By Angela Christy M
Aug 25 (Reuters) - Dick's Sporting Goods cut its full-year forecasts and signaled that bloated inventory and heavy discounting in the legacy footwear market were weighing on its recently acquired Foot Locker business.
The U.S. sportswear retailer's shares plunged 27%, on pace for a record one-day percentage drop if losses hold, after the company also missed second-quarter estimates and reversed expectations for annual comparable sales growth at Foot Locker.
Dick's completed its $2.4
billion acquisition of Foot Locker a year ago to strengthen its presence in the sneaker market and gain entry into international markets.
However, U.S. consumers, who have become more selective about their discretionary purchases, are favoring fresh launches in wellness and health categories as costlier gas and food squeeze household budgets.
"Not only were there fewer launches in the second quarter, but those launches performed below both industry and our expectations," Executive Chairman Ed Stack said, signaling a more cautious view of the rest of the year.
The comments were a departure from the company's upbeat tone in May, when it raised its annual target and said that it saw encouraging "proof points" to return Foot Locker comparable sales to growth.
While athletic brands flagged softness in the U.S. wholesale market in the quarter, Dick's sharp 2026 guidance cut surprised investors and highlighted Foot Locker's sensitivity to footwear trends, Telsey Advisory Group analyst Cristina Fernandez said.
LEGACY BRANDS STRUGGLE
Lifestyle and legacy silhouettes were "simply not resonating the way they once did," resulting in inflated inventory that forced heavy discounting, executives said on a post-earnings call.
Foot Locker bore the brunt, given its exposure to legacy brands as well as its presence in Europe and emerging markets that have struggled with geopolitical uncertainties.
"This does not bode well for the major sneaker brands, although they may have been able to offset some of the weakness by leaning more into apparel, especially around the World Cup," said Neil Saunders, managing director at GlobalData.
"Even so, it will set alarm bells ringing for investors."
British sportswear and fashion retailer JD Sports cut its profit outlook last week after a slump in second-quarter sales in its key North American market.
On Tuesday, shares of top footwear makers fell in early trading.
Nike's shares fell 3.3%. Morningstar analyst David Swartz said expectations for Nike were already low and Dick's results were unlikely to change anything.
Shares of Adidas, Puma and On Holding were down between 1.5% and 2.5%.
For the 13 weeks ended August 1, which included the FIFA World Cup held in the U.S., Dick's reported net sales of $5.59 billion, missing estimates of $5.65 billion, according to data compiled by LSEG.
The company projected annual sales of $21.9 billion to $22.2 billion, compared with its earlier forecast of $22.1 billion to $22.4 billion.
It cut its annual earnings per share target to $11 to $12 on an adjusted basis while quarterly profit of $3.53 per share missed estimates of $3.76.
The company, which now expects Foot Locker's annual comparable sales to be flat to down 2%, received $59 million in tariff refunds and used it in part to invest in promotions.
(Reporting by Angela Christy in Bengaluru; Editing by Maju Samuel and Sriraj Kalluvila)
