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Dive Brief:
In a $2.4 billion deal, Dick’s Sporting Goods is acquiring rival Foot Locker, the companies announced Thursday. The combination gives Dick’s international exposure for the first time through Foot Locker’s global presence, which spans 20 countries.
Dick’s intends to operate Foot Locker as a stand-alone business and maintain its brands, which include Kids Foot Locker, Champs Sports, WSS and Atmos. The retailers touted their complementary store footprints and said the combined company would be a stronger partner for sportswear brands.
The deal price, which amounts to $24 per share, will be financed with a combination of cash and new debt. The acquisition is subject to customary closing conditions and is projected to close in the second half of the year.
Dive Insight:
In acquiring Foot Locker, Dick’s faces a business actively in turnaround mode and a host of skeptical observers. But Dick’s is aware of both of those factors and still perceives this deal as a wise investment.
Dick’s Executive Chairman Ed Stack said on a call with analysts Thursday that the retailer had “thought about it for a long time” and expressed confidence that Dick’s has the know-how and brand partnerships to bring Foot Locker back to its strengths. On multiple occasions, Stack said Dick’s leadership had spoken with Nike about Foot Locker. As a result, Foot Locker should benefit from an improved relationship with the brand, including through access to more high-heat launches and better full-price selling opportunities.
“This might not be as evident to some people on the surface to see what’s happening, but our job is to see around corners and what we see coming we’re pretty enthusiastic about,” Stack said. “We’re pretty conservative. We don’t get over our skis. We took a long time to think about this and think through the ramifications of it and how we would do this.”
Stack repeated one dictate from the retailer’s board on the deal: that it could not impact Dick’s existing business.
“We’re doing this from a position of strength and we think this can only improve what Foot Locker is doing and what we’re doing with Dick’s is not going to change,” Stack said. He added that, in relation to Foot Locker, Dick’s leadership team has “real visibility in how to improve this.”
In particular, Stack stressed that footwear is one of Dick’s core categories, so the retailer already has knowledge in the space. In addition, Foot Locker’s apparel business has been neglected recently and Stack sees the ability to upgrade that going forward.
“We’ve got clear line of sight of how this can be improved significantly … We feel that we can get Foot Locker back to its rightful position in this industry,” Stack said. “If we didn’t see this clear line of sight … we wouldn’t be doing it. We understand it’s up to us now to go prove that … We knew there’d be some skepticism, but we’re up for the job and we’re highly confident that we will be able to get all of this done.”
Stack will be part of a team at Dick’s that is responsible for helping guide the Foot Locker business, but otherwise executives were adamant that the retailers would be operated separately and the acquisition would not impact any of Dick’s growth initiatives or momentum.
“It’s really critical to know that nothing is changing,” Dick’s CEO Lauren Hobart said of that retailer’s business. While the deal opens up the opportunity of international expansion for Dick’s, there are no plans to introduce that brand globally right now, and likewise Dick’s has no plans to mass shutter Foot Locker stores just yet. “We’re here to reinvigorate the Foot Locker brand,” Hobart said.
The two retailers are on opposing trajectories financially, with Dick’s regularly posting strong sales gains and Foot Locker revenue in a perpetual state of decline. That was clear even in preliminary results released Thursday, in which Foot Locker CEO Mary Dillon said results came in below expectations due to soft traffic trends while Dick’s touted a “strong start to the year” and comp growth of 4.5%. Foot Locker’s comps were down 2.6% and the retailer reported a net loss of $363 million.
Indeed, analysts seemed to largely praise the deal from Foot Locker’s perspective, but were much less positive on how it impacts Dick’s. One note from Telsey Advisory Group admitted the analysts “question the logic of the deal for Dick’s, given its already strong, winning position in the US sporting goods industry.”
“The proposed transaction would mean acquiring a structurally challenged, mall-based retailer with 2,410 small-format stores worldwide (~33% of sales are international), a heavy dependence on one brand (~60% of purchases from Nike), and a weak operating margin of 2.5% in 2024 that would be dilutive to Dick’s 11.0% in 2024,” Joe Feldman wrote in a note before the deal came out.
GlobalData Managing Director Neil Saunders also noted that, while Dick’s would immediately absorb Foot Locker’s 4.3% market share, it would also inherit a business whose “comeback is not yet fully in play.”
That said, Foot Locker has made significant moves over the past few years to right its trajectory, which both analysts and Dick’s executives made note of. In particular, under Dillon the retailer has opened new store concepts, refreshed its existing fleet, shuttered hundreds of stores, closed down multiple smaller banners and diversified its product assortment beyond Nike.
It’s unclear if Dillon will have a role at the combined company. A Foot Locker spokesperson did not immediately respond to a request for comment on the subject and Dick’s executives made no mention of it on a call discussing the deal.
The combined business will have more than 3,200 stores, operate in 26 countries and make a total of $21 billion in revenue, according to Dick’s.