Dick's Sporting Goods shares suffered their worst single-session decline on record Tuesday, tumbling more than 30% after the retailer missed second-quarter profit estimates and slashed its full-year earnings outlook, largely on weakness inside the Foot Locker chain it acquired last year.
The stock fell $55.02 to close at $124.31, erasing roughly a third of its value in a single day. The retailer's second-quarter revenue climbed 53% year over year to $5.59 billion, just short of the $5.65 billion Wall Street expected, with the jump driven almost entirely by the consolidation of Foot Locker's sales following the deal. Adjusted earnings of $3.53 a share missed the $3.78 analysts had penciled in, according to the company's second-quarter results release. On a GAAP basis, net income was $315 million, or $3.50 a share.
The bigger blow to investors came in guidance. Dick's now expects full-year adjusted earnings of $11.00 to $12.00 a share, well below the $14.20 analysts had modeled, while revenue guidance edged down to as much as $22.2 billion from a prior expectation of roughly $22.4 billion.
Foot Locker Drags on an Otherwise Solid Quarter
The core Dick's banner was not the problem. Comparable sales at namesake stores rose 4.9% in the quarter, a healthy figure in a retail environment where many chains are struggling to grow foot traffic. Foot Locker, by contrast, saw comparable sales fall roughly 3.6%, according to coverage of the results from The Motley Fool, with management citing an increasingly promotional athletic-footwear market and a turnaround at the sneaker chain that has gone backward rather than forward since the acquisition closed.
Some of the earnings shortfall was mechanical rather than operational: shares issued to fund the Foot Locker deal added roughly 9.6 million shares to Dick's share count, accounting for a meaningful share of the year-over-year decline in per-share profit even before accounting for the underlying business weakness.
The results put fresh pressure on Dick's leadership to show it can fix Foot Locker's merchandising and promotional strategy rather than simply owning a larger, more diluted version of the same struggling business it bought. Dick's closed its roughly $2.4 billion purchase of Foot Locker last year, betting it could apply its own inventory discipline and vendor relationships — particularly with Nike — to revive a chain that had been losing ground to off-price and direct-to-consumer rivals for years, as detailed in CNBC's coverage of the original deal.
The selloff wiped out a significant portion of Dick's market value built up over the past two years and left the stock trading well below the average Wall Street price target, suggesting analysts had not yet caught up to the scale of the guidance cut heading into the print.
