DKS

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended November 1, 2025 (Fiscal Q3 2025) and the 39 weeks ended November 1, 2025. The reporting period is significantly impacted by the completion of the acquisition of Foot Locker, Inc. on September 8, 2025, for a total consideration of approximately $2.5 billion. Consequently, the Company now reports two segments: DICK'S Sporting Goods and Foot Locker. The financial statements include Foot Locker's results from the acquisition date forward.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Net sales increased 36.3% in Q3 and 15.1% year-to-date, driven primarily by the inclusion of Foot Locker sales ($930.9 million in Q3) and a 5.7% comparable sales increase in the DICK'S Business.
• Profitability Decline: Net income decreased 67% in Q3 and 17% year-to-date. This is largely due to $138.5 million in merger and integration costs for the quarter (and $146.6 million YTD), a $45.1 million net loss from the Foot Locker segment, and the dilutive effect of 9.6 million shares issued for the acquisition.
• Margin Compression: Consolidated gross margin decreased 264 basis points in Q3, primarily due to lower gross margins in the Foot Locker segment reflecting promotional actions to manage inventory. DICK'S Business gross margin expanded 27 basis points.
• Balance Sheet Expansion: Total assets increased from $10.5 billion to $17.4 billion, and long-term debt increased by approximately $421 million due to the acquisition and debt exchange activities.

Guidance, Outlook, and Risks

• DICK'S Business Outlook (FY 2025): Management raised full-year guidance, expecting comparable sales growth of 3.5% to 4.0% and diluted EPS of $14.25 to $14.55 (excluding acquisition impacts and investment gains).
• Foot Locker Outlook (Q4 2025): Management expects gross margin rates to decline 100 to 150 basis points compared to the prior year due to inventory optimization actions. Pro forma comparable sales are expected to decrease mid-to-high single digits. Operating income is expected to be slightly negative, excluding strategic charges.
• Future Charges: The Company anticipates incurring an additional $500 million to $750 million in pre-tax charges related to inventory optimization and store portfolio closures for Foot Locker.
• Synergies: Expected cost synergies from the acquisition range from $100 million to $125 million in the medium term.
• Risks: Key risks include the successful integration of Foot Locker, execution of inventory optimization strategies, macroeconomic pressures (inflation, interest rates), and ongoing litigation regarding inventory shrinkage and financial disclosures.

Investor Verification Checklist

• Acquisition Integration Costs: Verify the trajectory of the $500M-$750M in estimated future pre-tax charges for Foot Locker inventory and store optimization.
• Foot Locker Margin Recovery: Monitor Q4 and subsequent quarters for the impact of inventory markdowns on gross margins and the timeline for margin stabilization.
• Debt Structure: Review the terms of the new $2.0 billion revolving credit facility and the $400 million 2029 Senior Notes issued in connection with the acquisition.
• Comparable Sales Exclusion: Note that Foot Locker stores will not be included in the Company's comparable sales calculation until Q4 2026 (14 months post-acquisition).
• Litigation Status: Track the progress of the securities litigation regarding inventory shrinkage and the derivative actions filed by stockholders.