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Dick’s Posts Strong Second Quarter as It Prepares to Close Foot Locker Deal

Dick’s Posts Strong Second Quarter as It Prepares to Close Foot Locker Deal

Everything appears to be falling into place for Dick’s Sporting Goods.

Just days after Foot Locker shareholders approved Dick’s previously announced deal to acquire the rival, the Pittsburgh-based sports retailer reported strong second-quarter results that exceeded expectations, leading it to raise guidance for the full year.

On Thursday morning, Dick’s reported net income for the three-month period ended Aug. 2 of $381 million, or $4.71 per share, compared with $362 million, or $4.37 per share, a year earlier. Excluding onetime items related to its acquisition of and other costs, Dick’s posted earnings per share of $4.38.

Sales rose to $3.65 billion, up 5 percent from the $3.47 billion in the same period last year. Comparable-store sales were up 5 percent, beating estimates of 3.4 percent.

Even so, the company is not immune to the impact of tariffs. Dick’s updated its guidance and said it is now expecting revenue to be between $13.75 billion and $13.95 billion, up from prior expectations of $13.6 billion to $13.9 billion, but slightly below estimates of $14 billion, according to CNBC. Comparable-store sales are expected to be up between 2 and 3.5 percent — prior guidance had estimated 1 to 3 percent growth — and EPS is projected to be between $13.90 and $14.50. The raised guidance also doesn’t take into account costs of the Foot Locker acquisition.

As reported, Dick’s said in May it would acquire the struggling Foot Locker for $2.4 billion. Earlier this week the company said it had obtained all the required regulatory approvals for the deal and Foot Locker shareholders voted to approve the acquisition at a special meeting on Aug. 22. The deal is expected to close on Sept. 8.

Once completed, the deal will result in the combination of the U.S.’s largest sporting goods retailer and one of its biggest athletic shoe chains. However, the road ahead may be bumpy. On Wednesday, Foot Locker reported a net loss of $38 million in the second quarter, on top of a net loss of $12 million in the prior-year period. Total sales dropped 2.4 percent to $1.85 billion from $1.9 billion the year before with comparable-store sales down 2 percent.

Despite Foot Locker’s challenges, Ed Stack, Dick’s executive chairman, said on the company’s earnings call Thursday morning: “We remain very enthusiastic about the strategic benefits from the deal bringing together Dick’s and Foot Locker’s iconic brands. We will create a global leader in the sports retail industry to serve a broader set of consumers, strengthen our partnerships with the world’s leading sports brands and meaningfully expand our total addressable market.”

He said more details would be provided on the company’s third-quarter earnings call.

Lauren Hobart, Dick’s chief executive officer, said despite Foot Locker’s current results, Dick’s remains optimistic. “We think this acquisition is going to be great for our consumers, our employees, our vendor partners, and also our shareholders,” she said. “The more time that we spend with the Foot Locker team, both at our various headquarters and also in the stores with the stripers, we are increasingly optimistic. This is a team that really, really wants to win. We are going to be working with our brand partners who are very excited about the opportunity to turn the business around, who are already sharing really strong insights. We plan to invest in stores. We plan to invest in marketing, and we know that there are opportunities from a core merchandising standpoint. We’re excited about apparel opportunities and also bringing in a new assortment of products.”

Hobart went on to say that Dick’s strong results in the second quarter “shows how well our long-term strategies are working, the strength and resilience of our operating model and the impact of our team’s consistent execution.”

That includes its focus on brick-and-mortar. On the call, Hobart said the company will open 13 House of Sport stores in the third quarter — the largest number of this concept the company has opened in a single quarter — to bring the total to 35. House of Sport is the company’s more experiential concept, one that features climbing walls, golf simulators and other bells and whistles.

In addition, four more Field House stores will open in the third quarter, bringing that division to 42 units by yearend. This is a smaller version of the House of Sport concept.

“These investments are driving powerful financial results, strong engagement with our athletes, brand partners and communities. And importantly, they’re laying the foundation for sustainable, long-term, profitable growth,” Hobart said.

In terms of product, Hobart said Dick’s is seeing growth in apparel and footwear, team sports and golf with consumers responding to “innovation and technical aspects of the product and performance.” She singled out Nike’s new running lineup as a standout, adding, that on the whole, “the consumer is very, very interested in newness: that is the lifestyle, sport and the performance of sport — and we’re carrying those products.”

Despite the strong showing, Dick’s stock was down just over 6 percent in midmorning trading.

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