Dick’s Sporting warns Foot Locker reset could cost up to $750 million; shares drop

Dick’s Sporting Goods on Tuesday missed estimates for third-quarter profit and warned of up to $750 million in charges tied to a sweeping review of its recently acquired Foot Locker business that includes store closures and inventory cleanup.

Over the last few years, Foot Locker has lost market share as brands such as Nike expanded their direct-to-consumer business. Falling customer visits to malls, where most of its stores are located, have also weighed on sales.

Dick’s Sporting Goods bought the smaller rival for $2.4 billion in May.
The company was “taking decisive actions to ‘clean out the garage’ by clearing unproductive inventory, closing underperforming stores,” Dick’s executive chairman Ed Stack said in a statement on Tuesday.

Those moves, along with merger and integration costs, are expected to result in pre-tax charges in the range of $500 million to $750 million.
Excluding items, the company reported adjusted earnings per share in the quarter ended November 1 of $2.07, compared with estimates of $2.71, according to data compiled by LSEG.

The company expects fourth-quarter gross margin at Foot Locker to drop between 1,000 and 1,500 basis points, with pro-forma comparable sales down mid- to high-single digits as it works to clear excess stock.

Still, Dick’s raised its annual sales and profit forecasts. It expects annual comparable sales to rise 3.5% to 4%, compared with its prior forecast of 2% to 3.5% growth.

The company forecast annual adjusted earnings per share between $14.25 and 14.55, compared with $13.90 to $14.50 earlier.