Dick's Keeps Backing Foot Locker Despite Mounting Losses

On a Tuesday earnings call with investors, Dick's Sporting Goods management said it would continue backing Foot Locker, the mall-based chain it acquired a year ago, despite sharply lowering its annual outlook for the retailer.

Company executives said a slowdown in new sneaker releases, shifting consumer tastes in athletic footwear, and headwinds in overseas markets left the chain with excess inventory and a wave of heavy discounting in the second quarter. As a result, Foot Locker's comparable-store sales fell 3.6% year over year.

As a result, the company sharply cut its full-year forecast for Foot Locker: comparable sales are now expected to be flat to down 2%, compared with previous guidance of 1.5% to 3% growth. The chain is now projected to post an operating loss of $40 million to $80 million, reversing earlier guidance that called for operating income of $110 million to $150 million.

Ed Stack, executive chairman of Dick's Sporting Goods, said discounting pressure in athletic footwear - particularly casual sneakers - is currently running unusually high and will likely persist through year-end. He noted the market is going through a generational shift as new styles from brands like Nike, Adidas, On and Hoka replace older, familiar silhouettes: running and performance shoes are performing well, while the casual footwear segment is declining.

At the same time, the so-called 'brown shoe' category - brands like Ugg and Birkenstock - has grown notably and is partly offsetting that softness; Stack said the company plans to add several more similar brands to its lineup. At the Dick's banner itself, comparable sales rose nearly 5%, though below expectations, driven by broad-based growth across categories - including a boost tied to the 2026 FIFA World Cup - along with a higher average ticket and more transactions.

Chief Financial Officer Navdeep Gupta said Dick's expects full-year operating margin of 10.6% to 10.9%, down from previous guidance of 11% to 11.4%. Gross margin is also expected to slip slightly, reflecting not only heavier discounting but also higher fuel prices and supply-chain costs. Both Dick's and Foot Locker are feeling the impact, though Dick's broader mix of products, categories and brands is partly shielding the company from the pressure.

Management acknowledged that Foot Locker's struggles in Europe caught the company off guard. Even so, Stack said that hasn't shaken his confidence in the chain's long-term potential, arguing that the turnaround is still in its very early stages. Not every analyst shares that optimism, however: in a research note, Jon Zolidis, president and founder of Quo Vadis Capital, wrote that Dick's may need to admit its mistake and write off Foot Locker entirely, warning that the company could be forced to pour in additional funds to nurse the chain back to health. He argued that shareholders are now stuck with a business burdened by structural problems - overlapping store networks in several markets, excessive reliance on a single, unreliable supplier, outdated mall-based real estate, and dependence on a low-income customer base.