Dick’s Sporting Goods is buying Foot Locker for $2.4 billion.
Investors had very different reactions to a blockbuster acquisition in the retail sector that saw Dick’s Sporting Goods (NYSE:DKS) acquire Foot Locker (NYSE:FL) in a deal valued at $2.4 billion.
Foot Locker stock took off on the news, rising 85% to $26 per share. Dick’s stock, on the other hand, tanked 15% to $178 per share.
Foot Locker stock has struggled in recent years, as the number of malls have gradually decreased across America. The sneaker chain had some 3,000 locations just three years ago and now has about 2,400. In its most recent quarter, Foot Locker saw its revenue decrease by 5.8%.
Also, Foot Locker is faced with huge tariff challenges, as some 99% of the footwear sold in the U.S. is imported, according to the Footwear Distributors and Retailers of America (FDRA) — and much of that is from China.
“We are hit particularly hard by the tariff actions, because the U.S. government already places a significant tariff burden on our industry before any new tariffs are added,” shoe retailers through the FDRA wrote in a letter to President Trump on April 29.
Worldwide expansion
After the deal closes, Dick’s expects to operate Foot Locker as a standalone business unit within its portfolio and maintain the Foot Locker brands.
One of the benefits for Dick’s is it will allow the company to expand internationally, as Foot Locker has locations in 20 countries.
“We have long admired the cultural significance and brand equity that Foot Locker and its dedicated Stripers have built within the communities they serve,” Ed Stack, executive chairman of Dick’s, said. “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. Together, we will leverage the complementary strengths of both organizations to better serve the broad and evolving needs of global sports retail consumers.”
Investors and analysts were less bullish on the acquisition. TD Cowen lowered its price target from $245 to $216, calling it a “strategic mistake,” adding that it will take significant investment to turn Foot Locker around.
UBS also downgraded Dick’s stock from a buy to neutral.
‘There’s a far longer list of retail mergers that were not successful than those that were,’ UBS analysts said, according to Morningstar.
