Dick’s Gears Up: Earnings on Deck as Foot Locker Deal Redefines the Playbook

Dick's Sporting Goods (NYSE: DKS) is set to report its fiscal Q1 2025 earnings before the market opens on May 28, and the environment is anything but ordinary. In recent weeks, the company announced a headline-grabbing $2.4 billion acquisition of Foot Locker (NYSE: FL), a deal that redefines its business trajectory. This marks a pivotal moment for Dick's, transitioning from a clean organic growth story to a more complex consolidation play. Adding to the anticipation, the company also released preliminary Q1 results indicating 4.5% comp growth and EPS of $3.37, ahead of expectations. Still, investors remain focused on the implications of the Foot Locker deal, especially as macro headwinds, including discretionary softness and tariff risks, loom large.

Watch: CFRA VP of Equity Research Zachary Warring discusses Dick's purchase of Foot Locker

Expectations for Q1

For the quarter, analysts expect Dick's to report revenue of $3.15 billion, representing a 4.4% year-over-year increase, and EPS of $3.21. While the comp growth pre-announcement gives confidence in the top line, the real intrigue lies in margins and management's forward commentary. Last quarter, DKS posted a solid beat with $3.89 billion in revenue and EPS of $3.62, but issued full-year guidance that underwhelmed the Street. Capital expenditures are expected to remain high in FY25 at around $1.0 billion, reflecting ongoing investments in technology, real estate, and omni-channel capabilities.

Foot Locker Deal: Compelling but Complicated

Dick's plan to acquire Foot Locker for $24 per share, an 86% premium, has sparked intense debate. Barclays cut its price target to $217 from $223, noting that while the deal erodes Dick's "clean compound growth" narrative, it creates a global retail leader. JPMorgan, Stifel, and Citi have taken a more cautious stance, highlighting concerns over execution risk, synergies, and the potential need for significant investment to turn around Foot Locker's struggling operations.

Zachary Warring, VP of Equity Research at CFRA, believes Dick’s Sporting Goods is the right operator to acquire Foot Locker, despite the latter’s ongoing struggles. He noted that Foot Locker has faced structural headwinds over the last two years, particularly due to its heavy mall-based footprint and the broader retail shift toward direct-to-consumer channels. Warring characterized Foot Locker’s business as in decline, but argued that Dick’s, with its superior omnichannel infrastructure and robust logistics capabilities, is well-positioned to revamp Foot Locker’s operations. In his view, if any company can engineer a turnaround, it’s Dick’s.

Warring added that while near-term financials from Foot Locker are largely irrelevant, the acquisition is a long-term strategic bet—one he sees playing out over a three-to-five-year horizon. He acknowledged that Dick’s will likely need to rationalize Foot Locker’s store fleet, shifting the focus from underperforming mall locations to more productive off-mall centers. Still, he sees upside in the deal, citing economies of scale, greater purchasing leverage with top brands like Nike, and Foot Locker’s consistent free cash flow generation. Warring concluded that Dick’s likely acquired Foot Locker at an attractive valuation and expects the transaction to be financially accretive within three years.

Key Investor Focus Areas

Investors will be listening closely to the earnings call for:

Updated guidance incorporating Foot Locker assumptions.

Margin commentary, especially given Q4 gross margin compression.

Foot Locker synergy plans, particularly around SG&A and procurement.

Commentary on tariff impacts and how price increases might offset margin pressure.

Brand partner feedback, particularly from Nike, which is seen as a long-term beneficiary of the deal.

On the Foot Locker integration, CEO Ed Stack emphasized the strategic rationale, noting, "Foot Locker enables us to reach more sneakerheads and lifestyle-focused shoppers". CFO Navdeep Gupta projected $100-$125 million in medium-term synergies, driven primarily by procurement and sourcing. Management aims to run the two companies separately for now, maintaining Dick's core growth engines like House of Sport and GameChanger.

What the Preliminary Numbers Say

The Q1 pre-announcement included comp growth of 4.5% and non-GAAP EPS of $3.37, ahead of expectations. This follows a Q4 where DKS posted a top- and bottom-line beat with 35% gross margins, up 40 bps year-over-year. But the guidance disappointed investors, with fiscal 2025 sales projected between $13.6B and $13.9B and EPS between $14.40 and $15.00, slightly below consensus.

Despite this, the board authorized a 10% dividend hike and a new $3 billion share repurchase program, signaling confidence in the company’s long-term earnings power and cash flow.

Street Commentary and Valuation

Sell-side sentiment remains mixed. Truist cut its price target to $245 from $280 but maintained a Buy rating, citing DKS's robust moat and pricing power even in a tougher macro environment. JPMorgan reduced its target to $224 while maintaining Neutral, reflecting the complexity added by the Foot Locker deal. Raymond James, Stifel, and Williams Trading also lowered their targets but remain either Neutral or cautiously optimistic.

The stock has declined 11.9% over the past month, underperforming the specialty retail segment, which is up 8.8% on average. With shares trading near $167, well below the average price target of $211.87, expectations appear subdued heading into earnings.

Conclusion

Dick's Sporting Goods enters Q1 earnings in a transition phase. The company's operational fundamentals remain strong, as evidenced by its preliminary results, but the Foot Locker acquisition adds new layers of complexity and execution risk. With macroeconomic uncertainty and elevated capex ahead, investors will look to management for clarity on integration plans, margin sustainability, and Foot Locker's long-term contribution. If Dick's can provide a clear roadmap and reaffirm its growth thesis, the stock may see renewed investor confidence despite near-term volatility.