Dick's Sporting Goods Inc. (NYSE: DKS) is having a rough week. After plunging 30.68% on Tuesday, the stock extended its slide in Wednesday's premarket trading, hitting a fresh 52-week low. The culprit? A second-quarter earnings report that missed on both the top and bottom lines, plus a full-year outlook that got slashed.
The retailer's results were dragged down by weakness at Foot Locker, which Dick's acquired. Legacy footwear styles are losing favor with shoppers, and that's creating a painful reset for the sneaker business.
Earnings Snapshot
Net sales rose 53.2% year over year to $5.59 billion, but that still fell short of the $5.65 billion analysts were expecting. Adjusted earnings came in at $3.53 per share, down from $4.38 a year ago and below the $3.77 estimate. On a GAAP basis, earnings dropped to $3.50 per share from $4.71.
Dick's ended the quarter with $914 million in cash and no borrowings under its $2 billion credit facility. Inventory totaled $5.57 billion, with inventory at the core Dick's business up 6%. Net capital expenditures hit $325 million, and the company paid out $111 million in dividends.
One interesting note: Dick's received about $57 million in tariff refunds, while Foot Locker got $2 million. The company recognized $21 million of the $59 million total as a non-GAAP benefit during the quarter. Instead of pocketing that money, Dick's reinvested it in pricing, which helped the company stay competitive and offset higher fuel, supply-chain, and inflation-related costs.
Core Business Outperforms Foot Locker
Here's the split: the core Dick's business is doing just fine, thank you. Sales rose 5.6%, and comparable sales increased 4.9%, driven by higher transaction volume and average spending. That comparable sales growth outpaced the broader industry by nearly 200 basis points. Two-year comparable sales rose 9.9%, and three-year comps were up 14.4%.
Foot Locker, on the other hand, is a different story. Pro forma comparable sales fell 3.6%. Demand weakened for legacy footwear styles, and fewer product launches plus soft customer response didn't help. On the bright side, World Cup investments through Adidas AG generated strong results, and Foot Locker's Fastbreak program exceeded its 250-store back-to-school target.
Margins Feel Foot Locker Pressure
Adjusted gross profit totaled $1.9 billion, but gross margin contracted 300 basis points to 34.06%. The main culprits: the addition of Foot Locker and an unfavorable sales mix. However, gross margin at the core Dick's business expanded 79 basis points, helped by growth at Dick's Media Network and GameChanger, along with those tariff refunds.
Adjusted operating income fell to $453.3 million from $475 million a year earlier, and operating margin narrowed to 8.11% from 13.02%. The core Dick's business generated $485.2 million in operating income, while Foot Locker posted an operating loss of $31.9 million.
Dick's Cuts 2026 Outlook
Looking ahead, Dick's lowered its fiscal 2026 adjusted earnings guidance to $11 to $12 per share, down from $13.50 to $14.50. The new range also came in below the $14.22 analyst estimate. Sales guidance was cut to between $21.9 billion and $22.2 billion from $22.1 billion to $22.4 billion, while analysts were expecting $22.36 billion.
The company maintained its core comparable-sales forecast of 2.5% to 4%, but reduced its operating margin outlook to between 10.6% and 10.9% from 11% to 11.4%. Foot Locker's comparable-sales forecast was lowered to a decline of 2% to flat, and the segment is now expected to post a full-year operating loss of $40 million to $80 million. Previously, Dick's had forecast a profit for Foot Locker.
Management expects promotional pressure on legacy footwear to continue through at least the fourth quarter. Excess inventory and cautious consumers are also weighing on the EMEA business. The company expects up to $750 million in pretax Foot Locker acquisition and integration charges, having recognized $516 million through the second quarter. It maintained its medium-term cost-savings target of $100 million to $125 million.
On the expansion front, Dick's plans to open about 14 House of Sport locations and 20 Field House stores in 2026.
DKS Price Action: Dick's Sporting Goods shares were down 0.57% at $123.60 during premarket trading on Wednesday. The stock is trading at a new 52-week low, according to market data.
