S&P Global Lowers Dick's Sporting Goods Outlook to Stable on Foot Locker Struggles

S&P Global Ratings has revised its outlook on Dick’s Sporting Goods Inc. (NYSE: DKS) to stable from positive, citing underperformance linked to a promotional retail environment and difficulties with its recent Foot Locker acquisition. The ratings agency affirmed the retailer's BBB issuer credit rating.

Higher Leverage Prompts Outlook Change

The revision reflects updated expectations for the company's financial leverage. S&P now projects Dick's leverage will remain above 2x through fiscal 2027, a significant change from a previous forecast that saw it falling below that level in fiscal 2026.

Key forecast adjustments from S&P Global Ratings include:

• S&P-adjusted leverage is now expected to reach approximately 2.4x by the end of 2026, compared to an earlier estimate of 1.7x.
• Adjusted EBITDA margins are forecast to contract to 14.8% in 2026 from 15.1% in 2025.

Foot Locker Integration Weighs on Results

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Challenges in turning around the Foot Locker business, which Dick's acquired last fall, are a primary driver of the outlook change. Foot Locker reported a 3.6% decline in same-store sales as new product launches failed to meet expectations. S&P noted that issues with product relevance are particularly concerning given that footwear accounts for 85% of the subsidiary's sales.

By contrast, Dick's core business saw a 4.9% increase in same-store sales, partly boosted by traffic related to the World Cup. While Dick's targets $100 million to $125 million in cost-saving synergies from the acquisition, S&P views these as longer-term benefits that have yet to materialize.

Cash Flow and Capital Spending

The integration efforts and store rollouts are expected to impact the company's financials. S&P projects free operating cash flow will be approximately $165 million in fiscal 2026, a sharp decrease from about $391 million in fiscal 2025.

This is largely due to a significant increase in planned capital expenditures, which are expected to reach roughly $1.6 billion. Despite the increased spending, the company maintained a solid liquidity position as of the end of the second quarter, with approximately $914 million in cash and no borrowings on its $2 billion revolving credit facility.