Dick’s Sporting Goods announced on Tuesday that it will likely fall short of profit expectations for the third quarter and face expenses of up to $750 million as it works on revamping its newly acquired Foot Locker business. This includes plans for store closures and reducing inventory.
The company’s stock took a hit, dropping by over 1%.
There’s also an anticipated sharp drop in Foot Locker’s quarterly gross margin, which isn’t great news.
Recent years have seen Foot Locker lose ground in the market, particularly as companies like Nike grow their direct-to-consumer strategies. Additionally, a decrease in foot traffic to malls, where many of these stores are located, has negatively impacted sales.
Dick’s acquired Foot Locker’s smaller competitor back in May for $2.4 billion.
Ed Stack, the executive chairman, noted in a statement that the company is “taking decisive action to ‘clean out the garage,'” which involves offloading unproductive inventory and shutting down less profitable stores.
These strategies, alongside merger integration costs, are expected to result in pre-tax charges of between $500 million and $750 million.
When looking at earnings without certain items, the company reported adjusted earnings per share of $2.07 for the quarter ending November 1, which is quite a dip compared to the estimated $2.71.
Looking ahead, the company predicts that Foot Locker’s fourth-quarter gross margin will decline by 1,000 to 1,500 basis points, and sales on a comparable basis may drop into the mid-to-high single digits as they focus on clearing out excess inventory.
Despite these challenges, Dick’s has actually raised its full-year sales and profit projections. The expected increase in comparative sales for the year has now been adjusted to 3.5% to 4%, up from the earlier estimate of 2% to 3.5%.
Furthermore, the company anticipates full-year adjusted earnings per share to fall between $14.25 and $14.55, which is a slight improvement from the previous range of $13.90 to $14.50.
