Dick's Sporting Goods Q2 2025: Key Contradictions in Gross Margins, Consumer Behavior, and Tariff Exposure

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: Non-GAAP $4.38 per diluted share, compared to $4.37 in Q2 2024; GAAP $4.71
• Gross Margin: 37.06%, up 33 bps YOY
• Operating Margin: 13.02% (non-GAAP), compared to 13.8% in Q2 2024 (down ~78 bps YOY)

Guidance:

• FY25 comp sales growth 2%–3.5% (prior 1%–3%).
• FY25 sales $13.75B–$13.95B (prior $13.6B–$13.9B).
• FY25 non-GAAP EPS $13.90–$14.50; Q3 EPS down Y/Y, Q4 up Y/Y.
• Expect FY25 gross margin expansion; SG&A deleverage from strategic investments.
• Operating margin ~11.1% at midpoint; ~10 bps expansion at high end.
• Preopening expenses $65M–$75M; majority in Q3 for 13 House of Sport and 6 Field House openings.
• Effective tax ~25%; ~81M diluted shares.
• Net capex ≈$1B; guidance includes current tariffs; excludes Foot Locker.

Business Commentary:

* Strong Financial Performance and Market Share Gain: - DICK'S Sporting Goods reported a 5% increase in Q2 comps, following a 4.5% increase in Q2 2024 and a 2% increase in 2023. - The growth was driven by a combination of strong demand for its differentiated assortment, digital engagement, and strategic real estate repositioning.

• Gross Margin and Merchandise Margin Expansion:
• DICK'S gross margin expanded by 33 basis points in Q2, with merch margin expanding by 18 basis points.

• This expansion was attributed to the quality of its product assortment, favorable core category performance, and early benefits from digital initiatives like GameChanger and DICK'S Media Network.

• Digital and E-commerce Growth:

• The company's e-commerce business grew faster than the company overall, contributing significantly to its strong Q2 performance.

• This growth was supported by effective app usage, enhanced athlete engagement, and strong store operations.

• Strategic Acquisitions and Expansions:

• DICK'S is set to acquire Foot Locker, with expected closing by September 8, aiming to create a global leader in sports retail.
• The acquisition is anticipated to strengthen partnerships with sports brands and expand the company's total addressable market, driven by the convergence of sport and culture.

Sentiment Analysis:

• Management reported sales up 5% to $3.65B with comps +5%, gross margin up 33 bps, and raised FY outlook (comps 2%–3.5%, EPS $13.90–$14.50). They cited broad-based category strength, e-commerce outpacing the company, and no signs of consumer slowdown. Guidance includes tariff impacts while still expecting full-year gross margin expansion.

Q&A:

• Question from Brian William Nagel (Oppenheimer & Co. Inc.): How will you revitalize Foot Locker post-close and what is the timing?
  Response: Post-close (Sept 8), DKS plans to invest in stores, marketing, and merchandising with brand-partner collaboration; detailed plans will be shared on the Q3 call.

• Question from Brian William Nagel (Oppenheimer & Co. Inc.): How are tariffs affecting pricing and demand?
  Response: Guidance includes tariff impacts; price increases are surgical, demand remains solid, and Q2 gross margin expanded.

• Question from Simeon Ari Gutman (Morgan Stanley): What underpins 2H comp assumptions; any consumer slowdown?
  Response: No slowdown seen; broad-based category strength; 2H comps modestly raised with prudent macro caution.

• Question from Simeon Ari Gutman (Morgan Stanley): Explain Q2 margin drivers and SG&A leverage threshold.
  Response: Q2 gross margin +33 bps (merch margin +18 bps) on favorable mix and media initiatives; expect continued GM expansion; SG&A can leverage at low single-digit comps while investing in differentiators.

• Question from Adrienne Eugenia Yih-Tennant (Barclays Bank PLC): Does Foot Locker scale shift brand power and category momentum?
  Response: Strategic brand relationships strengthen; DKS sees growth across footwear, apparel, team sports, and golf.

• Question from Adrienne Eugenia Yih-Tennant (Barclays Bank PLC): How much of comp was price vs. transactions, and outlook for tariffs on pricing?
  Response: About ~1% from transactions; the rest from basket growth; future pricing managed with partners—no specifics provided.

• Question from Robert Frederick Ohmes (BofA Securities): Channel mix, back-to-school performance, and promotions?
  Response: Strength across all channels; back-to-school largely in Q3; promotions remain surgical with limited impact.

• Question from Michael Lasser (UBS Investment Bank): Has full-year gross margin expectation changed versus prior +75 bps?
  Response: Still expects full-year gross margin expansion; balancing tariffs, inventory vibrancy, and promo; operating margin up ~10 bps at high end.

• Question from Michael Lasser (UBS Investment Bank): Will Foot Locker be accretive given potential higher share issuance?
  Response: Still expected to be accretive; magnitude depends on cash/stock mix, synergy timing, and core performance; update post-close.

• Question from Michael Allen Baker (D.A. Davidson & Co.): Update on GameChanger metrics and trajectory?
  Response: Q2 had 7.4M unique active users and 5.5M MAUs (+16% YOY); tracking ~50% revenue growth, supporting DMN and personalization.

• Question from Christopher Michael Horvers (JPMorgan Chase & Co.): Accretion if Foot Locker consideration skews to stock?
  Response: Accretion anticipated; level depends on consideration mix, synergies, and business performance; more details after Sept 8.

• Question from Christopher Michael Horvers (JPMorgan Chase & Co.): Why do back-half comps imply deceleration?
  Response: Guidance is conservative due to macro/tariffs and tough compares (Q4’24 comp was 6.4%), despite strong momentum.

• Question from John David Kernan (TD Cowen): Can consumers absorb footwear price increases?
  Response: Selective increases have not hurt demand; footwear remains very strong.

• Question from John David Kernan (TD Cowen): Tariff impact on COGS and gross margin in 2H and into 2026?
  Response: Minimal impact in Q2; small 2H impact embedded in outlook; 2026 under active evaluation with partners.

• Question from Joseph Vincent Civello (Truist Securities, Inc.): Traffic at House of Sport/Field House vs. chain and ticket vs. transactions outlook?
  Response: No disclosure; both formats are performing well with strong basket-building; comps continue to come from both ticket and transactions.

• Question from Joseph Vincent Civello (Truist Securities, Inc.): How will DICK’S Media Network scale?
  Response: DMN is early but growing; viewed as a long-term revenue and margin driver; no specific 2025/2026 targets given.

• Question from Paul Lawrence Lejuez (Citigroup Inc.): Private-brand performance and pricing approach amid tariffs?
  Response: Vertical brands are strong with 700–900 bps higher margins; pricing actions are surgical to balance demand and profitability.

• Question from Justin E. Kleber (Robert W. Baird & Co.): Will you introduce DICK’S vertical brands into Foot Locker?
  Response: Too early to say; merchandising opportunities will be assessed post-close.

• Question from Justin E. Kleber (Robert W. Baird & Co.): Did guidance raise include higher 2H assumptions?
  Response: Yes—flow-through of Q2 beat plus modest increase in back-half comps.

• Question from Eric Michael Cohen (Gordon Haskett Research Advisors): Does Foot Locker increase category concentration risk in footwear?
  Response: Comfortable with footprint; footwear is central to sport and lifestyle, and banners serve different consumers.

• Question from Eric Michael Cohen (Gordon Haskett Research Advisors): House of Sport performance in smaller markets?
  Response: Sales productivity is strong even in smaller markets, expanding the rollout opportunity.