DICK'S Sporting Goods, Inc. Q2 FY2026 earnings call

• Overall Strategic Positioning • The combined portfolio of Dick's, Foot Locker, and Game Changer is uniquely positioned to capitalize on the growing connection between sport and culture, with strong brand partner support across the global athletic ecosystem. • Management remains committed to long-term investments in growth drivers including House of Sport, Fieldhouse, Game Changer, and the Foot Locker turnaround, even amid near-term market challenges.

• Core Dick's Business Highlights • Dick's outperformed the broader athletic retail industry by nearly 200 basis points in Q2 comp growth, gaining market share, with strength across team sports, licensed goods, emerging apparel brands, running footwear, cleats, and outdoor categories. • Five new House of Sport locations and eight new Fieldhouse locations were opened in Q2; full-year 2026 targets are ~14 total House of Sport and 20 total Fieldhouse openings. These experiential formats drive engagement, access to premium real estate, and strengthen brand partnerships for differentiated product assortment. • The Scorecard loyalty program was relaunched, adding a $99/year paid Scorecard Plus tier for highly engaged members to increase purchase frequency and loyalty. Dick's Media Network and Game Changer continue to deliver strong growth, diversify earnings, and provide unique athlete consumer data. • Investments in 2026 World Cup marketing (primarily via the Adidas partnership) delivered strong results, positioning Dick's to benefit from long-term growth in U.S. soccer participation and demand. • The collectibles and trading card business via the Fanatics partnership is performing strongly, with Collector's Clubhouse concept rollout to House of Sport and Fieldhouse locations, representing a meaningful new growth opportunity.

• Foot Locker Turnover Progress • Foot Locker's first major global brand campaign in over a decade has been well received, with investments in in-store staff (stylists) to improve consumer experience, a key brand differentiator. • The Fast Break small-format store initiative hit its back-to-school target of ~250 global locations, with expansion planned ahead of the holiday season; Fast Break has outperformed legacy Foot Locker stores to date. • Acquisition integration and clean-up work remains on track: $516 million of a total expected $750 million in pre-tax integration charges has been recognized to date, with remaining charges to be incurred through 2026 and the medium term. The target of $100-$125 million in medium-term cost synergies (primarily from procurement and direct sourcing) remains intact.

1. Dick's Sporting Goods (core business): Q2 2026 consolidated net sales for Dick's contributed $3.85 billion after accounting for Foot Locker's $1.74 billion contribution to total consolidated net sales of $5.59 billion. Dick's delivered 4.9% comp sales growth, with 3.6% average ticket growth and 1.3% transaction growth, and broad-based growth across footwear, apparel, and hardlines. Dick's generated non-GAAP operating income of $485.2 million, representing 12.6% of Dick's net sales, and gross margin expanded 79 basis points year-over-year. Dick's contributed 68.9% of total consolidated Q2 2026 net sales.

2. Foot Locker (acquired business): Q2 2026 pro forma comp sales declined 3.6% across both North America and EMEA. Foot Locker contributed $1.74 billion in net sales, representing 31.1% of total consolidated Q2 2026 net sales. Foot Locker recorded a non-GAAP operating loss of $31.9 million in the quarter, driven by aggressive industry promotion, weak performance of legacy footwear silhouettes, underperforming key product launches, and ongoing long-term turnaround investments.

• Core Dick's Business • Full-year 2026 comp sales growth guidance is maintained at 2.5% to 4%, but operating margin guidance is revised downward to 10.6% to 10.9% from the prior 11% to 11.4%. Gross margin is now expected to decline slightly full-year, with the most severe margin pressure concentrated in Q3, driven by the expected ongoing promotional environment, higher fuel prices, and elevated supply chain costs. SG&A is expected to deleverage full-year, with ~50 basis points of deleveraging expected in Q3.

• Foot Locker Business • Full-year 2026 pro forma comp sales guidance is revised sharply downward to negative 2% to flat from the prior 1.5% to 3% growth. Operating guidance is revised from a prior expected profit of $110 million to $150 million to an expected operating loss of $40 million to $80 million, driven by larger-than-expected promotional pressure, weaker-than-expected performance in EMEA, and ongoing long-term turnaround investments.

• Consolidated Company • Full-year 2026 non-GAAP diluted earnings per share guidance is revised downward to $11 to $12 from the prior $13.50 to $14.50. The full-year effective tax rate is now expected to be ~29%, 200 basis points higher than prior guidance, driven by persistent weak performance in lower-margin EMEA, reducing EPS by ~$0.35. • Full-year 2026 net capital expenditure guidance is maintained at ~$1.4 billion, split ~70% to Dick's and ~30% to Foot Locker, with investments focused on store expansion/upgrades, technology and supply chain improvements for Dick's, and store fleet re-energizing for the Foot Locker turnaround.

• Industry-wide excess inventory of legacy footwear silhouettes and legacy apparel franchises, which have lost consumer resonance as demand shifts to new, innovative products and emerging brands. This excess inventory has led to an increasingly aggressive promotional environment that is expected to persist through at least the end of 2026, pressuring gross margins across the business. • Foot Locker's outsized exposure to legacy footwear silhouettes and launch-dependent product makes it far more vulnerable to current market pressures than the diversified Dick's business. EMEA operations for Foot Locker have been far more challenging than expected, with more aggressive promotion, higher cost pressures, and more cautious consumer spending driven by geopolitical uncertainty, delaying the expected pace of Foot Locker's turnaround. • Macroeconomic and geopolitical headwinds have increased input costs including fuel, supply chain, and teammate healthcare expenses, further pressuring margins. • The current promotional environment could continue into 2027 if excess inventory is not cleared as expected, prolonging margin pressure.

Q: What has changed since the prior earnings call 90 days ago when management raised guidance and was optimistic about both Dick's and Foot Locker?

A: Dick's comp sales came in at 4.9% in Q2, and full-year sales guidance for Dick's remains unchanged. The main change is that multiple large brands started aggressive promotions to clear excess legacy inventory, which spilled over into the broader market and will continue through year-end. Dick's diversified portfolio limits its exposure, but it faces margin pressure from participation in this promotional environment, along with macro and geopolitical cost increases. Foot Locker, which is heavily reliant on legacy footwear and new product launches, saw much worse margin pressure, plus worse-than-expected softness in EMEA, leading to large guidance cuts. Management still believes the Foot Locker acquisition is the right long-term decision.

Q: Is the current pressure on footwear and apparel due to temporary supplier inventory clearing, or is it a permanent slowdown in consumer demand for these categories?

A: Current pressure is concentrated in legacy lifestyle silhouettes, not a broad-based footwear or apparel demand issue. Consumer demand is strong for new, innovative products from both established and emerging brands, with performance categories like running doing very well. Some legacy brands have excess inventory of older silhouettes that they are clearing via promotion, and this dynamic is temporary. Dick's has strong exposure to the high-growth categories that are performing well, which is why it maintained its sales guidance.

Q: How does the performance of Fast Break stores compare to legacy Foot Locker stores, and how large will the Fast Break footprint be by end of 2026? How much of Foot Locker's current margin pressure comes from EMEA versus North America?

A: Fast Break stores have clearly outperformed traditional legacy Foot Locker stores so far. Management did not provide a specific end-of-year store count, but confirmed the back-to-school target of 250 global locations was hit, with additional expansion planned for the holiday season. While management declined to give a precise split, they confirmed EMEA contributes a much larger share of Foot Locker's current margin pressure than North America, due to a far more competitive and promotional market in the region.

Q: Why is management investing in a major Foot Locker brand campaign during a period of market weakness, and what is the outlook for SG&A growth in the second half?

A: Management views current market turmoil as an ideal time to invest in marketing to gain market share; when the market resets, Dick's will retain that gained share. Foot Locker had virtually no top-of-funnel brand marketing for over a decade leading up to the acquisition, so these investments are long overdue to rebuild the brand. For Dick's, full-year SG&A will deleverage, with the most pressure ( ~50 basis points of deleveraging) in Q3, followed by SG&A leverage starting in Q4 as prior investments lap.