DICK'S Sporting Goods, Inc. (DKS) Earnings

Management highlights

**Overall Strategic Context** - Sport is a high-growth category at the intersection of sport and culture, with a multi-year tailwind from upcoming major events including the 2026 FIFA World Cup and 2028 LA Summer Olympics. Dick's Sporting Goods is positioned as the industry leader leveraging this momentum across its ecosystem of brands. - The company is investing from a position of strength to widen its competitive gap, with a long-term goal of becoming the world's leading sports company. **Dick's Sporting Goods Segment Operations** - Delivered 6% comparable sales growth in Q1, following 4.5% growth in 2025 and 5.3% growth in 2024, with consistent market share gains across all income demographics, no observed consumer trading down, and particularly strong engagement from younger consumers. - Growth is broad-based across footwear, apparel, and hardlines, driven by strong partnerships with leading global brands (Nike, Adidas, Fanatics) and fast-growing emerging brands (Viore, Gymshark), plus high-margin internal vertical brands. - 1 new House of Sport and 2 new Fieldhouse locations were opened in Q1, with full-year 2026 plans on track to open ~13 House of Sport and ~20 Fieldhouse locations. Management reports strong interest from landlords, providing access to premium retail locations, enabling selective site selection for higher long-term returns. - Omnichannel enhancements are ongoing: the AI-powered digital coach Coach by Dex will launch in summer 2026, the high-growth Dicks Media Network is expanding across physical and digital channels, and the new Fort Worth Distribution Center opened to improve service for the fast-growing Texas market. - The Game Changer youth sports platform launched a major product update including 1080p live streaming, automated highlights, and AI coaching tools, with 50% of all covered games streamed live in Q1, a new record for the business. **Foot Locker Turnaround Operations** - The first quarter of 2026 marked Foot Locker's first positive comparable sales growth since Q4 2024, with the core U.S. Foot Locker banner delivering 6.4% comp growth, validating management's turnaround strategy. - The capital-light Fast Break store remodel initiative has expanded to ~100 locations globally, delivering double-digit comp growth and meaningful merchandise margin improvement in Q1. Management plans to reach ~250 Fast Break locations by the back-to-school season, with further expansion ahead of the 2026 holiday season. - Fast Break remodels focus on streamlined SKU assortment (30% SKU reduction to focus on key styles), improved brand storytelling, and the reintroduction of curated apparel, with remodels completed in days for minimal capital investment. - Inventory has been cleaned up following acquisition, and strained vendor relationships have been repaired, with brand partners now fully engaged and supporting the turnaround. Back-to-school 2026 will be the first season with full management control over merchandise buying, paired with a full Foot Locker brand relaunch and marketing campaign.

Guidance

- For the Dick's Sporting Goods segment: Management raised the low end of full-year 2026 comparable sales guidance to 2.5% to 4%, up from the prior 2% to 4%. Management now expects up to 30 basis points of non-GAAP operating margin expansion for the full year, with the high end of operating margin guidance increased to 11.4%, up from the prior 11.2%. Comps are expected to be higher in the first half, driven by World Cup timing, and operating margins are expected to decline in the first half (with the most pressure in Q2 from pre-opening expenses and World Cup marketing investment) before expanding in the second half. - For the Foot Locker segment: Management raised the low end of full-year 2026 pro forma comparable sales guidance to 1.5% to 3%, up from the prior 1% to 3%. Full-year operating income guidance is now 110 million to 150 million, up from the prior 100 million to 150 million. Performance is expected to be back half-weighted, with an inflection point starting in the back-to-school season. - Consolidated full-year 2026 non-GAAP EPS guidance is maintained at $13.50 to $14.50, based on 90.5 million average diluted shares outstanding. The full-year effective tax rate is now expected to be ~27%, 150 basis points higher than original guidance, which reduces full-year EPS by ~25 cents, an impact already incorporated in the current outlook. - Full-year 2026 net capital expenditures are expected to be ~$1.4 billion, split ~70%/30% between Dick's and Foot Locker. Dick's investments will focus on store growth, relocations, technology, and supply chain, while Foot Locker investments will focus on the Fast Break store remodel initiative. Pre-tax integration charges for the Foot Locker acquisition are expected to be ~$200 million in 2026, up from the prior expectation of $150 million, with total expected pre-tax charges remaining $500 million to $750 million. Management still expects to achieve $100 million to $125 million in medium-term cost synergies from the acquisition, with a portion of benefits realized in 2026, already reflected in guidance. - Foot Locker will be included in quarterly comparable sales calculations starting Q4 2026, the first full 12 months of operations post-acquisition. Q2 2026 earnings are tentatively scheduled for release on August 25, 2026.

Segment performance

Consolidated net sales for Q1 2026 increased 62.7% year-over-year to $5.16 billion, with a $1.79 billion contribution from the acquired Foot Locker business. For the Dick's Sporting Goods segment: comparable sales grew 6% (driven by a 5.5% increase in average ticket and 0.5% increase in transactions), operating income was $361 million, accounting for 95.4% of total consolidated operating income, and operating margin was 10.69% of segment net sales. For the Foot Locker segment: pro forma comparable sales grew 0.6% overall (1.4% in North America, 6.4% for the U.S. Foot Locker banner), operating income was $17.5 million, accounting for 4.6% of total consolidated operating income, and operating margin was 0.98% of segment net sales. Consolidated non-GAAP gross profit was $1.73 billion (33.42% of net sales), down 328 basis points YoY primarily due to the Foot Locker acquisition mix. Consolidated non-GAAP operating income was $378.4 million (7.33% of net sales), compared to $360.4 million (11.35% of net sales) YoY. Consolidated non-GAAP EPS was $2.90, compared to $3.37 YoY, with dilution from 9.6 million new shares issued for the Foot Locker acquisition.

Risks & headwinds

- The company faces ongoing macroeconomic and geopolitical uncertainty that could impact consumer spending and business performance, which management has incorporated into the maintained consolidated EPS guidance alongside the strong underlying business momentum. - The Foot Locker turnaround is expected to progress at different speeds across regions, with the European business currently behind the U.S. turnaround and not expected to catch up until after 2026, creating near-term performance drag. - Expected pre-tax integration charges for the Foot Locker acquisition are higher than originally planned for 2026, at $200 million versus the prior $150 million expected. - The full-year effective tax rate is 150 basis points higher than originally expected, driven by valuation allowances on European losses from the Foot Locker acquisition, resulting in a 25 cent headwind to full-year non-GAAP EPS. - Higher fuel costs created a supply chain margin headwind for Dick's in Q1, and this pressure is expected to persist in the near term. - Opening the new Fort Worth Distribution Center in Q1 created a short-term fixed-cost margin headwind. - The growing lower-margin trading cards and collectibles business creates mix pressure on overall gross margins, though it delivers incremental gross profit and new customer acquisition.

Analyst Q&A

• Q: What are the key drivers of Dick's 6% Q1 comp growth, how much is one-time, and what is the outlook for comps for the rest of the year? Why did operating flow through come in lower than expected, and when will leverage materialize? /

  A: Management emphasized the 6% comp growth is not driven by one-time factors, but reflects long-term successful strategy: broad-based growth across all categories, consumer resonance with differentiated innovative product, and a repositioned store portfolio with House of Sport/Fieldhouse lifting the entire business. Sport is currently a red-hot category, with no consumer trading down observed across income segments, and 1.5 million new customers added in the quarter. The lower flow through in Q1 is exactly as planned, driven by intentional early-year investments in World Cup marketing and pre-opening expenses for new store locations. Management confirmed full-year operating leverage is still on track, with the high end of operating margin guidance raised 20 basis points, and leverage will materialize in the second half of 2026 as planned.

• Q: Where does the Foot Locker turnaround stand today, and how does the Fast Break remodel initiative perform, given that current refreshed stores only have improved organization of existing legacy product rather than new merchandise? /

  A: Management reported the turnaround is exactly on schedule. Legacy inventory has been cleaned up, strained key brand relationships have been fully repaired, and the U.S. Foot Locker management team and merchandising strategy have been rebuilt. Fast Break remodeled stores have delivered double-digit comp growth from improved SKU curation and the reintroduction of apparel even with existing legacy product. The first full assortment of new merchandise bought by the new management team will launch for back-to-school 2026, which is when the turnaround is expected to hit its planned inflection point, paired with a full brand relaunch marketing campaign.

• Q: What explains the full-year 2026 capital expenditure outlook reduction, and how is CapEx split between Dick's and Foot Locker? What is the current performance of Foot Locker Europe? /

  A: Total full-year net CapEx is expected to be $1.4 billion, with $1 billion allocated to Dick's and $400 million allocated to Foot Locker, with the vast majority of Foot Locker's CapEx going to the Fast Break initiative. The $100 million reduction in Dick's CapEx outlook comes from ongoing productivity improvements across the business, which have delivered better capital efficiency alongside improved operating margin expectations. Foot Locker Europe is currently progressing as expected, behind the U.S. turnaround, with early Fast Break trials delivering promising results, and management expects it to catch up to U.S. performance after 2026.

• Q: How is the House of Sport flagship concept performing as it scales, and are returns on investment sustained as more locations open? /

  A: Management confirmed House of Sport delivers both strong tangible financial returns and valuable intangible benefits. Opened locations continue to deliver comp sales growth in their third, fourth, and subsequent years of operation, meeting or exceeding initial return on investment expectations. Intangible benefits include improved access to premium locations from landlords, stronger partnership with national and emerging brands (with House of Sport serving as an on-ramp for new brand partnerships), and elevated experience that lifts the entire store portfolio. The smaller Fieldhouse concept is effectively a mini-House of Sport, extending these benefits across a broader range of locations.