Dick's Sporting Goods(DKS) - 2026 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Consolidated net sales increased by 36.3% to $4.17 billion, driven by approximately $931 million from the Foot Locker acquisition and a 5.7% comp increase for the DICK'S business [26][27] - Non-GAAP EPS for the DICK'S business was $2.78, up from $2.75 in the prior year's quarter [30] - Consolidated gross profit was $1.38 billion, or 33.13% of net sales, down 264 basis points from last year, primarily due to the lower gross margin from the Foot Locker business [27][30] Business Line Data and Key Metrics Changes - DICK'S business comp sales increased by 5.7%, with growth in average ticket and transactions, on top of a 4.3% increase last year [17][26] - Foot Locker's proforma comp sales for Q3 declined by 4.7%, with a 10.2% decline internationally [8][27] - DICK'S opened 13 new House of Sport locations in Q3, the highest number in a single quarter, bringing the total to 35 [18] Market Data and Key Metrics Changes - DICK'S business saw broad-based strength across footwear, apparel, and hard lines categories [26] - Foot Locker's comparable sales in North America decreased by 2.6%, while international sales decreased by 10.2% [27] Company Strategy and Development Direction - The acquisition of Foot Locker is seen as a transformative opportunity to build a global platform at the intersection of sport and culture [7][9] - The immediate priority for Foot Locker is to clean out underperforming assets, including inventory and stores, to reset the business for long-term success [10][34] - DICK'S is focused on leveraging its operational excellence and supplier relationships to return Foot Locker to profitability [9][12] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the turnaround of Foot Locker, emphasizing the need for operational improvements and inventory management [55][81] - The back-to-school season in 2026 is expected to be an inflection point for Foot Locker's recovery [13][38] - DICK'S raised its full-year outlook for comp sales growth to 3.5%-4% and EPS to $14.25-$14.55 [16][36] Other Important Information - The company expects Q4 margin rates for Foot Locker to decline between 1,000 and 1,500 basis points due to aggressive inventory clean-up [11][38] - Future pre-tax charges related to the Foot Locker acquisition are anticipated to be between $500 million and $750 million [34] Q&A Session Summary Question: How is DICK'S driving strong comp growth and confidence going into the holiday season? - Management highlighted the differentiated product assortment and engaging athlete experience as key drivers of growth, with strong performance across key categories [42][44] Question: What assumptions were made about Foot Locker's inventory cleanup and store closures? - Management indicated that they are still assessing which stores to close and expect significant markdowns on unproductive inventory [45][46][48] Question: Can you walk through the building blocks for Foot Locker to be accretive to EPS in 2026? - Management emphasized the need for cleaning out old inventory and underperforming assets, along with confidence in the new management team [52][55] Question: How will markdowns at Foot Locker be managed, and will they impact DICK'S sales? - Management expressed confidence that markdowns on older products will not affect the ability to sell new products at full price [66][68] Question: Is Foot Locker's underperformance due to historical issues, and what is the plan for improvement? - Management acknowledged historical underperformance and emphasized the importance of inventory management and merchandising improvements [73][81]