Dick's Sporting Goods

Dick's Sporting Goods' second-quarter comparable sales rose 4.9% at its namesake store (69% of sales) but slid 3.6% at Foot Locker (31%). With a loss from Foot Locker, non-GAAP operating margin fell to 7.9% from 12.4%. Non-GAAP 2026 EPS guidance was cut to $11-$12 from $13.50-$14.50 prior.

Why it matters: Dick's dimmed outlook seemingly affirms the view of many investors that the Foot Locker deal was a mistake. However, we think the acquisition will create long-term value and that present issues are due to problems with wide-moat Nike and the broader sportswear space. Dick's comparable sales basically met our forecast, but we had estimated a 1% increase for Foot Locker. Even so, we are not surprised that Foot Locker's turnaround is rocky, especially with its higher exposure to Nike's fading core footwear styles, lower-income consumers, and Europe. With both competitors and manufacturers discounting to move excess inventory, Dick's is responding with markdowns of its own. Although promotions will negatively impact 2026 profitability, it is prudent to protect share. Moreover, space is cleared for 2027 releases.

The bottom line: We expect to reduce our $200 fair value estimate on Dick's shares by a mid-single-digit rate. However, shares plummeted nearly 30% after the report on Aug. 25 and are undervalued. We think Dick's brand, the source of our narrow moat rating, remains a draw for consumers. Although the addition of Foot Locker is depressing current profitability, we think Dick's paid a favorable price (0.3 times sales) for the company and has an opportunity to improve its results greatly through new merchandising, store remodeling, and brand-building advertising. Specifically, with greater stability from Foot Locker, cost savings (on track for $100 million-$125 million annually), and an industry recovery, we project Dick's long-term operating margins to improve to 11% from about 7% in 2026.

We are lowering our fair value estimate to $192 per share from $200 as the Foot Locker subsidiary is struggling. Dick's second-quarter comparable sales rose 4.9% at the namesake store but slid 3.6% at Foot Locker. With a loss from Foot Locker, non-GAAP operating margin fell to 7.9% from 12.4%. Dick's comparable sales basically met our forecast, but we had estimated a 1% increase for Foot Locker.

With Foot Locker’s outlook reduced, Dick’s cut its non-GAAP 2026 earnings per share guidance to $11-$12 from $13.50-$14.50. For 2026, we project $22.1 billion in sales (down from $22.4 billion) and $11.55 in adjusted earnings per share (from $14.33). For 2027, we forecast 3% sales growth (revised from 4% previously), 8.3% operating margin (from 9.5%), and $14.37 in EPS (from $16.88). Based on our 2027 estimates, our fair value estimate implies a P/E of 13 times and an enterprise value/adjusted EBITDA of 7 times.

The Foot Locker acquisition is likely to depress Dick’s sales growth and margins for at least a few years. After 2027, we forecast Dick’s annual sales growth at 3%, down from our 4% estimate prior to the deal. Further, our long-term gross margin estimate falls to 35% from 35.5% for Dick’s alone. We project yearly adjusted operating margin will fall to around 8%-9% over the next four years from Dick’s recent (stand-alone) operating margin of about 11%. However, with Dick’s investments in Foot Locker, we project the combined firm’s operating margin will reach 10% by 2031.

We assign a Narrow Morningstar Economic Moat Rating to Dick’s Sporting Goods based on a brand intangible asset. Although sporting goods are sold through numerous channels, including e-commerce, mass retailers, specialty stores, and branded stores, Dick’s is a key destination for consumers and vendors. On a combined basis, Dick’s and Foot Locker had nearly 26% of the US sports goods retail market in 2025 (per Euromonitor).

Dick’s has delivered a solid five-year average return on invested capital (including goodwill) of 20%, above our 10% weighted average cost of capital estimate. The addition of Foot Locker is likely to depress Dick’s sales growth and margins for at least a few years, but we forecast the combined company will continue to achieve solid returns. We forecast ROICs (including goodwill) of 11% over the next five years.

Dick’s has strengthened its competitive footing. During 2012-18, the company faced challenges, with sluggish same-store sales growth and declining operating margins. However, over the past few years, Dick’s has successfully repositioned itself as a top destination for consumers and a key partner for vendors. Since 2019, Dick’s has outpaced competitors by consistently posting same-store sales growth rates above 3%. The firm also achieves higher margins than its rivals, having posted an 11% average operating margin over the past six years (excluding Foot Locker).

We believe that the key differentiator is Dick’s commitment to enhancing the core athlete’s experience, which encompasses product selection, in-store and brand experiences, and customer service. Dick’s stores offer a comprehensive product assortment at every level, from beginners to professionals, and span a wide range of price points, activities, and sports.

Dick’s sets itself apart from competitors by attracting top-tier vendors through its commitment to reimagining the in-store consumer experience and leveraging its large-format stores to showcase and elevate brand presence. At the same time, this approach fosters strong consumer engagement through unique, interactive experiences. For example, Dick’s has added premium full-service footwear decks that are staffed by dedicated specialists. Another standout feature in many locations is the integration of HitTrax batting cages and soccer trial cages, where customers can collaborate with associates to trial and personalize baseball bats or cleats. Enhancing its one-stop shop model, Dick’s offers 100 in-store services designed to elevate performance across various sports, including baseball, golf, biking, fishing, racket sports, lacrosse, and hockey.

Taking its core brick-and-mortar experience to the next level, Dick’s Sporting Goods has created a concept called House of Sport. These stores are designed to deepen engagement between consumers and brands, featuring enhanced visual experiences, multisport HitTrax cages, a golf pro shop equipped with simulators, revamped climbing walls, outdoor turf fields/ice rinks with running tracks, and the premium House of Cleats footwear experience.

Although omnichannel efforts are pervasive throughout retail, Dick’s early investments in digital capabilities have helped protect its competitive edge, especially against e-commerce giants. Its extensive brick-and-mortar network enhances its ability to reach consumers quickly and profitably, with stores doubling as fulfillment centers and driving sales across categories through purchase online/pick up in store and same-day delivery options.

Beyond retail, we think Dick's GameChanger app enhances consumer engagement and strengthens its database by offering athletes, parents, and teams a platform to watch games, track stats, and share video highlights across all age groups. The software-as-a-service platform has become a leader in the multibillion-dollar youth sports technology market, with about 10 million users and nearly $150 million in revenue in 2025. Overall, GameChanger has achieved compound average annual revenue growth of nearly 40% since 2017. In addition, users spend over twice as much at Dick's as loyalty members, reflecting the company's success in deepening its connection with consumers across in-store, online, and game-day experiences.

Dick’s compelling value proposition and strong brand drive impressive customer loyalty, evidenced by roughly 30 million ScoreCard loyalty members, who account for more than 75% of the company’s sales. The high level of engagement with Dick’s loyalty program provides valuable insights into the behavior of its top customers, ensuring optimal product availability and more efficient marketing.

We also see significant strength in Dick’s Golf Galaxy banner, which enhances the firm’s brand equity as a trusted name in golf. Despite its narrower focus, we believe the brand enhances Dick’s vendor relationships in the golf category while bolstering its shared loyalty program and database. As the largest golf retailer, Golf Galaxy is well positioned to capitalize on the growth of the sport in the US, which saw roughly 540 million rounds played in 2025, up from 441 million in 2019. Consumers are drawn to Golf Galaxy for its exceptional customer service, expert staff, and hands-on trial experiences. To enhance this offering, Dick’s has created 36 Golf Galaxy Performance Centers, which feature an even greater emphasis on customer experience.

Outside of its brand asset, we don’t believe Dick’s benefits from any other moat source, including a cost advantage. While the firm may exert some buying power over its vendors, we don’t believe this suggests a cost advantage and does not result in an impenetrable level of cost management. The sporting goods industry also lacks network effects, and consumer switching costs are negligible.

Dick’s is the largest pure sporting goods chain in the US. It has a large loyalty program that is integrated with that of Nike. Boosted by its GameChanger app, Dick's has a strong business in high school and youth sports.

The Foot Locker deal increases Dick’s diversification in terms of products and customers. It also enhances relationships with key vendors.

Dick’s House of Sport and Field House concepts generate strong sales and separate the retailer from its many sporting goods competitors.

Important vendors of Dick’s, like Nike and Adidas, have invested heavily in their own e-commerce and branded stores. A pullback from wholesale sales by key brands could have a negative impact on Dick’s.

Historically, Foot Locker has had lower sales growth and margins than Dick’s. Efforts to improve Foot Locker’s results could distract management from Dick’s other initiatives.

As sportswear has been one of the bright spots in apparel, many retailers are increasing their offerings. Moreover, some of Dick’s competitors, including JD Sports and Academy, are opening stores.