Dick's Sporting Goods Plunges 30% After Worst Earnings Miss on Record as Foot Locker Drags Results

Dick's Sporting Goods posted its worst single-day stock decline since its 2002 IPO on Tuesday, with shares tumbling roughly 30%, after the company reported a double miss and slashed its full-year outlook, with weakness at the recently acquired Foot Locker unit at the center of the damage. Second-quarter revenue came in at $5.59 billion, short of the $5.65 billion analysts expected, while adjusted EPS of $3.53 trailed the $3.78 consensus by 19% year over year. The core Dick's segment held up, with comparable sales rising 4.9% and segment profit up 2% to $485.2 million, but Foot Locker posted a segment loss of $31.9 million on $1.74 billion in revenue, with proforma comps down 3.6%.

Executive Chairman Ed Stack attributed the shortfall to an increasingly promotional athletic footwear and apparel market, with fewer product launches in the quarter and those that did launch performing below expectations, a problem he said hit Foot Locker hardest given its heavy reliance on legacy footwear silhouettes and retro product. For the full year, Dick's cut its net sales guidance to $21.9 billion to $22.2 billion from a prior range that implied roughly $22.4 billion, and slashed its adjusted EPS outlook to $11.00 to $12.00 from a prior estimate of around $14.24. Adjusted operating income guidance was reduced to $1.46 billion to $1.56 billion from $1.71 billion to $1.83 billion, and the expected tax rate was raised to approximately 29% from 27%.

The Foot Locker segment outlook was particularly severe: comparable sales guidance was cut to a range of negative 2.0% to flat, down from a prior forecast of positive 1.5% to 3.0%, and segment profit is now expected to fall between negative $80 million and negative $40 million, versus prior guidance of positive $110 million to $150 million. Inventory surged 63% year over year to $5.57 billion, including $2.0 billion tied to Foot Locker. CEO Lauren Hobart said the company remains confident in the long-term opportunity at Foot Locker, but the results raised immediate questions about the $2.4 billion acquisition of the sneaker chain.

Nike and Academy Sports also traded lower in sympathy. The specialty retail sector fell about 2.3% on the day, with Dick's the primary drag.