DICK'S Sporting Inks an Agreement to Buy Foot Locker: What to Know?

DICK'S Sporting Goods, Inc. DKS has been making smart moves to enrich the customer experience. DKS is emphasizing the omnichannel experience to drive solid athlete engagement.

In a latest announcement, DKS and athletic shoes and apparel retailer Foot Locker FL unveiled a definitive merger agreement, which states that the former will buy the latter for an equity value of almost $2.4 billion and an enterprise value of roughly $2.5 billion.

The proposed merger deal highlights a key strategic milestone for DICK'S Sporting. This transaction is likely to be accretive to DKS’ earnings per share in the first fiscal year post-close (excludes transaction and more one-time expenses to accomplish synergies) and produce $100-$125 million in cost synergies in the medium-term via procurement and direct sourcing efficiencies.

The company notified that it expects to operate Foot Locker as a standalone business within its portfolio, thus retaining the FL brands. The aforesaid transaction has been unanimously approved by both companies’ board members. According to the proposed merger terms, FL shareholders have the option to either receive $24 in cash or 0.1168 shares of DKS common stock for every share of Foot Locker’s common stock. The option is not subject to a minimum or maximum value of cash or stock consideration.

The $24.00 per-share consideration reflects a premium of about 66% to FL's 60-trading-day volume-weighted average price, based on its yesterday’s closing price. The total consideration shows an acquisition multiple of roughly 6.1x adjusted EBITDA of fiscal 2024.

More on DKS’ Latest Announcement

The proposed deal is subject to FL shareholders’ approval and more customary closing conditions, with the regulatory approvals. This is likely to conclude in the second half of 2025. DKS expects to finance the buyout via a combination of available cash and new debt.

The combined company looks to offer strategic and financial benefits, including a global platform in the booming sports retail industry, boost relationships with brand partners, unlock operational effectiveness to maximize shareholder return, serve a wider consumer base in differentiated concepts and invest in omnichannel growth. 

DICK'S Sporting will benefit from FL’s sneaker expertise and culture through its impressive portfolio of brands, comprising Foot Locker, Kids Foot Locker, Champs Sports, WSS and atmos. FL operates about 2,400 retail stores in 20 countries across North America, Europe, Asia, Australia and New Zealand, in addition to a licensed store presence in Europe, the Middle East and Asia. FL registered net worldwide sales of $8 billion in its last fiscal year. 

The combined company is likely to better serve customers worldwide. Through this deal, DKS will interact with customers in new U.S. locations via FL's real estate portfolio, as well as internationally. The company will be able to serve a broader spectrum of customers, ranging from performance-focused athletes to sneakerheads. The transaction is likely to boost growth via unique store concepts and solid digital experiences to aid long-term success.
 

Shares of this sporting goods dealer have lost almost 5% yesterday. Over the last three months, this Zacks Rank #4 (Sell) company's shares have fallen 24.8%, wider than the industry’s 4.9% decline.

Eye These Solid Picks in Retail

We have highlighted two better-ranked stocks, namely Nordstrom JWN and Canada Goose GOOS.

Nordstrom, a key fashion specialty retailer, currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here. 

The Zacks Consensus Estimate for JWN’s current financial-year sales indicates growth of 2.2% from the year-ago figure. The company has delivered an earnings surprise of 22.2% in the last reported quarter.

Canada Goose, a designer and retailer of premium outerwear, currently carries a Zacks Rank #2 (Buy). GOOS delivered an average earnings surprise of 71.3% in the trailing four quarters.

The consensus estimate for Canada Goose’s current financial-year sales indicates a drop of 4.9% from the year-ago figure.

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This article originally published on Zacks Investment Research (zacks.com).

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