On the heels of Skechers’ $9 billion go-private deal last week, all eyes are now on Dick’s Sporting Goods Inc.’s $2.4 billion move to buy Foot Locker Inc. — with Nike potentially becoming the big beneficiary.
Dick’s said it plans to acquire Foot Locker for $24 a share, representing an acquisition multiple of 6.1 times fiscal 2024 adjusted EBITDA (earnings before interest, taxes, depreciation and amortization). The per-share price represents a 66 percent premium to the Foot Locker’s 60-trading day volume weighted average price. Foot Locker shareholders can elect to receive either $24 in cash or 0.1168 shares of Dick’s common stock for each share of Foot Locker common stock. The transaction is subject to Foot Locker shareholder approval and other customary closing conditions, including regulatory approvals. It is expected to close in the second half of 2025.
The Wall Street Journal first reported news of a deal on Wednesday.
“We believe there is meaningful opportunity for growth ahead. By applying our operational expertise to this iconic business, we see a clear path to further unlocking growth and enhancing Foot Locker’s position in the industry,” Dick’s chairman Ed Stack said in a statement. “Together, we will leverage the complementary strengths of both organizations to better serve the broad and evolving needs of global sports retail consumers.”
“We look forward to welcoming Foot Locker’s talented team and building upon their expertise and passion for their business, which we intend to honor and amplify together,” added Lauren Hobart, Dick’s president and chief executive officer.
Foot Locker CEO Mary Dillon said by joining forces with Dick’s, “Foot Locker will be even better positioned to expand sneaker culture, elevate the omnichannel experience for our customers and brand partners, and enhance our position in the industry.”
Both retailers said the combined entity allows Dick’s to reach new customers across the U.S. through Foot Locker’s store portfolio, as well as internationally. The combined entity also can reach a broader range of consumers from performance-focused athletes to sneakerheads, while learnings from Dick’s House of Sports and Foot Locker’s Reimagined Concept stores can provide customers with an immersive and innovating retail experience.
On a special conference call with analysts on Thursday, Stack said the deal brings the combined company’s total store count to more than 3,200 throughout key regions.
“Foot Locker serves a consumer in a neighborhood that we, in many cases, are never going to get,” Stack said on Thursday’s analyst call. “They’re in places that we’re not going to be able to find 50,000 square feet or 60,000 square feet [for a large Dick’s store]. So, they’ve got stores and the consumer that we’re not going to get based on our real estate strategy.”
Another benefit for both retailers will be stronger relationships with key brand partners through multiple platforms.
Jefferies analyst Randal J. Konik said in a research note on Wednesday that the acquisition of Foot Locker by Dick’s Sporting Goods is a “positive development for Nike,” which has strong partnerships with both retailers. “Dick’s is widely regarded as a highly capable and efficient operator, and its ownership could bring operational improvements to Foot Locker,” he concluded.
Konik said that as Nike CEO Elliott Hill strengthens an already robust relationship with Dick’s, the consolidation of the two retailers “could enhance Nike’s retail presence and brand consistency.” He noted that Nike leads footwear sales at Dick’s, a key growth category that accounts for 28 percent of the sporting goods retailer’s business, while the Swoosh represents half of Foot Locker’s sales, “underscoring the strategic importance of both channels to Nike’s wholesale strategy.”
Moreover, a better run Foot Locker under Dick’s leadership would be a net benefit for Nike by reinforcing its distribution strategy and solidifying its position in athletic retail, Konik said.
Konik’s colleague Jonathan Matuszewski said the six-times EBITDA multiple is at the low end for retail transactions, with nine-times the median and nearly 12-times at the high end. He that Dick’s has a “clean balance sheet” and the $1.7 billion in cash means the retailer won’t have to add too much debt to it books.
Matuszewski saw five strategic benefits from the deal. One big one? Greater negotiating leverage with brand partners.
The analyst said Dick’s stocks 1,400 vendors, with Nike Inc. representing 25 percent of cost of goods sold (COGS). Last year, 59 percent of Foot Locker’s COGS were connected to Nike. A combined entity could translate to about $8 billion in total sales from Nike. “Naturally, we believe the larger entity could also realize indirect procurement savings, improved ad and media buying terms, and shared services efficiencies,” Matuszewski said.
From a competitive point of view, another strategic benefit of the deal could be pressure on smaller players through consolidation of industry share. Matuszewski said Dick’s defines its total addressable market as $175 billion, and that it has a 7.7 percent market share on a stand-alone basis. When combined, the revenue base for Dick’s and Foot Locker is more than $21 billion and the immediate broadening of Dick’s total market would give it a U.S. market share of about 11 percent. The combined entity would also generate more than $10 billion in footwear and more than $5 billion in apparel revenue annually.
Dick’s targets the middle- to upper-middle income customer, while Foot Locker’s shopper earns a below-average household income — giving the new entity a broader range of consumers to target.
In addition, the deal could pave the way for the expansion of Dick’s nameplate overseas. Foot Locker operates 33 percent of its store network outside of U.S. But for now, Stack said the company is not focused on expanding Dick’s to other countries, and is instead focused on optimizing the combined company’s reach in the U.S.
What’s more, the combined company could potentially expand GameChanger, the youth sports app Dick’s acquired in 2016 that offers free sport team management, streaming and scorecard. Dick’s has grown it to $100 million in revenue, and could grow it more with a Foot Locker tie-in.
Dick’s said it expects the transaction to be accretive to earnings per share in the first full fiscal year post-close, excluding transaction and other onetime costs. Dick’s said procurement and direct sourcing efficiencies are expected to deliver between $100 million and $125 million in cost synergies in the medium-term.
As market watchers digest the deal, Matuszewski didn’t think there would be other bidders, even thought the multiple is on the low end, and that’s because Dick’s can drive greater synergies than others.
Corey Tarlowe, a Jefferies colleague who also covers Foot Locker, said: “Given Dick’s and Foot Locker’s category overlap and Foot Locker’s recent diversification strategy, we believe this deal is strategically sound.” He noted that Foot Locker’s efforts connected to its strategic turnaround plan “Lace Up,” launched in 2023, have “underwhelmed.”
Williams Trading analyst Sam Poser is also less keen on the acquisition, stating in a note that “it could prove to be a distraction for Dick’s.”
“The acquisition of Foot Locker will prove to be a distraction to Dick’s management, and lessen the focus on the core Dick’s Sporting Goods business,” Poser wrote. “Dick’s must focus on Dick’s in order to continue to achieve long term profitable growth. Consumers are becoming smarter and smarter, recognize, and do not support brands or retailers that are even a bit off their game.”
Foot Locker also released preliminary results for the first quarter on Thursday, revealing that its net loss is expected to be $363 million, or $3.81 a share, compared with net income of $8 million, or 9 cents a share, in the prior-year period. On a non-GAAP basis, net loss is expected to be $6 million for the first quarter, as compared with net income of $21 million in the corresponding prior-year period.
The company said comps decreased by 2.6 percent from the prior-year period, with comparable sales in the North America region declined by 0.5 percent.
“Despite making ongoing progress with our Lace Up Plan, our preliminary first-quarter results are below our expectations as we experienced softer traffic trends globally,” Foot Locker’s Dillon said in a statement. “We continued to manage our promotional levels and maintain inventory and expense discipline, and we have taken actionable steps to advance these efforts and remain nimble and well positioned in an uncertain macroeconomic backdrop.”
