DKS closed Monday at $123.63. Management is guiding to $10.94-$11.94 in EPS this year, so the stock is around 10-11x guidance.
That got my attention. The latest filing also makes the discount pretty easy to understand.
Dick’s own business still looks healthy. Q2 comps grew 4.9%, and segment profit rose to $485M from $475M last year.
Foot Locker lost $31.9M in the same quarter. Management now expects the Foot Locker segment to lose $40-$80M for the full year, with comparable sales somewhere between -2% and flat.
They paid about $2.5B for Foot Locker and issued 9.6M new DKS shares to help fund it.
The new pro forma filing is ugly too: if Foot Locker had been included for the full prior year, EPS would have been $6.21 instead of $9.97. That comparison includes Foot Locker’s pre-deal losses and assumes no future synergies, so I wouldn’t take it at face value. But it shows the size of the problem.
What I like is that the core Dick’s business isn’t the thing that’s broken.
What I don’t like is that I still can’t find a clear timeline for Foot Locker to become profitable.
At 10-11x earnings, I think the real value question is pretty simple: how much is Foot Locker worth if Dick’s can get it to breakeven?
I published a deeper DKS report on my website today. It’s totally free to read. If anyone wants the link, let me know.