Dick’s, Footlocker, and my experience with Athlete’s Foot

I know I’ve talked several times about my experience as a Papa John’s (PZZA) franchisee. But that’s not the only store I’ve failed at operating.

There was also The Athlete's Foot.

The first one I opened was in a shopping center I owned in Chester, South Carolina. Since I had a vacancy, I figured I’d fill it myself. And when an opportunity came up to open a second location, I went with that one, too.

As it turned out, that was about the worst timing possible. Within months, the larger company filed for bankruptcy, leaving me with a whole host of problems, including in merchandising.

At the time, the Nike Air Force 1 sneaker was all the rage. You weren’t relevant as an athletic shoe store if you couldn’t keep those in stock. Yet it became increasingly difficult for me to obtain them – or any of the other big, brand-name offerings either.

It was like owning a McDonald's franchise and not being able to get hamburgers. You can have the golden arches, the buildings, and the employees. But without the core product customers come to buy, you won't have much of a business.

After I realized that, I closed down my stores and liquidated the shoes. Yet I never forgot the lesson behind the experience.

The retailer’s name might be displayed above the door. However, it’s the brands it sells that ultimately control traffic.

Twenty years later, that realization is as relevant as ever. So it’s well worth remembering while we evaluate Dick's Sporting Goods (DKS) and its $2.4 billion Foot Locker acquisition.

Dick's was already America's dominant sporting-goods retailer when it decided to double down on athletic footwear last year by acquiring struggling Foot Locker.

On paper, there was plenty to like about the deal, with Foot Locker bringing enormous scale to Dick’s operations. The chain has hundreds of stores and international exposure in the shoe retail market.

Plus, all that came at a discount considering Foot Locker’s ongoing woes. One of the mall staple’s biggest issues – other than being a mall staple in the online era – is how Nike (NKE), its biggest source of revenue by far, began opening its own stores in direct competition.

Why go to Foot Locker when you can go straight to the source?

Dick's management understood that obstacle from the get-go. But it believed it had the purchasing power, vendor relationships, operational expertise, and financial resources to turn Foot Locker around.

Once the deal closed in early September 2025, the company went right to work. It closed underperforming locations and cleared stagnant inventory to make everything ready for this year’s back-to-school season.

And Wall Street was optimistic about its success rate… right up until last week, when Dick’s reported its second-quarter results and admitted that things weren’t going well at Foot Locker.

Not at all.

Dick's core business, in and of itself, remained remarkably healthy last quarter, with comparable sales rising 4.9%. However, Foot Locker’s declined 3.6%; and once-confident management now doesn’t seem to know when a turnaround will happen.

The stock cratered 31% on the news.

It was mere months ago that Dick's expected its new acquisition to contribute between $110 million and $150 million of operating profit for the year. Now it expects the chain to see an operating loss of $40 million to $80 million.

That's an enormous difference in sentiment in a very short span of time.

On Dick’s earnings call, Executive Chairman Ed Stack explained one of the biggest problems they were facing. How “a number of [shoe] brands got very promotional on their sites, and those promotions spilled into the broader marketplace.”

That’s more than a little problematic since 80% of Foot Locker’s sales come from footwear. Compounding the problem further, Dick’s doesn’t see the issue going away for the rest of the year.

As such, Foot Locker will be matching competitors' discounts to protect the market share it’s managed to maintain. Otherwise, it risks becoming even more irrelevant.

That strategy might very well work out down the road. But shareholders are under a lot of pressure in the meantime.

For that matter, so are consumers – a topic I touched on last week in “Forget the yield curve. What are strippers saying?”

Yes, that’s the actual title. And yes, I did it for clicks.

But that doesn’t mean the article was fluff. I published it to address some very real economic concerns I’m seeing by way of the Consumer Canary Index.

That name comes from the old coal mining practice of carrying canaries underground. These birds are exceptionally sensitive to the kinds of dangerous gases miners might come in contact with. So if they became agitated, workers knew it was time to clear out.

The same basic principle applies to restaurants, home improvement stores, entertainment venues, travel and leisure companies, beauty brands…

And probably sneakers, too.

Remember what I said about Athlete’s Foot profits: how the majority of it came from Nike? And a large chunk of that majority came from specific Nike products: the top-line sneakers that everyone wanted to have.

Wanted. Not needed.

In which case, customers might have no problem throwing down $150, $200, or more on a single pair of shoes – if they’re feeling confident about what’s in their wallet.

But when they start worrying about their grocery needs (not wants), filling up their gas tanks, and job security? Well, that’s when you get a pair of $50 shoes instead. If you get any at all.

Let’s face it: The pair you bought last year probably works just fine anyway.

I imagine this shoe-buying trend hasn’t changed since my admittedly limited days of selling the product. That theory certainly jives with all the discounts Dick’s is having to deal with right now while promoting Foot Locker.

For that matter, we've seen cautious commentary across athletic apparel and footwear companies in general. This includes Nike, Under Armour (UA), Columbia Sportswear (COLM), and Deckers Outdoor (DECK).

They’re each seeing more hesitancy in consumers.

That’s why Dick’s shares fell as badly as they did: because the market has been noticing all of this. And it’s starting to grow more cautious as well concerning these stocks.

Of course, the market has a bad habit of going overboard on its concerns – just like it tends to take enthusiasm to the extreme when things are going well. And that’s often fine by me since it makes my job as a value investor much easier much more often.

When it comes to Dick’s, shares are now trading at roughly 11x earnings compared with their longer-term multiple around 12.5x. On the one hand, that’s not dirt cheap, especially if Dick’s earnings fall 13% next year as analysts expect.

On the other, these same experts are calling for a 15% rebound in 2028 and then 21% in 2029. In which case, its multiple should be headed back up sooner than later.

And here’s another signal I can’t ignore…

While Wall Street was running for the exits, four Dick’s directors were buying further in. Between August 26 and 27, Mark Barrenechea, William Colombo, Robert Eddy, and Sandeep Mathrani purchased a total of 28,650 shares for approximately $3.72 million.

Barrenechea led the group with 17,000 shares at an average price of $130.72. That’s more than $2.2 million worth!

But even the smaller purchases speak of significant optimism. None of these men were exercising stock awards or options. These were purchases made with real money – after the selloff.

That gets my attention.

Insiders can sell stock for all kinds of reasons. It’s not always a vote against the company in question. They might need some extra money to pay taxes, buy a house, diversify their wealth, or fund a child’s college education.

But there’s really only one reason they buy shares on the open market: They believe they’re going to make money as the stock appreciates.

You could even argue that Dick’s insiders have drawn a line in the sand around $130, where they largely made their purchases.

Now, that doesn’t mean the stock can’t experience further volatility from here. And it certainly doesn’t mean Foot Locker is fixed.

But it does tell me the people sitting inside the boardroom believe the market’s 31% punishment went too far. That’s a very important consideration.

However, knowing what I know about the shoe business and the economy, I still have to put Dick’s on my waitlist.

I simply can’t shake my personal knowledge of how unforgiving footwear retail can be. When customers stop wanting the shoes in your stockroom, margins can disappear quickly.

As such, I’ll be keeping an eye on Foot Locker’s inventories, promotions, and comparable sales for the time being. I want to see evidence that Dick's management can make this work.

If that starts to show, I might be much more willing to purchase what this company is selling.

Happy SWAN investing,

Brad Thomas
Editor, The Wide Moat Daily