A Sporting Goods Giant Had Its Worst Trading Day in Three Years

Keypoints:

• • Dick's Sporting Goods stock fell nearly 31% on August 25, its worst single session in about three years
  • The company missed both revenue and earnings estimates for fiscal Q2
  • Full-year earnings guidance was cut to $11-$12 per share, down from $13.50-$14.50
  • Dick's core stores grew comparable sales 4.9%, while Foot Locker's fell 3.6%
  • The decline erased roughly $5 billion in market value

Dick's Sporting Goods stock plunged nearly 31% on August 25. That's its worst trading day in roughly three years, and it wiped out about $5 billion in market value in a single session. The trigger was simple: the retailer missed Wall Street's revenue and earnings targets, then slashed its full-year guidance on top of that.

The company's core business actually held up well. Same-store sales at Dick's-branded locations grew 4.9%, helped by World Cup-related marketing tied to its Adidas partnership. The damage came almost entirely from a different part of the business.

Foot Locker is the chain Dick's acquired for $2.4 billion last year. Its comparable sales fell 3.6% this quarter, as a heavily promotional footwear market forced deeper discounting than the company had planned for. Executive Chairman Ed Stack pointed to weak product launches and Foot Locker's heavier reliance on older "legacy" sneaker styles as the core problem behind that decline.

Full-year earnings guidance dropped sharply as a result. The prior range of $13.50 to $14.50 per share fell to just $11 to $12. What makes this selloff worth understanding, rather than just skimming past, is how differently investors are now pricing risk within a single combined company. 

They're rewarding the original Dick's business while punishing the newly acquired one, since Foot Locker is proving a harder turnaround than management projected just one quarter ago.