Dick's Sporting Goods has vowed "to clean out the garage" by rapidly closing underperforming Foot Locker stores in the wake of its $2.5 billion acquisition of the lagging sneaker retailer.
Dick's, the Pittsburgh-based retailer of sports gear and apparel, on Tuesday offered a broad description of its plans to turn around Foot Locker, which has its headquarters in New York. Dick's executives didn't mince words discussing what they believe went wrong at Foot Locker and how they plan to fix it. In fact, several Dick's officials used the exact same "clean-out-the-garage" phrase.
The initiative, along with other merger and integration costs, will result in a future pre-tax charge of between $500 million and $750 million, according to Dick's.
The first priority is to get rid of unproductive inventory, shutter underperforming stores and go about "rightsizing assets that don’t align with our go-forward vision for the Foot Locker business," Dick's Executive Chairman Ed Stack said on a third-quarter earnings call.
"This is the groundwork for the transformation," he told Wall Street analysts. "We have identified an initial number of underperforming assets around the globe, including inventory that needs to be marked down and liquidated, along with a preliminary number of stores that need to be impaired [written off as losses] or closed."
Dick's didn't disclose how many Foot Locker locations it plans to shutter.
Different sales comps
Dick's closed on its purchase of Foot Locker in September, and it's a marriage of two retailers with very different track records. In the quarter Foot Locker's proforma comparable sales dipped 4.7%. Dick’s businesses, excluding Foot Locker, saw comparable sales rise 5.7%. But the acquisition gives Dick's a global footprint, via Foot Locker's store portfolio.
"When we announced this acquisition, we knew that business was going to need work," Stack said on Tuesday's call. "Let me be candid. Foot Locker strayed from Retail 101 and did not execute the fundamentals. Post-COVID, Foot Locker did not react quickly enough when its largest brand [Nike] pivoted toward a direct-to-consumer model, leaving Foot Locker with the wrong inventory: too much of what did not sell and not enough of what did sell."
Dick's has already kicked off a pilot program at 11 Foot Locker stores to test changes in product mix and the in-store presentation, according to Stack, and is encouraged by what it's seeing and learning.
But Dick's has its work cut out for it, according to Neil Saunders, a retail analyst and managing director at analytics firm GlobalData.
"Although Dick’s is firmly at the top of the league table, the newest recruit to its team is far from a star player," Saunders said in a note on Tuesday. "Indeed, Foot Locker has been one of the laggards of retail for quite some time. This can be seen in the current quarter where comparable sales for the division fell by 4.7%. Foot Locker also made a loss of $46 million, which has impacted Dick’s previously solid bottom line."
Foot Locker is "a business that needs a lot of training to get into shape," according to Saunders.
New management teams
"In some ways, this is a positive thing as it means there is upside to the acquisition," he said. "In other ways, it is a risk in that it will absorb capital and management time to make the fixes."
Dick's didn't respond to an email from CoStar News seeking comment on Saunders' remarks.
As of Nov. 1, there were 3,230 stores across the Dick's and Foot Locker businesses. Foot Locker accounts for about 2,600 stores in the portfolio.
Foot Locker had planned to relocate its global headquarters from New York to St. Petersburg, Florida, signing a lease for the new space this year before the acquisition. But Foot Locker post-merger now doesn't plan to make the move.
Dick's has put leadership in place at Foot Locker. Anne Freeman, a longtime Nike executive, is serving as Foot Locker North America president. Matthew Barnes, the former CEO of Aldi, next month will start as president of Foot Locker's international business.