DICK'S Q2 2025: Contradictions Emerge on Gross Margins, Tariffs, and Foot Locker Strategy

The above is the analysis of the conflicting points in this earnings call

Date of Call: August 28, 2025

Financials Results

• Revenue: $3.65B, up 5% YOY
• EPS: $4.38 per diluted share (non-GAAP), up ~0.2% YOY vs $4.37 last year
• Gross Margin: 37.06%, up 33 bps YOY
• Operating Margin: 13.02% (non-GAAP), down ~78 bps YOY vs 13.8% last year

Guidance:

• FY25 comp sales growth now 2%–3.5% (prior 1%–3%).
• FY25 EPS $13.90–$14.50 (prior $13.80–$14.40); EPS down YOY in Q3, up in Q4.
• FY25 consolidated sales $13.75–$13.95B.
• Expect FY gross margin expansion; SG&A deleverage from strategic investments.
• Operating margin ~11.1% at midpoint; +10 bps at high end.
• Preopening expenses $65–$75M; majority in Q3 for 13 House of Sport and 6 Field House openings.
• Guidance includes current tariffs; tax rate ~25%; ~81M average diluted shares.
• Net capex ~$1B.

Business Commentary:

• Strong Financial Performance:
• DICK’S Sporting Goods delivered a 5% increase in Q2 comps, building on the previous year's growth of 4.5% and 2% in 2023.

• The growth was driven by a sustained momentum from long-term strategies, differentiated product assortment, and strong execution.

• Acquisition of Foot Locker:

• The pending acquisition of Foot Locker is set to close on September 8, with strategic benefits expected to enhance DICK’S offerings and market reach.

• The acquisition aims to strengthen partnerships with sports brands and expand market share, with plans to integrate the brands post-acquisition.

• Gross Margin Expansion:

• DICK’S achieved a 33 basis points expansion in gross margin for Q2, driven by higher merchandise margins and leverage on occupancy costs.

• This expansion is attributed to the quality of their product assortment and early benefits from investments in GameChanger and DICK’S Media Network.

• Investment in Digital and In-store Enhancements:

• The company is strategically investing in digital, in-store, and marketing initiatives, with a focus on long-term growth opportunities.
• These investments are powered by technologies like AI, aiming to drive sustained top-line momentum and profitability.

Sentiment Analysis:

• Management reported 5% comps on top of prior growth, gross margin expansion, and market share gains. They raised full-year comp, sales, and EPS guidance, citing strong demand across footwear, apparel, team sports, and golf, and faster-growing e-commerce. They noted no signs of consumer slowdown, innovation-driven demand, and successful navigation of tariffs with only surgical pricing moves. Confidence was reiterated in new concepts (House of Sport, Field House), GameChanger/DMN, and the pending Foot Locker acquisition.

Q&A:

• Question from Brian William Nagel (Oppenheimer): How will you revitalize Foot Locker given recent weak results and what is the timing?
  Response: Post-close, partner closely with brands, invest in stores and marketing, refresh merchandising (including apparel), and share specifics on Q3 call; confidence in turnaround opportunity.

• Question from Brian William Nagel (Oppenheimer): How are tariffs affecting pricing and demand?
  Response: Guidance incorporates tariffs; pricing actions are surgical, not broad; consumer demand remains strong with Q2 gross margin expansion.

• Question from Simeon Ari Gutman (Morgan Stanley): Back-half comp assumptions and any consumer slowdown by category?
  Response: No slowdown; broad-based strength across footwear, apparel, team sports, and golf; raised back-half comp outlook supported by product innovation.

• Question from Simeon Ari Gutman (Morgan Stanley): Detail Q2 margin drivers and SG&A leverage threshold medium term.
  Response: Q2 gross margin +33 bps with merch margin +18 bps on mix/DMN/GameChanger; SG&A can leverage at low-single-digit comps, though near term investing in differentiating capabilities.

• Question from Adrienne Eugenia Yih-Tennant (Barclays): Are wholesale dynamics shifting in your favor, and how much of comps were price vs transactions amid tariffs?
  Response: Strategic brand relationships strengthening; growth is broad-based. About ~1% comp from transactions, remainder basket/ticket; spring pricing outlook not disclosed.

• Question from Robert Frederick Ohmes (BofA Securities): What are you seeing from your customer (online vs stores), back-to-school, and promotions?
  Response: Demand strong across channels with e-commerce outpacing overall; BTS largely Q3; promotions remain surgical with no notable trade-down.

• Question from Michael Lasser (UBS): Why change gross margin language from +75 bps to simply 'up' and what should we expect?
  Response: Still expect FY gross margin expansion; balancing tariffs, inventory vibrancy, and promo dynamics while investing; operating margin can expand 10 bps at high end.

• Question from Michael Lasser (UBS): Will more share issuance for the Foot Locker deal hurt first-year accretion?
  Response: Accretion depends on stock/cash mix, synergy timing, and core performance; still expected to be accretive; details post-close.

• Question from Michael Allen Baker (D.A. Davidson): Update on GameChanger metrics and trajectory?
  Response: 7.4M unique users in Q2; 5.5M MAUs up 16% YOY; on track for ~50% revenue growth in 2025; highly profitable and synergistic with DMN.

• Question from Christopher Michael Horvers (JPMorgan): With potential full share conversion in the deal, will it still be EPS accretive?
  Response: Yes, expected to be accretive; degree depends on consideration mix, synergy capture, and core trends; updates to come on Q3/Q4 calls.

• Question from Christopher Michael Horvers (JPMorgan): Why do back-half comps imply deceleration despite momentum?
  Response: Appropriate caution for macro/tariffs and tough compares (e.g., 6.4% Q4 last year), though back-half assumptions were modestly raised.

• Question from Joseph Isaac Feldman (Telsey Advisory Group): Where is innovation resonating most and how are you using AI?
  Response: Innovation is broad-based (technical running, hardlines, licensed/trading cards); AI powers e-com search, scheduling, planning; RFID enhances in-store productivity.

• Question from John David Kernan (TD Cowen): Can consumers absorb footwear price increases into next year?
  Response: Footwear demand is strong; selective, surgical price increases have been well absorbed without hurting demand.

• Question from Joseph Vincent Civello (Truist): Traffic and ticket vs transactions at House of Sport/Field House, and DMN scaling?
  Response: No breakouts, but concepts perform strongly and drive bigger baskets; DMN is early but a long-term revenue/margin driver, enhanced by GameChanger and in-store activations.

• Question from Paul Lawrence Lejuez (Citi): Private brands performance and tariff-driven pricing strategy?
  Response: Vertical brands are strong with 700–900 bps higher margin; modest price increases across vertical and national brands; pricing is surgical to balance demand and profit.

• Question from Justin E. Kleber (Baird): Will you bring DICK’S vertical brands into Foot Locker and did you raise second-half comps?
  Response: Too early to discuss vertical brands at Foot Locker; yes, back-half comp assumptions were modestly raised.

• Question from Eric Michael Cohen (Gordon Haskett): Will a larger footwear mix add risk post-acquisition?
  Response: Footwear is the growth engine central to sport and culture; banners serve different consumers; confident in category strength.