The company cut its own outlook, the shares gave back roughly 30% after August earnings, and then six insiders put about $5.6 million of their own money in.
You read this morning that Larry Fitzgerald bought $245,000 of DICK’S Sporting Goods as part of a six-insider cluster. Tonight, let’s take apart the business they were buying.
Three questions I’ll answer
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What does DICK’S actually own now that Foot Locker sits inside it? |
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Why did margin fall 451 basis points in a quarter when sales rose 53%? |
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Which half of this company are the insiders paying for? |
I have read a lot of cluster buys in 25 years, and this one splits straight down the middle of the business. ↓
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Two Retailers, One Ticker
DICK’S Sporting Goods closed its second quarter with 3,104 locations, and 2,478 of them carry the Foot Locker name. The $2.4 billion acquisition did not add a division to a sporting-goods chain. It put a mall-based sneaker seller with four times the store count under the same ticker, and the two halves have been moving in opposite directions ever since.
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Q2 net sales
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$5.59B +53.2%
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DICK’S comparable sales
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+4.9%
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Foot Locker comparable sales
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−3.6%
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Gross margin
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34.78% −451 bps
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Comparable sales count only stores open at least a year, which strips out the growth that comes from owning more doors. Gross margin is what is left of each sales dollar after the cost of the goods themselves, and it fell 451 basis points — a basis point being one hundredth of a percentage point. Sneakers earn less per dollar than the team sports, apparel, and equipment mix DICK’S built its name on, and 110 Foot Locker closures sent inventory to clearance. Management has booked $516 million of a planned $750 million in pre-tax charges to work through it.
What the insiders are paying for
The core chain is the asset. DICK’S now runs 41 House of Sport stores, the arena-format locations that have won it anchor space in Cerritos, Tysons Corner, and Palm Beach Gardens, with roughly 14 openings this year. Inside Foot Locker, the company passed 250 Fast Break stores before back-to-school and is heading for 300 to 350 by year end, and it holds to $100 million to $125 million of cost synergies — savings from buying and sourcing as one company instead of two.
Full-year guidance stands at $21.9 billion to $22.2 billion in sales and $11.00 to $12.00 in adjusted earnings per share. CFO Navdeep Gupta purchased 7,707 shares at $129.75 on September 22. Fitzgerald followed the next day at $131.67. Matthew Barnes, who runs Foot Locker International, added about $500,000 at $136.39 in early October.
NATE’S TAKE
A board that buys together after its own outlook comes down is buying the integration, not the quarter. One business grew 4.9% on comparable sales while the one it acquired contracted 3.6%, and the $750 million charge is the stated cost of closing that gap. What I watch in a case like this is who signs the Form 4. The CFO knows what those charges still have to cover, and the executive running the weaker half knows what it takes to fix it. They bought within two weeks of each other.
— Nate Fowler
After the Bell · Evening Special Edition
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