Dick’s Sporting Goods (DKS) Earnings Focus on Foot Locker Integration

0:00We're back on Morning Trade Live. Let's take a look at some of the retail stocks that reported earnings this morning. Quite a number of them actually. Dixporting's goods is trading higher by almost 2%. Olli's bargain outlet is also up 4.5%. But Dollar General is lower by 5.6 and Build-A-Bair Workshop is also down almost 4%. So a very mixed picture across our retail earnings this morning. So a little bit of a split picture. So let's dig into some of this. Go inside out on Dixporting's goods. Joining us now is Anna Garcia, who's the equity research analyst over at CFR, right? Anna, thanks so much for joining us. What did you make of Dix? Yeah, I think thank you for having me. The performance was better than expected, I think. Everyone was a little bit more nervous of what was going to happen now that they have footlocker on board, right? But performance was great. The core business continues performing. And in fact, their comparable sales were double what they had guided for.

1:00So, and both of, and that's meetup of both traffic and ticket, which is different than what we've observed and across the retail space. So I think it speaks to the strength in the core business. But it's not just the core business that was like performed better than expected. We also saw across margins better than expected. Costs came in ahead of expectations. So yeah, overall it was a good quarter. And I think overall the market is focusing on the outlook for 2026, which I think people were nervous that perhaps the outlook for footlocker, which they expected to be a creative to performance in 2026 was going to come in below expectations. But we heard good news on that front as well, right? Still a creative so far. And we know that Dix tends to guide conservatively when they start the new year. So definitely possibility for upside. We're definitely going to be keeping track of their guidance and what they have built

2:01into expectations for consumer health, especially with energy prices rising, which digs into typically discretionary spending. But overall we're feeling good about the performance. Okay, and it seems to be getting rewarded today by the street. We're sitting up at one percent right now in what is otherwise a risk off market with some of the Middle East headlines we're dealing with today. You've got to buy rating on this name with a $234 price target. I know you said you're keeping an eye on a couple of things with respect to obviously all the tariffs and the geopolitics, but also the consumer discretionary trends. But what takes us there to that price target do you think? Yeah, so that was the price target that we had coming out of Q3 earnings. Definitely something that we're going to reassess. But so far the outlook is keeping us positive. And our thesis relies more heavily on our assessment that the purchase of the full locker. Beers are particularly overstated, we think. If you take a look at performance for

3:04foot locker over the past year, yes, it's been a declining, you know, you would say in fact, it's been declining after the pandemic, right? But if you take a look at why that's what's happening, a lot of that has to do with the relationship with Nike, right? 70% of their sales were attributed to Nike. And we know that Nike has been struggling to deliver innovation to their products. And they were also relying more heavily on emphasizing their direct to consumer. But now they're pivoting away from that. So we think it's going to be better for the product as far as for foot lockers outlook. We expect that they're going to have more inventory that is going to resonate with the consumer that's looking to purchase, you know, a footwear. Okay, just very quickly, what is the biggest risk, do you think, for Dick Sporting? Yeah, so far, you know, our biggest concern relies heavily with what you typically, the risk

4:08that you typically see associated with M&A transactions, specifically integration. We know that foot locker operates on a different ERP system than Dick's. And I believe, according to our research, that ERP agreement that they have might be going out into 2027. So not only might they have to wait, but it can also just be very time consuming and expensive and can have problems with delivering inventory on time, right? You could see out of stocks or just disruptions to inventory. And you can take up to two to three years. So again, very costly. And we haven't received a lot of guidance or heard a lot from Dick's in relation to this issue. Okay, good to know. Anna, thank you so much for joining us today and giving us your reaction to this earnings report, a nice pop for for Dick Sporting today up 1.2%. Anna Garcia, their equity research analyst over at CFRA. Let's trade this name now with Tom White, host of Fast Market,

5:10very good morning to you, Tom. Obviously, this is a bright spot in what is otherwise a down market. So today, it looks like the street is looking past this week at profit guidance because of foot locker. Just talk us through an example trade here. Yeah, and I think maybe Sim that has to do with the fact that same source sales were above expectations. They came in about 3.1% in the positive. And I think they were only expecting about 1.8%. So that was a little bit better than anticipated revenue was better than anticipated. And the chief executive chairman Ed Stack basically came out and said, hey, we're done with the losses for foot locker. So maybe the outlook a little bit better than maybe what they gave as far as guidance goes. But I looked at a strategy implied volatility levels, crushed post earnings, which we typically see. So I looked at a strategy that takes advantage of a lower implied volatility environment. If you think this stock is going to rally, the stock hit over $207 post earnings, but has pulled back a little bit. So taking advantage of maybe this pull back looked out in the April monthly cycle. So 36 days to expiration,

6:14plenty of duration on this trade where I'm going to buy a slightly in the money 195 strike call. And then against it because I want to offset some of the costs on that with the expectations that, hey, maybe it goes higher, but maybe not much above 220 as sell the 220 strike call. So a bullish $25 Y call vertical, you're going to pay roughly, I've got a $10 debit on here. It's probably click trade and closer to nine bucks right now. But the debit you pay is going to be your risk. So if you pay 10 bucks, you got a thousand dollars in risk with the potential reward of $1,500 if it gets above 220 at expiration over the next five weeks or so. The break even on this one 205 to the upside, that's less than 3% above the current share price in the stock right now. So buying a directional biased vertical kind of setting up with your guests, you know, outlook here for the stock. If you think it's going to continue to rally over the next maybe five weeks or so, this strategy takes advantage of that in a low volatility environment. Okay, good look at Dix sporting goods for us at

7:19this morning. As you say, trading higher by 1.3% on some of the same store sales, perhaps looking positive in light of some of that weaker guidance at least on the profits, but really appreciated Tom. Thanks so much for the approach there.