aisles, pharmacy counters, but CVS is actually one of the larger healthcare insurers in America through their Aetna division. They beat expectations this quarter. It was a particularly good quarter for the business after a series of difficult quarters, which we'll talk about in a bit. Adjusted earnings per share came in at $2.58 against Wall Street estimates of $1.87. Total revenue rose over 7% to about $106 billion, and management actually raised their full year profit guidance.

One of the dynamics that CVS Health is benefiting from right now is just broader trends in the healthcare space. We've seen a lot of major hospital chains note that consumers are putting off doctor visits. They're scheduling fewer elective surgeries due to tight household budgets, which is a really, really unfortunate trend. The flip side of that trend, of course, is when people skip surgeries; it lowers expenses for an insurance company because they're paying out fewer medical claims. For CVS and their Aetna network, fewer procedures means their medical cost decreased. Essentially, this trickled over to their healthcare benefits division. If you're looking at their report. They saw their operating income rise by more than $1 billion above what analysts had originally predicted all going back to these industry dynamics that I mentioned.

Tyler Crowe: A good quarter, and the thing is, CVS is going back to the integration of Walker and Dunlop. Here we have a retail pharmacy combining with a major insurer. It hasn't exactly been a perfect marriage here. The stock has reflected that over the past couple of years. Between the lowering of the earnings forecasts, it's closed hundreds of stores. The CEO has been a revolving door as of late; it hasn't been easy for this company. But having said that, the stock trades for 11 times forward earnings estimates. Clearly, the market is pricing this then as not doing great. You as the investor, are you buying this as a value stock now? It's like a turnaround in play here or are you still seeing this is still work in progress. I'm going to check back later stock.

Rachel Warren: This is what I'm watching from the sidelines, for sure. There's a few reasons for that. I mean, this is a company that's faced serious operational issues over the last few years. it's not just a matter of the difficulties of integrating the Aetna acquisition from a number of years ago. Of course, they're one of the largest pharmacy benefit managers in the U.S. They were dealing with costs from higher Medicare utilization rates that also ate into the growth story. Then 2024, 2025, they continuously were adjusting expectations downward. They had to cut earnings forecasts in multiple quarters because of rising insurance costs and a slow retail pharmacy market. There's been a lot of factors at play that have posed challenges for the business. Now, it did launch a $2 billion cost-cutting initiative. There were layoffs, management closed, underperforming stores. You've got a new CEO, David Joyner, you've got their CFO Brian Newman overhauled their insurance underwriting, really moved away from the unprofitable business lines, and they also put in stricter cost controls over their medical benefit ratio. I think we are starting to see the signs that their vertical integration strategy, which is, you've got the drug store side, the pharmacy benefit manager side, the insurance provider side. I think we're seeing the results starting to show say it's too soon to declare that the turnaround is complete. This is a long time dividend payer, but I think if you're looking for income stocks, there are probably other compelling opportunities to find.

Tyler Crowe: One of the things with turnaround stocks is the turnaround always takes way longer than anyone ever expected. Coming up after the break, we're going to jump into the mailbag.

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Tyler Crowe: Hey, everyone, just a quick reminder, if you want to get in an email to us, send it to us at podcasts at Fool.com. That's podcast with us. We'll also put the email in the description for the show. As always, keep it short enough we can read on air, keep it Foolish, and we can't give personalized advice, so we don't get in trouble with the FTC. Today's question comes from Sterling Clark, and Matt, he actually named you personally, so we wanted to make sure that you were on the show when we did this. Question is, Hi, Fools. What does Matt Frankel think about UPS stock as a value stock or value trap? A little bit of a theme here today. He Sterling says he works at UPS, and you can see that they're working on remodeling their buildings in order to improve sorting efficiencies. It still has an attractive dividend yield, but the other hand, Amazon keeps indicating it wants to take UPS's lunch. Do you buy the turnaround story? Matt, we'll start with you, since it was directed at you and Rachel, if you have any thoughts, you can share them as well.

Matt Frankel: I'm not surprised that was directed to me. I love a good value. Stock, everybody knows that. But what the listener is referring to is what UPS calls its network reconfiguration program, and it is showing up in the numbers. UPS expects almost $3 billion of program benefits for this full year. Unfortunately, part of it's cutting about 30,000 jobs, operational positions, specifically as the network becomes both physically smaller and a lot more automated, which is what he was referring to there. I'm not terribly worried about the Amazon part. UPS, they've already removed a ton of what they call low-quality Amazon volume. That's not where they make their — you don't make your money by free two-day shipping. You make your money from the medical equipment and more specialized forms of moving things from one place to another.

The way I would put it is Amazon didn't really steal UPS's lunch. UPS just gave back the part that it didn't really want to eat. In first quarter, UPS raised its guidance. They posted double-digit growth in operating profit. Their dividend yield is 6.4%, which might sound attractive. It represents about 98% of the company's free cash flow. That's a pretty high payout ratio. They've they haven't raised their dividend every year, but they haven't cut it for 27 consecutive years. That's a pretty big history they want to maintain. They're going to need some serious free cash flow growth over the next few years to justify keeping it where it is. I wouldn't go so far as to call this a dividend trap. There are plenty of dividend traps in the market, and I wouldn't say this is one of them. If they can grow their premium shipping volume, meaning the non-Amazon parts of the business, while making the network more efficient, which they're clearly doing. It could end up being a great value here, but that's a big if, and that's why it's trading where it is right now.

Tyler Crowe: Slightly related. There was a story on CNBC today about UPS investing heavily in things like pharmaceutical and cold chain logistics, a little bit related to shipping GLP-1 drugs and stuff like that. I assume that's going to be part of that, as well, Rachel? Don't you think?

Rachel Warren: That's absolutely the case. One of the things that UPS has really focused on. This is adding billions to their growth every quarter is specialized shipments like weight loss and diabetes medications, and these are high-value drugs. They require very precise temperature-controlled refrigeration, premium tracking sensors from factory to pharmacy. By routing these high-margin medical packages through their newly automated facilities, UPS can generate significantly more profit per box. That building remodel isn't just a cosmetic upgrade. They’re really shifting away from old-school manual sorting, automated hubs. This is obviously something that they've been doing for a while. But running an automated sorting building, it's about 30% cheaper per package than a traditional one.

The healthcare logistics piece is a really, really interesting one within that broader shift. But upgrading these facilities takes a lot of cash. They've committed billions more to expand just their global healthcare shipping network over the next few years. They pay over $5 billion a year out in dividends. I don't think that UPS is a value trap. I think it's another one of the turnaround stories we've been talking about today. There's a lot of moving parts. On the one hand, the network is getting smaller. It's getting leaner, it's getting more efficient. But the automation side only saves you money if if these buildings are actually full of packages. If the broader economy slows down, retail shipping drop these very expensive equipment sorting machines might sit idle. Strategy makes sense, but I think there's a bit of a trade-off that's happening right now. That said, I think the fact that they are leaning more into these higher margin business lines, specifically healthcare logistics, which just broadly speaking, tends to be more resilient, even in difficult economic periods, I think that's a very smart strategy for the long run.

Tyler Crowe: The path is there. It just seems like getting there completely unscathed without having to cut its dividend or, any other financial shenanigans along the way is going to be the real challenge here for UPS. Maybe not the smoothest pass.

As always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. All personal finance content follows Motley Fool editorial standards and is not approved by advertisers. Advertisements are sponsored content and provided for informational purposes only. To see our full advertising disclosure, please check out our show notes. Thanks for producer Dan Boyd and the rest of the Motley Fool team. For Matt, Rachel, and myself, thanks for listening, and we'll chat again soon.

Matt Frankel, CFP® has positions in Amazon and Walker & Dunlop. Rachel Warren has positions in Amazon. Tyler Crowe has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Nike, Nvidia, On Holding, United Parcel Service, and Walker & Dunlop. The Motley Fool recommends Academy Sports And Outdoors, CVS Health, Crocs, and Under Armour. The Motley Fool has a disclosure policy.