Dick's Sporting Goods Aktie

Okay. Good morning, everyone. It's my pleasure to introduce DICK's Sporting Goods and to moderate our fireside chat. Today, we have with us, Ed Stack, Executive Chairman of DICK'S Sporting Goods. Ed served as the company's Chairman and CEO from 1984 through January 2021.

We also have with us Lauren Hobart, President and Chief Executive Officer of DICK'S Sporting Goods. Lauren joined DICK'S in 2011 as Senior Vice President and Chief Marketing Officer, and she became President in 2017 and CEO in 2021.

We also have with us Navdeep Gupta, Chief Financial Officer of DICK'S Sporting Goods. Navdeep joined DICK'S in 2017 as Senior Vice President, Finance and Chief Accounting Officer, and he became CFO in 2021. Navdeep, I'll turn it over to you.

Well, fantastic. Good morning, everyone, and thanks for joining us. I wanted to read the disclaimer, but I'm guessing nobody is interested in reading it. So our nondisclosure agreement is actually filed on the website and Nate, wherever you are. Thank you for doing the reminder for me for that.

Great. Okay. So we'll get started. I guess right out of the gate, we'll just talk about the state of the athletic category, if that's okay. I think there is a good amount of concern out there about what is going on in footwear and apparel. So if I have this right, since COVID, we've been seeing a strong casual athletic trend, which has been underpinned by increasing health and wellness focus.

But more recently, I think we've seen more cautious commentary out of the brands and more challenged results out of other athletic retailers. So could you maybe level set where you think we are in the athletic cycle for both footwear and apparel?

Yes. I think that the -- so thanks for the question, and thanks for inviting us. I think the idea that the athletic cycle is over is overdone, okay? But when you take a look at what our footwear business is on the DICK'S side, our business on the DICK'S side is really very good. The specialty channel has been -- is a bit more challenged. But on the DICK'S side, it's very good. And a couple of things. And it's more of the specialty channel.

So Foot Locker on launch shoes was much more dependent on kind of the high launch retro shoes than we are at DICK'S. The same with some other specialty players. But that business has slowed and there's the ability to pivot to other areas of the business, which is, I think, what we've done at DICK'S extremely well, whether it's new brands that I would say are not emerging anymore, but have emerged such as On and HOKA have been great. And on the DICK'S side, we transitioned to those pretty quickly.

Foot Locker was not able -- didn't do that and wasn't able to do that. You see other brands now coming up with a Saucony, Solomon, ASICS is coming back at what's going on with timberland, with UGG's, Birkenstock. So this business has just broadened out, which is really, we think, very good for us.

The fact that there's more there's more alternatives for us to go to and to build our business as opposed to having a small handful of brands that really dominated the industry. With that being said, I think that some of the brands that have been viewed as having a difficult time. There are some of these legacy silhouettes that have been an issue, but they've got some really interesting and great product in the pipeline. And you started to see that with -- from a Nike standpoint, the mind shoe has been terrific.

If we could get more in the marketplace and as they work through the manufacturing process and get more there, there's a big opportunity from that. From a basketball standpoint around jaw and around Catlin Clark, the issues coming out. So I think this is a moment in time where there's a bit of a dip in the industry, but it's far from a real long-term term program.

And when you take a look at On and HOKA and some of these other brands that are out there they're doing extremely well. And so I think it's way overdone. The margin pressure is real, which is really what's driven the performance for ourselves and some other retailers. The margin pressure is real as these legacy silhouettes have slowed down. And then some of the brands started discounting and the discounting get pretty aggressive. And we felt that it was really important for us to stay with the market from a price standpoint.

Some of you that we've talked to felt it's very difficult to have a young man or young woman who is working in the DICK'S store, the Foot Locker store, talked with a consumer or an athlete as we refer to them, and they say, "We can buy this shoe for $25 less expensive on such and such a site."

We didn't want them to go someplace else to buy that product. We felt that we really wanted to retain that consumer. And we felt that, that was the right investment to make in our business. And we talked on our call, I used the word investment very purposely that we do feel it was an investment in our business to make sure that we keep that consumer.

We wanted that consumer to come back and shop with us at Christmas. We want that consumer to shop with us in the spring for his or her baseball cleats, softball cleats, soccer cleats, other product. And we didn't want to be viewed as high price in the marketplace and they get that mindset and don't come back and shop with us. So it was an investment in our business. We take -- we talk all the time that we make investments in our business, not for a quarter or 2, but for a lifetime, and we look at it that this was really a lifetime investment that we're making in our business. And we do think it's going to continue through the fourth quarter. But if we had a mulligan to do it all over again what we did in the second quarter, we do it all over again exactly the same way because we look at this in a very long-term way.

Okay. If we could maybe just go back to the legacy silhouette comment. It's been a category or a subcategory that I think that's been under pressure for a while, but Foot Locker U.S. is able to comp about 6% in the first quarter in spite of, I think, is still being somewhat challenging. So why do you think some of the slower growth in these styles may be caught up to Foot Locker in the second quarter? Did something meaningfully change? And when you think about the inventory situation, how many quarters do you think the industry needs to work through this inventory?

I think that there's a couple of things. So the -- those legacy silhouettes, Foot Locker did really very well in the first quarter. And a lot of it was really helped by the launch product, the Jordan Retro product.

The second quarter was a disappointment in that product across the DICK'S business, the Foot Locker business, other direct competitors' businesses and the brand. So we think that, that was a big issue there. These legacy silhouettes just -- they had been kind of trending down, but somewhere in the second quarter, they really slowed. And -- but a couple of these brands in Nike, in particular, brought out different materials and different embellishments on some of those legacy silhouettes, Air Force 1 or Dunk, so to speak, you couldn't keep them in stock.

So if you take an Air Force 1 silhouette and a traditional Triple White, Triple Black or a traditional white shoe with the Varsity colors, red, blue, black, those have slowed significantly. But a Triple white Air Force 1 and Patent leather, a Triple white Air Force 1 in Black, you can't keep those in stock today. So it's trying to get enough of those in the marketplace.

Now how long that has to run, I don't know. But right now, there's the ability if we had more of those products, it would be a very different scenario. And the discounting got pretty aggressive in the second quarter. And like I said, we expect that to continue through the balance of the year.

So maybe if we could go back to the guidance cut. Obviously, the market was surprised by the cut, both on the DICK'S core margins and on the Foot Locker comp and margins. And you talked a little bit before how promotions are important and you're using it as an investment. But if maybe we could just focus on DICK'S first.

Do you think there's a degree of conservatism in your guidance just given the strength of what you've seen so far in demand at the store. Footwear grew in the second quarter. So how much discounting do you think there really needs to happen? And is there any kind of broader discounting here beyond the footwear that we should be aware of?

I'll start with. So DICK'S, we're really pleased with how the business is doing at DICK'S. And in fact, as you know, we kept our comp guidance the same. We did reflect some of the promotionality from the legacy footwear, which affects the DICK'S business as well. And we also reflected some conservatism toward fuel costs and health care costs, which we have been experiencing all year.

But overall, we are so bullish on -- we're bullish on the entire business, but the DICK'S business is very strong. We'll continue to manage through some of the impact of the margin and some of those other existential or exogenous impacts from fuel and health care. But overall, we never guide to the best possible outcome, but we feel really good about our guidance.

I think there's a concern out there that the contagion that is in Foot Locker will spread to DICK'S, and we don't see that. If you took a look at our footwear, we don't guide or disclose category by category what those comps are. But if you were to take a look at our comps in footwear, they're really quite good. You'd be pretty pleased. And part of this is this transition that the DICK'S team, we've been ahead of that from a legacy silhouette standpoint, but we still had to be competitive in the marketplace on those.

But when you take a look at what's happening from a transition out of some sneakers, so to speak, into some other categories, whether it's Birkenstock, UGGs, Timberland, that's all part of the footwear business. And we really believe that an athlete kid playing high school sports, male, female, they really need 5 different shoes. There's 5 shoes on their shopping list.

One is the shoe that they're going to wear in their sport, whether it's baseball cleats, basketball shoes, whatever it might possibly be. Then it's also going to be the -- a running shoe because everybody has got a train from a running standpoint. And then training today, those of you who watch from what's going on from a fitness standpoint, whether it's high rocks, whatever it might possibly be, this training, there's a very different pair of shoes that you're wearing to train in. It's not a traditional running shoe. So you need that training shoe.

And then the recovery piece of this has gotten really extremely hot, the mind shoe. So the whole recovery aspect is really important. And then you still have the shoe that the young man or young woman is going to wear to be kind of say who they are, what they're wearing to school, what they're wearing out with their buddies on a Friday night. So there's 5 shoes that they really have under consideration. And between DICK'S and Foot Locker, we are the retailers best positioned to service that need.

So then maybe if we can go to the Foot Locker guidance cut, we'll start with the comp first. I guess we're curious why you think same-store sales will take such a meaningful step back from what you originally predicted outside of the lifestyle silhouette issue that we just went through.

Because just thinking about it in another way, you have a new assortment coming through all the Foot Locker stores. You had an ad campaign that only started to make its way to the consumer maybe 5 or 6 weeks ago. And you've only remodeled 250 stores to fast break, getting them to, I think, 350 by the end of the year. So just given the amount of change and the time it might take to work through the system, do you think you might be underestimating what the comp response could be?

So our General Counsel would say that's a very dangerous question. But underestimating, I think we're giving the guidance that we think is best kind of looks at where the business is today. And there are some things that are happening. So what has surprised us and surprised the industry as a whole is the launch in retro product has been very difficult. And that's well chronicled.

When we originally looked at giving our guidance for the year, we didn't anticipate that. And Q1 was pretty good. Q2 was pretty difficult. A couple of other things of what we did from a Foot Locker standpoint, taking this down. EMEA has been very difficult. And when we originally gave our guidance for the year of what we thought we were going to do from a Foot Locker standpoint, there was not a war going on in the Middle East. And that has had a really meaningful impact on Europe. And you can see that from other retailers in Europe of what they've talked about.

And then the legacy silhouettes, it's taking longer than we thought to pivot some of these products and get more of these products in the store as the industry is -- the industry has got a really interesting problem that are short term, but they've got a capacity -- an overcapacity issue in some of the legacy silhouettes, and there's an undercapacity issue on some of these new shoes that have come out that are really resonating with the consumer. So there's an imbalance going on right now. And we're not able to get more of these shoes in based on manufacturing constraints as we would like.

And so it sounds to me like this is more of a supply issue than a real demand issue.

Don't see this as a demand issue whatsoever. If you've got something that's new and innovative, that consumer is stepping to the plate to buy that product, whether you can see that from an on-cloud tilt shoe that's really hot right now or what's going on with the Nike Mind shoe, the Nike running construct on the 9 block between Pegasus Structure and Vomero has been great.

If there's something new and different out there that the consumer views as different and innovative, it's doing very well. That's both on the footwear side.

And then on the other side, which is why we don't think there's a contingent from a DICK'S standpoint, whether it's baseball bat launches, what's going on from some other brands that we brought into the stores such as Vuori, we've got a number of stores, Gymshark, Free People Movement. There's just -- there's a transition going on right now, and we're right at the center of it, and I think we are extremely well positioned.

Okay. When it comes to discounting and moving some of the inventory, I would imagine it has to be a little bit delicate to have product discounted in the stores while trying to showcase new assortment and sell that through at full price. So how do you balance that? And how big of a role could Going Going Gone have as you manage through this?

Yes. It's not that difficult. The consumer knows what's new and what's hot and what's not. And so the consumer is very very intelligent out there. They know what's going on. And if you've got a mind shoe or you've got the running Nike running construct or you've got the cloud tilt or you've got an adidas running shoe and it's new and innovative and the consumer wants it, they'll know they'll come in and get that. And then the product that needs to be discounted is those legacy silhouettes. And right now, those are out of favor right now.

This is, I think, one of the benefits of bringing these 2 companies together is Foot Locker often will experience a trend a little bit ahead of where DICK'S would experience a trend. And so on the DICK'S side, we can see, okay, this franchise is slowing or -- and there's several examples. I don't want to be specific, but we can taper our buy at DICK's accordingly, knowing that there's some softness that may come. And then at the same time, we are using Going Going Gone, and our teams are working really well together to just help each other out when there is a clearance opportunity and just get through it.

There's also -- DICK'S has a longer tail with these franchises than Foot Locker does. The Foot Locker customer is a more fashion-conscious, faster customer than the DICK'S consumer. And we can see what happened -- what's happened at Foot Locker and then we can build to that. An example of New Balance is a bit more difficult in at Foot Locker gets rocking in DICK'S. So we can kind of see -- we have the ability on the entire -- with our acquisition of Foot Locker, we have visibility to the entire ecosystem of athletic footwear now.

So with Foot Locker, we own a company in Tokyo called Atmos, which is a Tier 0 retailer. very similar to Kith here in the U.S., which gets all of the new product that a brand is trying to seed in there. There was an example. I was walking through the brand rooms in Germany with Bjorn, and there was a shoe that I looked at, and I picked it up and I said, "that is a very cool shoe." And Bjorn said, "you don't get that shoe." And I looked at them, and I won't tell you exactly what I said, but I said, what do you mean we don't get that shoe? He said, "you don't get that shoe." He said, Foot Locker won't get that shoe right now. Atmos, they'll get that shoe. We're going to seed it there.

So we've got Atmos that we can see what's coming with shoes that are being seeded. And then as I talk about igniting a franchise, we can see that and do that with Foot Locker in those street kind of fashion doors that Foot Locker has in DICK'S House of Sport. And then when it scales, we've got that in the DICK'S stores and the traditional Foot Locker stores.

And then also at the end-of-life product, in our value chain of Going Going Gone. So we've got visibility to the entire ecosystem of athletic footwear. And to be -- nobody else has got that kind of visibility that we have. So we've built this ecosystem across the entire platform that nobody else has and will really positively impact our business.

That's great. If I can maybe drill down on what's happening with Foot Locker. I think one of the critiques or concerns is that Foot Locker is an asset that would require quite a bit of CapEx and maybe take valuable attention and dollars away from a very healthy core DICK's Sporting Goods. How are you feeling about the asset today? And is there anything in your guidance acknowledging that there might be a bigger issue with Foot Locker other than this sluggishness in the footwear category?

Yes. I think that -- so we're not taking assets away from DICK'S to be able to do that. We've got a significant amount of capital available to us. We've got $1 billion on the balance sheet right now. We've kind of started and are well on our way on the Fast Break process. And this is a pretty low capital-intensive change in the business. So we don't see that Foot Locker is going to take a significant amount of capital to get this thing kind of where it needs to be.

This is really how do we pivot away from some brands that aren't doing as well right now and into new brands. I was with a very important brand in the industry that we do a lot of business with that Foot Locker didn't. And when I sat and talked with the CEO, he said, in the past, we didn't really trust Foot Locker. We didn't really want our brand in Foot Locker. We really weren't sure where Foot Locker was going to go. So Foot Locker couldn't transition to this brand because the brand wasn't going to be supportive to them.

As we sat and talked and he said, now that you guys own it, he said, we are fully invested and supportive of Foot Locker. So we've got that with a couple of different brands. So Foot Locker, believe me, this is not easy with Foot Locker. But there are some things here that we've got to transition into some other brands and change some allocation of inventory, and we're in the process of doing this. It's just taking longer than we anticipated. And we thought it would be quicker.

We thought some other brands would be able to be more supportive quicker than they have been more legacy brands, and that hasn't happened. But with that being said, though, we are looking at -- I've had a number of people say, kind of how are you looking at this? We are -- and I think kind of what you're getting to a little bit is we are creating a menu that all of you would expect us to create based on the environment we're in today and what we're seeing.

So we've got no preconceived ideas of what has to be done. We're not going at this like damn the torpedoes, we're going to make this thing work. We're going to -- we've owned it for a year and a week now. And now through this year, we've taken our time to really understand the business, what's working, what's not working, what's not working that could work and what's not working that's not going to work. And we're creating this menu that you would expect us to create -- and as we go forward, we'll give you more details as we kind of make some final decisions.

I would add one other thing. You mentioned or you asked -- the first question was sort of is Foot Locker distraction for DICK'S? I would say absolutely not. But on top of that, I think actually, it's helpful to the DICK'S business that we're going to our core brand partners together, getting access to product, knowledge that we have, allocations. So I think it's actually been -- it's been a positive for the DICK'S business.

And maybe, Kate, I'll build on that. If you think even from a P&L intensity perspective, we have talked about the $100 million to $125 million of synergy, and that's a collective company synergy. Similar to what Lauren was saying, you're now able to go and negotiate as a DICK'S Inc. And so the benefit of that is not only on the DICK'S side, but also on the Foot Locker side. So that's where the 1 plus 1 definitely is accretive. Like I said, it's going to take a little bit of time, and we are working through those scenarios.

Great. Navdeep, maybe I can keep it with you for a minute just on the DICK'S core and SG&A. I do think that the flow-through has not been awesome. Great. Just because...

Well, thank you for getting...

There's not been a lot of flow though.

That's fair.

And so we wondered if you could maybe talk to us about some of the building blocks within SG&A that has resulted in that. And then how you think about the flow through the rest of the year?

Yes. So it's a great question. I think maybe the way to contextualize this is and I've said this to a lot of investors that you can't look at SG&A in isolation because in our case, for example, DICK'S Media Network, GameChanger, if you look at the 80 basis points of gross margin expansion that was driven here in second quarter was driven by DICK'S Media Network and GameChanger.

And those are the capabilities that we are -- the investments for those shows up in SG&A. So it's a little bit of a geography shift that when you invest in GameChanger, the intensity shows up in SG&A, whereas the benefit sits in margin, in comp sales as well as in the gross margin. So that's one aspect of it.

The second aspect of that is there are -- when we talk to certain investors earlier in the day, and we talked about, it's about prioritization. When you think about the opportunities that we have, whether it is building these assets that we talked about or some of the investments that we are making in technology platform enhancements. So it's about prioritization of those investments.

Having said that, that point that you made that it's been running hot for some time now. It's not lost on us, and we are consciously focused on that. And then this is where I -- the last point that I made in the prior question, the SG&A intensity will also get benefited from the negotiations that we are having from a synergy perspective.

Great. And then I wanted to just ask about the different units. So if we stick with core DICK'S, just House of Sport, if you could maybe just talk again to where you are in the rollout of that, meaning not so much like number of doors, but how happy you are with that? Is it still providing the vendor relationships, the comp lift that you've been seeing? And how do we think about that versus the traditional DICK'S locations? Yes.

So if anyone hasn't been to a House of Sport store, it is usually about 100,000 to 125,000 square foot experiential. It's not a climbing wall field and just an unbelievable experience, both a retail experience and just athlete experience. And we have been thrilled with the performance of House of Sport. We're now in a few stores, we're in our fourth year. And what we've been able to share is that the margins, the ROI is quite good as is the comp. So even in year 2, year 3, year 4, we're comping the comp, and that's really important.

But the other benefit to House of Sport, so it's also the inspiration for our new 50,000 square foot model, which is our real core -- what we call it field house internally. But it's showing -- it's leading the way in terms of how we want to have products come to life and experience and service and all of that. And it's brought in a number of different brand partners. So House of Sport is a really safe way for new brand partners.

And you look at HOKA came in through House of Sport. On came in originally through Public Lands and House of Sport. FP Movement came in. We have Gymshark just coming in through House of Sport, Vuori just coming in. It's a way that in a very controlled environment, we can bring a brand to life like nobody else. I mean, head-to-toe, these collab spaces that we have are absolutely amazing. And it's been a way for us to -- that infiltrates through the entire DICK'S banner eventually once people get comfortable. So it's just been a win-win-win.

Yes. And Kate, maybe I'll -- go ahead. The other thing I'll build on is 2 things on the field house. The Field House are doing fantastic as well. We talked about the economic returns on the Field House is great. The way DICK'S Sporting Goods will continue to come to fruition from the way how you see that experience will be either through a House of Sport or a Field House.

The other aspect of House of Sport that is really great is we are able to test and learn the new concept. So think of DICK'S Media Network. We tested that out in House of Sport and now we are rolling that. The Collectors Club House is another like the trading cards destination that we have created. We started out in House of Sport. So we are able to go and test these capabilities in House of Sport, how well they do, then you are able to quickly move into the field house concept. And that's a great testing ground for us to test and then evolve that into a field house concept.

The last thing I'd say about House of Sport, too, is House of Sport is really one of the most unique retail experiences out there. And I think a lot of people would agree with that. Mall developers love House of Sport. They want a House of Sport in their mall, whether it's taking the place of replacing a vacant Sears department store, Penney's department store, some other department stores that have kind of exited the place.

What the traffic that's brought in there, the different consumer that comes in there has been phenomenal, what House of Sport has done for the mall to increase the sales and the GLA of the mall. And that's why now we have access to real estate that 5 years ago, we would have never had access to, whether it's building a House of Sport in Palm Beach Gardens Mall in Florida or Barton Creek in Austin or Cerritos in L.A., Tysons in Washington, D.C. It's access to store real estate that we would have never had access to before.

And when we've gotten into these better malls and what the traffic that the mall we build off the mall in these A malls, the sales have been phenomenal. So House of Sport is just doing great. We're going to continue to invest in this, and that's a big opportunity.

Great. I just wanted to ask -- be sure to ask about the Fast Break stores, too, which is on the Foot Locker side of the house. So are the Fast Break stores that we would see today considered the final prototype of what you think Foot Locker should look like longer term?

Well, in retail and the way we've done things at DICK'S we're never in the final stage. We're constantly trying to innovate and move things forward. But it's a pretty good representation right now. I think one of the things we talked about is that we thought we could take 30% of the SKUs out and what Foot Locker always was, we kind of characterized as was merely a run-on sentence of shoes, and we wanted to scale that down and edit that.

What we have determined is that there's more editing to be done. So there's still too many -- if we take a look at -- and I'm not saying this is the exact number, but just directionally, the 80-20 rule that's out there that 80% of your business come from 20% of the SKUs, et cetera, et cetera.

When you take a look at the 20% of the sales, there's still too many SKUs in that 20%. It's too broad. We can take those dollars, reinvest those in colors of franchises that are working or deeper in sizes so that we're in stock better. So there's still some more editing to be done. So what you see from a Foot Locker standpoint right now from Fast Break is pretty close, but we're still editing that a bit further. I think that there's a bit more apparel that we can put in there from we're trying some additional fixtures and some additional apparel, which is we get that right will help drive the margin rate.

Okay. Great. Just in the last couple of minutes, we do have 4 questions we're asking everyone today. So first, you do have a slightly higher income consumer that shops at DICK'S, but maybe not as high end of consumer that shops at Foot Locker. Could you maybe talk about the different income cohorts and what your expectation is for the environment in the second half of '26 versus what you saw in the first half?

Yes. I'll start and then pass it to Navdeep. So the consumer is clearly across the country is under pressure, and we've heard the same in EMEA. But the DICK'S consumer is holding up very, very well, and that's been for some time. And that's due to the prioritization of sport and outside health and wellness. I mean everything -- the trends are just sport and culture have come together like unbelievably never before. And you saw it in World Cup, and we will continue to see it as the years go on.

So DICK'S consumer is doing well. We saw that. We did not see trade down from best to better or better to good. We saw growth across all income demographics. I think the Foot Locker consumer may be a little bit more under pressure. However, when there is newness and innovation that's resonating across the DICK'S consumer or the Foot Locker consumer, they absolutely are prioritizing and it's resonating.

Yes. And maybe the only thing that I'll add to that is EMEA has a different cadence to that, the pressure is definitely much more in the EMEA segment compared to the U.S. So that's been contemplated into our guidance as we gave for the full year.

Great. And then pricing, do you expect your prices to be higher, lower or the same in the second half of this year versus the first half of this year?

I think it will be similar to the second quarter. I wouldn't look at it half-to-half. I would look at it quarter-to-quarter. So I think the balance of the year will be similar to the second quarter.

And then our third question is on margins. Do you see more margin headwinds or tailwinds in '27 versus '26?

Go ahead.

No, we haven't provided the guidance for '27, but I would say a couple of things that to keep in mind. The balance would be making the right long-term investment because that is really important to us. Ed talked about the House of Sport. So we'll be very conscious about the key areas of investment that are performing well, continue to lean into it.

The second is there is a clear focus and collective work that is being done across the organization on productivity. And then we'll monitor the promotional and the pricing environment for next year.

Okay. Great. And then our last question is on AI. Do you expect a significant increase in efficiency as a result of AI in '27 versus '26? And what part of your business would change the most?

I'll start. So we are leaning into AI in a number of different ways. I would say the way to think about it is there's efficiencies for our teammates. So we're taking work that's been formally full of friction away from them.

For our athletes, we view it as tremendous opportunity, and we're really leaning into our core differentiation. So when we think about what makes DICK'S special, I'm speaking mostly on the DICK'S side now, but we think about what we call the power of our opinion, and that's all the first-party consumer data we have through our scorecard program.

It's the knowledge that our teammates have on all aspects of sport, what products are coming out, what the launches, all of that, we are now starting to bring to life through a consumer-facing app called Coach by DICK'S, which is now embedded into the DICK'S mobile app. And I think that is where we're going to see the input for next year. So removing friction, trying to delight athletes and really bring our experience to life. And at this point, AI is still requiring investment, and we will continue to monitor. But we are not doing tech for tech's sake. We are doing where we think we can really amplify the strategies.

All right. And with that, thank you for joining us.

Okay. Thank you.

Thank you.

Thank you, everybody. Thank you.

Hello, everyone. Thank you for joining us, and welcome to the DICK'S Sporting Goods, Inc. Second Quarter 2026 Earnings Call. [Operator Instructions]

I will now hand the conference over to Nate Gilch, Vice President of Investor Relations. Please go ahead.

Good morning, everyone, and thank you for joining us to discuss our second quarter 2026 results. On today's call will be Ed Stack, our Executive Chairman; Lauren Hobart, our President and Chief Executive Officer; and Navdeep Gupta, our Chief Financial Officer. A playback of today's call will be archived on our Investor Relations website located at investors.dicks.com for approximately 12 months.

As a reminder, we will be making forward-looking statements, which are subject to various risks and uncertainties that could cause our actual results to differ materially from these statements. Any such statements should be considered in conjunction with cautionary statements in our earnings release and risk factor discussions in our filings with the SEC, including our last annual report on Form 10-K as well as cautionary statements made during this call. We assume no obligation to update any of these forward-looking statements or information. Please refer to our Investor Relations website to find a reconciliation of our non-GAAP financial measures referenced in today's call.

I also want to note a couple of admin items. First, a quick reminder on our comparable sales reporting. Foot Locker will be included in our quarterly comp calculations beginning in Q4 of 2026, which will mark the start of their 14th full month of operations post acquisition. And finally, for future scheduling purposes, we are tentatively planning to publish our third quarter 2026 earnings results on November 24, 2026.

With that, I will now turn the call over to Ed.

Thanks, Nate. Good morning, everyone. From a sales perspective, the second quarter was strong, particularly for the DICK'S business, which delivered nearly a 5% comp sales gain. We continue to gain market share and saw many areas of strength across our portfolio.

We're also encouraged by the response of our World Cup investments, which we believe positions us to benefit from increasing soccer participation over the long term. While the DICK'S business delivered the sales and profitability we expected, as the quarter progressed, it became clear that inventory levels were building up across parts of the industry, leading to a much more promotional environment. This pressured our overall company earnings. Consumer preferences are evolving with athletes increasingly responding to newness, innovation and a broader set of brands. As demand continued to shift during the quarter, inventory built up in parts of the industry particularly within certain legacy footwear silhouettes and apparel franchises that simply aren't resonating the way they once did. The inventory built up across the industry supply chains and across the retail marketplace, which led to an increasingly aggressive promotional environment.

In response to these changes in the market, we felt it was important to remain competitively priced to protect our leadership position. We have always managed our business for the long term. We believe protecting our leadership position will create long-term value, and we view the pricing investments we're making today as an investment in the future strength of our business. These challenges affected both DICK'S and Foot Locker, but to different degrees.

At DICK'S, our diversified business model, broad category mix and balanced brand portfolio helped us navigate much of this pressure. Many areas of the DICK'S business, such as Team Sports and license were particularly strong. New emerging apparel brands generated strong ethylene engagements and footwear categories such as running fleets in the outdoor category remained healthy. While the promotional environment created pressures on margins, we continue to gain share and deliver strong sales growth. As you would expect, given its greater exposure to many of the legacy footwear silhouettes, the impact was more significant at Foot Locker.

In addition, Foot Locker is more dependent on launch and retro product. Not only were there fewer launches in the second quarter, but launches we did see performed below industry and our expectations. This had a meaningful impact on the results across the Foot Locker business. We're taking action to shift the mix toward in-demand brands. And while we expect the launch calendar to be more favorable in the back half of the year, the quality of those launches will be critical. We expect the broader promotional environment, particularly around legacy silhouettes to remain challenging at least through the fourth quarter. In addition, the Foot Locker business in EMEA has been more challenging than expected. While our turnaround efforts are underway, we always anticipated EMEA to have a longer path to recovery than North America. The promotional environment remains very aggressive in EMEA. The industry is carrying too much inventory and the consumer has been even more cautious than expected due to the geopolitical environment. The combination of the softness in EMEA and these marketplace dynamics has delayed the pace of improvement that we expected to see in the Foot Locker business.

Across the company overall, macroeconomic and geopolitical concerns also weighed on profitability during the quarter and impact of fuel, supply chain, health care and other costs. Along with the marketplace pressures we've discussed, this led us to revise expectations for the balance of the year. Navdeep will provide more detail on our updated 2026 outlook in his remarks.

But let me be clear, we believe the DICK's business remains strong and none of this changes our confidence in the long-term opportunity at Foot Locker. We're still early in the Foot Locker turnaround. We continue to invest to strengthen the business for the long term. That includes investing in the Foot Locker brand through its first major brand campaign in more than a decade, which is being incredibly well received as well as investing in our stripers who remain central to the consumer experience and a key differentiator for the brand.

We're also continuing to make progress with Fast Break. We surpassed our back-to-school goal of approximately 250 Fast Break stores globally, and we'll continue to expand to more locations ahead of the holiday season. We remain very confident in the opportunity with Fast Break. Our brand partners continue to be highly supportive of both the DICK'S and Foot Locker businesses, and we believe they see us as the most important player in the global athletic ecosystem. The connection between sport and culture has never been stronger. We see it every day across our business, from House of Sport to more Little League games being streamed on GameChanger to moments like the World Cup bringing millions together. No one is better positioned to capitalize on these opportunities that our combination of DICK'S, Foot Locker and GameChanger.

While at the present time the marketplace has become more challenging, our leadership remains clear. We will continue to invest in the growth opportunities we believe will drive long-term value, including House of Sport, Field House, GameChanger and the turnaround of Foot Locker. We are also making deliberate investments in price to protect and grow our leadership position. We have navigated environments like this before, and we remain confident in our strategy our competitive position and long-term opportunities ahead for both DICK'S, Foot Locker and GameChanger.

Before I turn it over to Lauren, I'd like to thank our more than 100,000 teammates across the globe for their commitment and their execution every day. With that, I'll turn it over to Lauren to share more on DICK'S.

Thank you, Ed, and good morning, everyone. As Ed mentioned, the breadth and diversity of DICK'S business allowed us to deliver another strong quarter. Once again, we demonstrated the power of our strategy and execution. Our team continues its commitment to bring our 4 strategic pillars to life, a compelling omnichannel athlete experience, a differentiated on-trend product assortment, deep engagement with the DICK'S brand, and the strength of our teammates and culture.

In Q2, we delivered total sales growth of 5.6% and comp sales growth of 4.9% for the DICK'S business. Importantly, our growth outpaced the broader industry by nearly 200 basis points, reinforcing our ability to strengthen our leadership position and gain market share. Our comps were driven by growth in average ticket and transactions, and we saw broad-based growth across footwear, apparel and hardlines. The DICK'S business also delivered gross margin expansion during the quarter. Growth businesses like DICK's Media Network and GameChanger continue to generate strong returns and further diversify our earnings stream. Together, the contributions from these businesses plus tariff refunds recognized during the quarter helped offset the promotional pressure we saw across parts of the athletic footwear and apparel marketplace.

As Ed discussed, we made the deliberate decision to invest in price to protect and grow our leadership position. The World Cup was another great example of how we're leading sports retail in the U.S. We invested significantly in marketing around the event, primarily through our adidas partnership and our team delivered outstanding results. I'm incredibly proud of how our teammates brought our vision to life for athletes across the country. We believe the World Cup will be a catalyst for long-term growth in soccer participation, fan engagement and consumer demand across the U.S. We believe that we're extremely well positioned to benefit from that growth through our strong brand partnerships, national footprint, connections with athletes and families and leadership position in youth sports. That same commitment to driving long-term growth is reflected in our continued expansion of House of Sport and Field House, which both continue to perform extremely well.

During Q2, we opened 5 House of Sport locations and 8 Field House locations. For the year, we expect to open approximately 14 total House of Sport locations and 20 total Field House locations. Within House of Sport, compelling new experiences, including Collectors Clubhouse and our [indiscernible] partnership are driving athlete engagement and fueling sales growth. These stores are giving us access to some of the best real estate in the country, including Cerritos, Tysons Corner and Palm Beach Gardens, and we believe they represent the future of sports retail. These concepts are not only creating differentiated experiences that are also helping us deliver the most relevant products and brands to athletes.

More broadly, our athletes continue to respond to innovation, differentiated product and emerging trends across the marketplace. The House of Sport and Field House experience allows us to bring those trends to life in a differentiated way. These concepts have strengthened our partnerships with established industry leaders and with newer brands, enabling us to deliver a unique assortment that sets DICK'S apart in the marketplace, and we believe represents a meaningful competitive advantage. Our ability to identify and respond to trends is supported by another important competitive advantage, our relationship with athletes. Our ScoreCard loyalty program is one of the most powerful assets in the DICK'S business connecting us with approximately 30 million active athletes. It gives us the ability to better understand our athletes, engage with them more personally and deliver more relevant products, services and experiences.

During the quarter, we relaunched ScoreCard to provide greater value, increased flexibility and more meaningful member benefits. As part of that relaunch, we introduced ScoreCards a paid tier designed for our most engaged athletes who will pay $99 per year for membership and enhance loyalty offerings. Over time, we believe these enhancements will increase engagement drive higher purchase frequency, strength and loyalty and further reinforce our competitive position. We're also continuing to leverage technology to build on this understanding of our athletes and improve their digital and in-store experiences. Earlier, I mentioned that GameChanger has become an increasingly important asset for us, contributing strong financial performance and providing meaningful data and athlete engagement. GameChanger continues to deliver exceptional results. And with it, we have one of the most comprehensive usesports ecosystems in the country. This gives us a powerful advantage as we continue to deepen our connection with athletes, families, coaches and teams.

It also helps drive our broader business, including our DICK'S Media network, by allowing us to better understand and serve the youth sports community. As Ed discussed, while we drove positive footwear and apparel comps in Q2, parts of the industry became more challenging as the quarter progressed and we've adjusted our expectations to include our assumption about these ongoing dynamics for the balance of the year. That said, nothing we've seen changes our strategy or our confidence in the DICK'S business and our sales expectations remain unchanged. We are encouraged by the strength of the DICK's business, the momentum we're seeing across many areas of our company and the opportunities ahead. We've been through marketplace transitions before, and each time, we've strengthened our competitive position. We believe our differentiated athlete experiences, strong brand partnerships disciplined execution and long-term investments will allow us to do that again.

With that, I'll turn it over to Navdeep to share more detail on our financial results and 2026 outlook. Navdeep, over to you.

Thank you, Lauren, and good morning, everyone. Let's begin with a review of our second quarter results.

Consolidated net sales increased 53.2% to $5.59 billion driven by a $1.74 billion contribution from the Foot Locker business and a 4.9% comp increase for the DICK'S business. The DICK'S business comp reflects a 3.6% increase in average ticket and a 1.3% increase in transactions with the broad-based growth across footwear, apparel and hardlines including strong results from the World Cup. On a 2-year and a 3-year basis, comps for DICK'S business increased 9.9% and 14.4%, respectively. Pro forma comps for Foot Locker business declined 3.6% for the quarter, reflecting declines in both North America and the international business. Results were impacted by challenging conditions in athletic footwear marketplace as well as fewer launches and weaker consumer response to key launches during the quarter.

From a margin perspective, consolidated non-GAAP gross profit was $1.9 billion or 34.06% of net sales, down 300 basis points from last year. The year-over-year decline was driven by the mix impact from the Foot Locker business. Within the DICK'S business, gross margin expanded 79 basis points versus last year. The improvement was driven by strong growth in DICK'S Media Network and GameChanger as well as the benefit from tariff refunds recognized during the quarter. These benefits helped offset increased investment in pricing due to promotional marketplace, particularly in athletic footwear and apparel, product mix and higher fuel and supply chain costs.

During the second quarter, we received approximately $59 million of tariff refunds, including $57 million related to DICK'S business and $2 million related to the Foot Locker business. Of the total amount, a benefit of approximately $21 million was included in our non-GAAP results for Q2 and $38 million was excluded as onetime benefit as it related to the tariff expense recognized in the prior year. The $21 million included in our non-GAAP results consisted of a $19 million benefit to the DICK'S business merchandise margin and a $2 million benefit to the Foot Locker business merchandise margin. We have reinvested these benefits into the business to remain competitively priced and help offset ongoing fuel, supply chain and other inflationary cost pressures.

Turning to expenses. On a non-GAAP basis, consolidated SG&A expenses increased 65% or $562 million to $1.43 billion and deleveraged 183 basis points compared to last year's non-GAAP results. Approximately $477 million of the SG&A increase was attributable to the addition of the Foot Locker business. As expected, for the DICK'S business, SG&A deleveraged 96 basis points driven by our strong investments in World Cup marketing as well as continued investments in our digital and in-store experiences. In addition, we are experiencing higher teammate health care costs. As expected, due to the timing of our new store openings, preopening expenses were $23.5 million, an increase of $11.2 million compared to the prior year. As Lauren mentioned, this supported the opening of 5 new House of Sport and 8 Field House locations in Q2.

Consolidated non-GAAP operating income was $453.3 million or 8.11% of net sales compared to $475 million or 13.02% of net sales last year. This includes operating income of $485.2 million or 12.6% of net sales for DICK's business and an operating loss of $31.9 million for the Foot Locker business. The Foot Locker results reflect both the challenging promotional environment we have discussed earlier and our decision to continue investing in the business, including brand marketing initiatives designed to support the long-term turnaround.

Moving down the P&L. Consolidated non-GAAP income tax expense was $124.3 million or a rate of 28.1%. Our effective tax rate for the quarter was shaped by the mix of our earnings in foreign jurisdictions. In total, we delivered consolidated non-GAAP earnings per diluted share of $3.53 for the quarter, which includes the dilutive impact of the 9.6 million shares issued in connection with the Foot Locker acquisition. This compares to non-GAAP earnings per diluted share of $4.38 last year.

On a GAAP basis, our earnings per diluted share were $3.50. This includes approximately $40 million of pretax income related to the tariff refunds and approximately $29 million of pretax Foot Locker acquisition-related costs. It also includes approximately $15 million of costs associated with redesigning the store labor model for the DICK'S business. For additional details, you can refer to the non-GAAP reconciliation tables of our press release that we issued this morning. Now looking to our balance sheet. We ended the quarter with approximately $914 million of cash and cash equivalents and no borrowings on our $2 billion unsecured credit facility. Inventory was $5.57 billion, reflecting the addition of the Foot Locker business. Inventory for the DICK'S business was up 6%, in line with our total sales growth.

Turning to capital allocation for the quarter. Net capital expenditures were $325 million, and we paid $111 million in dividends. Before I move to outlook, I would like to provide a brief update on the expectations surrounding the Foot Locker acquisition. First, as part of our clean out of the garage actions and broader merger and integration work, we expect total pretax charges of up to $750 million. To date, we have recognized $516 million of these charges. The remaining pretax charges will be incurred through 2026 and over the medium term as we complete this work. We continue to expect approximately $200 million of acquisition-related charges in 2026, which have been excluded from today's non-GAAP EPS outlook. Second, we remain confident in achieving our previously announced $100 million to $125 million of cost synergies over the medium term, primarily from procurement and direct sourcing efficiencies. A portion of these synergy benefits are expected in 2026 and are reflected in our outlook.

Now moving to our outlook for 2026. I'll start with DICK'S business. While second quarter results met our expectations, and we believe that underlying trends remain healthy, we are taking a more cautious view of the second half of this year given the marketplace conditions we saw in Q2. While we continue to expect full year comp sales growth in the range of 2.5% to 4%, we now expect operating margins in the range of 10.6% to 10.9% compared to our prior expectation of 11% to 11.4%. For full year, we now expect gross margin to decline slightly. This reflects our expectation for a more promotional marketplace through the balance of the year as well as higher expected fuel prices and supply chain expenses. In terms of cadence, we expect gross margin pressure to be most pronounced in Q3. We also expect SG&A expenses to deleverage for the full year, including, at the midpoint, nearly 50 basis points of deleverage in Q3, primarily reflecting the investments and cost pressures we have discussed.

Now turning to the Foot Locker business. We are reducing our full year outlook to reflect the same footwear marketplace pressures, which are having a more significant impact on Foot Locker as well as continued challenges in EMEA. We now expect full year pro forma comp sales to be in the range of negative 2% to flat compared to our prior expectation of 1.5% to 3% growth. We now expect an operating loss for the Foot Locker business in the range of $80 million to $40 million compared to our prior expectations of $110 million to $150 million in profit. At the consolidated company level, we now expect full year non-GAAP earnings per diluted share in the range of $11 to $12 compared to our prior range of $13.50 to $14.50. Our earnings guidance is based on approximately 90 million average diluted shares outstanding, which includes the dilutive impact of 9.6 million shares issued in connection with the Foot Locker acquisition.

We now anticipate a consolidated company effective tax rate of approximately 29% for the full year. This is approximately 200 basis points higher than our prior expectations as the current marketplace conditions, particularly in EMEA, are expected to persist through the end of this year. This increase in tax rate unfavorably impacts our non-GAAP EPS guidance by approximately $0.35 for the full year and is included in our updated outlook. Finally, from a capital allocation standpoint, we continue to invest in our business to strengthen our leadership position drive profitable organic growth across the DICK'S business and support the turnaround at Foot Locker. And we continue to expect net capital expenditures of approximately $1.4 billion for the year, split roughly 70-30 between DICK'S and Foot Locker business. For DICK'S business, our investment remained focused on store growth, store relocations, improvements in our existing stores as well as ongoing enhancements to our technology and supply chain capabilities. For the Foot Locker business, our investments are focused on reenergizing our store fleet, including our Fast Break initiative and supporting the long-term turnaround of the business.

In closing, our updated outlook reflects the pressures we are seeing today and a more promotional environment we expect through the balance of the year. While those dynamics are creating a near-term challenges, our confidence in the DICK'S business and the long-term opportunity at Foot Locker remains unchanged. This concludes our prepared remarks. Thank you for your interest in DICK'S Sporting Goods. Operator, you may now open the line for questions.

[Operator Instructions] Your first question comes from the line of Simeon Gutman from Morgan Stanley.

I guess the first question simply is what's changed since we were sitting here 90 days ago, and you were raising guidance and speaking very optimistically about both DICK'S and Foot Locker.

Thanks for the call, Simeon, and thanks for being so direct. First of all, we continue to be very excited about our business, and I think everybody should know that. The DICK'S stores comped 4.9%. And we did not take the sales down our sales expectations down on the DICK'S side. We are expecting margin pressure as the market has become much more promotional primarily in the athletic footwear space. But the DICK'S business continues to perform extremely well.

A number of brands got very -- what changed is the number of brands got very promotional on their sites, and those promotions spilled into the broader marketplace. And we expect that to unfortunately continue through the balance of the year. But on the DICK'S side, we've got a very broad category portfolio. And DICK'S is not nearly as reliant on the footwear business as Foot Locker is. We've taken the EPS down just a little bit because of the margin pressure, the macro geopolitical environment, but overall, the DICK'S business has been very good, comps at 4.9% in the quarter, and we did not take -- we did not reduce our expectations from a sales standpoint. We did participate and expect to participate in this promotional environment, and we really believe that that's one of the best investments we can make in this business is to keep that leadership position and not give that market share because this is going to subside at some point, and we'll keep that market share when things start to get better.

But we think the promotional environment out there, we need to participate in that, and it's one of the best investments we can make in our business. From a Foot Locker standpoint, we still continue to be really excited about the long-term opportunities for Foot Locker. As several of these brands became more promotional to clear inventory, the margin pressure on and Foot Locker is much greater than DICK'S. As we all know, footwear is the vast majority of the Foot Locker business. And Foot Locker is much more reliant on those legacy silhouettes that have slowed down. They're much more reliant on launch product. And the launch product in Q2 was -- it was disappointing in the marketplace, not just for us but for the entire marketplace.

And the -- another thing from a Foot Locker standpoint that we didn't realize would continue to be as difficult as it is, is EMEA. The impact on EMEA is much greater than what's going on in the U.S. It's a more competitive market. It's a much more promotional market than the U.S. right now based on fuel costs, the consumer is much more cautious in EMEA. The excess inventory that's out there really contributed to this real margin pressure. You've seen that from some other retailers in Europe that have talked about how promotional the market is and how difficult the consumer is.

But overall, from a Foot Locker standpoint, I hope everybody can understand the partnerships that we are building and have built with the brands that we do business with, who are looking for a global partner to partner across the entire globe from a launch standpoint, silhouette standpoint. The partnerships we've been able to develop here are going to pay huge dividends in the future. And it may be a little bit difficult right now, this industry is going through a bit of a transition. But what we did with Foot Locker is absolutely the long-term right decision. Although right now, I'm sure some of you are kind of scratching your head, but we absolutely believe long term was the right thing to do.

So as a follow-up, Ed, and Lauren and team, if you look at these 2 categories, footwear and apparel, it sounds like that's where the marketplace challenges are centered. Can you talk about your opinion on footwear, if this is footwear fatigue, the market's been strong, people have multiple sets and they're slowing their consumption? Or is this a supplier or 2 having to clear out older inventory that's creating a temporary cloud and the same logic question applying to apparel, where there's a lot of athleisure apparel in the market and now the market is needing to clear it? Or is it a supplier or to creating the pressure?

Well, I think there's some suppliers out there. And there's several suppliers that have got some inventory that have been -- they promoted on their sites and it's spilled over into the marketplace. I don't think this is a demand issue going forward from a footwear standpoint. I'll talk about footwear, and then I'll talk about apparel a little bit. I don't think this is a demand issue. The consumer is looking for products that are new, innovative different in the marketplace and some of these older legacy silhouettes and franchises that have done so well have slowed and slowed relatively quickly.

But as we go through this, I think it's going to be fine. There are some things out in the marketplace that are working extremely well, whether it's from the Nike Mind shoe, the Nike Running construct is great. The adidas women's product in Prints & Patterns has done extremely well. But I think this is temporary. We've got to get through this -- the pain that we're going to endure here from a promotional standpoint, but we'll come out the other side in very good shape.

From an apparel standpoint, it's some of the same things from an apparel standpoint. Some of those legacy silhouettes have just slowed. They've been more broadly distributed, and those products have slowed. The new product that's out there from some of the traditional brands, the Nike Solo fleece is doing extremely well. You take a look at Gymshark, we have in the store right now, doing extremely well, free people movements doing extremely well. So there are pockets that are doing extremely well, which is why we haven't taking down the sales number on the DICK'S side, but I think this is -- it's temporary. We're going to go through a little bit of pain. But when we come out the other side, I think we're going to be -- I think the industry is going to be fine and DICK'S is going to be very well positioned.

Your next question comes from the line of Christopher Horvers from JPMorgan.

I also did one on follow-up on the footwear cycle. I guess, can you talk about casual and fashion relative to running? And as you think about the last 4 years, where the emergence of 2 huge brands, pretty different silhouettes relative to what existed in the market. Is -- do you think that there could be some sort of hangover around the footwear cycle as the -- maybe the level of innovation slows and we start to not have as much newness out into the market, and that has some sort of impact in terms of the traffic that comes to the Cortex store?

Chris, thanks for the question. And I think the hangover we're -- we have the hangover right now. We're going through that with these legacy silhouettes the new styles of shoes that are coming out from brands across the board, whether it be Nike, whether it be adi, whether it be On, HOKA, we're going through that reset right now. And like I said, some of the products that are doing extremely well from a Nike standpoint, the mind shoe is great. The running silhouette and Nike changed the running silhouette. They really redefined this whole category of business. They've done extremely well with the Vomero and Peg and those 2, in particular, have done extremely well.

What we see coming from our friends from Nike in basketball, we are extremely excited about between what they're doing with [indiscernible], Caitlin, Asia, that whole basketball category we're really excited about going forward. And I think how exciting the NBA playoffs were last year would -- what went on with the next is going to give basketball a bit of [indiscernible] and Nike is best positioned to take advantage of that. The other brands that we talk about, whether it be On and adidas and HOKA there's some innovation coming down that we're pretty excited about. This is why I think we're experiencing the hangover right now in some of these new silhouettes that are coming to the market are doing well. And on the more casual side take a look at what's going on with UGG and Birkenstock. We couldn't be happier with what's going on with those styles of shoes. And we've gotten greater access to those and a greater allocation. We've developed a terrific partnership. They're great to work with. And we're pretty excited about this.

So we're going to experience some pain for the -- at least through the end of this year, but we remain pretty enthusiastic going forward.

If I could just build, I think, Chris, your question about the hangover with 2 large brands. I do think, as Ed said, that is not the issue because the running category in itself and all performance is doing really well. So I really do believe this is focused on the lifestyle legacy silhouettes that aren't doing well. The performance aspects of the category and then some of the newness that I'd mentioned continue to do really well.

And if I can add one more thing on these legacy silhouettes, some of these legacy silhouettes that are out there that the brands have started to innovate inside those silhouettes with different materials and patterns have shown some life with those silhouettes. But the basic silhouette has been more difficult. But the modifications they've made to those silhouettes like I say, with Print & Pattern color have definitely helped us. There's just not enough of them in the marketplace to offset the traditional ones, not yet anyway.

Understood. And then can you talk about the cadence of how you're thinking about the back half of Foot Locker's top line and margins, you mentioned promotions through the end of the year, but you also concentrated it in the third quarter. So how are you thinking about, like, I guess, how deep the third quarter is on the margin pressure front relative to the fourth quarter and similarly on Foot Locker's top line?

We think Q3 is going to be a bit more difficult in Q4, but we're not going to get into what we're thinking for Q4. I think the market is going to continue to be promotional through the balance of the year. I was talking with one of the brands and his comment was I've never seen the specialty channel of distribution, so promotional in my career. And that specialty channel is extremely promotional. You saw that with one of our competitors and how they talked about it.

But again, I do think that once this inventory gets cleaned up, it's going to be -- it will be back to something more normal. We continue to be extremely enthusiastic about the footwear business. We really do believe that footwear is the engine that pulls the train. We take a look at what kids need from a footwear standpoint. And we really look at this as you need roughly 5 pairs of shoes. You need a pair of shoes that you're going to play the sport in, whether it's going to be football, basketball, baseball, soccer, or whatever it is, you need a pair of shoes there. From a training standpoint, you need a running pair of shoes. Today, you've gotten some really specialized from a weight lifting standpoint. You need a recovery shoe. And then you need that lifestyle shoe that you're going to wear that kind of says, "Hey, I'm a soccer player, I'm a basketball player, I'm whatever sport you are most interested in or from a lifestyle standpoint".

So the footwear business is not going away. The footwear business is going to continue to be extremely important to this industry and to DICK'S Sporting Goods and to Foot Locker. We're going to go through some pain. And every once in a while, an industry has to go through a little bit of pain to reset, and we're going through that right now, but we're going to come out the other side, the industry and the DICK'S Inc. stronger than we've gone into it.

Chris, I also want to add on the DICK'S side, you asked about Foot Locker, but it is important to listen to Navdeep's prepared remarks about Q3 versus Q4 and just the investment in margin and SG&A on the DICK'S side also will be more aggressive in Q3 rather than Q4.

Your next question comes from the line of Kate McShane from Goldman Sachs.

We wanted to ask about the difference in performance between the Fast Break stores and the legacy Foot Locker stores. How also have you seen the assortment changes play out in the stores, which I think started to hit in August and what the consumer response has been? And then can you give us a final number of where you think the number of Fast Break stores will be by the end of the year?

Sure. So the Fast Break stores have definitely outperformed the traditional legacy stores. And we think that will continue based on the products that we've gotten in there. The legacy stores also have got that -- the Fast Break stores still have some of that legacy silhouettes that have been brought in. And so they're not perfect yet. They need that new assortment of product, and we'll be getting that there. But the Fast Break stores definitely outperformed the legacy stores. We'll continue to invest in fast break going forward. And the number of stores we're not going to kind of give you up, but it will be somewhere in north of 300, 350 doors by the end of the year globally.

And is there any way to quantify how much of the margin impact or the cut today is being driven by EMEA versus what's happening in the U.S.?

So we're not going to talk about this specifically, but EMEA is much more impactful than the U.S. It's much more promotional over there. It's a more competitive environment. and much more promotional.

Your next question comes from the line of Adrienne Yih from Barclays.

Ed, thanks for the color kind of at the higher level, still trying to understand what Lauren was saying, which is that athletic performance continues to do well. This sounds like it's much more of a lifestyle athletic issue. Can you talk a little bit about the fact that possibly the incremental shift is to nonathletic trends like you were saying, UGG, Birk, et cetera. And do you see that happening? How -- if so, how can you participate in that on a larger scale while we wait for athletic to sort of come back?

And then just wrapping that all up, you talked about this as sort of a -- through the end of the year. But when we hear from the brands, they talk about innovation, newness, the new cycle coming sort of back-to-school next year. So as you think about the back half of the year, are you canceling orders? What are you doing for your spring buys? Just some color on that.

Thanks, Adrienne. I'll try to answer all of those questions. It's okay. The athletic performance is -- we feel the athletic performance shoes are continue to do very well. The lifestyle has been a bit more of an issue, but -- so I said, the brands are starting to bring in more lifestyle shoes like the Nike Mind shoes, as I indicated. They're taking Print & Pattern in to some of those more legacy lifestyle shoes. You can see that with what Mike he's done with Pattern Leather, what Adidas has done with Print & Pattern. So we're -- we think that, that is going to be is going to be fine. It's just going to take a little bit of time.

I do think there is a shift toward this brown shoe piece of this and whether it's a UGG and Birkenstock and we continue to participate in those. Those businesses for us are really on fire. They're up significantly. We've got a couple of other brands that we're looking at to bring in also. And so they will help offset this as the athletic business goes through this transition period. So we -- especially on the DICK'S side, we think the 4 business is going to really -- is going to comp positively in the back half of the year on the DICK'S side, although there will be some margin pressure. And again, I feel that it's the right thing for us to do to participate in this margin pressure to make sure that we maintain our market share. We think it's a great investment for our business. And we talk all the time that we don't make investments for a quarter or 2 in our business. We really look to make investments for a lifetime, and we think this is a really important investment to make from a price standpoint to keep that market share.

The other question about the new cycle for next year, we're modifying some orders here and there, but nothing really out of the ordinary of what we would normally do as we take a look at styles that are selling or not selling or colors or things that are going to be the changes in the marketplace. So we're not doing anything meaningfully different than we would normally do. Some of the brands are talking about innovation through back-to-school. We see some of that innovation happening now and going into next year. And I won't repeat myself with some of the things we talked about.

Your next question comes from the line of Lorraine Hutchinson from Bank of America.

I wanted to ask about the Foot Locker margins and if there's any self-help that can be executed to stabilize the margins while the comps remain weak in the back half?

I'm not sure from a self-help standpoint, we're doing our best to help ourselves. But in the marketplace, if a shoe is at a certain price in the marketplace, then we feel we need to be competitively priced. So we're not leading this margin erosion. We are participating in it where we have to, to make sure that we keep our market share. But we are not -- we are in no way leading the price issues here.

And I would also add that apparel, bringing apparel into the Foot Locker stores will help that as well as allocations of some of the new product that you mentioned that we're so excited about in the back half.

Correct. Yes, some of the brands have provided us additional product that higher heat product that we can sell at full price to help offset some of the margin. But we're working the margin as well as we can.

Your next question comes from the line of Ike Boruchow from Wells Fargo.

I was wondering if you could comment on your early signals on back-to-school, specifically at Foot Locker, but also core DICK'S. And then on the Foot Locker guide down on the profit, it's just -- it's surprising a $200 million revenue cut driving a $200 million profit cut. So maybe just some more clarity on the merchandise margin or gross margin expectations in the back half of Q3 for Foot Locker as well would be helpful.

Sure. The margin -- I mean you've got the sales cut based on what's going on in the marketplace. And then you've got the margin, the change in margin is what's driving -- or two of the things that are driving this but then also what we're doing from a marketing standpoint with Foot Locker. So we're making investments, again, in a long-term view of what we're going to do with Foot Locker.

Foot Locker hasn't had an out-of-home marketing plan since roughly 2013, give or take, roughly 2013. The previous management team did nothing to market the business from a top of funnel standpoint to really build the brand. And we're in the middle of fixing that to increase consideration of Foot Locker and build that brand back. The new marketing campaign that we put out recently called COLORS, which kind of takes a journey of sneaker culture from the beginning to where it is today. has gotten great response. We think it's going to help from a business standpoint, sales going forward. But we're putting a sizable amount of money into marketing. We've also added payroll to our strikers. The -- we've increased the payroll of our stripers which is all part of this. Again, looking to make long-term investments in our business. So that's where the profitability cuts coming from. But we still remain excited about Foot Locker, and I think it was -- it's the right thing to do for our business long term.

In back-to-school?

We're not going to give -- we don't give any guidance in inter-quarter guidance of how back-to-school is doing. But we've -- the back-to-school guidance is embedded in our full year guidance. And -- but from a -- we're not going to comment on back-to-school right now, which is our -- which has always been our process.

Your next question comes from the line of Michael Lasser from UBS.

How should we be looking at the economics, the art economics of the business as we move into 2027, especially as the core DICK'S business is going to now have to lap the World Cup, the Knicks win, some tariff-related benefits. And if these challenging conditions persist well into next year, what are the economics of the enterprise look like, especially considering that the market probably is just going to extrapolate the core outlook for the back half into next year?

Michael, thanks for the question. One thing I think it's important to point out is the 4.9% comp that the DICK'S business had in Q2 does include World Cup. But even if you exclude the World Cup, we did have growth across the portfolio. And we saw growth across hardlines as well as apparel and footwear despite all of the challenges. And despite even the challenging market environment that we were navigating. So as we look to '27, obviously, we're not going to give any guidance, but we do feel from a top line standpoint, we have a lot of exciting things going on, and we continue to invest in the long-term health of the business.

I'll turn it to Navdeep to talk about other aspects.

Yes, Michael, to build on what Lauren said, as you can imagine, we are not going to give a guidance for 2027. But if you look deeper into our drivers of profitability in Q2, you will see that some of the topics that we have talked about for the last several years, like DICK'S Media Network and GameChanger that they will start to become a bigger driver of the merch margin expansion as well. And that is what you saw here in Q3. Our merch margin expanded almost about 150 basis points that included the benefits of the tariff, but if you can be quantified what the benefit of tariff was.

But even if you back that out, we were very happy that we were able to not only drive the margin expansion from these new capabilities but offset the promotional proper pressures that we saw not only from the footwear and the apparel marketplace, but also the higher fuel cost. So we feel like the rule brick that we have talked about of being able to continue to drive our gross margin expansion and making appropriate level of investments is the right framework, and we will continue to leverage that as we go into '27.

Okay. My follow-up question is, is there an opportunity to engineer a greater profitability of the enterprise from the Foot Locker business either by optimizing the store fleet or monetizing some of the assets within that broader Foot Locker umbrella in under what conditions for the market would you need to see in order to move from improving -- trying to improve the performance of the business to rightsizing that organization?

Michael, we're not going to kind of lay out specifics, but the answer to your question is simply yes.

Michael, I'll build on what Ed said, that we reiterated our confidence in terms of the synergies of $100 million to $125 million, and that's the bigger part of the rubric as well that we all feel confident about.

Your next question comes from the line of Paul Lejuez from Citibank.

Curious how you're going to manage SG&A during this period where you're operating in a more challenging athletic market? And specifically, how you're thinking about SG&A growth in the second half? And then second part, I'm curious about the investments, specifically on the Foot Locker side. It sounds like you've got a big marketing came and coming, but curious about the thought process of making that investment at a time when maybe the stores and the assortment are not where you want them to be?

I'll talk about the marketing investments, and I'll let Lauren talk about the SG&A piece. But from a marketing standpoint, I don't think there's a better time to do this right now when the market is in a bit of a turmoil from a marketing standpoint to gain more market share. And when things come out the other side, we'll have that market share as part of our portfolio that we can grow the business in.

So I think as others might scale back, this, I think, is a great time for us to invest from a marketing standpoint, especially since marketing Foot Locker did virtually no marketing other than digital marketing for so many years and just let the kind of the view of the brand atrophy, and we feel it's really important that we make these investments. And I think this is a perfect time to do that.

Yes. Building on what Ed said, we always look at the long term, that is a consistent thesis that we have across both Foot Locker and the DICK'S business and some of the investments that we've been making on the DICK'S side in SG&A over the past few years to drive tech, to drive GameChanger, to drive the DICK'S Media Network are really some of the -- in addition to the House of Sport and Field House, the capital investments we've made there, these are some of the core things that are driving our growth, our profitability and as Navdeep said, specifically gross margins. So it actually helps offset some of the pressures that we have in the marketplace. We are building an entire ecosystem here, and they are important parts of it. So absolutely not considering slowing down.

And so what is that SG&A growth that we should be thinking about for second half and then into next year?

So on our DICK'S side, we expect the SG&A to deleverage for the full year with the highest pressure in the third quarter, and I called it out in my prepared comments that the pressure in the second half will be to the tune of about 50 basis points. And then as we start to lap the investments that we made in fourth quarter, we expect SG&A to leverage.

Your final question comes from the line of Bob Drbul from BTIG.

I was just wondering if you could comment a bit more on the trading card business and how that's performing and trending within the core DICK'S business.

Thanks, Bob. The trading card business in the collectible business has been great. We're very enthusiastic about that. We're building the Collectors Clubhouse and all House of Sports stores going forward. We're moving that into a number of the field house locations. This is a very big growth opportunity for us. The partnership we've put together with Michael Rubin and his company on trading cards and collectibles, I think is really great for both of us. And there's a lot of growth opportunity here in the trading card business. You'll start to see us marketing the trading card business more aggressively than we have in the past. And we do really believe we can be one of the main the main distribution points for these cards that have gotten to be so in vogue right now and exciting.

I mean if you're a collector, it's pretty exciting to rip through those cards and see what you get. It's gotten to become a family activity with fathers and sons, mothers, daughters, sons, I mean it's just gotten to be a -- it's just a great family activity that is pretty exciting for us and for fanatics business in the DICK'S business.

This concludes our Q&A session. I will now turn the call back to Lauren Hobart, President and CEO, for closing remarks.

Well, thank you, everybody, for your interest in DICK'S and thanks to our 100,000 teammates and we will see you next quarter.

This concludes today's call. Thank you all for attending. You may now disconnect.

Hello, everyone. Thank you for joining us, and welcome to the DICK'S Sporting Goods Q1 2026 Earnings Conference Call.

[Operator Instructions] I will now hand the conference over to Nate Gilch, VP of Investor Relations. Nate, please go ahead.

Good morning, everyone, and thank you for joining us to discuss our first quarter 2026 results. On today's call will be Ed Stack, our Executive Chairman; Lauren Hobart, our President and Chief Executive Officer; and Navdeep Gupta, our Chief Financial Officer.

A playback of today's call will be archived on our Investor Relations website located at investors.dicks.com for approximately 12 months. As a reminder, we will be making forward-looking statements, which are subject to various risks and uncertainties that could cause our actual results to differ materially from these statements.

Any such statements should be considered in conjunction with cautionary statements in our earnings release and risk factor discussions in our filings with the SEC, including our last annual report on Form 10-K as well as cautionary statements made during this call.

We assume no obligation to update any of these forward-looking statements or information. Please refer to our Investor Relations website to find the reconciliation of our non-GAAP financial measures referenced in today's call.

And finally, a couple of admin items. First, a quick reminder on our comparable sales reporting. Foot Locker will be included in our quarterly comp calculations beginning in Q4 of 2026, which will mark the start of their 14th full month of operations post acquisition.

And finally, for future scheduling purposes, we are tentatively planning to publish our second quarter 2026 earnings results on August 25, 2026. And with that, I will now turn the call over to Ed.

Thanks, Nate. Good morning, everyone. We delivered a very strong first quarter and want to thank our more than 100,000 teammates around the globe for their commitment and execution.

Sport is one of the hottest categories in the country today. We're in the middle of a real sports moment and the intersection of sport and culture has never been stronger. You see it everywhere from rising valuation of professional sports teams to the level of investment from streaming platforms and networks and the strong demand from advertisers to be a part of live sports.

Looking ahead, with major global events like the 2026 World Cup and the 2028 Summer Olympics in L.A., we're entering one of the most exciting multiyear periods for sport in this country's history, making it an incredibly powerful and compelling platform for consumer engagement today.

This environment plays directly to our strengths, and DICK'S is leading from the front. Across our stores, our digital capabilities and our now expanded global reach, we are connecting with athletes in more ways and with more relevance than at any point in our history.

What sets us apart is our ability to create and maintain that connection across performance, lifestyle and culture throughout the DICK'S ecosystem. House of Sport and Field House are reshaping what retail can be and redefining how brands come to life.

GameChanger keeps us deeply embedded in youth sports, unlocking new levels of opportunity and partnership. Golf Galaxy reinforces our leadership in a category with strong participation and rising cultural relevance.

And with Foot Locker, we reach a different consumer connected deeply with sneaker culture, basketball and lifestyle and extend our influence even further. That's why the best and most exciting sports brands in the world want to partner with us, not just to sell product, but to launch ideas, tell stories and scale concepts globally during the most important moments in sports. And that's why athlete engagement with us continues to grow. We're investing in our business from a position of strength.

We're playing offense for the long term, and it's widening the gap between us and the rest of the industry. Our vision is to build the best sports company in the world, and we're just getting started. Our leadership showed up clearly with an exceptionally strong performance in our DICK'S business this quarter with comps of 6%. Our team executed at a very high level, and we're all proud of their contributions.

Now turning to Foot Locker. We remain highly focused on the transformational opportunity ahead and on delivering an inflection point in sales and profitability starting with back-to-school. Our excitement and confidence continue to build as we execute our plan. And in Q1, we saw encouraging proof points.

For the global Foot Locker business, we delivered slightly positive comps and operating income with Merch margin improvement. This marks the first quarter of positive comps for the Foot Locker business since Q4 of 2024.

North America performed even better with a 1.4% comp growth. And within this, the U.S. Foot Locker banner comped up 6.4%. The Foot Locker banner is our largest and most critical part of the Foot Locker business, so it's where we focus first and the results we're seeing reinforce our turnaround approach.

We have a clear plan, and it's working. We're raising the low end of our full year comp sales expectations for the Foot Locker business. We now expect comp sales growth of 1.5% to 3%, up from 1% to 3% previously. A major driver of this strong execution is our store teammates.

Our Stripers and Blue Shirts are energized by the renewed momentum and investment in our stores. They are deeply embedded in their communities. They're the closest to the consumer because they are the consumer. Wearing the stripes in their own backyard is a badge of honor and that authenticity shows up every day in how they tell the sneaker story.

Our Fast Break stores are performing exceptionally well, reinforcing our conviction in this capital-light remodel initiative. During the first quarter, we expanded Fast Break by approximately 90 stores, bringing the total to approximately 100. Across that expanded footprint, our Fast Break stores delivered double-digit comps in Q1 and meaningful merchandise margin improvement.

By back-to-school, we plan to have approximately 250 Fast Break stores across Foot Locker, Kids Foot Locker and Champs globally with further expansion ahead of the holiday season.

Our Fast Break initiative is built on retail fundamentals, a more focused shoe wall, improved storytelling and the reintroduction of apparel with curated and complementary offerings. These updates are fast to implement, typically completed in a few days and require limited capital. At its core, it's retail 101. And when you execute it with discipline, it works.

Looking across the entire Foot Locker business, we are very excited about our assortment heading into back-to-school. This marks the first season where our team had full control over the buys, and we feel great about the product that will be in the stores.

This will be supported by a bold brand relaunch designed to bring consumers back to the Foot Locker brand in a meaningful way. Behind the scenes, we are strengthening the fundamentals of the Foot Locker business. With improvements in our supply chain, we are moving product faster and getting it to the right stores. We are applying greater discipline around pricing and using real-time data to drive better decisions and sharper execution.

Finally, our brand partners remain fully engaged. They want a strong growing Foot Locker, and they are leaning in with us as their largest global partner. In closing, the early results we're seeing reinforce our conviction in both the opportunity and our approach. We have the right plan, the right team and the right partnerships in place to unlock the full potential of the Foot Locker business.

With that, Lauren will walk you through the continued momentum across the DICK'S business. Lauren, I'll turn it over to you.

Thank you, Ed, and good morning, everyone. Building on Ed's comments, it's exciting to see sport driving sustained energy and engagement across the consumer landscape.

I am so proud of how our team has turned that athlete demand into a very strong quarter of execution for the company. At DICK'S, the team continues to excel at bringing our 4 strategic pillars to life, a compelling omnichannel athlete experience, a differentiated on-trend product assortment, a deep engagement with the DICK'S brand and the strength of our teammates and culture.

In Q1, we delivered comp sales growth of 6% in the DICK'S business with growth in average ticket and transactions. These strong comps were on top of a 4.5% increase last year and a 5.3% increase in 2024 as we continue to gain market share.

One thing that remains notable is the consistency in athlete behavior. We saw more athletes purchase from us with more frequent purchases, and they spent more each trip compared to the prior year. We continue to see a healthy consumer across income demographics with no signs of trading down alongside particularly strong engagement from our younger athletes.

Our consumer is really responding to newness and innovation, which is showing up throughout the DICK'S business with broad-based growth across footwear, apparel and hardlines. Given our continued confidence in the DICK'S business, we are raising the low end of our expectations for comparable sales and now expect growth of 2.5% to 4%, up from 2% to 4% previously.

At the high end of our expectations for the DICK'S business, we now expect to drive approximately 30 basis points of operating margin expansion on a non-GAAP basis. At the consolidated company level, we continue to expect full year non-GAAP earnings per diluted share in the range of $13.50 to $14.50. This continued strength reflects the progress we're making across our strategic priorities.

First, we continue to drive growth in our key categories, supported by national brand partners, new and emerging brands and our own vertical brands. One of our biggest advantages is the depth of our brand relationships. We are a critical partner to the most important brands in our industry, and that shows up in the access, allocation and marketing support we receive.

Our partnerships span leading global brands like Nike, Adidas and Fanatics as well as fast-growing emerging brands such as Vuori and Gymshark. These relationships are deeply collaborative, and they continue to bring the best product and innovation to our athletes.

Second, we're continuing to reposition and elevate our real estate and store portfolio through House of Sport and Field House. These concepts are redefining the athlete experience in physical retail and strengthening how our brand partners show up in our stores.

In Q1, we opened 1 House of Sport location and 2 Field House locations, and our plans are on track to open approximately 13 and 20 more, respectively, for this year. We also continue to see extremely strong interest from landlords, giving us access to some truly iconic retail locations, including Palm Beach Gardens, Cerritos and Tysons Corner.

Given these new opportunities, we can be selective in the locations we choose, which will drive greater long-term shareholder value. Third, we are continuing to enhance how we serve athletes seamlessly across channels.

In our stores, we're evolving the experience with a greater focus on elevated service and selling rooted in deep sport and product expertise. At the same time, we are investing in our digital experience, enhancing our site and our app. We recently announced the upcoming summer launch of Coach by DICK S, our AI-powered digital agent, representing a significant step forward in how we innovate for the athlete.

Coach extends the expertise of our teammates into a personalized conversational experience, helping athletes make more confident decisions across product, training and services. We also remain very excited about our DICK'S Media Network, a high-growth asset that allows our partners to reach athletes in very relevant ways across our House of Sport locations and digital channels.

And we're thrilled to have recently opened our Fort Worth distribution center, enhancing our ability to serve athletes in the fast-growing Texas market and surrounding areas.

Finally, we continue to scale GameChanger as a key driver of engagement and innovation within the DICK'S ecosystem. Earlier this year, GameChanger launched the most comprehensive product update in its history, introducing 1080p live streaming, automated game highlight reels and a new suite of AI-powered coaching tools designed to help coaches coach smarter.

The impact has been immediate and measurable. In Q1, approximately 50% of all games covered on the platform were streamed live, a record for the business. At scale, the reach is significant. In the last month alone, more games were streamed on GameChanger than have been played in the entire history of Major League Baseball.

In closing, the consistency that we're seeing across the DICK'S business validates our strategies and the discipline of our execution. We are operating from a position of strength, and we remain confident in our ability to drive sustained growth while investing for the future. With that, I'll turn it over to Navdeep to share more detail on our financial results and our 2026 outlook. Navdeep, over to you.

Thank you, Lauren, and good morning, everyone. Let's begin with a brief review of our first quarter results. Consolidated net sales increased 62.7% to $5.16 billion, driven by a $1.79 billion contribution from Foot Locker business and a 6% comp increase for the DICK'S business as we continue to gain market share.

DICK'S business comp reflects a 5.5% increase in average ticket and a 0.5% increase in transactions with a broad-based strength across footwear, apparel and hardlines. On a 2-year and a 3-year basis, DICK'S business comp increased 10.5% and 15.8%, respectively.

Pro forma comps for the Foot Locker business accelerated, increasing 0.6% for the quarter, driven by a 1.4% increase in North America. Notably, as Ed highlighted, the U.S. Foot Locker banner delivered a 6.4% comp growth, reflecting strong underlying performance as we focus on driving improvements in this important part of the Foot Locker business.

From a margin perspective, consolidated non-GAAP gross profit was $1.73 billion or 33.42% of net sales, down 328 basis points from last year. The year-over-year decline was primarily driven by mix impact from the Foot Locker business.

Turning to our expenses. On a non-GAAP basis, consolidated SG&A expenses increased 68.4% or $541 million to $1.33 billion and deleveraged 88 basis points compared to last year's non-GAAP results. $480 million of this consolidated increase was driven by Foot Locker business.

As expected, for the DICK'S business, SG&A deleveraged 31 basis points, driven by investments digitally and in store. Consolidated non-GAAP operating income was $378.4 million or 7.33% of net sales compared to $360.4 million or 11.35% of net sales last year. For the DICK'S business, operating income was $361 million or 10.69% of net sales. And for the Foot Locker business, we delivered operating income of $17.5 million or 0.98% of net sales.

Moving down the P&L. Consolidated non-GAAP income tax expense was $106.2 million or a rate of 28.8%. Our effective tax rate for the quarter was shaped by mix of our earnings in foreign jurisdictions, including the effect of purchase accounting adjustments, particularly in Europe, where losses do not currently generate a tax benefit due to valuation allowances.

In total, we delivered consolidated non-GAAP earnings per diluted share of $2.90 for the quarter, which includes the dilutive impact of the 9.6 million shares issued in connection with the Foot Locker acquisition. This compares to a non-GAAP earnings per diluted share of $3.37 last year.

On a GAAP basis, our earnings per diluted shares were $3.54. This includes $174 million of pretax litigation and other settlements, partially offset by $97 million of pretax Foot Locker acquisition-related costs. For additional details, you can refer to the non-GAAP reconciliation tables of our press release that we issued this morning.

Now looking to our balance sheet. We ended the quarter with approximately $1 billion of cash and cash equivalents and no borrowings on our $2 billion unsecured credit facility.

Inventory was $5.42 billion, reflecting the addition of the Foot Locker business, while the DICK'S business inventory was up just 3%. Importantly, we believe our inventory remains well positioned to support our growth plans across both DICK'S and Foot Locker businesses.

Turning to capital allocation. Net capital expenditures were $289 million, and we paid $114 million in quarterly dividends. We also repurchased 719,000 shares of our stock for $141 million at an average price of $196.38.

Before I move to our outlook, I would like to provide a brief update on the expectations surrounding the Foot Locker acquisition. First, as part of our cleanout of the garage actions and broader merger and integration work, we previously estimated and continue to expect total pretax charges of between $500 million and $750 million.

During 2025, we recognized $390 million of these charges. The remaining pretax charges will be incurred over 2026 and the medium term as we complete this work. We now expect approximately $200 million of these remaining charges in 2026 compared to our original expectation of $150 million.

These charges have been excluded from today's non-GAAP EPS outlook.

Second, we remain confident in achieving previously announced $100 million to $125 million of cost synergies over the medium term, primarily from procurement and direct sourcing efficiencies. A portion of these synergy benefits are expected in 2026, which have been reflected in our outlook.

Now moving to our outlook for full year 2026. Our guidance continues to reflect the strength of the DICK'S business and the turnaround efforts underway at Foot Locker, all within the context of the dynamic geopolitical and macroeconomic environment.

Based on our confidence in DICK'S and Foot Locker, we are raising the low end of our comp sales guidance for both businesses. Beginning with the DICK'S business, we now expect full year comp sales growth in the range of 2.5% to 4% compared to our prior growth expectation of 2% to 4%.

From a pacing standpoint, we continue to expect higher comps in the first half, driven in large part by the timing of the World Cup. We continue to expect preopening expenses to be approximately $90 million for the full year for the DICK'S business.

From an operating margin, we now expect the high end of our expectation for the DICK'S business to be approximately 11.4%, which is above our prior expectation of approximately 11.2%. From a pacing standpoint, we continue to expect operating margins for the DICK'S business to decline in the first half and expand in the second half due to the timing of the planned investments and synergy savings.

The most significant pressure is expected in Q2, driven primarily by the timing of planned SG&A investments, including marketing tied to the World Cup and the timing of preopening expenses to support a higher number of House of Sport openings in this year's second quarter compared to the last year.

Now turning to Foot Locker business. We now expect full year pro forma comp sales growth in the range of 1.5% to 3% compared to our prior growth expectation of 1% to 3%.

We now expect operating income for the Foot Locker business to be in the range of $110 million to $150 million compared to our prior expectation of $100 million to $150 million. From a pacing standpoint, we continue to expect comp sales and operating income performance to be back half weighted.

At the consolidated company level, we continue to expect full year non-GAAP earnings per diluted share in the range of $13.50 to $14.50.

Our earnings guidance is now based on approximately 90.5 million average diluted shares outstanding, which includes the dilutive impact of 9.6 million shares issued in connection with the Foot Locker acquisition.

We now anticipate a consolidated company effective tax rate of approximately 27% for the full year. This is approximately 150 basis points higher than our original expectation as the dynamics we saw in Q1 are expected to persist, albeit to a lesser degree.

This increase in tax rate unfavorably impacts our non-GAAP EPS guidance by approximately $0.25 for the full year and is included in our updated outlook. Finally, from a capital allocation standpoint, investing in our business to grow our leadership position and drive profitable organic growth across both DICK'S and Foot Locker business remains our top priority.

We now expect net capital expenditures of approximately $1.4 billion for the full year, split roughly 70-30 across DICK'S and Foot Locker businesses. For the DICK'S business, our investment will be focused on store growth, relocations and improvement in our existing stores as well as ongoing investments in technology and supply chain.

For the Foot Locker business, our investments will be focused on reenergizing our store fleet, including our Fast Break initiative. In closing, we are pleased with the strength in the DICK'S business and confident in the path to improved performance at the Foot Locker business. This concludes our prepared remarks. Thank you for your interest in DICK'S Sporting Goods.

Operator, you may now open the line for questions.

[Operator Instructions] our first question comes from the line of Simeon Gutman with Morgan Stanley.

Good quarter. So I know we're going to spend some time on Foot Locker this morning, but I want to start with the DICK'S business. A 6% comp is a very strong start to the year. Can you talk about the key drivers of the performance? How much reflects underlying momentum versus any onetime benefits in the quarter? And then how you're thinking about comps from here?

Thanks, again. Yes, we are really proud of the quarter and the results we just put out. The DICK'S comp increased 6%. This is definitely not a result of a onetime factor.

We saw broad-based strength across the entire portfolio. We saw strength in footwear and apparel and hardlines. Wthin hardlines feeling really terrific about team sports and licensed and trading cards and golf. There was tremendous growth across the whole portfolio.

And really, this is due to the fact that our long-term strategies are working. We've been leaning into differentiated product, elevated product. We're finding that consumers are really resonating with newness with technical innovation.

And at the same time, we've repositioned our portfolio with sport and field house and the best expression of retail is cascading through our entire business.

Our entire team is completely focused on elevating the athlete experience in our stores and broader digital ecosystem, and that is a big factor of our results. The other thing I would point to is, as Ed mentioned in his prepared remarks, sport is one of the hottest categories in the country today, and we sit right at the intersection of sport and culture.

We're feeling that excitement in North America going into the World Cup. It's going to continue for many years going into LA28 and we happen to just be in a fantastic lane. But for many quarters now, we have seen our consumer hold up really, really well. We haven't seen trade down again this quarter. We didn't see trade down from best to better or better to good. We saw growth again this quarter all income demographics, and we added 1.5 million new athletes to our database. So really, really pleased with the quarter that we just had and the momentum that it signals in our business.

And my follow-up is on profit and flow-through. So the 6% comps, we would have expected a little stronger flow-through. For us, strong comps typically means more full price selling, so good for gross and then nice SG&A leverage.

So can you talk about what's unique either to Q1 and maybe unique to 2026, given World Cup and the timing of House of Sport? And is it more or less a whole year where we don't get what the business -- operating leverage of the business throws off and we'll see more strength as we go into next year?

Simeon, it's a really, really good question. I'm glad you asked it. Our business is performing exactly as we had expected it to and as we guided. So in the first half, we said we were going to have higher comps than the second half, and we also were going and making significant investments in our business, which we did. We invested in World Cup, and we'll continue to do that in Q2.

So for the first half, we did expect stronger comps, lower flow-through. But when we look at the full year guidance, we just took our high end of our guidance up 20 basis points. So we guided to 10. We're now guiding to 30 basis points of improvement at the high end of the range, 11.4%. We're absolutely expecting leverage for the full year.

It's just as we've been planning, it's going to come in the second half, and that's just due to the timing of investments. So again, we feel terrific about the business and really good about the leverage for this year and the operating profit flow-through.

Our next question comes from the line of Brian Nagel with Oppenheimer.

Sorry, I do want to add my congratulations. Nice quarter. So my first question, I do want to focus on Foot Locker. In your commentary and lately you have expressed a lot of confidence in the turnaround, whether we saw some encouraging signs here in the first quarter, particularly United States.

Can you just maybe talk more about where the turnaround is today? Focus again on the progress you're seeing with the Fast Break refresh and just your overall positioning and health of that inventory within the Foot Locker channel.

Sure. Thanks, Brian. We're right on schedule with what we plan to do with Foot Locker. We've -- through last year, we've cleaned out the garage from an inventory standpoint. So our inventory is in terrific shape. We've repaired vendor relationships with key brands that were somewhat disenchanted with Foot Locker.

We've repaired those vendor relationships, and they're now fully supportive of Foot Locker and really want Foot Locker want and need Foot Locker to be a stable growing retailer as part of their portfolio.

So we've repaired those relationships. We've rebuilt the management teams, and we've re-merchandised the stores of what we're doing with Fast Break. From a Fast Break standpoint, which are those early stores that we reconceptualized what the wall would look like as you heard me say before, the Foot Locker footwear wall was really a run on sentence.

It was just filled with a bunch of shoes and it was nothing important. What we did is we took all those shoes off the wall. We reduced roughly 30% of the SKU choices and focused on key styles, key colors and key stories that when the consumer came in, they knew what was important.

And those Fast Break stores, as we've talked about, have done extremely well. They comped double digits in the first quarter. So we're really excited about that. As I said, the inventory is in good shape. We've augmented some of the assortment in the first quarter that helped the business.

And remember, we've always said that the inflection point here was going to begin in back-to-school, which is the first time that the team bought the entire assortment. So we feel that inflection point in back-to-school is going to happen, and we will have bought the product.

And that's the first time we'll be back marketing and doing a relaunch of the Foot Locker brand, a big marketing effort, which we are really pretty excited about. And as you said, we did focus our attention on the biggest part of the business, which is the U.S. Foot Locker locations.

And those stores comped at over a 6% comp in the first quarter. So our plan -- we're right on schedule with our plan. Our plan is working, and we continue to be really excited about the Foot Locker business going forward.

I appreciate all that. So I guess as my follow-up, I just want to follow up on the Fast Break. So I've spent -- my associate and I have spent a lot of time looking at the Foot Locker stores that you've refreshed, the Fast Break stores.

I'm make sure I understand it. So -- and they do look much cleaner, much better organized. But that's -- there's no new product. I mean the product we're seeing in those stores is still legacy products, so to say. You haven't introduced new product. So what's driving those sales is just having a much cleaner, better organized existing product?

Right now, yes. And when you've been into the Fast Break stores, you've seen -- although it's not perfect yet, you've seen an increase in the apparel business in the apparel presentation that we've got there.

Foot Locker previously, I won't say they exited the apparel business, but they significantly scaled back the apparel business. So we brought apparel back in. And we've done the best we could cobbling together because we didn't buy this assortment. We did talk to brands and they got us some additional allocation of product that -- so that we'd be in better stock.

But as I've said, the first time that we were able to buy the product and build that assortment is for the back-to-school season, and that's where you'll see that inflection point.

Our next question comes from the line of Kate McShane with Goldman Sachs.

It looks like your capital expenditure outlook came down a little bit for fiscal year '26. And we wondered if you could explain what the change was there.

Is there any breakdown you can give between Foot Locker and DICK'S? And is there a way to think about CapEx from the Fast Break investment, but also by banner for Foot Locker?

Kate, this is Navdeep. So 2-part question there. Let me start with the outlook that we have provided for the CapEx. We actually gave a little bit of a detailed outlook on the CapEx between the banners.

And right now, we expect net CapEx for the DICK'S banner to be about $1 billion for 2026 and for Foot Locker to be about $400 million. As you can imagine, vast majority of that $400 million of the capital investment in Foot Locker will be associated with the investments that we are making in our stores, including the Fast Break stores.

But as Ed called out, the Fast Break stores are capital-light. But at the same time, when you think about the magnitude of investments in terms of the number of stores we'll be investing in, that is a significant portion of the CapEx investment for Foot Locker for '26.

In terms of where the efficiencies came, the efficiency or the decrease in our CapEx outlook by about $100 million came predominantly in the DICK'S business. It's part of what Lauren talked about like the confidence that we have on our operating margin expansion on a full year basis.

The team has been working on productivity initiatives for the last several years. And it's -- what you're seeing is the manifestation of that work showing up both in the operating margin leverage expectation on a full year as well as the capital efficiency of $100 million of reduction in CapEx outlook for DICK'S for full year.

Okay. And just as a follow-up question, with the strength in Foot Locker U.S. business, can you maybe talk through what you're seeing with the Foot Locker Europe stores currently?

Yes. The European business is, as we expected, is a little bit behind where the U.S. business is. We are just in the process of implementing the Fast Break strategy into Europe. We've gotten a couple of stores done there. And the results are pretty promising.

We're making some other changes there from a management standpoint. But all in all, the European business is about where we anticipated it to be, but it's definitely a bit behind the U.S. business. And we expect that to be that way through the end of the year, but we do expect that we'll catch up.

Our next question comes from the line of Adrienne Yih with Barclays.

Ed and Lauren, I guess my question starts with kind of what macro backdrop do you kind of envision for the rest of the year and the guidance?

And then secondarily, Lauren, I really like the comment on the intersection of sport and culture, right? So sport and lifestyle and you have the 2 brands to go after both of those. So can you talk about kind of the level of innovation, competition and maybe kind of focus on some of the footwear fashion trends, so performance versus lifestyle versus maybe nonathletic, just the ebbs and flows of kind of those subsector trends.

Great. Thanks, Adrienne. As we've looked at the guidance, the macro -- we balance all of the confidence that we have in our business and the momentum that I talked about in my first answer with some caution -- appropriate level of caution about the macroeconomic environment, geopolitical environment, and that is why we've left the top end of our comp range the same both -- of DICK'S and Foot Locker.

But overall, our strategies are working. The things that we can control are working, and we're feeling really good about them. In terms of the intersection of sports and culture, we see a lot of innovation.

And within footwear, in particular, we're really pleased with things like performance running, which is doing really, really well. Even basketball, women's basketball is doing really well. Some of the lifestyle footwear is doing very well. I would point to retro run in particular, and some of the other brands are doing really terrific and training and recovery. So we're seeing -- footwear is a very strong business for us. We drove growth in the past quarter. We'll continue to drive growth into the future, and we're feeling very bullish.

Great. And my follow-up, Ed, you mentioned the brand relationships kind of porting over that strength to Foot Locker. Can you kind of give us specific examples of what that means? Is it faster turns, obviously, access to exclusives? Really kind of what are the muscle that you're porting over from DICK's to Foot Locker?

Sure. I think there's a number of things. The fact that Foot Locker will now have a different allocation of product that they didn't have before, access to certain products that they didn't have before and the confidence of these brands that Foot Locker is a viable go-forward business that can help them grow, which a number of them had lost and we've talked about this and they've talked to me about this that they had really lost confidence in Foot Locker that they didn't think Foot Locker was really going to be able to kind of present their product in the way that they wanted it and presented to protect their brands.

And with the relationship that they have -- we have between DICK'S and Foot Locker, these brands, all these relationships have been repaired. And what we've got from an allocation standpoint, what we've got from an exclusive standpoint on either styles and/or colors going forward, stories that we'll be able to tell around different athletes and around different aspects of what's going on in sport or sneaker culture is very different.

And you'll see a lot of that start to come to life to an even greater degree in Q1 of next year as we're beginning to build those assortments now. But it's an entirely different relationship with the brands. And if you talk to the group in Foot Locker, the buyers, the Stripers, et cetera, they'll see a very different brand relationships going forward -- in the past and going forward.

Our next question comes from the line of Bob Drbul with BTIG.

I was wondering if you could expand a bit more on the core DICK'S Sporting Goods segment, the gross margin performance and the decline that we saw this quarter.

About the DICK'S gross margin declined about 35 basis points on a year-over-year basis. Two big drivers on that and both in line with our expectation. The first is the headwind that we saw in supply chain expenses.

One, as you can anticipate, with the higher fuel cost, that was a headwind on a year-over-year basis as well as we opened our sixth distribution center in Q1, and it was in the tail end of Q1.

Really excited to be -- have that new infrastructure available to be able to service the athletes in a much more efficient way as well as serve our stores.

However, that did end with a little bit of a headwind on a year-over-year basis when you open that fixed infrastructure. Outside of that, we saw a little bit of a mix headwind driven by the fact, like Lauren talked about the exciting new business and a tremendous amount of growth opportunity we see in the trading card business.

It's bringing in new customers. It's allowing us to go and kind of tap the market around the collectibles as well as trading cards. However, that does come with a slightly lower gross margin, and that was a mix impact that you saw in Q1.

I'll finish by saying if you look at our outlook that we have shared for the full year, we expect our gross margin to expand now with the updated outlook that we have provided.

Great. And then if I could just ask one more question. On the basketball business, can you talk about maybe what you're seeing at the DICK'S segment versus what you're seeing at the Foot Locker stores in basketball?

Sure. Basketball business is coming back. Basketball had slowed down a little bit. The basketball business is coming back in a really big fashion and really built around the women's basketball business, whether that's Sabrina, Asia, that group of athletes have had a real impact.

And boys and girls, young men and women are buying that product. And we're pretty excited about it around the DICK'S business. We're very excited about it around the Foot Locker business. So basketball has really been -- is going to be quite good, and we're pretty excited about it across both banners.

Our next question comes from the line of Michael Lasser with UBS.

On the outlook for the core DICK'S business, you mentioned that you expect the gross margin to improve over the course of the year.

Presumably, collectibles will remain a source of pressure. So what do you expect outside of the supply chain drag becoming less of an impact? What do you expect the offset will be from this collectibles pressure and any other driver that you're considering over the course of the next few quarters?

Michael, I would say that there are puts and takes with the gross margin outlook. And like you called out, like fuel pressure, we have contemplated at least that pressure persisting into the near future.

We have talked about the 6 D.C. openings for this year as well as the occupancy headwind as we look to continue to invest in repositioning our portfolio. And the mix trade headwind that you called out from trading cards is also contemplated.

However, the offsetting factors continue to be pretty consistent with what has been driving our gross margin expansion. The first and foremost, the access and allocation that Ed just talked about, that continues to be the key driver of us continuing to have confidence in the gross margin and the merch margin expansion.

The work that our pricing team is doing, the work that our vertical brand teams are doing. And again, vertical brands carry 700 to 900 basis points of higher margin rate. So as we penetrate more there and those brands are doing fantastic for us, that's the driver.

And then outside of that, like Lauren talked this morning about our excitement for the DICK'S Media Network, which is continuing to have a strong growth as well as the growth that we are seeing in our GameChanger business will be the drivers that will be offsetting some of the headwinds that I just mentioned.

And Michael, if I could just add to that. I want to just say the collectibles business, the trading card business are such exciting incremental opportunities. So while they do have a lower margin than our overall mix, I think thinking of them as a pressure or any sort of negative thing is the wrong way to look at it. It's incremental gross margin dollars, bringing people in more frequently, appealing to a younger audience, totally incremental from the rest of our store and driving trips. So -- so we're thrilled about that business. And to Ravi's point, the math will work so that we can grow gross margin for the full year.

Lauren, obviously, I'd be remiss if I didn't ask you if you wanted to quantify the contribution from collectibles and trading cards in the first quarter, but I assume.

We do not.

You probably won't.

We do not.

Okay. Okay. Well, in that case, my follow-up question is on the economics of the House of Sport location. This is now more in focus over time as you add more of these flagship stores. How have the economics changed?

Are you continuing to see the same-store sales growth in the second, third and fourth year of these locations consistent with the overall chain average? And do you think the return on investment, both tangible and maybe intangible because you do get some intangible benefits from your key stakeholders like landlords and vendors, will the tangible benefits or the tangible returns be sustained as you scale this concept to what could be 75 or more locations over time?

Yes. Great question. House of Sport is everything you just said. It has a tangible benefit. It has an intangible benefit. From a financial standpoint, we're thrilled with the results, and we do see comp store growth in years 3 and years 4 even.

So we've been able to confirm that. So they open fully and then continue to grow, and they're driving strong sales and profitability and ROI. So really terrific financial results.

But some of the intangibles that you mentioned are really important, and that's everything from the consumer, the athlete who is coming and spending more time in our stores significantly -- spending significantly higher than an average a typical DICK'S athlete, our national brand partners. So this has been an incredible on-ramp for new and emerging brands. You heard us say this quarter, we just added Vuori to our mix of brands last quarter, Gymshark.

That's all been enabled because of the House of Sport, where people can really bring a brand to life head to toe, tell their story, and it's a fantastic way for us all to get to know each other. So that's going to have tangible returns in the future that will impact the whole business.

And then lastly, you mentioned the landlord community. Every time we open one of these House of Sports, we're seeing incredible impact in the center or the mall. We're driving traffic. We're revitalizing different areas of real estate throughout the country.

And so that's giving us access to bigger and better, really more premium locations, which we are working really closely to curate and move forward. So I think it's a win-win-win.

The last thing I'll say is House of Sport is translating not just to the House of Sport, but our Field House concept, which is our 50,000 prototype is really a mini version of a House of Sport. It's got many of the same elements, just a little smaller.

And so that's a very tangible return as well. And as we look to the rest of the portfolio, where the whole chain is benefiting from things like product access and experiential selling and elevated curated experience across the board. So really, really strong House of Sport overall.

Yes. Michael, I'll just build on what Lauren said, which was a pretty comprehensive response. Another opportunity that we are now investing into in House of Sport is the DICK'S Media network. The way we can bring a brand to life and through the DICK'S Media network and have that curated experience and an engagement with the athlete is what the brands are really excited about.

Our visual team, our marketing team have done a fantastic job, not just creating that moment to create that interaction, but be able to create that in a way that it's measurable and quantifiable that we can report the metrics back to the brands. So that's what the brands are really excited about as they think about the DICK'S Media network.

Our next question comes from the line of Paul Lejuez with Citi.

Lauren, I think you said you didn't see a trade down between good, better and best. Can you talk about the performance of those 3 good, better and best in terms of what is driving the comp from each of those different segments?

It might be as to how each of your customer segments are holding up? And then second, curious to get your updated thoughts on putting some leverage on the balance sheet, more aggressive with share repo.

Great. I'll start with your first question. I did say we did not see a trade down between good, better and best. And I won't get into specifics about all the 3, but I do think it's important to know that we are serving different occasions and different athletes.

And within our portfolio, we have everything from opening price points, say, our DSG brand, which is really tremendously attractive pricing, but high function, high fashion, all the way up to, if you look at technical apparel or on the equipment side, really performance driving equipment, cleats, everything.

So every single one of those categories is doing well, and they all play a role in a balanced portfolio, and they're all being reacted to by different consumer groups, and that's what's driving the comp in each of those segments. I'll turn it to Navdeep to talk about the balance sheet.

Yes. Paul, just to build on your question on the balance sheet itself. We continue to have a very strong balance sheet. As you saw in Q1, we bought $140 million of shares already in Q1 and still finished the quarter 1 with $1 billion of cash on the balance sheet.

So we have plenty of flexibility. And from a share repurchase perspective, I would say we'll continue to be opportunistic. And that's the approach that we have taken, and we'll continue to take that approach into the balance of this year.

Just one quick follow-up. The private label business, you mentioned and can you talk about how private label generally performed versus the rest of the chain?

Yes. We're thrilled with our vertical brand business. We're thrilled with the DSG brand, the CALIA brand, the VRST brand, Maxfli is doing amazingly well. The brands are doing very well versus the rest of the chain and also continuing to expand gross margin.

So a vertical brand on average is 700 to 900 basis points higher in margin, gross margin than the average DICK's margin, and that continues. The team is doing a fantastic job continuing to leverage that. So overall, our vertical brands are a key mix. They're also filling white space opportunities in the portfolio, and we're thrilled with how they're doing.

Our next question comes from the line of Christopher Horvers with JPMorgan.

So my first question is, you've been very optimistic about the DICK'S business, but we're also coming off a period where there was plenty of tax stimulus that affected all levels of the consumer income spectrum.

So my question is, I was curious if you thought the first quarter benefited from tax stimulus such that, that 2-, 3-year trend that you referenced is not sustainable as we look forward outside of just being prudent.

Yes, Chris, I would say we were very happy with the overall performance that we saw across both the banners, not just DICK'S and the Foot Locker business as well. If you look at it, the outlook that we have provided continues to kind of indicate that level of confidence around the core strategies, and we are balancing that against the macroeconomic and the geopolitical landscape.

I don't know if I would call out that we saw any significant benefit from the stimulus checks as there were puts and takes, even if you look at it within Q1 with the stimulus check and higher gas prices. And even in those economic conditions, we delivered what we consider a really strong results across all the banners.

Understood. And then on the Foot Locker side of the business, a 2-part question. Can you talk about same-store sales from an AUR and transaction perspective?

One would think that it was basically AUR, but you also have all the clearance that you took in the back half and you're going to be re-merchandising and getting better just overall in-stocks in the stores such that transactions could also accelerate. And then on the gross margin side of it, in the Foot Locker gross margin, was there any remnant clearance in there? And presumably, we didn't have any of the buying synergies in there yet?

Yes. I think on the gross margin piece, there was certainly still some clearance. There's always going to be clearance in the retail business. There's products that you think you're going to sell, don't sell. It's all but all part of the normal aspect of the business. So we were very pleased with what we did with Foot Locker.

From a -- we haven't guided right now, and we're not going to report this until it becomes comp in the fourth quarter, the transactions and the traffic piece of this. But we are right on schedule with what we're doing with Foot Locker.

We're really excited about it, and we're looking forward to that back-to-school time period when we have that inflection point where we've then had the ability to buy the product and also lay out the relaunch marketing campaign that we've got with Foot Locker that we're pretty excited about.

And then there's no buying synergies in that gross margin yet?

No, no.

Our next question comes from the line of Cristina Fernández with Telsey Advisory Group.

I had 2 questions on Foot Locker. Ed, you mentioned earlier that you were planning on doing more than 250 stores on the fast conversions after back-to-school. How many can you think you can do for the year and with the double-digit comps, would you look to accelerate that?

And the second question is on the changes on the merchandising plan for back-to-school in the back half. Can you talk about what categories will be -- the changes will be more pronounced for the consumer, whether it's like basketball, casual running or any more details you can share?

Sure. So the Fast Break stores, we'll have 250 of them for back-to-school. We will continue that program through holiday. We'll have some -- we'll have more done for holiday. We're not going to guide to those right now. We're trying to decide how much we want to disrupt the holiday business with this.

But there will be more of those that will be done at the end of the third quarter and the beginning of the fourth quarter. So we will continue with this. We're very pleased with how fast break stores are doing.

As it relates to the merchandising plans for the back-to-school season, the categories that we're focusing on, you'll see a better assortment of women's product.

You'll see a better assortment of what's going on from a basketball standpoint and not only performance run, but also the retro run category will be you'll see better product and more storytelling around that.

And then one of the things you'll see is you'll see better apparel product in there and a better apparel assortment around stories associated with tying back to the shoes.

So it will be around footwear, apparel and some around some key accessory items that Foot Locker had run out of in the past that we will be in stock and we think will certainly help this -- the business going forward as we look at this inflection point in back-to-school.

Our final question comes from the line of Joseph Civello with Truist Securities.

I was wondering, is there anything you could suss out in your data that suggests that you might be getting incremental comp lift from the usage of GLP-1s, anything in like the categories or the sizing or something like that?

Joe, we don't have specific data on that. But for the long time now, we've been seeing people leaning in, and this goes back many years even post-COVID, leaning into healthier active lifestyle, outdoor living, team sports, golf. So in general, our consumer is doing really well and leaning into these, but we don't have any specific correlation to GLP-1s.

Got it. And then maybe just one follow-up. Can you give any color on the promotional environment and maybe like how it impacts both the DICK'S and the Foot Locker side of the business?

Yes. In Q1, we didn't -- that wasn't a major factor. And we always, on both the DICK'S and the Foot Locker side, we'll manage through any promotional environment.

We do what's best for the consumer and best for our business, and we're very surgical about it. We've got advanced pricing capabilities where we can really be curated in how we lean into a promotional environment, but nothing on the horizon that we're particularly concerned about.

We have reached the end of the Q&A session. I will now turn the call back to Lauren Hobart, President and CEO, for closing remarks.

Thank you, everybody, for your interest in DICK'S, and thank you to our 100,000 teammates and associates around the country and around the world. We have the best team in sports, and we're very grateful for everything you do. Thank you all.

This concludes today's call. Thank you for attending. You may now disconnect.

Well, great. Good morning, everyone, and allow me to welcome you to JPMorgan's 12th Annual Retail Roundup. It's our pleasure to host the event inside JPMorgan's new global headquarters here. I hope you're enjoying the building and don't miss the flag in the lobby waving 24 hours a day.

Our fireside chat today is with DICK'S Sporting Goods, and it's my distinct pleasure to welcome the management team, including an absolute legend of retail, Mr. Ed Stack, Executive Chairman; as well as CEO, Lauren Hobart; and CFO, Navdeep Gupta. Team, DICK'S thank you for your time, and thanks for joining us today.

Happy to be here. And by the way, that lobby is pretty awesome.

Jamie is a Patriot. Jamie is a Patriot.

Pretty awesome.

And for anyone who's around tomorrow, Matt and I will be in this room. In terms of format, I have a series of questions that I'll cover, and I'll open up towards the end for questions for those of you in the room. In terms of -- we're going to kick it off and talk a little bit about Foot Locker. We've looked at the Foot Locker acquisition as in terms of like playing long ball in terms of balancing the power between you and the vendors at times in the past, vendors have been irrational at times.

And it seems like this is your longer-term vision to try to create more stability in the relationship. And then obviously, there's a lot of substantial retail one-on-one margin improvements. So our first question on the topic, is that the right way to think about it? Is it -- or I think the bear case is that it's sort of a necessary means to expand your TAM because you have such high share in your core DICK'S business?

Yes. Well, thanks. It's nice to be here. So thanks for having us. It's not to increase our TAM. I mean, our business is a pretty good-sized business right now. We've only got roughly 9% market share here in the U.S. So we've got a lot more market share that we could go after. The Foot Locker acquisition was really about a different consumer than what the DICK'S consumer is. It was really about the fact of we thought we could create some real value in Foot Locker based on the fact that they kind of did kind of forget about retail 101, the due diligence we did and all the things that we looked at from a Foot Locker standpoint, there's a big opportunity in Foot Locker from making sure that they've got the right assortment and the retail execution that we can bring to the business is pretty substantial.

So we couldn't be more excited about Foot Locker. I've said before, and I'll say it because it's Masters Week and use a golf analogy. If we had a Mulligan, we'd buy this all over again, and we would do nothing different. We just think there's that much of an opportunity. So this was not a defensive play. This was not a kind of -- I'm not sure I would characterize the brands as irrational or at least I wouldn't say that publicly. You can, I can't.

But it really wasn't about that. It was really about the value that we can create a different consumer that we can service that we don't service at DICK'S today to give us a global footprint that we don't have today and that we think that there's a very big opportunity. And as we've gotten into this since we closed, we're even more excited about the opportunity than we were when we first bought the business.

You've talked about vendors being very supportive of the acquisition and getting behind the merchandising changes that you're trying to do there. Have vendors voiced any concerns? And as you think about what investor questions have been asked of you, what's been the essentially the pushback, if any, from the vendors and from the investor community?

So there's been no pushback from the vendors at all. The vendors couldn't have been more supportive of us doing this because they see the potential of what Foot Locker could be for their business also. And it wasn't living up to the potential that they thought could help their business. So the brands couldn't have been more supportive of this. They helped us with the whole idea of cleaning out the garage. They've helped us from an access standpoint, allocation standpoint and really want there to be a growing, vibrant Foot Locker. So they couldn't have been more supportive.

The investment community is all the things that you would expect it to be. And it's -- why did you do this? Your business is doing so well, why would you do this? Well, the answer is all the things that I just talked about that gives us a global footprint service a consumer that we don't service today, and we see big upside. And we understand all that. The other piece of this is can you really turn Foot Locker around? We believe we can. We do understand that we're kind of in a bit of a wait-and-see aspect that the investor community wants to say, okay, great. We've got a lot of trust in you and what the management team, Lauren and Navdeep, myself, the rest of the management team have done. We've got great confidence in you.

But we really want to see if you can really do it. And I can tell you, we really can do it. We'll prove it to you, and we understand that that's the kind of the rules -- the rules of the game, and we'll go do that. But other than that, that's kind of what we've heard from the investors. And like I said, the brands are totally jazzed that we did this.

As you think about the 11 Fast Break Foot Locker test stores that you opened last quarter or opened and had for a full quarter, how do these stores -- I think some of us have been in the stores, but can you maybe help us visualize how those stores are different from what the old Foot Locker stores look like? And what have been your biggest learnings so far?

Yes. The big difference between this and heard me kind of talk about this when we were buying Foot Locker, if you walked into a Foot Locker store and looked at that wall of shoes was merely a run-on sentence, just a bunch of shoes stuck in the wall. There was nothing really -- you couldn't tell what was important. There was -- you couldn't tell what the story was you were trying to tell. And when we did this, and we had planned this because when we went through the due diligence process, that was the plan.

As soon as we closed, we were going to start this Fast Break process. And we took everything off the wall. We took roughly 30% of the SKUs out and rebuilt the wall and laid out what was important to the consumer, what was the hot shoes, what story we're trying to tell and had a huge impact on the business on those 11 stores. And we did this across some stores that were lower volume stores, higher-volume stores, some street stores that you would find here in New York City, some mall stores. We did a real cross-section of those. And we were really more than pleasantly surprised of what went on.

We brought apparel back into the stores because they had taken a lot of the apparel side out of the stores. So we put apparel back in there, and the results were great. Around the NBA All-Star game, we did 10 more of these stores in L.A. and got the same type of result. And now what we'll have is we'll have around 250 of these stores in the U.S. by back-to-school that will have been fast break. We will have done the same thing that we did with these 21 stores. Now we'll have done that with 250, and we're pretty excited about the results.

When doing this, the brands have come to us and said, "Hey, we like what you're doing. We can instantly see when we walk into the store, how different it is," and they've given us access and allocation to product that Foot Locker didn't have before. We've taken these Fast Break stores. And one of the things that Foot Locker had kind of gotten away from looking important was the lease line. So the lease line is really the billboard that you kind of -- the store version of the billboard when you're driving down the highway and see all these billboards on the highway, the lease line is that billboard with the consumers walking by that you've got to get that lease line and make it interesting for them to come into the store. We've done that.

And around Valentine's Day and a number of the stores we tested this in, there was a Valentine pack of shoes. So it was a red, white pink shoes right in the window when you first walked in, it was great. It was highly successful. There was a launch of the Air Max '95 shoe a few weeks ago. We did the same thing, highly successful. So you'll see a very different wall treatment of what the the wall looks like of the wall of shoes, you'll see more apparel in there. You'll see a different lease line. You'll see different marketing. Basically, everything in Foot Locker will be pretty different than it has been. And like I said, the results so far have been really phenomenal.

You've characterized it as retail 101, and I think you did a great job of explaining that in terms of how the store operates. It's only 11 stores.

It's up to 21 now.

21. Foot Locker's merchandise margins are maybe down 500, 600 basis points for the past 5 years. What's been the margin observation so far in the stores?

They had too much of the wrong product and not enough of the right product. So the markdowns that they had to take really impacted those margin rates, and they reduced significantly the apparel side of their business. So you're right, their margin rates were down 500 to 600 basis points. And I won't say that we're going to get that back in year 1, but you're going to start to see margin rate improvement.

Got it. Perfect. So I want to talk a little bit about the secular drivers of the category in the footwear cycle. I've raised 2 girls, female participation in sports is clearly a driver in the world today. Health and casualization, you've talked about that a lot, Lauren, as drivers. But you've also had the new brands -- the emergence of 2 new brands in On and Hoka. And we've covered retail for 23 years. And when there's innovation, specialty retailers win share. And when sort of the product cycle slow, oftentimes, that share goes in the other direction. So it actually reminds me a lot of Under Armour post the GFC and how much traffic that drove to your stores back then. So the question that I have is, is it possible to disentangle the tailwinds from the footwear cycle, how that is -- how do you think that's playing out in the innovation versus some sustainable structural secular drivers?

Yes. Great question. I think there's 2 things going on in our business. It's more than 2 things, but 2 things related to your question. One is that our consumer -- the secular drivers, our consumer is obsessed with sport. The country is obsessed with sport. And we sit right at the intersection of sport and culture. And that's true in footwear, but it's also true across our entire portfolio. So wherever we see newness or technicity, technological product or trend. So even in the hardlines categories, we're seeing trends in bat launches that we used to only see in footwear launches, like the whole world has become obsessed with sport, with culture, with newness and innovation.

So yes, we have secular trends that are helping us, but it's really important to note within that, they're not helping everybody. Increasingly, DICK'S is the place where consumers, athletes, we call consumers are choosing to meet all of those needs. And that, I think, speaks to the second part of your question, which is the innovation in our assortment, the innovation in how we approach our athletes. So we have a House of Sport concept now. If you haven't been to it, I would suggest going. It's unbelievable. It's redefining retail, really experiential. And brands are leaning into that and giving us the newest and the coolest and the best new product because it is rooted in sport.

We can tell a brand story head to toe. And it's just really reinvented the entire way retailers going to market. So there's innovation everywhere. In the footwear side, same thing. We see innovation in how we're bringing footwear to life, but we also see innovation that we're excited about in a lot of the footwear that we see coming down the pipe with our core brands.

And so as you think about, is there -- do you have any concern that if you look at Hoka and On's wholesale numbers, U.S. numbers, they are incredible.

Yes, they're incredible.

And we're all second derivative crowd here. And they've slowed to pretty strong levels. So do you have concerns that we're seeing the tail end of the footwear cycle?

We still have upside across -- we are planning -- we won't get into specific category growth, but we plan DICK'S to 2% to 4% comp growth. We see growth, we will have growth in footwear. And On and Hoka, we still have upside in terms of door count that we're having, but we're also seeing -- the thing that's great about our position is because of our relationship with so many brands, we can lean into what's hot and where the trends are going. So we're seeing growth in the Nike Run construct. We're seeing -- there's brands come -- they get hot, they become on trend. But in general, the category, we have a lot of confidence in. We will be growing footwear.

More specific to the consumer, obviously, this conference is so well time. We had Liberation Day a year ago last night we have...

We're all still here, it's nice.

But there's a question, right? You have tax stimulus out there, gas prices above $4 nationally, not $5 like we saw in 2022. How would you assess the health of consumer? And how do you think the balance between the energy price pressures and stimulus is maybe playing out?

Yes. Our consumer is very, very healthy. So in addition to everything I said about the sport and culture coming together, the consumer is obsessed with sport. We've seen -- we haven't seen trade down from best to better and better to good. We've seen growth across all income demographics. And that's at the DICK'S side. On the Foot Locker side, we actually very much see that when there is newness and when we have the right product, that consumer also values the category so much that they respond really well. So our consumer is healthy. We just have to keep the right product, the best experience, and that's how we're doing that.

Awesome. I think we're also sensitive to traffic. And in the fourth quarter, the traffic did decline. You talked about it being more of a comparison. How would you think about the balance of traffic and ticket as you think about your 2026 outlook?

Yes. No, Chris, like the way you characterized, the traffic was down. But if you look at it, in fourth quarter, our results were really, really strong. We posted a 3.1% comp on top of a 6.6% comp from the year prior. So on a 2-year stack basis, if you look at it, we were almost about 10% comp, which was pretty consistent with where the business had been trending all of 2025. And so that's the way to look at it. And traffic is just one way to look at the quality of sale. And this is where we say we look at it in multiple different ways, the sales. We look at it, how is -- how are our channels doing? How is e-com doing? How are stores doing? How are core categories doing? And we saw strong growth coming out of all of our core categories, apparel, footwear, team sports, golf, license business, the collectors business, which Ed and Lauren have talked about, are fantastic growth drivers for us for the long term, and we saw strong traction with those categories.

And then like Lauren talked about, we look at it at the income demographic to say, is the quality of sales still good? And that's what we saw. In terms of the outlook, we don't give the outlook broken down between traffic and transaction, but here's what gives us tremendous amount of confidence. It's the core drivers of the business. And keep in mind, in 2026, we also have the excitement for the FIFA World Cup that has been contemplated into the guidance that we have provided.

Fantastic. Going back a little bit to the DICK'S Foot Locker combination, it looks like you're about 22% of NIKE's wholesale business, is that right? And surely, that's a big number across the big brands outside of NIKE. If you think about that and just assume one point of like volume buying discounts from the increased scale, it does make the $100 million to $125 million look a bit low. So just trying to work through that math and think about what's the baseline sort of volume market share that you have with some of the larger brands? And is it implicitly you're assuming something less than 1 point from a volume discounts?

Well, so I think you're going back to where the synergy guidance is. And the synergy guidance that we have given is $100 million to $125 million over the medium term. Keep in mind, synergies are one way to think about this transaction. This is about -- like Ed says, we didn't buy this asset for 1 year. This is how we are going to run this company and this -- and quite frankly, the combined companies over the next several years. So synergies, what we have guided is 2 components. One, merchandising synergies and the non-merchandising buying.

And if you look at that and say that's just what the cost synergies would be. What we have said that over the medium term, the opportunity is much broader than that. Like Ed said, better access, better allocation, looking and partnering with them in a very, very different way. If you look at the sports ad that is going on right now at DICK'S, having the athletes -- actually, Nike is sponsoring that ad with us. They gave us access to their athletes. That's a broader way to define synergies than just what we have talked about. And that's the way we have thought about this opportunity as a collective way of shaping this industry for the long term.

Understood. Staying on Foot Locker for a second. You're rolling Fast Break to 250 doors in 2026. By back-to-school. How are you thinking about the scale of the remodel program globally?

So we're starting Fast Break in Europe. So we're further ahead in the U.S. than we are in Europe right now. We've got a couple of Fast Break stores in Europe, which are -- we're really pleased with what's happening there also. And then we've got guidelines of what we're going to do there in Europe. A little bit -- it's a little bit slower for us to get the fixtures that we need and some of the things that we needed. Management team is still being built a little bit more in Europe. We've got a great leader in Matthew Barnes who we brought from Aldi.

A couple of other people we brought, another person back from -- be the Chief Merchant there. But you will see, I'm not going to guide how many we're going to have by back-to-school for Europe, but you're going to see a meaningful number of them in Europe by back-to-school also. It won't be near the 250 number that we have in the U.S. And you could just look at Foot Locker in Europe is probably going to kind of run roughly 6 months behind what we do in the U.S.

Understood.

But it will get there.

So one of the questions that we get is how the Foot Locker acquisition is impacting the core business. You were very clear from day 1 saying that you're sort of taking over Foot Locker and organizing management and merchandising and the core business is not going to be affected. One of the questions that we get is you're guiding to 67 House of Sport by the end of '27. That's slightly below the initial $75 million to $100 million. This is despite CapEx going to $1.5 billion in this year. So I think the question is, to what extent is that actual an indication that your -- the stretch of sort of the capital deployment and management time is affecting what is a wonderful House of Sport opportunity?

Yes. It's got nothing to do with that. One of the things that we're finding now is with House of Sport, we're getting access to real estate that we would have never had access to before. And so we're just being a bit more patient. Some of the access to product we have -- to real estate we have right now to take a little bit longer to get done. So an example of that is if you looked at this 5, 6 years ago, we wouldn't be able to put a 2-level DICK'S store in some of these malls. So Tysons Corners in Washington, D.C., what we're doing with Cerritos in L.A., Palm Beach Gardens in Florida, Barton Creek in Austin. We have access to real estate.

One thing we're working on in a couple of other that we would never have had access to that real estate before. And we will be the main new anchor in these malls. So we're just being patient. We don't want to rush. We don't want to go and hit a number to just be able to hit a number. The access we have now is very different. The volume of these stores that we're going to do are going to be meaningfully -- we expect to be meaningfully higher than what we had originally anticipated from a House of Sport standpoint. So this new access to real estate is what the difference is between the 75 and the 68. And when you take a 67 or 68, and when you look at that, it's a pretty meaningless difference in the grand scheme of things.

Understood. Just a quick follow-up on that. You talked about volumes being meaningfully higher than the original mall that you talked about. Obviously, rent in those locations are higher. So how do we think about the 4-wall EBITDA margin profile of those better locations?

Well, some of these don't assume that the rent is going to be higher or meaningfully higher, because some of these mall developers, where there's a vacant department store and some of this better real estate, they're also -- so if it was a Sears box or it was a vacant box from some other retailer, that wing of the mall is not the best leased with the best tenants at the best rents. And so what the landlords find is when we put a House of Sport store there, that wing of the mall, they can bring in better tenants who will pay higher rents, and we can be the beneficiary of that. So they don't automatically go to the fact that the rents are going to be higher.

Excellent. Sticking on the margin topic, a topic that sort of faded into the background a little bit with and with some of the promotionality, I think, over the holiday season and now Foot Locker is that as you think about the core DICK'S business, what the structural gross margin level actually is? And then how does that media network and GameChanger change what you used to speak to from a structural gross margin perspective? Does that take it ultimately higher...

Yes. No, it's a great question. First of all, we don't call core, noncore. We see DICK'S and Foot Locker as the core parts of the business. And so just staying with the DICK'S where the question is, we see the secular drivers of the gross margin expansion continuing to be in place. The access to the product is the first unlock. And what both Ed and Lauren and I have talked about the relationship now we have with the vendor community is at a whole different level. We had great access to begin with. That access is even further enhanced. The investments that we are making in House of Sport and Field House and DICK'S Media network capability is actually allowing us to partner even deeper with some of the emerging brands that in a few years ago, we didn't have that level of depth of relationship.

So that opportunity remains really, really well in place. The work that our teams are doing on vertical brands. So we used to talk a couple of years ago that the vertical brand margin was 600 to 800 basis points higher. We have said in the recent years that it's now 700 to 900 basis points. Actually, the margins are even becoming better than our current expectations that we have. So the teams are doing a fantastic job not only driving growth and how well that product is resonating with the athletes, but also driving margin expansion.

And then the new latest drivers that you talked about between GameChanger and DICK'S Media Network, we feel we are an early growth opportunity with both these opportunities. Fantastic and probably one of the most not well understood and a true hidden gem is the GameChanger business. It's almost about $150 million in revenue size, very fast growing, very profitable. And we believe that, that will be continuing to be a differentiating capability as we look to the long term.

Do we get a new number today?

Well, we have not given a long-term rubric, and I won't do that today, but we feel really confident that the secular drivers continue to remain well in place.

We've had about a 40% CAGR for years.

And so on the other side of the business, and to your credit, Ed, you've always embraced investment. You've always embraced building a brand. The nature of this category is different from some other companies that in my coverage, there's newness, there's trend, conversion is so important in the store. Display is so important to the store. Advertising, 4% of sales versus some of my sort of more consumables-oriented retailers spend 1.5%, 2%. So the question is how to think about the structural growth rate in SG&A dollars in the context of the category that you operate in? And related to that, how do you think about what the right leverage point on SG&A is?

Yes. So Chris, this is something that we have been talking about for the last couple of years very clearly that look to us to drive top line growth and bottom line growth. There will be interplays between SG&A and margin. So for example, like last few years, we have been investing from an SG&A perspective while delivering really strong gross margin. And the investments have gone into the things that are driving these differentiating results, DICK'S Media Network, GameChanger, the capabilities that we have built around personalization, the e-com drivers. Those investments show up in SG&A, but the benefits show up in margin. So that's the interplay that we have always talked about. From a leverage perspective, we will balance the near-term results against the long-term differentiating capabilities. We still feel there is a clear opportunity for us to gain share. We are at 9%, even just looking at DICK'S. We want to continue to build on that opportunity that we see.

So at this point, I'm going to pause and see if there's any questions in the audience here. There are microphones on the table. So if you have a question, if you could speak into the microphone so people on the could hear you.

Can you hear me?

I can hear you, Danny.

Yes, I got a couple of interesting questions. First of all, could you talk -- talk a little bit about cultural change in the level of enthusiasm is within the company because I think that's one that's important. Another one is I noticed the warehouse stores that you're cleaning out. You didn't mention anything about that, how it's working and potential growth.

And the third one that you did touch on, which is GameChanger. I think it's phenomenal. But a lot of people that are even signed up, they don't know it's part of DICK'S. So how do we get that out there and get them into the stores as well? How you're going to capitalize on that -- that's it.

All right. So...

It's all you.

All me. All right. Great. Great, great. Well, we'll start with culture. I think you're right. And sometimes people don't understand that all of our strategies, the product, the reinvention of retail, all of our digital strategies only come to life because of the strength of our team. And we have an amazing management team, but even more important, the culture throughout our stores is so energetic and so focused on wanting to win and deliver. It is a secret asset. It is a secret weapon. And I would say with the Foot Locker acquisition, it happens to be also their secret sauce. When they have the right product, you wait until you see what these stripers can do. So I think the dynamic in the company is absolutely part of what's driving the growth. Now I remember 3 was GameChanger. What was number 2...

Going, Going, Gone...

Going, Going, Gone. Do you want to take that one? It's good.

Sure. I'm going to come back to the culture piece, too. So we just did our annual engagement survey. And to put this in perspective, kind of -- and you benchmark it against other retail, our benchmarks for -- from an engagement standpoint are almost 2,000 basis points higher than the average retail. So the culture in the company, I won't say it couldn't be better, but it's as good as there is in retail and better than most everybody else in retail. The team that we've got -- and this isn't just at the senior management level, this is throughout the whole organization down distribution centers, the stores, everything.

And we couldn't be happier. And a big part of the culture being what it is, is really Lauren's leadership of how she's really taken culture and really kind of remapped culture and our Head of HR, Julie, it's the culture couldn't be any better. In Foot Locker, the culture was somewhat difficult. The culture in the stores are great. The stripers and these young men and women love sneakers. They know sneakers. They love talking about it. They know about their business. They give us great insight into it. But the culture inside the organization was somewhat siloed, and we're breaking that down.

We hired Anne Freeman from Nike to -- as President of Foot Locker. We took some people from the Head of HR for Foot Locker comes from DICK'S. So he's trained under Julie and making real strides there. And the culture in Foot Locker has changed meaningfully. If you sat and talked to people at Foot Locker today and said, how are things today versus what they were 6, 8 months ago, they would tell you it's entirely different, and they couldn't be happier.

From a Going, Going, Gone standpoint on the value chain that we have, this has been a great win for us. It gives us the ability to get product -- you run a business, any retailer, you're going to buy product and you're going to think that it is going to sell and it doesn't sell as well as you think. So it's a great way for us to clean that product out, clean the product out of the existing stores, bring new product in at full margins in the existing stores. And part of our margin rate improvement that we've had over the last several years has come from the execution from our Going, Going, Gone or value concept.

So it's something that will continue. This Going, Going, Gone concept will also help us with Foot Locker because we'll be able to clean out footwear product in Going, Going, Gone Foot Locker's product through that channel that Foot Locker didn't have the ability to do before. And we haven't guided to this, and I don't really think it's that big a deal to tell you. The footwear capacity in the Going, Going, Gone stores has never been at 100%. So we actually have some capacity from a standpoint to put more shoes in the Going, Going, Gone concept, and we'll be able to do that and help Foot Locker kind of clean out their excess inventory, which will help their margins and help keep that -- we're not going to let that run on sentence come back in Foot Locker. So Danny, I think that hits everything...

No GameChanger.

GameChanger, which is our secret weapon.

Just like our culture. Yes. So GameChanger, you're right, it is an incredible asset, and you're probably also right that we don't merge the 2 branding between DICK'S and GameChanger. GameChanger it says a DICK'S Sporting Goods company under it. Increasingly, you're going to see that change, and it's both for the consumer, but also behind the scenes. So for example, GameChanger because of the authenticity in Diamond Sports has created a concept called Bat Lab, where we're bringing in the best high school players around the country to test out the new Bats.

And that we are -- so if you go into a DICK'S store today, you're going to see this is the Bat Lab recommendation by GameChanger. So that's happening. People are increasingly aware. We've got some ideas long term about our loyalty program, kind of opening up some access to GameChanger. But behind the scenes, the data that we have at GameChanger and the data we have at DICK'S are brought together, and we use it for co-marketing. We use it for our media network. So the media network actually goes to market as one where you can have access to all things sport, our scorecard data as well as our GameChanger data as well as our teammate product knowledge. So I think you're right, we're early innings in terms of over brand recognition, but we're moving quite quickly toward partnership even more than we've ever had before and then data bringing that to life in a combined way.

And then similar to what we said about DICK'S and Foot Locker, GameChanger is a fantastic growth engine. So what we also want to be careful of is to be purposeful in what are the places that we are bringing these 2 brands together. And because we don't want to distract -- similar to DICK'S, we don't want to distract the GameChanger on the 40% CAGR that it has had for the last several years. So that's the balance that we always strike as well internally.

So you've talked about the Foot Locker customer. They seem to be in pretty good shape. They respond to newness and innovation that there was big misexecution on merchandising. So any reason to believe that the Foot Locker margin couldn't recover to its historic level? Or is there something structural there that might have changed?

I don't think there's anything structural. We're not going to give a time frame right now, but there's nothing structural that would keep you from being able to do that.

In apparel.

You're putting words in my mouth, but yes. But we think that there's meaningful margin expansion. And as we get further along in this process with Foot Locker, we'll continue to provide more and more information. But I think when you get done, and we look back on this, it will be that this was a transformational acquisition that DICK'S made for Foot Locker with Foot Locker.

You're obviously reading my questions here. I have a follow-up to your question, which is merch margin being down about 600. How would you break that down between bad merchandising driving promotion versus lost vendor support?

That's a really good question. And I haven't, I don't know that you can bifurcate the 2 because bad merchandising, if loss of vendor support, then the team went, and I can understand this, went and bought the next tier product to try to offset that. And it didn't work quite as well. So that caused some markdowns. So they're connected. But between better access, better allocation, better merchandising standards, better buying standards, we think we can get that margin rate back up there.

One of the things Foot Locker didn't have, they didn't really have a defined planning allocation and replenishment group. And so the product wasn't allocated properly, and there wasn't as much of a planning process as there would be. It was too siloed. So there's all of these things that are interconnected. It's a great question, but they -- it's tough to bifurcate the 2.

Additional questions?

Any other questions?

There's one in the back there. Yes.

[indiscernible]

You're talking about the Foot Locker Reimagined stores?

Fast Break, though, I think you said 11 of the 11 stores.

The question was basically of the 11, thinking about the 250 that you're rolling out this year, like how quickly does that -- could that accelerate over time? And what's the evaluation period?

Okay. Well, I think we've evaluated -- well, we'll continue to evaluate, but the early evaluation is that we're pretty excited. We're not giving a time frame. We've got one internal. We're not going to communicate it yet. But back-to-school is 250, and we have a time frame by which what we would like to get done by holiday, but we're going to keep that to ourselves for right now. Other questions?

A follow-up to that. So what have you seen that's giving you it seems like it must be really impressive...

So it is. But we've actually gone to 21, okay? Not that 21 is a whole lot different than 11 in a store of like 650 or 700 stores. But we've got great confidence in what we've seen in how these stores have performed. We've got great confidence because the brands have come to us, so the brands that have kind of taken some allocation away or some access away have come back and said, we're back in.

We're going to give you more of this product. We're going to help you. We see the investments you're making. They've walked into the Fast Break stores. They see the difference. They see what we're going to do from a marketing standpoint. We've laid out a plan of how we're going to invest in this business and how we're going to market this business and turn this business around and the brands are all in.

So one of the reasons we've got this confidence is that the brands are going to be supporting this. And -- and we've started to see that. And when you went -- we went to the brands and we said, "Hey, we need some product," and they couldn't give us everything we needed. But when we need this product to test this in 11 stores, they can usually find product to kind of help you kind of validate this in 11 stores or then 10 more stores around the L.A. All-Star game.

So as we've kind of put all of these things together, it gives us tremendous confidence that this will work. And if you know, we're relatively conservative, and we wouldn't be out here talking about this if we weren't confident that we're going to be able to do it.

The other thing is they're really capital light. I mean this is not a massive investment. It's not swinging -- usually not swinging hammers. It's just -- so it's really more of a visual merchandise update, which is low risk and high reward.

The only thing that there is -- and Lauren is right, for the most part, it's not -- we're not swing hammers. The only place where we're swinging hammers is if there was a House of Hoops store next to a Foot Locker store. And then we're taking that wall out of House of Hoops, opening this up, so you get a much bigger Foot Locker store, much different sight lines. We've got some space to put apparel back in there. So that's the only place that we're swinging hammers is when we eliminate House of Hoops.

From our perspective, it seems like some percentage of the Foot Locker turnaround is dependent on high heat product. It seems like there was some stuff done around February, the All-star game weekend, the Fast Break stores that might have changed relative to the past couple of years. Could you just talk about those changes? How much of that was your guys' actions? And then how we should think about that as we move into back-to-school and how some of the successes from February, the All-star Game weekend might impact the go forward?

Yes. So there is some high heat product that's important to make yourself relevant in the marketplace. Foot Locker in the past was too dependent on that high heat product. And so we're building out this -- the assortment to be kind of more of a base business. There will certainly be high heat product that is important, whether it's Jordan Retro fill in the number, that's still going to continue to be important, but it's not going to be as important going forward. We're going to build out this base.

When you think about it, when you look back, Foot Locker pretty much missed the retro run category, didn't have much of that. If you take a look in Europe, I was surprised when I finally got there that in Europe, they didn't buy a retro run shoe. They didn't buy a P-6000. They didn't buy a Vomero 5. They didn't buy anything from a retro run standpoint. And that's a big miss. So that's a big part of a base business that we can build back. So we're going to build back the base business.

The high heat product is going to be important, and we'll have more access to that high heat product than we've had in the past based on the relationships we have with the brands. Any other questions? We got 6 more minutes to burn...

As you think about staying on Foot Locker for a minute, it's really a 2-parter, right? I mean buying synergies should be instantaneous. Like you should capture whatever back-to-school back half of this year to the front half of next year, you should make [indiscernible] progress on the buying synergies. Is that right?

And then with respect to -- now that the garage is cleaned out, right, you're not going to have the clearance pressures that Foot Locker experienced a year ago. To some degree, some of the promotionality is going to be a lot lower. So I'm trying to understand, shouldn't the merchandise margin rebound sort of at Foot Locker be sort of this accelerating curve as we start from the first quarter into the first half of next year?

So we're not going to provide that guidance for you. But we do have kind of indicated that we expect that margin rate to get better. And as of right now, that's kind of what we're going to -- we're not going to -- we're going to make sure we don't get out over our skis. But you will see margin rate expansion, which is part of what's taken us to grow this business again and to return it to profitability. But like I said, as we get a little bit further along and we can prove it, we'll give you more visibility to it.

Got it. And then another question I have is a hot topic, which is -- and then we can here is exposure to rising energy costs. Obviously, ocean freight -- you buy from Nike U.S., so you're buying onshore mostly. But -- and so ocean freight shows up later, but how do we think about like sort of domestic trucking energy cost exposure?

Well, so the direct exposure will be through the supply chain costs. And that over the last several years, the team has navigated the ups and downs of that and something is that I would say that the team will continue to navigate as we go through the balance of this year. It's been volatile, and we just are trying to do the best that we can to continue to manage that cost. But we feel that the capabilities and the relationships that we have with the merchandising side and on the non-merch side will be something that will...

Could you talk about share repurchases and how that could evolve over the next couple of years?

Well, so I think it goes to a larger capital allocation strategy. The first -- as we have said consistently that our first priority is to invest into the business. The opportunities that we see with repositioning our portfolio of stores, building new capabilities like distribution center that we are building this year. If you look at it, our sales are up over -- or close to 60% versus 2019. We have the same exact number of distribution center. So those are the fixed infrastructure investment that you have to make, the capabilities investments that we are making in GameChanger and technology. So that's the first priority for us.

Outside of that, our focus continues to be that we want to continue to return the excess cash to our shareholders. We have done that through growing our dividends 12 straight years, Nate, I'm looking at. And then from a share buyback perspective, we have been pretty consistent -- but at the same time, we are opportunistic. So that's what has been contemplated in our guidance, just basically offsetting the normal dilution, but we'll continue to be opportunistic with the share buyback. We have plenty of capacity on the balance sheet.

And if I could, I mean, I think there's a DC that's going to open this year. So I assume some of that CapEx from this year will ramp down as we think about next year and beyond. How do we think about CapEx over the medium term?

Yes. We haven't given the long-term outlook for the CapEx. But keep in mind that what is -- the biggest driver of the CapEx growth, especially when you look at over the last few years, is the repositioning of the portfolio. So what is included in the CapEx guidance for this year is opening of, call it, about close to just over 30 House of Sport store locations, including 18 that we will be opening in 2027.

Any other last questions?

You didn't, Foot Locker had a kids business and separate store on kids. You didn't say anything about the little kids.

When we talk about Foot Locker, we talk about the Foot Locker brand. So Foot Locker...

The whole kids...

KFL. The kids business is really important to Foot Locker. We think there's -- continue to be a big opportunity there. One of the things that we did after the -- right after holiday, we got on a video call and probably talked to over 100 different managers. We had different parts of the country kind of jump on there with 10 stores each time. So we talked to well over 100. And there was a common theme around kids, and it was kids basketball, kids basketball, kids basketball.

So they were really -- we were really underinvested in that, and we think there's a real opportunity from a kids standpoint going forward that Foot Locker kind of let kind of slide. So we'll be really investing in that. But that's part of the whole Foot Locker strategy.

I'm seeing blue and maize, Nike basketball sneakers...

Navy blue and maize. Everybody from Michigan is pretty happy today and yesterday.

Exciting.

Well, with that, I want to thank you so much for joining us today and all your time and all the wonderful responses...

Great. Well, thank you. Thanks for having us. Thanks, everybody.

Ladies and gentlemen, thank you for standing by. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome you to the DICK'S Sporting Goods Fourth Quarter and Full Year 2025 Earnings Conference Call.

[Operator Instructions]

I would now like to turn the conference over to Nate Gilch, Vice President of Investor Relations. Nate, the floor is yours.

Good morning, everyone, and thank you for joining us to discuss our fourth quarter and full year 2025 results. On today's call will be Ed Stack, our Executive Chairman; Lauren Hobart, our President and Chief Executive Officer; and Navdeep Gupta, our Chief Financial Officer. A playback of today's call will be archived on our Investor Relations website located at investors.DICKS.com for approximately 12 months.

As a reminder, we will be making forward-looking statements, which are subject to various risks and uncertainties that could cause our actual results to differ materially from these statements. Any such statements should be considered in conjunction with cautionary statements in our earnings release and risk factor discussions in our filings with the SEC, including our last annual report on Form 10-K as well as cautionary statements made during this call. We assume no obligation to update any of these forward-looking statements or information. Please refer to our Investor Relations website to find the reconciliation of our non-GAAP financial measures referenced in today's call.

And finally, a couple of admin items. First, a quick reminder on our comparable sales reporting. Foot Locker will be included in our comp calculations beginning in Q4 2026, which will mark the start of their 14th full month of operations post acquisition. And second, for future scheduling purposes, we are tentatively planning to publish our first quarter 2026 earnings results on May 27, 2026.

With that, I will now turn the call over to Ed.

Thanks, Nate. Good morning, everyone. As we shared this morning, we closed the year with another strong quarter for the DICK'S business, delivering comps over 3% and double-digit non-GAAP EPS growth. Our team's execution and our ability to consistently deliver a differentiated on-trend product assortment and best-in-class omnichannel athlete experience continue to produce strong results and market share gains. We believe these fundamentals position the DICK'S business for long-term profitable growth.

Now I'd like to turn to the transformational opportunity we have with Foot Locker, where we continue to make significant progress in strengthening the business. We've now owned Foot Locker for about 6 months, and I'll tell you, our excitement and our conviction in the long-term opportunity here continue to grow. We've moved quickly to test and learn in North America through what we call our Fast Break initiative. This is the evolution of the 11-store pilot we discussed last quarter. While it's still early, we're very encouraged by what we're seeing. During Q4, our Fast Break stores drove very strong positive comps, actually meaningfully exceeding the DICK'S business while also delivering strong gross margin improvement.

The improvement is coming from the basics, clearer storytelling, better presentation and a more focused assortment where we removed roughly 30% of the styles on the shoe wall that were unproductive and eliminated the run-on sentence that we've been talking about that was not showing the customer what product was important. Based on the strength of the pilot results, we've already expanded Fast Break to an additional 10 stores in L.A. before the NBA All-Star Game and we're very pleased with the strong early performance.

Now looking ahead, we're excited to rapidly scale Fast Break by back-to-school 2026. As discussed last quarter, our first priority was to clean out the garage, starting with addressing unproductive inventory. The team moved quickly and decisively to get this done, and we're pleased to report that the inventory cleanup is now essentially complete. That work drove the fourth quarter profitability results we told you to expect. And as part of this process, we also leveraged DICK'S value chain to efficiently clear product. We're also pleased that Q4 sales came in better than expected.

We believe that Foot Locker's inventory is now well positioned with this heavy lift behind us, we're set up to play offense and deliver the inflection point we expect to see in this business starting with back-to-school. Another key part of cleaning out the garage is our review of the global Foot Locker business store fleet. We continue to assess underperforming locations, but we anticipate our closure list is now much smaller than we initially estimated. We've identified opportunities to reposition and improve profitability in a meaningful number of stores, informed in large part by the success we're seeing in our Fast Break locations.

Importantly, one of the many things that gives us great confidence in the future of the Foot Locker business is what we're seeing from our brand partners. They're leaning in, aligned with our vision and eager to support a thriving growing Foot Locker. You can see that already in moments like our NBA All-Star activation with Nike, Jordan, Adidas and others, where we partnered closely to bring a series of sought-after launches that drove exceptional sell-throughs. We also had NBA talent appearances and community experiences for the Foot Locker consumer throughout L.A. Our team executed exceptionally well and together with the support of our brand partners, we drove sales that meaningfully eclipsed last year's event.

At DICK'S we've built an industry-leading business by focusing on product performance, innovation and customer loyalty, always with a long-term view. We're applying that same proven playbook to the Foot Locker business and making the choices we believe will create the most long-term value for our shareholders. For 2026, we expect Foot Locker to deliver growth in comp sales of between 1% to 3% and operating income in the range of $100 million to $150 million. We continue to anticipate an inflection point for both sales and profitability beginning with the back-to-school season. Navdeep will share more details on our '26 expectations in his remarks.

In closing, we remain very confident that DICK'S and Foot Locker are stronger together. This combination gives us more scale, deeper relationships with the most important brands in our industry, access to consumers we didn't reach before and a global footprint. For Foot Locker, the benefits of our combination come through in very real ways. Brands matter, product matters, execution matters and people matter. When those things come together, we believe Foot Locker will be restored to its rightful place in the industry. Before I turn it over to Lauren, I want to thank our more than 100,000 teammates across the globe for their commitment and their execution every day.

With that, Lauren will walk you through the continued momentum across the DICK'S business. Lauren, I'll turn it over to you.

Thank you, Ed, and good morning, everyone. I want to emphasize Ed's comments and recognize the incredible work of our teams across our entire company who contributed to our success throughout this past year. I'm so proud of what we achieved together in 2025. Looking specifically at the DICK'S business, our teammates' passion, their commitment to our athletes and a relentless focus on execution powered another strong quarter and holiday season and a terrific year overall. Their hard work continues to bring our 4 strategic pillars to life, a compelling omnichannel athlete experience, a differentiated on-trend product assortment, a deep engagement with the DICK'S brand and the strength of our teammates and our culture. These pillars remain the foundation of our success and guide our strong performance.

For the full year, we are very pleased to have delivered record sales of $14.1 billion for the DICK'S business. Our comps increased 4.5% and exceeded the high end of our expectations, driven by growth in average ticket and transactions as we continue to gain market share. We drove gross margin expansion and achieved double-digit operating margin of 11.1%. We delivered non-GAAP EPS of $14.58, also above the high end of our outlook and up from $14.05 in 2024.

Our fourth quarter marked a strong finish to the year for the DICK'S business. Our Q4 comps increased 3.1%, building on last year's 6.6% increase and delivering a 2-year comp stack of nearly 10%. We saw more athletes purchase from us and they spent more each trip compared to the prior year. Our Q4 gross margin expansion accelerated sequentially, and we drove operating margin of 11% and non-GAAP EPS of $4.05, both well ahead of last year. Today, the intersection of sport and culture has never been stronger and excitement continues to build. This momentum kicked off with the expanded college football playoffs, record-breaking interest in women's sports and a strong Team USA performance in the recent Winter Olympics.

And with most of the 2026 World Cup matches on U.S. soil this June and July, the 2028 Summer Olympics in L.A. on the horizon and the Ryder Cup returning to the U.S. in 2029, we're entering one of the most compelling multiyear periods for sport in this country's history. Our athletes are energized. They're investing in the products and experiences that fuel their passions, and DICK'S sits squarely at the center of that intersection. With this position of strength, we entered 2026 with tremendous conviction in the opportunity ahead, and our priorities for the DICK'S business are clear. We continue to drive growth across our key categories. This is fueled by the powerful relationships that we have with our national brand partners, the energy from new and emerging brands and the continued momentum of our vertical brands.

We're also continuing to reposition and elevate our real estate and store portfolio through House of Sport and Field House. Now 5 years into this journey, our conviction in these innovative concepts has never been stronger. House of Sport and Field House have redefined the athlete experience, strengthened our relationships with existing brand partners, opened doors to new partnerships and delivered strong financial performance. This past year, we made tremendous progress on this front. We opened 16 new House of Sport locations, ending the year with 35 locations nationwide and also opened 15 new Field House locations, bringing the total to 42 across the country. We are really excited to see the impact of scaling these powerful concepts.

Looking ahead, landlord interest remains extremely strong, giving us access to some of the best retail locations in the country. In 2026, we plan to open approximately 14 House of Sport locations and approximately 22 Field House locations. In addition, our focus on serving athletes is very strong, and we're really accelerating our work here. Our common purpose is to make sure that athletes feel confident and excited before, during and after they engage with our team, our products and our experiences. We're creating more consistency across channels in how we help our athletes find the right solutions. Whether they're using better search and reviews online, tapping into new digital tools in the store or in the app or working directly with our teammates, their experience is becoming more personalized and more connected.

In our stores, we're evolving our service and selling culture. We're putting a bigger emphasis on relationship building and giving teammates better training and tools. And while this is very much an ongoing journey, the feedback has been incredibly encouraging.

Lastly, as part of our broader digital strategy, we're harnessing the power of our athlete data and continue to be enthusiastic about the long-term opportunities we see with GameChanger and the DICK'S Media Network. With all this in mind, for 2026, we expect to drive continued comp growth, strategic expansion of our square footage and strong profitability for the DICK'S business. We anticipate our comp sales to be in the range of 2% to 4%, which at the midpoint represents a 7.5% 2-year comp stack. We expect operating margins for the DICK'S business to be approximately 11.1% at the midpoint. At the high end of our expectations, we expect to drive approximately 10 basis points of operating margin expansion on a non-GAAP basis. At the consolidated company level, we expect full year non-GAAP earnings per diluted share in the range of $13.50 to $14.50.

In closing, we're entering 2026 with powerful momentum in the DICK'S business, and our focus here is unwavering. The opportunity ahead for DICK'S remains tremendous, and we are firmly positioned to capture it.

With that, I'll turn it over to Navdeep to share more detail on our financial results and our 2026 outlook.

Navdeep, over to you.

Thank you, Lauren, and good morning, everyone. To start, I want to echo Ed and Lauren's excitement as we enter 2026 with real strength and momentum.

Now let's begin with some highlights for full year 2025 results. Consolidated net sales increased 28.1% to $17.22 billion, driven by a $3.11 billion sales contribution from a partial year of owning the Foot Locker business and a 4.5% comp increase for the DICK'S business as we continue to gain market share. These strong comps were driven by a 4.2% increase in average ticket and a 0.3% increase in transactions.

On a 2-year and a 3-year stack basis, comps for the DICK'S business increased 9.7% and 12.3%, respectively. Consolidated non-GAAP operating income was $1.52 billion or 8.81% of net sales compared to $1.5 billion or 11.14% of net sales last year. This includes operating income of $1.57 billion or 11.12% of net sales for the DICK'S business, driven by strong comps and the gross margin expansion and a $52.2 million operating loss from a partial year of owning the Foot Locker business. Consolidated non-GAAP earnings per diluted share were $13.20, which included just over 20 weeks of results for the Foot Locker business and a diluted share count of 85.1 million.

Looking specifically at the DICK's business, we delivered non-GAAP earnings per diluted share of $14.58 based on the share count of 81.2 million, which excludes the dilutive effect of the shares issued in connection to the acquisition of Foot Locker. That exceeded the high end of our guidance and is up 3.8% from our earnings per diluted share of $14.05 last year.

Now moving to our results for Q4. Consolidated Q4 net sales increased 59.9% to $6.23 billion, driven by a $2.18 billion sales contribution from the newly acquired Foot Locker business and a 3.1% comp increase for the DICK's business. These strong Q4 comps were on top of last year's 6.6% comp and were driven by a 4.4% increase in average ticket, partially offset by a 1.3% decline in transactions. On a 2-year and a 3-year stack basis, comps for the DICK'S business increased 9.7% and 12.6%, respectively. In terms of the category performance, we saw broad-based strength across our 3 primary categories of footwear, apparel and hardlines. For reference, pro forma comp sales for the Foot Locker business in Q4 decreased 3.4%.

On a non-GAAP basis, consolidated gross profit for the fourth quarter was $1.99 billion or 31.93% of net sales, down 303 basis points from last year. For the DICK'S business, gross margin expansion accelerated sequentially, increasing 67 basis points, driven entirely by higher merchandise margin. Notably, the year-over-year decline in consolidated gross margin was driven entirely by the mix impact from the Foot Locker business. On a GAAP basis, in connection with cleaning out the garage, our actions to optimize Foot Locker's inventory that doesn't align with our go-forward vision unfavorably impacted gross profit by $218 million. This was in line with our expectations.

On a non-GAAP basis, consolidated SG&A expenses for the fourth quarter increased 60.5% or $579.2 million to $1.54 billion and deleveraged 9 basis points compared to the last year's non-GAAP results. $549.5 million of this consolidated increase was driven by Foot Locker business. For the DICK'S business, SG&A expense dollars increased 3.1% and leveraged 22 basis points. Consolidated non-GAAP operating income for the fourth quarter was $438.6 million or 7.04% of net sales compared to $393 million or 10.09% of net sales last year. For the DICK'S business, operating income was $444.5 million or 10.97% of net sales. This quarter's consolidated results included a $5.9 million operating loss from the Foot Locker business, which was in line with our expectations.

Moving down the P&L. Consolidated non-GAAP income tax expense was $114.8 million or a rate of 26.8%. This was favorable to our expectations, largely due to the mix of earnings across jurisdictions, resulting from investments we are making in Foot Locker's EMEA business to improve its future profitability. In total, we delivered consolidated non-GAAP earnings per diluted share of $3.45 for the quarter. These results included non-GAAP earnings per diluted share of $4.05 for the DICK'S business based on the share count of 81.2 million, which excluded the dilutive effect of the shares issued in connection with the Foot Locker acquisition. This is up 11.9% from earnings per diluted share of $3.62 for Q4 last year.

At the consolidated level, the DICK'S business results were partially offset by the contribution from the Foot Locker business, which includes a $0.44 negative impact from higher share count due to the acquisition and a $0.16 negative impact from Foot Locker operations. On a GAAP basis, our earnings per diluted share were $1.41. This includes $235.5 million of pretax Foot Locker acquisition-related costs and a $13.4 million pretax asset write-down. For additional details, you can refer to the non-GAAP reconciliation tables from our press release that we issued this morning.

Now looking to our balance sheet. We ended the year with approximately $1.35 billion of cash and cash equivalents and no borrowings on our $2 billion unsecured credit facility. We ended the year with approximately $4.91 billion of inventory, which includes the Foot Locker business and represents a 47% increase compared to last year. For the DICK'S business, inventory levels increased 1% compared to last year. We believe our inventory is well positioned to continue to fuel our sales momentum, which we expect to carry into 2026.

Turning to fourth quarter capital allocation. Net capital expenditures were $302 million, and we paid $108 million in quarterly dividends. We also repurchased 218,000 shares of our stock for $43 million at an average price of $199.51. Before I move to our outlook, I want to address a few key expectations surrounding the Foot Locker acquisition. First, as we discussed last quarter, our immediate priority has been to clean out the garage and optimize the inventory assortment and store portfolio of the Foot Locker business. As part of these actions and broader merger and integration work, we previously estimated and continue to expect total pretax charges of between $500 million and $750 million.

During 2025, we recognized $390 million of these charges. The remaining pretax charges will be incurred over 2026 and the medium term as we complete this work. Approximately $150 million of these remaining charges are expected in 2026 and are excluded from today's non-GAAP EPS outlook. Second, we remain confident in achieving the previously announced $100 million to $125 million of cost synergies over the medium term, primarily from procurement and direct sourcing efficiencies. A portion of these synergy benefits are expected in 2026, which have been reflected in our outlook.

Now moving to our outlook for full year 2026. Our guidance reflects continued strength and momentum of the DICK'S business and the turnaround efforts underway at Foot Locker, all within the context of the dynamic geopolitical and macroeconomic environment. Beginning with the DICK'S business in 2026. Total sales are expected to be in the range of $14.5 billion to $14.7 billion. And as Lauren mentioned, we anticipate comp sales growth of the DICK'S business in the range of 2% to 4%.

From a pacing standpoint, we expect slightly higher comps in the first half, driven in large part by the timing of the World Cup. Preopening expenses are expected to be approximately $90 million for the full year. We expect operating margin for the DICK'S business to be approximately 11.1% at the midpoint. And at the high end of our expectations, we expect to drive approximately 10 basis points of operating margin expansion on a non-GAAP basis. From a pacing standpoint, we expect operating margins for the DICK'S business to decline in the first half and expand in the second half due to the timing of the planned investments and synergy savings.

Now turning to the Foot Locker business in 2026. As Ed discussed, we remain confident in the value creation of this business. Total sales are expected to be in the range of $7.6 billion to $7.7 billion. Pro forma comp sales for the Foot Locker business are expected to be in the range of 1% to 3%. We expect operating income for the Foot Locker business to be in the range of $100 million to $150 million. And from a pacing standpoint, we expect operating income performance to be back-half weighted as the pro forma comps and gross margins start to strengthen from back-to-school onwards.

At the consolidated company level, we expect full year non-GAAP operating income in the range of $1.68 billion to $1.81 billion and the non-GAAP earnings per diluted share in the range of $13.50 to $14.50. Our earnings guidance is based on approximately 91 million average diluted shares outstanding, which includes the dilutive impact of 9.6 million shares issued in connection with the Foot Locker acquisition. We anticipate a consolidated company effective tax rate of approximately 25.5% for the full year. We expect interest expense of approximately $70 million and interest income to be in the range of $20 million to $25 million.

I'll now discuss our capital allocation priorities. For 2026, our capital allocation plan includes net capital expenditure of approximately $1.5 billion. Starting with the DICK'S business. As we continue to reposition our real estate and store portfolio, our investments will be concentrated in store growth, relocations and improvements in our existing stores, plus some ongoing investments in technology and supply chain. As Lauren noted, we are very excited to open approximately 14 House of Sport locations and approximately 22 DICK'S Field House locations in 2026.

In addition, we plan to begin construction on approximately 18 House of Sport locations that are expected to open in 2027. House of Sport and DICK'S Field House remain 2 of our most powerful and long-term growth drivers, and we will continue expanding these formats with discipline. In 2026, we are also excited to grow the footprint of our Golf Galaxy business and plan to open approximately 15 Golf Galaxy Performance Center locations.

Now turning to the Foot Locker business. Capital expenditures in 2026 will be focused on reenergizing our store fleet, including the rapid expansion of our Fast Break initiative. We also remain committed to returning significant capital to our shareholders through our quarterly dividend and opportunistic share repurchases. Today, we announced a 3% increase in our quarterly dividend to an annualized payout of $5 per share, $1.25 on a quarterly basis. This marks the 12th consecutive year that our shareholders have benefited from a dividend increase. Our 2026 plan includes our expectation for share repurchases to offset normal course dilution, the effect of which is included in our EPS guidance.

In closing, we enter 2026 with a powerful momentum in DICK'S business and a clear path to improved performance at Foot Locker. We remain focused on execution, committed to creating durable value and confident in the year ahead.

This concludes our prepared remarks. Thank you for your interest in DICK'S Sporting Goods. Operator, you may now open the line for questions.

[Operator Instructions]

And your first question comes from the line of Brian Nagel with Oppenheimer.

Congratulations on a nice quarter. Nice progress here. So again, I want to ask maybe a 2-part question with both parts focused on the core DICK'S business. So first, if you look at the guidance you laid out for sales growth for DICK'S, it's very solid above the current public Street forecast. I guess the question I have there is, and you talked about this a little bit, but maybe elaborate further, really, what's giving you that confidence in the underlying momentum?

And then the follow-up question also on DICK'S. If you look at the fourth quarter, I mean, not to be too nitpicky here, but obviously, a very solid quarter, but there was a modest deceleration within sales growth of the core DICK'S business from what we saw in the third quarter. Maybe you can discuss what was behind that?

Thanks, Brian. I appreciate the question. We had a fantastic quarter in Q4. We are really proud of the quarter we just put up. We had a 3.1% comp growth. And importantly, we were on top of the prior year's 6.6% comp. So on a 2-year stack basis, we actually exceeded our internal expectations and we were close to 10%. So it was a really strong quarter from a comp standpoint. We also expanded gross margin and operating margin in the DICK'S business. So overall, really proud of how the team navigated through Q4. I think why that gives me confidence as we look to the future is that the momentum in our business remains incredibly strong. And in this past Q4, we saw growth across all of our key categories, footwear, apparel, hardlines. And we're finding that consumers are doing very, very well.

So we have seen growth across all income demographics. We haven't seen trade down. And we're finding that when a consumer sees something that's new or innovative or technically impactful, they are -- it's resonating with them and they are coming. And we think that's only going to continue as we look to the year and the incredible excitement around sport and the influence it has on culture as we head into the World Cup coming -- March Madness and then the World Cup. So we're really, really confident. The 2-year stack going forward is a 7.5% comp, so 2.4% on top of our -- 2% to 4% on top of our 4.5%, and we are really thrilled with the momentum we have to deliver that.

Your next question comes from the line of Adrienne Yih with Barclays.

And I'll add my congratulations. Very well done. Great way to end the year and start the new one. It sounds like there's a lot of exciting work underway at Foot Locker to reposition the business for its turn in '26. So on top of that, the Q4 results came in better than you thought, particularly sales and margins were in line. So my question centers around the cleaning out of the garage, which you expressed last quarter as your top priority. It sounds like inventory is nice and clean. How would you characterize where you are? Is there more work to do? And how many stores will be in this Fast Break that you can touch this year? And then I'll have a follow-up.

Thanks, Adrienne. I can tell you that the team did across the globe, a great job to clean out the garage. There was a lot of excess inventory there, inventory that wasn't very productive. Like we said in the Fast Break stores, we took out roughly 30% of the SKUs and kind of fixed that run-on sentence that was the Foot Locker shoe wall. The team across the globe, North America, Europe, Asia really got behind this whole clean out the garage objective and did that. And to be honest with you, we're -- that work is done. That's behind us. We cleaned out the garage with markdowns in the stores and move product through the Foot Locker stores and the Champs stores. We also utilized -- and I think this is one of the benefits of the acquisition between DICK'S and Foot Locker.

We actually utilized the DICK'S value chain of Going, Going, Gone to clean out a lot of that inventory. We were able to recover a higher cash amount by putting it through the DICK'S value chain than if we sent that out through a jobber. And it's -- we're really well positioned. This inventory at Foot Locker is probably cleaner than it has ever been. And that's going to -- that should bode well for our margins and our sales going forward, returning this chain to growth with a comp of 1% to 3% should have margin expansion here. We're confident of that. So all in all, to clean out the garage, the team did a great job, and we're done.

Fantastic. Follow-up, Lauren, as you look at the innovation pipeline throughout 2026, particularly in technical running and performance basketball, are you seeing a meaningful shift back toward like iconic must-have products from your biggest traditional partners? Or should we expect growth still to be driven by the addition and growth of new smaller niche brands?

Yes. Thanks, Adrienne. We are seeing growth across the board. So we're seeing great growth from our strategic partners and we're very excited about things like the running footwear, the innovation that we're seeing, the new run construct for Nike doing very well and across the board running is really doing well. Signature Basketball is also doing really, really well. And that's true, of course, of DICK'S and Foot Locker. With DICK'S, we're particularly excited about the excitement around women's sports and Sabrina in Asia have done so well, and then we look forward and Caitlin coming is going to be a lot of excitement.

Team sports also driving incredible buzz in a way that it used to be footwear launches that used to drive this kind of excitement. We're seeing that in team sports and all aspects of our business. And so between new and emerging brands, we've got some -- we're adding through the House of Sport partnerships with really exciting brands. We've got Jim Shark, we are their first U.S. wholesale partner and a lot of brands who have come in through the House of Sport, who are now widening into field house locations and then even beyond to the entire DICK'S format. So I would say what's great about the growth is it's across the board in all categories, and it's also across the board between our strategic partners, our emerging partners and our vertical brands.

If I could just add on to that. As Lauren said, Nike is doing very well. We're really pleased with them. Adidas, and we're leaning into the World Cup with Adidas, and we think the World Cup is going to be great. And with Fanatics, we've really partnered on the collectibles in the card side of the business, the trading card business, which we will have collectible shops in all House of Sport stores going forward, bringing those into some of the Field House concepts. So this whole idea of collectibles and trading card business, which we haven't been in before, will certainly will be accretive to our sales number.

Your next question comes from the line of Simeon Gutman with Morgan Stanley.

So the business is performing solidly. If we step back, call it, 3 months ago, I would have suggested or thought that the core business, the margin might be a little stronger given some of the House of Sport penetration and the continued gross margin gains. And in Foot Locker, we were -- I would expect a little bit more, I guess, EBIT to get to that accretion number. Curious how you react to all of that. Is that fair? And is that different versus the way you see it?

Well, let me jump in on the Foot Locker piece first, Simeon. And so we could have -- we actually could have kind of guided Foot Locker to be higher if we had -- based on our original projections. But what's happened is we've gone through this Fast Break process. We've got the -- the original 11 Fast Break stores. We added 10 Fast Break stores in L.A. around the All-Star Game. We've got a couple of Fast Break stores in Europe right now. And what we found is some of those underperforming stores that are losing money or just marginally profitable right now, based on what we're seeing we can do from a Fast Break standpoint and renovating these stores, we can make these stores very profitable. So we're closing less stores than we had originally anticipated.

If we had decided to close those stores, Foot Locker could have been a bit more profitable in Q1 and Q2. It's going to take us a little time to get these Fast Break stores done and kind of get to all of them that we want to get to. We'll get -- but we will get to probably 250 of these stores by back-to-school, which is a herculean effort, but we are really confident that we can do that. So the reason that Foot Locker is where it is right now is because Fast Break and the optimism we have for Foot Locker is even greater than it was originally because some of these marginally profitable or stores that are not making money right now, if we feed them the right inventory, we can make them profitable. And we think that's the right thing to do on a longer-term basis.

Simeon, I'll build on to what I'd said...

Sorry, go ahead.

Yes, I'll just build on quickly. Like what the guidance that we provide always balances the optimism and the confidence that we have against the overall macroeconomic and geopolitical situation. As you can see it, it's very dynamic. And so that was another thing that we factored into our guidance. Quickly touching on your gross margin expansion in Q4, we were very happy with the results we posted here. Like Lauren said, 3.1% comp on top of a 6.6% comp. In an environment -- in a quarter that is typically very promotional, we were very happy with the 67 basis points of margin expansion we posted here in Q4. And keep in mind, this 67 basis points of margin expansion all came from a merchandising margin. So our merchants and the inventory management team did a phenomenal job to finish the year strong from a clean inventory and driving top line momentum as well as gross margin expansion.

And I think, Simeon, also, it was more promotional out there than we had anticipated. And I think the team did a fabulous job managing our margin rates and the profitability of the business and the operating margins in an environment that was as promotional as it was.

That's helpful. And just to clarify, I guess, when I meant the margin, I was actually looking more towards '26, like the full year, I think the fourth quarter was quite solid. But the -- I guess the follow-up is first half or second half. I don't know if you would share what you've thought about for World Cup, if there is an explicit top line impact? And then are you -- is some of the investment spending related to core? Or is there something -- some spend even ahead of World Cup where the margin ends up ramping more in the second half than the first half?

Yes. So Simeon, what we gave in my prepared comments today is that we expect the comps to be slightly higher in the DICK'S business in the first half because of the World Cup benefit. We didn't explicitly guide to the exact number associated with it, but that's what was assumed in our guidance that we have shared. And then we expected that the operating margins to decline in the first half due to 2 big reasons. One, we are making appropriate level of investments in the business to continue to position the business for the long term. And second, the synergy benefits that we are looking at will be more back-half weighted. And so that is the other benefit that kicks in more in the second half than in the first half.

Your next question comes from the line of Kate McShane with Goldman Sachs.

We wanted to ask about GameChanger and Retail Media. I know you mentioned it in the prepared comments a little bit, but we wondered if there was any way you could talk about any new initiatives maybe with either business and then just in terms of what we can expect from margin contribution from that this year.

Thanks, Kate. GameChanger and DMN are both really important, powerful new assets that we have in our portfolio. And I'll start with GameChanger. As you know, GameChanger is a leader in the -- market leader in the multibillion-dollar tech sports space, and it continues to drive really strong comps like nearly 40% CAGR and strong profitability. It's a SaaS system, and it just continues to drive strength in profit. So you can look at it that way and say GameChanger is fantastic. But then when you step out and say, look at the impact that GameChanger and DICK'S can have together. So the fact that we can be embedded in youth sports lives at the moment when they are preparing and playing, we can be involved with parents and grandparents. We can have kids get their stats and their highlight wheels and all of that, it just makes us really embedded in youth sports culture.

The other thing and it's related to your second part of your question is that from a DICK'S Media Network standpoint, GameChanger is unique in the marketplace where it has live sports in a way that really nobody else can provide. And so it's a big asset for our DICK'S Media Network, and it's appealing to our brand partners as well as to our non-endemic partners who want to be a part of youth sports. And in terms of newness, we did just unleash a bunch of features in GameChanger. The quality, for those of you who watch the video quality as high-definition video is incredible. really, crisp, really clear. And we are going to continue to look -- we have coaches tools that we just launched. And with DMN, the tech team has done an amazing job really building automation so we can really attribute sales to our partners' investment. So all in all, really exciting parts of the business.

And Kate, I'll just build on what Lauren said. The underlying drivers of the gross margin that we have talked about for some time now continue to remain in place in terms of the product that we have access to, not only just in 2026, but what we see in the pipeline, the work that our vertical brands team is doing as well as GameChanger in DMN. These are still the inherent drivers of the gross margin confidence that we have for 2026. We are balancing that in '26 against we have the exciting opening of the 6 distribution center in the early part of '26. So that's contemplated in our guidance expectation.

Your next question comes from the line of Christopher Horvers with JPMorgan.

So my first question for you, Ed, is what did you learn from Foot Locker in this 11-store test? And can you talk about how applicable the changes are to the rest of the chain? The 11 stores, were they more city center locations like Times Square versus suburban-based mall locations that people tend to associate with Foot Locker? What was the receptivity to running in brands like Hoka and On to that core Foot Locker customer relative to basketball in the 200 locations that you're targeting by back-to-school, what's the commonality among these locations relative to the 11-store test that you targeted and then the obviously much larger chain?

Sure. Thanks, Chris. The 11-store test was really a broad-based test. So we did some more urban stores. We did suburban stores. We did -- we pulled some high-volume stores. We obviously pulled some lower volume stores, which is why we're not closing as many stores as we anticipated. So it was really a broad-based test on that original 11. The 10 in L.A. would be more urban stores that we've done. And they've been -- what was common to them is we've put a common merchandising and merchandise presentation theme across all of these banners, which really was to take out a lot of the unproductive inventory that was sitting on the wall that the consumer didn't want, cleared it up the wall. And as I've used the phrase, it was the footwear wall, it was a run-on sentence.

So we took that run-on sentence down, took roughly 30% of the choices out of the store, relaid out the wall with the key product and so the consumer can walk in and see what's important, whether it's an Air Force 1 in color, whether it's a New Balance launch, whatever it might possibly be, we've got the ability to clearly communicate to the consumer what's new and what's the high heat product. And when we did that, these comps have been extremely strong, strong enough that this is the game plan that we're going to roll out to roughly 250 stores by back-to-school. Those 250 stores, again, will be a cross-section of stores. There'll be urban stores, there'll be suburban stores. There'll be some mall stores, and we'll take a look at this on a store-by-store basis, and it will be a great cross-section of the business again.

We're also going to be doing this in Europe. And we've got a couple in Europe, and we've seen -- we're very pleased with the results we're seeing in Europe, and we'll be rolling out these -- the Fast Break stores in Europe. And the 250 includes the U.S. and Europe. So -- and if you think about it, we're pretty conservative. If we didn't think -- if we weren't highly confident that this Fast Break concept wouldn't be highly successful, we wouldn't be rolling out 250 of them by back-to-school. So that should give everybody confidence that we've got a game plan here that we have proven that it will work.

That's very helpful. And then I guess a 2-part follow-up. Traffic is always a red flag in retail, and it did turn negative in the core DICK'S business in the fourth quarter. I get the 2-year stack math, but the -- your ASP or your ticket is going to get harder as the year progresses. Presumably, there was some inflation from tariffs as well. So how should we think about looking at that traffic number and going forward, as you think about sort of running that 2-year stack, how applicable is traffic headwinds earlier versus traffic rebounding later in ticket sort of moderating?

Thanks, Chris. The transactions in Q4, again, we -- on a 2-year stack basis, if you look, they were positive. If you look at the full year, they were positive. We were up against such a strong comp from the year before that I just think you have to take that into consideration. We have been driving strong basket and AUR, and that's just speaks to our differentiated product assortment. It's really not due to inflation. It's due to the fact that we are increasingly getting access and allocation to really great products that people are resonating with. So if you look to next -- the headwinds, if I look at our guidance, we are projecting 2% to 4% comps on top of the 4.5%. So we are not concerned about traffic or transactions.

Your next question comes from the line of Paul Lejuez with Citi.

Curious on synergies, if you expect that number that you shared to grow past the medium term. Also curious how you're thinking about what is the medium term? And then second, kind of related perhaps on Foot Locker, that business used to achieve $700 million of operating income if you look prior to 2020, $700 million plus. I'm curious how much progress you think you can make towards that level and over what period?

Paul, thanks for the question. So let me start with synergies. So we have reiterated today that we continue to expect synergies to be $100 million to $125 million over the medium term, and we continue to remain very confident. As you can imagine, we are 6 months into this transaction. We are working cross-functionally across both the organization and the level of detail that the teams have created is fantastic. So as we learn more, we'll definitely share if there are any updated expectations. As of today, we'll reiterate the kind of the outlook that I had shared.

In terms of what does medium term mean, there is a portion that is definitely in 2026 for the synergies that has been included in the guidance. And I would say the medium term would be maybe a couple of years after that. In terms of the $700 million of operating income for Foot Locker, I think this is a little bit too early to be able to give a long-term outlook, but we feel really confident in what Ed talked about, the momentum that we have built, the focus that we have in returning this business to growth from the 1% to 3% comp that we have guided and returning this business back to profitability. So 6 months in, really, really enthusiastic about the underlying momentum as well as the team that is driving these results. We'll share more in a due course of time about the longer-term outlook.

Your next question comes from the line of Mike Baker with D.A. Davidson.

Just on the Fast Break and improvement in Foot Locker and the profit trends, just a little more color on the pacing throughout the year. Presumably, Foot Locker profits -- well, I guess I shouldn't say presumably, but do we expect them to be negative in the first quarter and second quarter until the back-to-school improvement kicks in? Just wondering on the expectations of how Foot Locker progresses throughout the year.

Yes. Mike, I'll say that we expect both the sales and profitability to be back-half weighted. As you can imagine, we said that the real inflection in this business will come from when we were able to source the buys effectively the way we wanted it. And that happens from the back-to-school time frame. And as Ed referenced, the Fast Break stores being in position, which will also be during the back-to-school time frame. So we expect comps to be back-half weighted, and we expect the profitability also to be second half weighted. Keep in mind on profitability, we also will have the benefit of the synergies that will kick in into the second half of 2026.

Makes sense. If I could completely switch gears for a follow-up, so maybe not really a follow-up. But talk to us about Agentic commerce or how you're dealing with that? Do you think there's been any impact? Do you feel like you're well suited in that kind of environment? Just curious your view on how that works.

Yes. Thanks, Mike. We are absolutely looking into all aspects of artificial intelligence, including Agentic. I think there's 2 opportunities in the way our teams are looking at it. There's the opportunity to make our teammates more efficient and to remove a lot of manual work and examples of that, we have some MarTech technology that we're building that can just remove a lot of the manual work that they are doing and just productivity in general. We're using that AI right now in terms of store labor forecasting. We've got a new AI-enabled tool in our app, and we're able to make more custom recommendations.

So across the board, inventory management and making sure regional relevancy is happening, all is factored with artificial intelligence. However, if you look to the future and you look at Agentic, I think the biggest unlock in terms of our athlete experience is for us to really lean into what we call our common purpose and find ways to bring the power of our expertise and all of our opinion and knowledge that we have with sports and enable that to be available to people as they're working in the new world. And we're working on that. More to come, but we -- that is a big focus to take all of our data, all of our knowledge, our teammate, all of the learnings that we've had over the years and make that available for consumers. So more to come.

Your next question comes from the line of Joseph Civello with Truist.

I had one on the DICK'S Media Network. Can you talk about the opportunity to sort of expand at the Foot Locker and what that time line might look like, even though I know it's probably longer dated?

Yes. It's a little premature. So as you know, we are maniacally focused at the DICK'S business on the DICK'S business and the Foot Locker business, maniacally focused on the Foot Locker business. Certainly, there's long-term opportunities here, but we are each executing our plays right now.

Got it. And maybe just a quick sort of mechanical question. You mentioned using the DICK'S kind of Going, Going, Gone's to clean out the garage. Can you talk about how that impacts the financials for each segment?

It actually helps. I mean it cleans out the -- it gets rid of older unproductive inventory. So it brings cash into the business. And it cleans up the store, and we've done this on the DICK'S side, and we'll expect to do it on the Foot Locker side, cleaning up the store gives more room and space to be able to feature those newer products, the newer styles that we can sell at basically full price. So it's really -- it's very helpful to the margins. It's helpful to the sales, and it's helpful to the cash flow of the business.

Got it. And is that contemplated in the synergies?

That is not contemplated in the synergies. Our focus on synergies, like I said in my prepared remarks, is focused around the merchandising actions, primarily negotiations as well as non-merch procurement synergy negotiations.

We have time for one more question, and that question comes from the line of Cristina Fernández with Telsey Advisory Group.

I had a couple of questions on the Foot Locker business. The negative 3.4% pro forma comp relative to the guidance for down mid- to high single digit. Can you talk about what led to the better result? And then I also wanted to see if you could give a little bit more color on Foot Locker about the regions. I assume North America outperformed Europe and whether the Fast Break merchandising tests included work on some of the other banners like Champs or Kids Foot Locker or those are just purely on the Foot Locker store fleet?

Yes. The better performance at negative 3.4% versus what we had guided to was really a result of the stripers and the team at Foot Locker really getting behind the whole idea of cleaning out the garage. They really wanted to clean out the garage. They want to get rid of that old inventory. They wanted to get the new product in, and they worked tirelessly to get rid of that product and that helped drive better sales. And we kind of came in right in line from a margin rate standpoint.

From a Foot Locker standpoint, by performance, by region, North America, Europe, it was -- there's not a huge difference between how the 2 regions performed. I think that going forward, I think that right now, the U.S. is a little bit ahead of Europe, but we -- just because we did more of the Fast Break stores in the U.S. than we did in Europe, but Europe is not very far behind. We're going to get Europe turned around also. We're pretty excited about what's going on in Europe. And we brought in Matthew Barnes from Aldi to run this business. He's made some changes to his team. We've got a terrific team -- basis for a terrific team in Europe, and we couldn't be more confident in Matthew and his leadership to turn the whole international business around.

Thank you. I would now like to turn the conference back over to Lauren Hobart, President and CEO, for closing comments.

Okay. Well, thank you all for your interest in DICK'S and in Foot Locker, and we will look forward to seeing you next time to all our teammates and stripers and Blue Shirts listening. Thank you for all of your hard work. We'll see you next quarter.

Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation, and you may now disconnect.

Hello. Hello. Sorry for the delay. Hi, everyone. I'm Simeon Gutman, Morgan Stanley's hardline, broadline and food retail analyst. Welcome to day 2 of our Global Consumer and Retail Conference. It is our pleasure to welcome DICK'S Sporting Goods, represented by Ed Stack, Executive Chairman; Lauren Hobart, President and CEO; and Navdeep Gupta, EVP and CFO.

I'm going to make a quick introduction, read a disclosure. Oh, and there's safe harbor language on DICK'S Sporting Goods website. Please see that and then ask the first question and have a seat.

Yesterday, I introduced another company saying it was the greatest retention of margin post-COVID. While DICK'S hasn't had all of it -- retained all of its EBIT margin post-COVID, it is one of the biggest transformation stories post-COVID. I think part of that is there was a lot of change happening in the time leading up and they've amplified those changes in a mega trend category and most recently going big with stores in a time when retail is mostly shrinking.

They've also gone small recently with the recent acquisition of Foot Locker in a category where they have a lot of expertise. And to be fair, we have been mixed on it because of questions that we didn't understand properly, and we're getting more clarity. So we think it actually has among the best asymmetry in all of retail.

I'm going to turn it over to Ed in a second. There's a video circulating on Morgan Stanley that shows that Ed actually has a pretty mean spiral. So take a look if you have a chance.

So for important research disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative.

To start, can we talk about this business transformation? I think it's an important precursor to where we are today. What was changing in 2019? How is the business different than pre-pandemic to today? And how have those changes positioned DICK'S for the future?

Thanks, Simeon. Thanks for having us, and thanks for everybody coming out to talk with us today.

I think the transition post-COVID, we talk internally that we don't do anything the same as we did in starting in basically 2016, 2017. the products we carry to the way we're merchandised in the stores, to what we're doing from a marketing standpoint, the presentation in the stores, what we do from a distribution standpoint, what our e-commerce business is right now; we do virtually nothing the same as we did back then.

And so we've really evolved and elevated the business. A big part of that is the House of Sport concept. And we did that. We probably started the House of Sport concept probably close to 10 years ago now. And the idea was that we're going to build the store of the future.

And we designed it all, we kind of went through the whole process and designed it. And in our office, we've got about 25,000 square feet down in the basement where we can build different displays. So we build all these displays before they get to the store. And we built part of it.

And as we walk through it, sometimes things don't translate from paper to reality the way that you had hoped it would do. And when we kind of -- when we did that and we walked through it, as I walked through it, and Lauren and the team, and we said, it's not different enough from what we do today. And so we scrapped it.

And we came back probably 7 years ago to do this again and develop this -- what the store of the future would look like. We called it the ecosystem of the future because we knew we wanted to have a digital component of that, we want to have a community component of that, a service component of that and then always the product component of that.

And as we kind of -- we talked about this and the North Star that we laid out was we need to build the concept that will kill DICK'S Sporting Goods. We're going to build the concept that if somebody else built this store across the street from us, traditional DICK'S store, we'd be out of business. And I think that's exactly what we did.

And when we built the first one, Nike came in and Nike, we were walking through it with Nike, and they said, "This is the best expression of sport any place in the world. The question is, can you really scale it? Is this just a flagship store that looks great, going to lose money, maybe breakeven, but is this really scalable?" And we thought it's definitely scalable. And we've done that.

So since 2022 when we opened up the first one to now we've got 35 of these. They are extremely productive. We've kind of laid out what the economics are, what the sales are, what the EBITDA margins are. We are going to continue to build these. We've opened up 15 of them this year. We'll open up roughly 15 of them next year and going forward. And it has really redefined the industry.

It's also given us an opportunity to be in some of the most iconic real estate in the country that 5 years ago, we wouldn't get access to. So that's the mall at Palm Beach Gardens or the Cerritos Mall in L.A. or Tysons Corner in outside Washington, D.C.

We have access to these pieces of real estate today. And where we put these in some of these really high-performing malls, the sales numbers here are just out of this world, and we're pretty excited. And there are a lot of other things we've done from e-com and youth sports that you can kind of talk about.

Yes. Yes. I think the way to think about the four strategic pillars that we've been working against, we've worked differentiated products. So some of that investment that we made in footwear decks 10 years ago, so we could actually have a sit-and-fit environment opened up an entire new category for us and ultimately became the House of Sport, but the way we focus on athlete experience, focusing on the e-commerce site as well as the in-store experience, making sure our teammates are trying to get the perfect gift for athletes.

We actually say our vision is to be the best sports company in the world. So we don't say the best sports retailers, sporting goods, we want to be the best sports company in the world. And that's elevating all of our teammates to think of themselves as people who are delivering the perfect either gift for holiday or the perfect product for an athlete.

We also have a huge focus on our teammate experience and our culture, which is really important, and our brand. So the DICK'S brand means so much to so many people and the charitable aspects and the fact that we want kids to play, but we always speak with our brand voice and our belief that sports change lives.

Those four pillars have really been unbelievably successful through that thread of the whole 10 years that I've been talking about.

And maybe just to rephrase because the market share of the business, the ability to take has profoundly changed. Granted there was a period of disruption in the 2000s from e-commerce for every retailer. But what you're growing at today and through the last several years when most retailers were shrinking, was quite different. And I think if I'm hearing you right, merchandising, teammate experience and this brand elevation...

Yes, and athlete experience. Athletes, our consumer, so customer experience. Yes.

So the stripe question, the zebra in the room now, which if we can call it that way.

I haven't heard it push quite that way, but everybody knows what that means. That's good.

Okay. You're just getting nice. But...

No one has ever said that before.

Okay. So Foot Locker, I almost don't want to ask anything, I just want to open it up to Foot Locker. What was the strategic rationale? And then I'll ask some questions within.

Yes. The strategic rationale for us was that we've always thought that footwear is the engine that pulls the train. So every athlete needs footwear, whether it's they're running from a training standpoint or to play basketball in or -- footwear is the engine that pulls the train.

And this gives us the ability to be so rooted in the footwear business, gives us the ability to be much more strategically involved with the key brands in this industry and gives us a global footprint to access a part of the market that we've never had a chance to do before from a global standpoint.

And the Foot Locker consumer also is a more urban consumer, more urban driven. To put a House of Sport in Manhattan, I won't say it's never going to happen, but I can't imagine it ever happening. The rents are just so high, the economics don't work.

We're not ever going to build these stores that it's okay to lose $5 million, we're going to chalk it off the marketing. That's not the way we do things. We've never done it, I can't imagine we'll do that. It gives us the ability to access a consumer that we'll just won't be able to access with DICK'S.

The biggest opportunities in terms of merchandising, category mix, brand partnerships, can you elaborate on that, please?

Yes. I think somebody asked me a really interesting question in one of the meetings upstairs a few minutes ago. And the question was, what is the most misunderstood aspect of Foot Locker and DICK'S acquisition of Foot Locker? And my answer is really simple because the most misunderstood aspect of this is how simple this turnaround is. And not that it's not hard work, but we know exactly what we need to do, we know exactly how we need to do it, we know exactly who's going to do it, we know exactly who's going to partner with us on it.

And this is basically back to retail 101. So the previous team that was running Foot Locker really got away from retail 101 to have the right product, the right place, the right store. They didn't have the right product, they didn't have access to the right product. We'll have access to that product, we'll have it in the right stores. Distribution was really difficult. It is crystal clear to us what we need to do, and we are well on our way to doing this.

We've put together a world-class management team to run this. So Ann Freeman, who's running -- who's President of Foot Locker North America, was a long-time NIKE executive. Her first job was in a Finish Line store selling shoes. So she's a real sneaker head.

The new team that's come back into Nike, whether it's [ Elliott ] and TP and the group; love Ann, great respect for her. I want her to win, want Foot Locker to win.

I think the Street also doesn't quite understand that all the brands that we've talked to want Foot Locker to succeed. All these brands need a stable, growing, viable, predictable Foot Locker that they haven't had in the past, and they are all in, in helping us turn this around. We've got a lot of work to do.

So the solution is simple, the work is hard. As we're talking about cleaning out the garage that we talked about in our last earnings call and getting rid of this inventory that's out there, getting things -- getting a fresh start in 2026.

And some people have asked, so why not better in Q1 and Q2? Well, we hope it's going to be better in Q1 and Q2. But we -- our team did not buy the product for Q1 and Q2. We're still -- from a future standpoint, the product that's going to be coming in was bought by a previous management team. Most of them are not here any longer.

And the first time that we were able to touch the -- and build the assortment for what Foot Locker is going to look like is in the back-to-school time. And that's why we say that you'll see a real step-change in back-to-school.

If I could just build on what Ed is saying, some of the opportunities, the retail 101, the strength that we have at DICK'S and that Ed is spending a ton of time with the Foot Locker team just kind of through osmosis translating, they are those core strengths, so the ability to have the art and science of merchandising, visual presentation and telling stories and making sure people know what's important.

So we have this 11-store test that is being created that is really doing well. It's totally small and short amount of time, but we're thrilled with it, it's a visual presentation. The art of building a brand and actually driving traffic amazing.

And then the brand partners and the fact that we've had this incredibly long relationship that's been strategic and excellent for all these years. Now we are a bigger global partner.

Those are all things with the overlay of just operational excellence. Those are the things that we at DICK'S are going to bring to Foot Locker, and they are the exact things that I think will turn the company around.

When Ed was answering that, I was thinking of the post-COVID change in DICK's percentage of high-heat merchandise and how it improved the gross margin. And if you follow Foot Locker's erosion in gross margin, it followed the proliferation of some of the brands across other end markets. Is that a fair construct to think about?

Absolutely. And if you take a look at -- the biggest deterioration to Foot Locker and their profitability was their margin rates, somewhere between, however you calculate it, 500 to 600 basis points of margin erosion. And we think we can reverse that trend. So we're not going to kind of say what it's going to be, but we can reverse that trend.

And we've got -- Lauren started to talk about this 11-store test that we've done. So when we knew we were going to do this as we're going through the due diligence process, we said, "Okay, when we close, this is what we're going to do on day 1." And it started literally on like day 10, we really started to do this. We didn't waste any time in doing this. And we took -- taken 11 stores, and we're taking all of the merchandise out of the store and relay out the wall.

If you went into a Foot Locker store and still all the Foot Locker stores out there other than these 11, the vast majority of them, if you walked into a Foot Locker store and looked at the wall, it was merely a run-on sentence, just a bunch of shoes stuck on the wall, not really kind of organized.

So when you walk in as a consumer to know, "Hey, this is the franchise that's really important, whether it's Nike Air Force 1s or the New Balance 9060 or the Campus at the time." There's nothing that it showed that this is important.

We took all of that product out of the store, and we relaid out the wall. So when you walk in, you can see the franchises that are important. There's roughly 30% less SKUs in these stores that we've redone. And I will tell you, the sales we are -- we'll just say, we're really enthusiastic about what we're seeing.

The other thing that we did is that the Foot Locker over the last several years is, for the most part, exited the apparel business, and we've put apparel back in the business. Now what we've got in these 11 stores is not exactly the perfect apparel assortment that we would pick if we could do it from scratch, we cobbled together what we could in the apparel business there is much better.

So we see some real green shoots that we're really excited about this. And I come back to the idea that the fix is simple, the work is hard. And the team that we've got working on this Foot Locker business is all about rolling up their sleeves and hard work.

And they've talked about -- I've spent every other week here in New York in Foot Locker's offices. And this team is having -- they're working really hard, but they're having a blast. If you sat in on these meetings, you think that these guys are having -- these men and women are having the time of their life doing this. They love solving hard problems.

And then because they're so good and that's enabled the DICK'S team to stay completely focused on the DICK'S flywheel, which is one of the absolute prerequisites of doing this deal; we could not take our eye off the ball. DICK'S has so much momentum driving great business. So that's really been successful and is a key part of why it's working.

The thesis on the North America Foot Locker business, if it wasn't clear, hopefully, it's clear now. International and other assets was -- is still a little surprising. What is the thesis behind those assets?

So the international business, we're keeping that, so we're not getting rid of that. And if you go back to pre-COVID, the international business was a very profitable part of Foot Locker's business. And the international business really got forgotten about. The team came in, they changed the reporting structure of what EMEA was.

EMEA in the past had kind of run -- a group at EMEA ran it kind of independently. When the team came in, a lot of the silos or a lot of the working -- the team reported to some counterpart in the U.S. and they never really got out there to see the stores, work with them. It was -- the capital going into those stores was stripped out of it, they didn't invest in it, they didn't invest in the people. They had the wrong people. We've changed those out.

And we've just hired a guy Matthew Barnes, who was the CEO of Aldi Grocery in the U.K. And we really felt that you needed to have a European and a European team running the European business. And that's what we've done.

And quite frankly, North America is ahead of EMEA in this turnaround. but it will get there, but it's a little -- we're further ahead in North America than we are in -- from an international standpoint, but not terribly far behind.

Yes. Simeon, let me just build on what Ed said. In addition, as you imagine, our partnership with the brands is global. Those are all global brands. And so this now gives us an opportunity to have a global-level conversation. And what Ed talked about, whether it is access or allocation or how the product was bought, that opportunity is even apparent when you look at the international businesses.

And when you talk to some of the international brands, they exactly tell you the same thing that there's so much of low-hanging fruit in just buying the product better. So that playbook and the relationship will be really important in that international turnaround as well.

Last one on Foot Locker -- sorry to interrupt. The approach you took to the fourth quarter markdowns, dimensionalizing it, you made a point earlier that I heard, I think, is important, the idea of hopefully not revisiting any setbacks from this point on. Is that reasonable?

Yes. I mean it's a crazy world out there. You never know you're not going to have any setbacks. But we're trying to get all of this done at one time. And that's why we said, "Hey, in the fourth quarter, expect our margin rates to be 1,000 to 1,500 basis points below what Foot Locker was last year because we're cleaning out the garage. We're getting rid of all of this product that we -- that shouldn't have that's old that hasn't been -- hasn't selling."

Our margin rates are -- they're going to be down. Our comps are going to be down mid-single digits to high single digits. And the reason we're doing this, this is all the foundation that we have to do to build -- to have a fresh start in 2026. And we're making all of those -- we're doing all those things and get it out of the way.

We don't want to have it death by 1,000 cuts. We don't want to tell you, "Hey, we're going to have this charge in this quarter" and then come back and tell you another charge in the first quarter and another big charge in the second quarter. We're trying to get all of this under our belt. We've done a really -- our team has done a great job of identifying the issues and what the concerns are, and we think we've captured it.

Holiday season, how is the consumer shaping up? I felt like Black Friday, the stores were packed. We're seeing some of the sales results come in fine, not gangbusters, so open-ended.

Well, we don't comment on intra-quarter, but thank you for asking. But I will say, our consumer has been terrific. I mean we just came off of Q3. We've had 7 quarters in a row now with a comp over 4%. We came off a 5.7% comp in Q3, which 2-year stack is 10%.

So our consumer is clearly saying that sports are important. The intersection of sport and culture has never been higher and the influence that sport has on the lifestyles of the culture and sport and vice versa has never been higher. We are in a fantastic lane from that regard.

Our products, our stores, our e-com site is pumped and ready. Our teams -- I mean, I mentioned culture, but if you could see the enthusiasm of our team to get people into the right products for them, it's pretty special. And so we are -- we just took our guidance up for Q4. We're very enthusiastic about the holiday season.

How are you approaching pricing and promotion as the season unfolds? I'm sure you have a plan.

Yes. So we keep a close eye on the pricing and promotion, especially during the fourth quarter and during the holiday season. From an overall pricing perspective, if you think about it, we expect the promotional landscape to be relatively similar to what it was last year.

But when you look at the guidance to build on what Lauren said, we raised our comp sales expectation, we raised our margin expectations as well that we expect the margins to continue to expand in fourth quarter on a year-over-year basis versus the third quarter, and we still can believe that we'll deliver an expanded margin on a full year basis, both on the merch margin and the gross margin side.

I mean one other thing I want to add, when you look at our Q3 and what we're excited about for Q4 is the strength across the whole business. So if you -- we have a footwear focus, we have apparel, we have team sports, we have golf. When you think about back-to-school, you would think footwear, apparel, team sports, check, check, check. And obviously, with a 5.7% comp, we saw growth in those categories. Golf also is having an incredible resurgence right now.

So we are seeing broad-based growth across the entire portfolio of categories. And we're adding things like the trading card collectors clubhouse, which is a whole new business for us that we're very enthusiastic about; and things like World Cup, which are coming, which goes back to the influence of sport and culture. We're already -- we've got the World Cup balls in our stores that are flying off the shelves. License in general is doing fantastic.

So that's what -- that's why I think we love the lane we're in. It's the consumer is holding up and then also the breadth of the categories.

House of Sports, talked about disrupting yourself. Can you talk about the path to 75 to 100 stores? I feel like we're getting close to a year 3 store, so a lot asking about comping the comp. And then talking about the leverage points as you look into the future.

So from a House of Sports standpoint, we're continuing to open those stores, we continue to be excited about them. As I said a few minutes earlier, we're getting access to real estate that we wouldn't have had access to in the past. And so we think that's going to drive some additional sales where we've been able to get into those high-performing malls at $800 to $1,200, $1,500 a square foot. The stores -- those stores have been great. We're -- House of Sport is working very well.

There are some tweaks we're making to it. As Lauren said, the collectibles business and the trading card business. Michael Rubin and Fanatics are doing a great job of really reinvigorating an entire industry. And any of you have got 12- to 15-year-old 16-, 17-year-old kids, I mean, these trading cards have been just phenomenal. So we're continuing to do that.

We've got new brands coming in there. We've got [ Jim chart ] in 12 House of Sport stores right now, which we're really excited about. Our vertical brands, we're getting more space with our vertical brands in House of Sport. And we've got a number of things in House of Sport that we're taking down and have taken down to the more traditional, what we call field house concept that have worked extremely well.

So right now, knock on wood, things are pretty good in House of Sport and DICK'S. And the team is operating at a really high level, and we're pretty enthusiastic.

Yes, Simeon, to build on what Ed said, like the stores that have matured as well, we continue to be really happy with the performance that we are seeing both on the top line and the bottom line.

The excitement that Lauren and Ed talked about between the Collectors Clubhouse, bringing new innovative and more exciting brand, what is resonating really well with the consumer right now is the newness and innovation.

So the more innovation and newness you are able to bring in front of the customer, presented in the right way, visually appealing way, the work that our visual team is doing in these stores, the level of excitement is really, really, really good.

GameChanger. It's now at 9 million users and growing. Can you talk about what excites you the most about it? And I do -- I want to ask now that we have all these exciting parts of the story, Foot Locker, House of Sport, GameChanger, does your focus on other parts of the business take any of the momentum away from that GameChanger business?

Absolutely not. I'll start, and Navdeep, I'll let you finish.

But GameChanger is an incredibly special part of our business, and nothing has changed in terms of our focus on that. So you're right, we have 9 million unique users. For anybody who is not a parent of a baseball or softball kid, you may not have experienced, but it is the #1 scoring and stats app, and you can video -- live stream video your kids game.

So it's allowing parents and grandparents across the world. And even we've got military parents who are watching and being able to engage with their kids that way, grandparents who are doing that. It's an incredible thing.

The synergy between the DICK'S customer and the GameChanger customer is incredible, obviously. And if they are a GameChanger athlete and a DICK'S customer, they are our best customers. So that's another fantastic piece of it.

The last thing I'll say before turning it over to Navdeep is the media network that we're building is -- we've got a ton of assets, but GameChanger is the most unique asset that we have, in that it's eyeballs of youth sports that can't be acquired anywhere else in the marketplace. And we can provide athletes, fans, grandparents, parents with highly relevant advertising at a point where they are super engaged. It's a win-win for everybody.

Yes. So Simeon, to your question, like do we have enough focus within that? It goes back to what Ed said. There is a dedicated management team that is leading that business. I know you have had a chance to meet with Sameer. Sameer and his team are doing a fantastic job.

What gives us even more excited about this opportunity is when you look at the size of that industry. This $40 billion is the youth sports tech industry. That is growing really fast.

And when you think about the opportunity that we have with GameChanger, which is the SaaS platform, $100 billion of revenue last year -- continuing $100 million of revenue last year and very profitable. And we continue to believe that the growth of 30% to 40% in this business is a very reasonable expectation because of the new sports that the app is now going into.

Now you have capabilities in basketball, volleyball, flat football are the new sports that we have launched on that app, and those are all resonating really well with the athletes.

I think one more piece of this, too, is the -- this whole youth sports platform in construct, the investment we made in Unrivaled. We led the last round of funding for Unrivaled, which is actually they host the tournaments and host the events that these kids play in. And we think that there's a huge opportunity there, too. So there's a whole ecosystem that we're investing in that we think will pay off dividends going forward.

And you get subscription revenue vis-a-vis GameChanger, you turned on the media, the ad spend. Can you tell us where that is and then the flywheel of those customers ending up shopping at DICK'S?

Yes. So let's start with the last question first because the athletes that are on the GameChanger platform and are the scorecard members are the most engaged and the most loyal athletes that we have. So that's the core part of the flywheel.

And to your point, I would say, we are in not very, very early stages, but we are in middle stages of our DICK'S Media Network and the GameChanger capability. Excited about the opportunity.

When you think about the engagement, an average person that is watching, that is on the GameChanger platform, they're spending on an average about 45 minutes on that platform. So the level of engagement, the level of how frequently they're coming back to the platform itself is a very unique opportunity that most of the companies don't have from a live sport opportunity to kind of showcase the DICK'S Media Network.

And the growth rate that you gently mentioned on that $100 million, that includes media? Or is that simply subscription?

That includes media. Yes. So the $100 million that we have talked about includes the media. But like I said, it's in very early stages.

Okay. Can we talk about brands? You've done a great job attracting the most relevant brands and then amplifying them on your platform. I won't mention, you can feel free to mention, but talk about where you are in brand evolution and then what -- you mentioned a couple in one of the previous answers, but brands in general.

The brands -- our brands like...

I'm sorry, key brands, I'll name them now like HOKA and on and others.

Okay. Yes. We've got -- I think we've got a great relationship with all of these brands, and they're very important to us. We're very important to them. When you take a look at what we've done from an -- on standpoint or what we've done from Free People Movement, we've got Gymshark and the first retailer to have Gymshark in the U.S., which has just been kind of off the charts in the stores that they're in right now.

We've got a great relationship with Nike. And we're really excited about what's going on from a Nike standpoint. What they did with the running construct around the 9 blocks and the Pegasus and Structure and Vomero have just been out of this world and how much market share they've picked up. And I think Nike has got a huge -- it's great for our industry. It's great for our business. It's great for Nike, too, but I think there's a lot of opportunity ahead with Nike.

And then other brands that are out there, what's going on from a team sports standpoint, where we're going with the relationship we have with Fanatics around the license business, the team -- so the jersey business and the collectibles business and the card business. There's just so much going on right now. And fortunately, we've got a broad-based management team that are focused on each of these businesses that are really doing a terrific job.

Yes. There's high-heat things coming out of categories we never saw before. So like bat launches are happening and liquidating in moments. It's -- there's -- newness is a theme that the consumer wants newness, they're willing to pay for products that help them perform better.

And the House of Sport has been an incredible opening point for us to engage with new brands who maybe previously would have been a little worried to engage with a big company like a DICK'S Sporting Goods. We're able to bring them in and start with -- right now, Gymshark is in 12 House of Sports. And then they get comfortable with us, they build the trust and we can continue to roll. It's happened multiple times.

Connected to brands, marketing and merchandising related to World Cup Olympics. Is that product already starting to enter into the...

Yes. I think the World Cup is going to be the biggest sports moment this country has ever had. I think they did a great job on how they've organized, how these matches are going to be played that opening up in L.A. and they're going to have matches in L.A., and they're going to have matches in Dallas and Atlanta, and it finishes up in New York. And this is going to be the World Cup in the weeks that they go through all the matches is going to be the biggest sports event the country has ever seen.

That's what we love about the lane that we're in and this whole kind of cross-section of sport and culture that we're right in the middle of that the country is having the sports moment. We've got kind of take a look at what went on and going on in women's sports and the WNBA and the World Cup here in '26 and the Olympics in L.A. in '28 and what's going on from the next -- the Women's World Cup is coming back here in the early '30s.

And so there's a 5-, 6-, 7-year window here that sports are going to be even more central to this country than they are today. And we're the most sports-crazed country in the world. And what's going on right now is great for our business, and we are right smack in the middle of it, we're in a great lane. And it's our job to make sure we optimize that and be the choice for these consumers in the World Cup jersey, as Lauren said, the balls is just -- that's going to be great.

What does agentic commerce mean for DICK'S? And then can you talk about the applicability of AI into the organization today?

Yes. First of all, I watched your podcast. I listened, I couldn't watch anything. It was a screen, but a few days ago on agentic, and I think it was very helpful and it's consistent with how we're thinking about it.

So there's three buckets of opportunities as we look at it. First of all, there's teammate, our employees and the efficiency that they can -- that we can drive to give them the tools to be even better, and we've got to focus on that. There's the athlete experience, helping them get into the best product. How do we make our teammates smarter to get them the recommendation engine that they want?

And then there's just new growth opportunities. So GameChanger has been very advanced in using AI. Even the basketball games that they film can -- they have automatic report, they can score for you all of that.

I would say, though, as we look at it, we are in -- we have experiments going. We're all in early innings on what this is going to be. Obviously, the whole world is changing. So we've got things going on with labor management planning and sort of more machine learning, we've got regional relevancy, sizing curves, all of those things that I would say, again, early innings.

Marketing, we're making a big bet next year and really changing how we produce our marketing, the ability to have highly customized, highly personalized content is another area we're investing.

And when you guys were laying out sort of the pros and cons, I think the thing that made me very happy is we have a differentiated assortment of products, which is going to be, I think, a key driver in an AI-enabled world, an agent commerce-enabled world.

And we have incredible speed of distribution. So the fact that we are -- our 800-plus stores, we are within a very short distance of most customers and our speed of service just keeps getting better.

So I think if you -- I mean, our stores this year on Black Friday, without getting into anything, like they are accelerating and accelerating. We ship almost 90% of our products come out of our stores because that's how we get closest to the customers. They're doing an incredible job getting it faster and faster.

So early innings, but we're excited about the growth opportunities that we see.

Have you named your agent?

It's Lauren. No, I'm kidding. No, we have not named it. It's Ed. No, we haven't.

From an AI standpoint, also, what we see going on at Foot Locker has been fabulous. What they're doing, the AI embedded into the merchandising system and how we can analyze the business and what products are being sold with what categories of business. And it's going to be a very productive tool that we'll be able to use to manage our business and grow our business.

Maybe we'll close on margins, profitability. There's been a step-change. We're now in the low double digits post the COVID era. Premise is that it should expand over time next several years with Foot Locker as well. So can you talk about the construct?

Yes. The construct doesn't change from what we have been saying. We -- what we have consistently said is look to us to drive top line sales and the bottom line profitability improvement. And then within that, if you look at it, the investments that we have been making, GameChanger, DICK'S Media Network, like the machine learning capabilities that Lauren talked about; those are the investments that are yielding strong margin expansions that we have talked about.

The early innings in terms of GameChanger, DICK'S Media Network, those will be drivers of the margin expansion into the future. But the rubric does not change. We will drive -- our focus is going to be continuing to drive the top line and the bottom line improvements.

What about geography though, within the P&L? Because there's some pressure maybe from House of Sport on SG&A. Does that ease and there's more contribution from gross or vice versa?

It will be a combination of both things. So like, for example, 2026, we'll be opening a new distribution center. So there may be an investment that will go into that. But then this is where we said we have plenty of flexibility in our cost structure from an SG&A to be able to deliver a bottom line improvement even with those investments.

Good. Okay. Well, on that note, thank you very much for being here. Have a great holiday, have an excellent '26, and we'll be watching Foot Locker closely. Thank you.

We look forward to it.

Thank you.

Ladies and gentlemen, thank you for standing by. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome you to the DICK'S Sporting Goods Third Quarter 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Nate Gilch, Investor Relations. Nate, please go ahead.

Good morning, everyone, and thank you for joining us to discuss our third quarter 2025 results. On today's call will be Ed Stack, our Executive Chairman; Lauren Hobart, our President and Chief Executive Officer; and Matthew Gupta, our Chief Financial Officer. A playback of today's call will be archived on our Investor Relations website located at investors.dicks.com for approximately 12 months.

As a reminder, we will be making forward-looking statements, which are subject to various risks and uncertainties that could cause our actual results to differ materially from these statements. Any such statements should be considered in conjunction with cautionary statements in our earnings release and risk factor discussions in our filings with the SEC, including our last annual report on Form 10-K and our quarterly report on Form 10-Q for the first fiscal quarter as well as cautionary statements made during this call. We assume no obligation to update any of these forward-looking statements or information. Please refer to our Investor Relations website to find the reconciliation of our non-GAAP financial measures referenced in today's call.

And finally, a couple of admin items. First, a quick note on our comparable sales reporting. Foot Locker will be included in our comp base beginning in Q4 of next year, which will mark the start of their 14th full month of operations post acquisition. As such, our reported comp sales for this quarter and for the upcoming year pertains to the DICK'S business only.

Second, I want to provide clarity on certain terminology we'll use throughout today's call and going forward. First, when we refer to the DICK'S business, we mean our existing DICK'S Sporting operations, including the DICK'S Sporting Goods, Golf Galaxy, Going, going, gone and public land banners as well as game changer. Earnings per diluted share results for the DICK'S business excludes the dilutive effect of the 9.6 million shares issued as part of the Foot Locker acquisition. Second, the Foot Locker business refers to our newly acquired operations including the Foot Locker, Kids Foot Locker, Champs Sports, WSS and Atmos banners. And finally, for future scheduling purposes, we are tentatively planning to publish our fourth quarter 2025 earnings results on March 10, 2026.

With that, I'll now turn the call over to Ed.

Thanks, Nate. Good morning, everyone. Thanks for joining us today. This is an important call. It's our first earnings call as a combined company with Foot Locker. We have a lot to share. There's a lot of detail and a lot of numbers. We want to make it clear, we're doing all that our shareholders would expect us to do to make the Foot Locker business accretive in 2026. And I have to tell you, as the largest shareholder, I couldn't be more excited about the progress we're making and the opportunities ahead. As announced earlier this morning, we delivered another great quarter with comps of 5.7% for the DICK'S business and we continue to operate from a position of strength. Our momentum in the DICK'S business remains strong as we execute against the key priorities that have fueled our success: a differentiated on-trend product assortment in an industry-leading omnichannel ethlete experience.

This is the flywheel of our success as a company, and it's driving consistent growth and performance. Now I will discuss the tremendous opportunity we see with Foot Locker. Completing this acquisition at September 8 marks a bold and transformative moment for DICK'S. Together, we're building a global platform that is at the intersection of sport and culture, one that we believe will redefine sports retailing. This powerful combination will allow us to serve a broader consumer base deepen our partnerships with the world's leading sports brands and significantly expand our total addressable market. When we announced this acquisition, we knew that business was going to need work. Let me be candid. Foot Locker is strayed from Retail 101 and did not execute the fundamentals. Post COVID, Foot Locker did not react quickly enough on its largest brand pivoted toward a direct-to-consumer model, leaving Foot Locker with the wrong inventory, too much of what didn't sell and not enough of what did sell.

Consequently, as we enter this transitional phase, the Foot Locker business, as expected, comped negatively, with pro forma comp sales for the full third quarter declining 4.7%, including a 10.2% decline internationally. Now after looking even deeper under the hood as the owners of Foot Locker, our conviction that we can turn this business around has only grown. We will bring our operational excellence, our supplier relationships and our merchandise expertise to return Foot Locker to its rightful place as a top player in the specialty athletic channel. Today, we're even more excited about the long-term value we believe this acquisition will deliver to our shareholders. We're committed to investing in Foot Locker's business to return it to profitable growth. We've assembled a world-class management team to lead the Foot Locker business, and I'm personally excited to guide this next chapter. As previously announced, Ann Freeman a longtime former Nike executive is now serving his FootLocker North America President.

Ann brings deep industry expertise and leadership experience and she is supported by a high-caliber team of senior leaders. A combination of key executives from Foot Locker, all of whom are well respected by the Strykers, Blue Shirts and our brand partners, experienced leaders from DICK'S and talent from other world-class companies. This team was handpicked to return Foot Locker to its rightful place in our industry and we're already moving quickly in North America to build momentum. In addition, we're thrilled to have just announced that Matthew Barnes, former CEO of ALD will be joining our team next month as President of the Foot Locker International business. Matthew has nearly 3 decades of experience in global retail and a track record of transforming brands. We look forward to working to stabilize and ultimately accelerate that business with targeted turnaround strategies to meet the evolving needs of consumers globally.

There's a lot happening to position the business for the short term and build for the long term. Our first priority is clear. We need to clean out the garage of underperforming assets. This means clearing out unproductive inventory, closing underperforming stores and rightsizing assets that don't align with our go-forward vision for the Foot Locker business. This is the groundwork for the transformation. We began this work shortly after the closing on September 8. We have identified an initial number of underperforming assets around the globe, including inventory that needs to be marked down and liquidated along with the preliminary number of stores that need to be impaired or closed. We initiated certain pricing actions in late Q3, and we'll be more aggressive in Q4 to clean up on productive inventory. Our intent is to get the vast majority of the inventory charges behind us by the end of the year so we can start 2026 fresh and position Foot Locker for an inflection point during the back-to-school season in 2026.

As a result, we expect Q4 margin rates for the Foot Locker business to be down between 1,000 and 1,500 basis points with pro forma Q4 comp sales being down mid- to high single digits. We believe this aggressive purging of underperforming assets is what needs to be done to return Foot Locker to its rightful position as a key leader in this industry. Navdeep will share more details in his remarks about the charges we anticipate as part of this important cleanup effort. Importantly, we've met with all of our key vendor partners and they are fully aligned with our vision and are eager to support a thriving growing Foot Locker. They indicated they are committed to investing alongside us to reignite the Foot Locker business. We're moving with urgency and have already kicked off an 11 store pilot to begin testing changes in product and the in-store presentation. It's early, but we're encouraged by what we're seeing and learning.

Looking ahead, we expect back-to-school next year to be an inflection point as our new strategies, assortments and processes aligned to drive meaningful progress in the Foot Locker business. all supported by the work we're doing now by cleaning out the garage to position Foot Locker for future success. With these actions, we continue to expect Foot Locker to be accretive to our EPS in fiscal '26, excluding onetime costs. What amplifies our confidence are the talented people we found inside the Foot Locker business. Over the past 2 months, we spent time in Foot Locker stores, offices and distribution centers. Our teammates passion is real, especially among the stripers and blue shirts along with the rest of the team members. They love sneakers, they're hungry for leadership, and they want to get back to playing offense. Energy is validating our excitement and building focus for what's ahead.

In closing, at DICK'S, we've built a business that leads our industry in performance, innovation and customer loyalty. DICK's has generated consistent growth and strong margins with a relentless focus on delivering shareholder value. While we're just getting started on Foot Locker's transformation, our deep expertise and our track record of growth and success fuel our conviction that we can turn this business around, and we are confident that Foot Locker will reemerge as a stronger, more resilient and more dynamic business. We will do this with the same grid vision and execution that got DICK'S to where it is today.

Before turning it to Lauren, I want to take a moment to thank our more than 100,000 teammates across all of our banners for their passion and commitment during this exciting chapter for our company and wish everyone a happy Thanksgiving. With that, I'll turn it over to Lauren to share more on the continued momentum across the DICK'S business.

Thank you, Ed, and good morning, everyone. We're very pleased with our strong third quarter results for the DICK'S business which continue to demonstrate the strength of our operating model and our team's disciplined execution. We are entirely focused on delivering on our strategies and sustaining our strong momentum. As always, our performance is powered by our compelling omnichannel athlete experience, differentiated product assortment, best-in-class teammate experience and our ability to create deep engagement with the DICK'S brand, Today, we are raising our full year outlook for the DICK's business. This updated guidance reflects our strong Q3 results and the ongoing confidence we have in our business, grounded in our team's execution of the 4 strategic pillars I just mentioned. .

We now expect comp sales growth of 3.5% to 4% for the year and EPS to be in the range of $14.25 to $14.55 for the DICK'S business. Now moving to our third quarter results for the DICK'S business. Our Q3 comps increased 5.7% with growth in average ticket and transactions. These strong comps were on top of a 4.3% increase last year and a 1.9% increase in 2023 as we continue to gain market share. Our gross margin expanded 27 basis points in line with our expectations, and we delivered non-GAAP EPS of $2.78 for the DICK'S business, up from $2.75 in the prior year's quarter. As we continue to execute through our strategic pillars, we're seeing strong momentum across the 3 growth areas for the DICK'S business that we are focused on for 2025. First, we're incredibly proud of the progress we're making in repositioning our real estate and store portfolio. In Q3, we opened 13 new house of sport locations, the most we've ever opened in a single quarter bringing our year-to-date total to 16 openings. This achievement reflects the outstanding work of our team whose focus and execution made this ambitious rollout a reality.

We now have 35 House of sport locations nationwide, a major milestone in the growth of this transformative concept. We also opened 6 new field house locations in Q3 and opened another just last week, completing our 15 planned openings for the year and bringing us to a total of 42 field house locations across the U.S. These innovative formats are delivering powerful financial results, deepening engagement with our athletes, brand partners and landlords and laying the foundation for long-term profitable growth for the DICK'S business. The second of our 3 major focus areas is driving growth across key categories. Our unparalleled access to top-tier products from both national and emerging brand partners continues to fuel athlete demand and excitement, driving strong growth across the DICK'S business.

At the same time, our vertical brands are resonating incredibly well with our athletes, further contributing to this momentum. For Q3, this growth came from having more athletes purchased from us with more frequent purchases and more spending each trip. We feel great about the product pipeline from our brand partners, and our inventory is well positioned to meet athlete demand this holiday season. I also want to highlight our ongoing expansion into trading cards and collectibles. In partnership with Fanatics, we've launched the collectors Clubhouse in 20 health of sport locations, with plans to include it in every new location going forward. These spaces feature trading card, autograph memorabilia and more and the athlete response has exceeded our expectations. It's a unique and fast-growing category that's a great complement to everything we do, and we're very excited about the opportunity ahead.

And our third major focus area, our multibillion-dollar, highly profitable e-commerce business continues to stand out as a growth driver, once again growing faster than the DICK'S business overall. I'd like to highlight 3 examples of ways we're building strength and differentiation in e-commerce. First, we're really leaning into our app experience, including app exclusive reservations that are establishing us as a leader in launch culture across many key categories. Second, we're continuing to invest in capabilities to deliver more personalized experiences, content, product recommendations and search results. An example of this is how we're targeting [indiscernible] with personalized creative messaging and product recommendations for their favorite team.

Third, for the holiday season, we're making it easier than ever to find the perfect gift with a new capability for athletes to build and share their wish lists with family and friends. Lastly, as part of our broader digital strategy, we're harnessing the power of our athlete data and continue to be enthusiastic about the long-term growth opportunities we see with Game Changer and the DICK'S Media Network. Our game changer platform keeps expanding with new features, partnerships and content that enriches the whole use sports experience and reinforces our leadership in a multibillion-dollar esports tech ecosystem. Great example is our new game Insights feature, which gives coaches fast, actionable takeaways after every game, further elevating the value we provide to athletes, coaches and families.

We're also seeing great momentum with our DICK'S media network, which is deepening engagement with consumers and key brand partners while expanding across new ad platforms. In addition to our collection of owned and our full spectrum of off-site channels, we're ramping up our in-store capabilities like our interactive digital experiences and programmable spaces that are driving impactful brand activations in our house of sport location. In closing, we're very pleased with our strong third quarter results and remain highly confident in our long-term strategies to drive sustained sales and profit growth for the DICK'S business. We believe the power of our omnichannel athlete experience and our compelling differentiated product offering will resonate with our athletes is holiday season, supported by our fantastic holiday brand campaign, which launched a few weeks ago.

I'd like to thank all of our teammates for their hard work and commitment and for their focus on delivering great experiences for our athletes throughout the season. And also a warm welcome to all strikers, blue shirts and team members from the Foot Locker business. We're excited to have you as part of the DICK'S family and to achieve great things together. I share his excitement about how we will bring our operational excellence, our supplier relationships and our merchandise expertise to return Foot Locker to its rightful place as a top player in the specialty athletic channel.

With that, I'll turn it over to Navdeep to share more detail on our financial results and 2025 outlook. Navdeep, over to you.

Thank you, Lauren, and good morning, everyone. Before I begin my review of our third quarter results, I would like to take a moment to provide important context for Foot Locker's performance included in our consolidated financial results. As noted in this morning's release, our acquisition of Foot Locker closed on September 8. As a result, our third quarter consolidated financials do not include the peak back-to-school selling season in August for the Foot Locker business. They reflect just 8 weeks of post-acquisition results in September and October, historically an unprofitable time period for the Fort locker business. .

Let's now move to a brief review of our third quarter results for the consolidated company, including continued strong performance for the DICK'S business. Consolidated net sales increased 36.3% to $4.17 billion, driven by an approximate $931 million sales contribution from a partial quarter of owning the Foot Locker business and a 5.7% comp increase for the DICK'S business as we continue to gain market share. On a 2-year and a 3-year stack basis, comps for the DICK'S business increased 10% and 11.9%, respectively. These strong comps were driven by a 4.4% increase in average ticket and a 1.3% increase in transactions. We also saw broad-based strength across our 3 primary categories of footwear, apparel and hard lines. As Nate said Foot Locker will be included in the comp base beginning in Q4 of next year, which is when they will commence their 14th full month of operation following the closing of the acquisition.

For reference, pro forma comp sales for the Foot Locker business in Q3 in its entirety decreased 4.7%, where the comparable sales in North America decreasing by 2.6% and the comparable sales in Foot Locker International decreasing by 10.2%, primarily driven by softness in Europe. Consolidated gross profit for the quarter was $1.38 billion or 33.13% of net sales, down 264 basis points from last year. For the DICK'S business, gross margin increased by 27 basis points and was in line with our expectations. Notably, the year-over-year decline in consolidated gross margin was driven entirely by the mix impact from the lower gross margin Foot Locker business. On a non-GAAP basis, consolidated SG&A expenses increased 40.8% or $320.9 million to $1.11 billion and deleverage 84 basis points compared to last year's non-GAAP results. $259.9 million of this consolidated increase was driven by Foot Locker business. For the DICK'S business, expense dollars increased by 7.7% and deleveraged 45 basis points, which was in line with our expectation and driven by strategic investments digitally, in-store and in marketing to better position DICK'S business over the long term. Consolidated preopening expenses were $30.6 million, an increase of $13.8 million compared to the prior year. As Lauren mentioned, this supported the opening of 13 new house port locations in Q3 our highest numbers opened in a single quarter to date, plus another 6 field house locations we opened in the quarter.

Consolidated non-GAAP operating income was $242.2 million or 5.81% of net sales compared to $289.5 million or 9.47% of net sales last year. For the DICK'S business, non-GAAP operating income was $288.6 million or 8.92% of net sales. This year's consolidated results included a $46.3 million operating loss in the quarter from the Foot Locker business which was primarily driven by the gross margin decline as we initiated certain pricing actions in late Q3. Importantly, since the acquisition of Foot Locker are closed on September 8, -- these results exclude a profitable back-to-school season for the Foot locker business in August and through Labor Day.

For reference, pro forma non-GAAP operating income for the Foot Locker business in Q3 in its entirety was approximately $6.8 million. On a non-GAAP basis, other income comprised primarily of interest income was $12.7 million, down $7.8 million from prior year. This decline was from lower cash on hand and a lower interest rate environment.

Consolidated non-GAAP EBT was $239.9 million or 5.76% of net sales, including the Foot Locker business. This compares to an EBT of $297.1 million or 9.7% of net sales in Q3 of last year. Moving down the P&L. Consolidated non-GAAP income tax expense was $59.4 million or a rate of 24.7% -- while the income for the DICK'S business was taxed at a low 20% rate, the combined company was subject to a higher tax rate, primarily driven by the Foot Locker's EMEA business, where full valuation allowance remains in place.

In total, we delivered a consolidated non-GAAP earnings per diluted share of $2.07 for the quarter. These results included non-GAAP earnings per diluted share of $2.78 for the DICK'S business based on a share count of 81.2 million, which excludes the dilutive effect of the shares issued in connection with the acquisition of Foot Locker. This is up from the earnings per diluted share of $2.75 last year. The DICK's business results were partially offset by the effects of the partial quarter of contribution from the Foot Locker business, which include a $0.52 negative impact from Foot Locker operations, including the gross margin decline as well as the higher tax rate, a $0.19 negative impact from the increased share count, which was up $5.9 million prorated for the 8 weeks of the Foot Locker ownership.

On a GAAP basis, our earnings per diluted shares were $0.86. This includes the noncash gains from our nonoperating investment in Foot Locker stock as well as $141.9 million of pretax Foot Locker acquisition-related costs. For additional details on this, you can refer to the non-GAAP reconciliation table of our press release that we issued this morning. Now turning to our balance sheet. We ended Q3 with approximately $821 million of cash and cash equivalents and no borrowings on our $2 billion unsecured credit facility. Our quarter end inventory levels increased 51% compared to Q3 of last year. Excluding the Foot Locker business, inventory levels for DICK'S business increased 2% compared to Q3 of last year. We believe the inventory in DICK'S business is well positioned to continue fueling our sales momentum.

For reference, on a pro forma basis, inventory levels for the Foot Locker business increased approximately 5% as compared to the same period last year. And as Ed mentioned, the work is underway to clear out the unproductive inventory at the Foot Locker business. Turning to our third quarter capital allocation. Net capital expenditures were $218 million, which included $201 million for the DICK'S business and $17 million for the Foot Locker business. We also paid $109 million in quarterly dividends. Before I move to our outlook, I want to address a few key expectations surrounding the Foot Locker acquisition.

First, as Ed discussed, our immediate priority is to clean out the garage of unproductive assets as we look to optimize the inventory assortment and store portfolio of the Foot Locker business. We expect these actions, along with other merger and integration costs to result in a future pretax charge of between $500 million and $750 million. Importantly, these future pretax charges are excluded from today's outlook. Second, we remain confident in achieving the previously announced $100 million to $125 million in cost synergies over the medium term, primarily from procurement and direct sourcing efficiencies.

Third, as Ed said, we continue to expect the acquisition to be accretive to EPS in fiscal 2026 excluding onetime costs. Now moving to our outlook for 2025. Today, we are providing an updated outlook that is specific to DICK's business and does not include the Foot Locker business, which we will address separately. We are taking this approach to ensure comparability of our performance across the quarters and to provide ongoing visibility into the DICK'S business. This outlook also excludes the investment gains as well as the merger and integration costs related to the Foot locker acquisition.

As Lauren said, we are raising our expectation for comp sales and EPS for the DICK'S business. Our updated guidance reflects our strong Q3 performance and includes the expected impact from all tariffs currently in effect. This outlook balances our confidence in the outcomes we are driving through our strategic initiatives and our operational strength against the ongoing dynamic macroeconomic environment. We now expect full year comp sales growth for the DICK'S business in the range of 3.5% to 4% compared to our prior growth expectation of 2% to 3.5%. Total sales for the DICK'S business are expected to be in the range of $13.95 billion to $14 billion compared to our prior expectation of $13.75 billion to $13.95 billion.

Driven by the quality of our assortment, we continue to expect to drive gross margin expansion for the full year. We anticipate this expansion will be offset by SG&A deleverage as we are making strategic investments digitally, in-store and in marketing to better position ourselves over the long term. We still expect operating margins to be approximately 11.1% at the midpoint. At the high end of the expectations, we continue to expect to drive approximately 10 basis points of operating margin expansion. We now expect EPS for DICK'S business in the range of $14.25 to $14.55 compared to our prior expectation of $13.90 to $14.50. Our earnings guidance for DICK's business is based on approximately 81 million average diluted shares outstanding and excludes the dilutive impact of the 9.6 million shares issued in connection with the acquisition.

This outlook for DICK'S business also assumes an effective tax rate of approximately 24% compared to our prior expectation of approximately 25%. We continue to expect net capital expenditures of approximately $1 billion for the full year for the DICK'S business. Turning now to the Foot Locker business. We want to provide some perspective on our expectations for the fourth quarter. As Ed discussed, our priority is to position Foot Locker for a fresh start in 2026 and reset the business for long-term success. This includes taking strategic actions to address unproductive assets, including the optimization of inventory and the closure of underperforming stores. As a result of our actions to optimize Foot Locker's inventory, we expect Q4 gross margins for footlocker business will be down between thousand to 1,500 basis points as compared to Foot Locker's reported results in the same period last year, with a pro forma comp sales being down mid- to high single digits.

Excluding the onetime costs associated with our actions to address unproductive assets, we expect Q4 operating income for the Foot Locker business to be slightly negative. Looking ahead, we expect next year's back-to-school season to be an inflection point to drive meaningful progress in the Foot Locker business. As a reminder, we continue to expect the Foot Locker acquisition to be accretive to our EPS in fiscal 2026, excluding the onetime costs.

Before we wrap up, I want to provide a couple of consolidated company assumptions to provide clarity for your models. For the fourth quarter, we expect approximately 91 million average diluted shares outstanding, which includes the dilutive impact of the 9.6 million shares issued in connection with the Foot Locker acquisition. We also anticipate a consolidated company effective tax rate of approximately 29% for Q4, impacted by the expected Foot Locker losses in EMEA were no corresponding tax benefit as anticipated. As Ed and Lauren said at the top of the call, we are proud that we continue to operate from a position of strength with robust momentum in DICK'S business and a significant effort underway to return the Foot Locker business to growth. We are doing all that our shareholders would expect to make the Foot Locker business accretive in 2026.

We could not be more excited about our future together. This concludes our prepared remarks. Thank you for your interest in DICK'S Sporting Goods. Operator, you may now open the line for questions.

[Operator Instructions] Your first question comes from the line of Robbie Ohmes with Bank of America.

My first question is, I know we're going to be talking a lot about Foot Locker today. But on the DICK'S business, it looked like a really really great quarter, comps up 5.7%, et cetera, and you raised guidance. But just how are you driving that? And how are you guys thinking about your confidence going into holiday here?

Thanks, Robbie. We are so proud of the team for 5.7% comp. And importantly, we are comping strong comps. So a 2-year stack of 10% and -- and as you know, it's been several quarters -- 7 quarters in a row actually where we've had an over 4% comp. That really speaks to the fact that our long-term strategies are working. And I would point to the differentiated product assortment that we've been able to bring in everything from newness from our strategic partners to emerging brands, our vertical brands, consumers athletes are really resonating with the products that we are providing. And at the same time, our entire team is fully focused on delivering an engaging athlete experience. And that's in our stores, that's our digital environment. We are really focused on excelling and getting people the product that will give them the confidence, the excitement to do their absolute best. So -- so our strategies are working.

If you look at Q3, one of the great things we saw was that we had growth across all of our key categories. And when you think of back to school, you think of back to sport, you think of footwear and apparel and team sports, we not get out of the part of those categories, but also golf and as well as our license business and our trading card business really doing well. So as it flip to holiday, all of those themes are the reasons why we are so excited and confident as we look to Q4 and then we just raised our guidance. We've got an incredible product assortment for athletes. The consumer is fully focused on sport, and we are right setting at the middle of the intersection of sport and culture, and we've got great gifts across our entire portfolio. So we're really pleased going into Q4.

That's really helpful. And then just my follow-up, just on Foot Locker, what kind of assumptions did you make about Foot Locker's cleanup of inventory in the fourth quarter having on DICK'S Sporting Goods? And also how many stores are you guys planning to close? And what would the timing be there?

Thanks, Robbie. As we take a look at store closings, we're still addressing that. We've got some stores that we think we're going to close. We're also looking to address just the upside that we think we have in these stores and how many really need to be closed and how many can we make more profitable. So we'll give you some more guidance on that at the end of our fourth quarter call.

Robbie, let me quickly add on to the Foot Locker clean up of the inventory in the fourth quarter. So Ed said in his prepared remarks as well as what I said that we expect the gross margins in the Foot Locker business in the fourth quarter to be down between 1,000 to 1,500 basis points. As you can imagine, that is primarily driven by us quickly addressing the unproductive inventory that is in the system right now and have the room available to bring the excitement assortment that will position the business really well for 2026.

Your next question comes from the line of Simeon Gutman with Morgan Stanley.

My first question on Foot Locker. So it looks like the business may have been a bit softer than -- the Street was expecting in Q3, and you're anticipating a slightly negative operating income in Q4, yet you're expecting the acquisition to be accretive to EPS in '26. Can you walk through the building blocks to achieve it? And then what gives you confidence?

Sure. Thanks, Simeon. I can't tell you we really couldn't be more excited about Foot Locker and the opportunity of Foot Locker. But there's some work that needs to be done to get it ready to -- for '26 and for it to be accretive to our business. So one of the things that we're doing, and we gave the Foot Locker team kind of a visual that we need to clean out the garage. So we're cleaning out the garage. We're cleaning out old unproductive inventory. We're going to be impairing underperforming assets and from a confidence standpoint, those are all part of the building blocks that we need to put together to be ready for 2026. We have tremendous confidence in this management team that we've assembled in North America, as we talked about, it's being led by Ann Freeman a long-time Nike executive that we've got a tremendous amount of respect for, and the brands have a tremendous amount of respect for.

We just announced today that Matthew Barnes is going to run our international business, and he's a Brit, and we think that EMEA truly needs to be run by a European. We're making some real changes on how we are approaching the international business, which we think is going to be very positive. And one of the things we love about Foot Locker, and one of the reasons we bought it when we went out and did our due diligence before is the men and women in the stores, the stripers and the blue shirts. These young men and women, they love sneakers, they love Foot Locker. They love to be around this product. And there really are -- we really think they're our secret weapon as we go forward.

And the other thing that gives us tremendous amount of confidence is we've talked with every brand and every brand has a renewed interest in being supportive to Foot Locker, and they've all talked that they want a stable and growing Foot Locker. And to be honest with you, it's great for our business, but it's also great for the brands business. And we've got complete alignment with the brands. And we are confident that in 2026, we do put all these building blocks together, we're confident that Foot Locker will be accretive to our earnings in 2026.

So my follow-up, I guess I'll make it 2 parts. First, just to that point on '26 accretion. That's Foot Locker stand-alone, including synergy. That's not, let's say, DICK'S Sporting Goods electing to buy stock back. That's Foot Locker math adding to DICK'S earnings base. That's part one of the follow-up. And then part 2, you don't tell us what your footwear gross margin is inside of core DKS. But if you look at Foot Locker, they've been on a steady decline for the last several years, and a lot of it does track with one of your major suppliers proliferation of product, is it feasible once you're done with your cleanup that you can get gross margins at parity with the DICK'S Sporting Goods? Or is there something about the mix and the selection that you can't get it quite to that level? Meaning how much quick repair could there be once you clean up the assortment?

Well, we're not going to guide right now, and we'll give you some more guidance at the end of Q4. But we're not going to give you -- we're not going to tell you where it's going to be compared to DICK's Sporting Goods, but we do know that it can be meaningfully different than it is right now. There's a huge opportunity One of the reasons it struggled is they haven't had access to some of the key product. They haven't had allocation of some of the product. There's a number of stores that are out of stock in product that they don't have. I was just in a store in New York this yesterday as a matter of fact, and talking to the gentleman who runs the store, and he said, we're a great running store. We just got NIKE's running construct in last week. And when you take a look at some things like that, there's just a huge opportunity. That product is being sold at full price. So yes, we're really confident that there'll be a meaningful increase in their gross margin. And we'll give you some more color on that at the end of the fourth quarter.

And then I don't know, Ed, sorry, it was a follow-up to the accretion comment, if you can comment any more on that, whether that included buyback or that's just core Foot Locker?

That's core Foot Locker. That's not to say we might not -- as we said, we've been -- we'll be opportunistic based on what happens with the stock. We may buy back some stock. But we think from a core Foot Locker standpoint, it can be accretive to our earnings in 2016. .

Your next question comes from the line of Kate McShane with Goldman Sachs.

We were curious about how you're going to manage the markdowns at Foot Locker. I guess the concern is, is that if you do discount aggressively in the fourth quarter, do you think you'll be in a position where you can go back and to full price selling and the customer be ready for that as new product comes into the store. And our second question on the discounting is, do you feel like the market is going to be heavy with discounts now in Q4? And how much do you expect that to impact the market and DICK'S own footwear sales?

Sure. Thanks for the -- Thanks, Kate. I don't really think that that's going to be an issue with these markdowns and then going back to full price because the product that we're marking down is older product that hasn't sold product that's been sitting around for a while. So when we get the new fresh product, we'll sell -- we're confident we'll sell that at full price. And the consumer out there is looking for a new fresh product that is innovative in the marketplace. And that's what Foot Locker for the most part, doesn't have right now, and we'll be bringing that product in as we get into 2016. From a discounting standpoint, right now and who knows things could change. But right now, we don't think that the discounting is going to be meaningfully different than it was last year.

We do feel that we've got, as Lauren said in her remarks, we've got different and innovative product, more premium product that you'll see product that's that is fully distributed in the marketplace. We don't see that the promotional activity impacting our business a whole lot.

Your next question comes from the line of Adrienne Yih with Barclays.

Great. It's great to see the continued momentum at the DICK'S brand. I guess, Lauren and Ed, obviously, I'm going to talk a question about from about Foot Locker. Is this a case of kind of just historically underperforming operations and with some closures and inventory management that you can control the controllables to kind of turn the business or are there more infrastructure investments in some longer tailed structural things about the business. Secondarily, are there banners within Foot Locker that no longer perhaps makes sense -- and if you could talk about that.

And then finally, my follow-up is on inventory. 1,000 to 1,500 basis points is quite a bit. Is there a write-off reserve within that? And -- is it just the depth of the promo? Or are you using third-party talent? Just trying to understand the magnitude of that and the quickness of trying to get through that in the next couple of months.

That's a lot, Adrian. Let me start. That's okay. So the idea of this is historically underperforming operations. I think that's a big part of this. So Foot Locker really didn't -- they kind of got away from retail 101 of trying to have the the right product and the right store and having those -- I think turning this around, we don't think there's going to be some capital involved, and we're going to invest in the stores. But we've just done an 11-store test, and it was pretty capital-light. And what we really did is we took the inventory -- most of the inventory out of the store, and we relaid out the wall. And one of the things that the DICK'S team is really good at and we're bringing that expertise to Foot Locker is from a merchandising standpoint and how those visual merchandising really can help drive the store.

We took the inventory out of the store and we redid the walls. And no real infrastructure back in there. But if you had walked into a Foot Locker store and still walk into a lot of foot Locker stores other than is 11 and look at the wall it's kind of merely a run-on sentence of shoes. And what we've done is we've taken and tried to segment it and show the consumer what's important in the stores. And we've got this 11 store test, and now it's only 11 stores, but the results have been -- we're pretty enthusiastic about the results. So we think that we can definitely turn this around.

As far as the inventory being down 1,000 to 1,500 basis points we are going to -- we're going to take markdowns to get this out of the store of older underperforming SKUs. And we do expect at the end of the year, there will be a program that we will sell some of this off to a jobber and just clean out what's left from the inventory and be able to get a fresh start in 2026. So that's why we're moving as quickly as we can to get a fresh start in 2026.

Yes. I want to just add to what Ed is saying from my perspective. If you look at the core challenges that we're facing with the business, it really is, as you said, it's underperforming operations, it's inventory management. It's core Retail 101. And one of the things that's been so amazing to see if the team is coming together and Ed is spending a ton of time with them is that the core expertise index, be it merchandising and the balance of art and science or the visual presentation you can hear in his remarks, just talking about that, the fact that our -- we are marketing driven company and that we believe in brand. And so those plans are being worked on for next year. And the brand relationships, this is a heavy operational focus. All of those things are being transferred by osmosis coaching mentorship, all of that. And that's what gives me the confidence that we are moving in the right direction.

Okay. And just to be very crystal clear, the markdowns of the inventory are on lifestyle and we'll have kind of no competitive impact with the performance -- premium performance at DKS. So there's no crossover there.

The product that we're marking down is not a key product at DICK'S Sporting Goods. It's an older product that quite frankly, and with the visual we used with the Foot Locker team and it is kind of caught on globally is we just got to clean out the garage. We've got to clean out all the inventory that's kind of in the corner that's not selling that we need to have out of our system.

Fantastic. Makes 100% sense. Good luck. .

Thank you.

Your next question comes from the line of Michael Lasser with UBS.

The first one, relatively straightforward the expectation that Foot Locker will be accretive next year is based on the [ $14.25 million to $14.55 million ] for this year. Is that correct? And how dependent is the accretion expectation on inflecting the sales that you would anticipate by back to school for next year?

Michael, thanks for that question. Yes, let me clarify on exactly like you said, yes, the basis is on the $14.25 million to $14.55 million as the basis for 2025 results, and the kind of the dependency, I think it starts with what Ed said about the building blocks. It starts off with cleaning out the garage, positioning the inventory and having that excitement assortment and the newness that is resonating so well at DICK'S Sporting goods with the gross margin expansion and the merch margin expansion that you are seeing is going to be the first and foremost a priority as we look to the building blocks for how can this business be accretive -- and keep in mind, we talked about as part of the cleaning out of the garage that there are other unproductive assets. We are looking into the store portfolio, where there are some unprofitable stores. But the opportunity we are looking at that is not only deciding if the store should be closed, but actually, the opportunity is the reverse to say if those stores had access to the right product and the right innovation and the newness can those stores be turned around and made profitable. So we are looking into that. We are absolutely looking into some of the unproductive assets that want to be part of the core business going forward. But to your point, it starts with sales and margin. And in addition to that, we'll look into cleaning over the garage to position the business for a profitable growth into 2026, especially in the -- from the back-to-school season of next year.

Got you. And my follow-up question is one of the key debates on the combined enterprise story right now is how do you ring-fence the core DICK'S business in order to ensure that the integration of Foot Locker does not become a distraction to slow the momentum of the core business. It does look like in the fourth quarter, you are anticipating a significant slowdown guiding to a flat to slightly positive comp for the core business. So a, what is fostering that expectation. And b, given you have owned this business for a matter of months now, give us a sense of how you anticipate that they won't be -- it won't become a distraction such as the core business can it accelerate into next year and drive some growth on top of are that you're acting to put like sorry. There was a lot of words in that question.

Got it. Thank you, Michael. One of the absolute prerequisites for us to do this acquisition was exactly what you're saying. We needed to ring-fence the DICK'S team and DICK'S needs to stay completely focused on driving our growth and our strategic priorities. And that is exactly what we are doing. I mean 8, 10 weeks in now, I'm even more confident that, that is how we're doing it. We've set up the team at Foot Locker. Ed is very much spending time over there. The DICK's team is fully focused on the DICK's priorities. And we're going to continue to just keep the teams sharing learnings but not remotely working. Not distracting each other from what their core priorities are. When we look at Q4, you mentioned the deceleration, I want to be really clear about this.

We just came off of a 5.7% comp, and we're up against a 6.4% comp last year. So the fact that you see our comp slightly moderating in Q4. We actually just raised the comp and the high end of our previous guidance now is the low end of our guidance. So we are really bullish on the holiday. We are just balancing that with an appropriate level of caution as we always do. We don't ever guide to the best possible outcome. But we are pumped and ready to go on the DICK'S side for Q4.

Your next question comes from the line of Mike Baker with D.A. Davidson.

Great. A couple to start on. First, a little bit more detail on that 11 store test, maybe any initial results or pop in sales and I mean, is it just as simple as relaying a back wall or there's got to be more to what you're doing. So if you could address that, please.

Sure. So we're not going to lay out kind of the results. As I said, they're early, but we're really very very encouraged on them. And it's not just as simple as laying out the wall as we've kind of taken some of the older product out of that -- those stores, put in some newer, fresher product that we were able to get our hands on. And one of the things we've also done is we're bringing the apparel business back to Foot Locker. They had really kind of walked away from the apparel business. And if you walk into these stores, you can see the apparel in there, and the apparel is selling really quite well, too. So -- we think that there's an increase from a footwear standpoint, from an apparel standpoint going forward. And we'll -- we'll more than likely give you a little bit more color on this test at the end of the fourth quarter as we give guidance going into 2026. But there's a lot of just basic retail 101 that if Foot Locker gets back to that or when as Foot Locker gets back to it will have a meaningful impact on their business.

Great. Fair enough. One more follow-up. If I could. You're talking about a fresh start and getting everything cleared by the end of fourth quarter, but back-to-school is the inflection point, not to put too much pressure on you or try to accelerate it, but why not spring as an example as the inflection point? Why should the FERC, presumably, the first half not be as strong?

I think that's a really good question. And the main reason for that is our merchandising philosophy and how we're buying the product, we didn't buy that. It was bought by the previous management team. And we think that there's some -- and we're going to talk to the brands about trying to plug some holes. But the third quarter or the back-to-school time frame is the first time we will have had complete control over the assortment going forward.

Your next question comes from the line of Christopher Horvers with JPMorgan. .

This is Jolie Wasserman on for Chris. Just following up with DICK's ability to affect inventory orders for Foot Locker. So just confirming that you're saying that you won't be able to fully affect it until the start of the third quarter, but are you able to have any sort of impact even if it's lighter in the first half? And just specifically on the percent of spring ordered since the acquisition, how much of that have you been able to order thus far? And how do you see that flowing into the fall?

We can have some impact on Q1 and Q2, probably hopefully a little bit more on Q2 than Q1, but we're working through that and working with the brands and they are being as helpful as they can to try to get product to us that we need. But it's really going to be in that third quarter that you'll see the big difference that our team will have fully bought that product and merchandise that product.

That makes sense. And our follow-up question was just on gross margin with the third quarter. Just more broadly, if you could speak to what's going on there in terms of promotional environment for -- this is all for DICK'S promotional environment. tariff costs and the other inputs we discussed last quarter, like the game changer business?

Yes. So we reported today a 27 basis points expansion in our gross margin. Keep in mind that, that 27 basis points of gross margin expansion is on top of 70 basis points of expansion that we saw. In terms of the promotionality within the quarter, the promotionality, as you can imagine, the overall marketplace continues to remain dynamic. We participated in select promotions, which we always do during the important back-to-school season. The tariff impact was within that quarter, our results as well within the merchandising margin. But keep in mind, we still delivered a merchandising margin expansion of 5 basis points on top of almost about 60 basis points of impact -- a positive impact last year.

And there was a slight unfavorable impact from the mix, like Lauren talked about the license business performed really well, which is a fantastic growth opportunity but has a slightly lower margin. So that -- we had a little bit of an unfavorable impact from the mix as well. And just to kind of round out that answer, I would say that if you look at it, we have guided that we expect our gross margin to expand -- on a full year basis, we expect gross margin to expand in our -- on the back half as well as within the fourth quarter. So overall, we feel great about the merchandising capability. The work that the game changer team is doing and the DICK'S Media network, those those ingredients continue to remain in place that drive our confidence in the gross margin expansion for this year and into the future.

Your next question comes from the line of Paul Lejuez with Citi.

Can you talk about the $500 million to $750 million in charges that might be coming. How much of that is cash versus just write-offs? And how many stores are actually being reviewed when you think about that range of $500 million to $750 million? And any split that you can share on U.S., international or a banner.

Yes, Paul, we'll share much more of the detailed assumptions. As you can imagine, we are 10 weeks into this acquisition. And like I said before, we are balancing the evaluation that we are doing with the opportunity that we see in terms of driving growth and profitability expansion on a store basis. So on stores, we'll share much more of the detailed plans during our Q4 call. .

In terms of the makeup of the $500 million to $750 million, I would say there are 3 main buckets. The first and foremost, as Ed talked about, is the unproductive inventory, which makes up quite a decent chunk of that, that we will be addressing -- vast majority of that will be addressed here in Q4. That does include some of the store portfolio valuation. And then we are looking deeper into the assets that we have in place, some of the technology assets, some of the legacy contracts that we will evaluate as far as the fourth quarter and clean that, also have to position the business and the profitability of the business for 2026. In terms of the cash versus noncash, I would say it will be a combination of both things. Inventory definitely would be cash, but if there are some existing assets on the balance sheet that will be cleaning up, those will obviously be noncash. So we'll share more detailed assumptions behind all of this during our fourth quarter call.

Great. And then just on the synergy number, the [ 1 to 1.25 ]. How much of that are you assuming you can capture in F '26 to get to those accretion numbers. I'm curious if you're thinking you might be actually playing for a bigger number than that 100 to 125 in longer term?

Yes. Well, the $100 million to $125 million, I would say we have -- there's a lot of work that has already been done. What we are working through, as you can imagine, is just conversations with with the brands, conversations with the nonmerchandising vendors, and those conversations are happening right now. So to now have a better line of sight, call it, 12 weeks from now as part of the fourth quarter. And in terms of looking for additional opportunity, you know us, we'll continue to focus on driving the top line and the bottom line results for the collective business now. So absolutely, that's a focus within the organization.

Your next question comes from the line of Cristina Fernández with Healthy Advisory Group. .

I wanted to ask a question on the vision for the merchandising and full locker that business historically was heavy on basketball sneaker culture and kits. So as you look at where there can be improvement? Do you see that mix materially changing? On the apparel side, are you looking to lean more into private label? Or do you also see natural brands playing a big role in their apparel expansion?

Yes. Foot Locker has always been steeped in basketball culture, and it will best but will still be in a very important part of that. The best ball construct that we see in the product coming forward from a basketball standpoint. We are really enthusiastic about across a couple of brands. And the apparel business, we do see the apparel business -- the national brands is where they had kind of stepped away from. And leaned into their private brands, which we think the private brands certainly have a place there, but we feel that the national brands will have a meaningful increase in the apparel business in Foot Locker which will help drive the AURs, and we think it will be very profitable. .

And then my second question is on full locker also have been on a pretty significant remodel in refresh program. Have you continued with those for locker reimagine stores? Or have you paused that program and looking to make changes in that real estate strategy that they have been on.

I think the Foot Locker reimagined stores has been an interesting test. As we've kind of gone through there, there's parts of the reimagined store that are very good and other parts that need to be rethought, and we're in the process of rethinking those right now. So as an example, what they characterize as the kicked Club and the drop zone when you first walk into a Foot Locker store in the middle of the store -- we're going to take that out, reimagine that give better sight lines to the balance of the store and repurpose some of that place, which -- that area of the store, which was not very productive at all. It was more of a social place and turn that into giving the apparel presentation more space and really focusing from an apparel standpoint, which we think will drive the sales even better than they are.

We have time for one more question, and that question comes from the line of Steve Forbes with Guggenheim.

Ed, I was curious maybe to just explore like any demographic differences we should be aware of as we think about the performance spread between the 2 businesses. I think one of the thoughts out there is maybe more exposure to lower income, but I'd be curious maybe just hearing you summarize how we should think about the demographic exposure and how that sort of impacts your merchandising plans on a go-forward basis here?

Well, we'll merchandise Foot Locker for Foot Locker, which is going to be a bit more basketball inspired, a bit more trend inspired, definitely more urban than the DICK'S business. The DICK'S business will be more sport-led along with the lifestyle product. We think DICK'S is really kind of at the center of sport and culture and it's a more suburban concept. With that being said, all categories of consumer, if you will, are looking for a product that is new, innovative and different than what's out there in the marketplace right now. And Foot Wacker didn't have that new and innovative product as we get into the 2026, we'll start to have more of that product. And by the third quarter, we think we'll be fully invested in that newer -- the newer innovative product that the consumer across all income levels is looking for. .

And then just a quick follow-up, maybe just overall on the same page here, is this slightly negative adjusted EBIT for Foot Locker on a pro forma basis, that compares to the $118 million last year. just, I guess, confirm that. And then is there any way to sort of think through how you sort of view like a normalized 4Q or or how you would speak to just where that LTM adjusted EBITDA profile is for the business relative to the 395 that's in the presentation?

Yes. So the competitors and you're right, it's comparing to a normalized on a non-GAAP basis, the results that the Foot Locker posted in fourth quarter of last year. And keep in mind, the connection point between the the 1,000 or the 1,500 basis points of the margin decline versus the slightly negative operating income expectation for Foot Locker is the part of the cleanup of the garage inventory. And that's the piece that we have threaded between the 2, the numbers and the estimates that we gave out for the Foot Locker business.

And that concludes the question-and-answer session. I will now turn the conference back over to Lauren Hobart, President and Chief Executive Officer, for closing comments.

Well, thank you all for your interest in the DICK'S story. We will see you next quarter. Have a wonderful Thanksgiving and a huge thank you to our entire team of over 100,000 people around the globe. Thank you.

Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation, and you may now disconnect.

Good morning. It's my pleasure to introduce DICK'S Sporting Goods and to moderate our fireside chat. Today, we have with us, Ed Stack, Executive Chairman of DICK'S Sporting Goods. We have Lauren Hobart, President and Chief Executive. Lauren joined DICK'S in 2011 as Senior Vice President and Chief Marketing Officer and became President in 2017 and CEO in '21.

And we have Navdeep Gupta, Chief Financial Officer; Navd joined in 2017 as Senior Vice President, Finance and Chief Accounting Officer and became CFO in 2021. Thank you, everybody, for joining us today.

Thanks for having us.

Thank you.

It's great to see you, Ed. I think it's been, I don't know, 7 or 8 years since...

It's been a while.

Yes.

My hair might have been a different color back then.

Great to see you. You guys had a really great second quarter, which we heard about last week. I wondered if you could start talking about what you're most excited about for this year?

Yes. So we did -- we had a great quarter. Comps were 5% on top of a 0.5% the year before. So against a pretty tough comparison. Team, we still had a 5% comp gain. What's really happening and we're excited about out there is anything that's new, anything that's new from a design standpoint, technology standpoint is doing extremely well.

Things that have been around for a while are a little bit slower, but anything new we're really excited about. And our team has done a great job of having those new products in the store and they helped drive the 5% comp. And I'm happy to make a comment about what's on everybody's mind, which is the Foot Locker acquisition. And I can tell you, we closed on that on Monday, which we're really excited about.

And we're really enthusiastic about Foot Locker. We see a huge opportunity here, not only from what we can do from a global standpoint, but what we can do here in the United States. Foot Locker has always been for so long, it's been a terrific brand. It's been a little bit -- their performance has been a little bit -- they struggled a little bit over the last couple of years.

But we see kind of what needs to be done and it's really basically into retail 101 to have kind of the right product at the right place at the right time. We think that they've got a great culture in their stores. The Striper culture in the stores is one of the main reasons why we bought them. These young men and women who work in the stores, they love Foot Locker, they love sneakers. They understand sneakers. They love to talk about sneakers, and we think there's a big opportunity, and we're very excited about that.

It's going to be a bit of a -- the next couple of quarters are going to be -- we're going to kind of clean things up, get the real assessment of what's going on, and we can give you a lot more information on our fourth quarter call as we go into '26, but we're pretty excited about it.

Thank you. And you mentioned newness and innovation, and that's definitely clear when you enter your stores. And I wondered if there was a way that you could speak to how much you think is just the health of the sporting goods industry, just all of the increased consumer interest versus how innovative the brands are versus the buffer you have, which is the merchandising. And how is that all playing out?

I think it's a combination of all. So right now, we are -- there's such an intersection between sport and culture right now, and we're right at the center of that. So there are some brands that have come out with some really terrific product that's really kind of bought the consumer's interest, whether that's Nike's new running construct, which has been just fantastic around PEG structure and Vomero has been great.

Some of the brands -- the hard lines brands around -- from a diamond sport standpoint on some of the new bats that have come out, have done really, really well from a launch standpoint. And it's hard to believe some of these bats that we're selling are $500 a piece. So these are not inexpensive products, and they're just flying off the shelves that these kids want this particular product.

So a number of the brands are doing a great job from an innovation standpoint. Sport is really at -- we're at this intersection between sport and culture, which is going to last for a while here. We've got some really terrific things coming in this country from a sports standpoint, the World Cup in '26, the Olympics in '28.

And the way that the World Cup has been structured, I think, is just a genius that it's all of North America. The matches are going to be played in cities all across the country. So the first match in L.A., the final in New York and so many markets in between Dallas and Atlanta and Boston. And so now all through these weeks of the World Cup, these markets are going to be all jazzed and focused on what's going on in the World Cup. So it's not going to be just -- it's playing in some other town for the entire matches. It's coming to my town, these matches, these players, and it's going to be -- it's going to be great for our business, it's going to be great for soccer, and I think it's going to be great for soccer long term in this country. And -- so there's a lot to be excited about.

Great. I would ask you maybe next about the health of your consumer, but if $500 bats are flying off the shelf, the consumer is just fine. Yes.

Yes. I'll just build on Ed's comments about the importance of sport and culture. But our consumer has held up so well. And as you pointed out, 5% comps, but it's the sixth quarter in a row, we've had over 4% comps. And really exciting that, that newness and that growth is coming across the entire portfolio, hardlines, softlines, I'd mention, diamond sports, having launches in a way that footwear -- always had launches. But we're seeing growth across every income demographic, which is really terrific.

We're not seeing trade down. People are absolutely voting that these categories that we serve are important that the differentiated product that we have is really appealing to them. And then we are building a better mousetrap in terms of our in-store experience, our online experience, our House of Sport concepts, doing incredibly well, our Field House concept is doing incredibly well.

So I just think we're in a position to continue to gain significant market share. The consumer is doing great, and the momentum in the business is quite strong.

If we can maybe focus on market share a little bit, is there any specific opportunity where you think that there's still low-hanging fruit with market share?

The interesting thing is we are such a large -- we're #1 sporting goods retailer in the U.S. soon to be in the globe, but we only have 9% market share. So if you look at it, there's significant market share to continue to get. And we've been focused this year on specifically driving our footwear business.

This is pre Foot Locker, driving our e-commerce business and repositioning our entire portfolio. But there's pockets of market share everywhere to go after online in stores, and we're just going to continue to push it and drive it.

If I could maybe switch the conversation to tariffs. It seems like you've been able to manage pretty well so far, but also, I don't think we have fully seen a lot of the price come through yet. So how would you characterize your inventory position and how you're positioned into the second half in this new environment?

Yes. So inventory position, we feel fantastic. If you look at it in Q2, we finished with 7% growth in inventory. And our expectation is that -- first of all, the inventory is really, really clean. We keep a very conscious focus around the clearance levels and those were at historic lows. Inventory and the newness and innovation is the one big focus for us.

Overall, from a quantum perspective, 7% growth in inventory and 5% sales growth, we feel great about it. What we have said is we expect our inventory growth to continue to moderate as we go into the second half. The focus for us around tariffs is working very closely with the national brand partners and the manufacturers. The Q2 impact, if you look at it, was -- there was a negligible impact from the tariff.

But as expected, as other retailer has said that this will grow as we look to the back half. But we feel like the pricing and the -- the pricing capabilities that we have built to be really surgical and our partnership with National Brand Partners will allow us to continue to be really mindful, balancing what is the right thing for our business as well as balancing what is the right assortment and the innovation we want to showcase to our athletes.

You mentioned just being really clean on inventory. And I know there's been an increased focus to just move the inventory to make way for new inventory, which has been a really successful strategy. But I was curious how you balance that. Your margins continue to be robust and expand, yet it seems like you're clearing inventory a little bit faster. So how are you managing the push-pull of that?

While it all starts with what do you buy and how you buy and the partnership that you have with the national brand partners. And that's where I feel like our merchant team do a fantastic job. One, really, really curating the assortment and really going -- being meaningful in what we are buying and how do we buy there. .

The second is, there is a constant level of discussion that happens with the national brand partners. And then at the end, you always have some mistakes. And that's where the focus that we have had around keeping the inventory clean, having the going, going gone chain. So there are 50 stores today that we have, which are clearly focused on handling some of the clearance products that we are able to handle through that.

The work that team does is phenomenal. And with all of these things, if you look at it in Q2, we grew our gross margins by 30 basis points, and that was on top of over 200 basis points of gross margin. So that's the balance that the team has been doing a fantastic job at.

Could you maybe talk a little bit about the DICK'S deals Day event in July, and just what the thought process was behind that?

Yes, I'll take that. So we -- this is something we've been doing now for several years. There's a lot of online shopping at that time of time of the year around Prime days. And our DICK's Green Day is a time for consumers to get some amazing values. We don't do anything. We've been so really surgical about where and how we invest. So we don't have enormous light-wide promos anymore. We really surgical and targeted, and we have great success for those few days. .

If we could maybe move on to your vertical brands, that's been yet another very successful strategy. Could you maybe talk to any change in the number of customers trading into the vertical brands this year? And how do you think about the opportunity going forward?

Our vertical brands have been great. They've continued growth. They outpaced the company as a whole. We've got margin rates there 700 to 900 basis points higher. Our vertical brand of Vrst, CALIA, DSG, Walter Hagen have continued to grow, and they've now got a real following out there in the marketplace.

So it's not just -- it's -- I came up and pick something up that's inexpensive from a vertical brand standpoint. Some of these vertical brands are really very -- are premium, are priced at kind of what the national brands would be, and they've now got a real following. We had 1 meeting and one of the guy walked in and said, reverse product, I love your reverse product.

The DSG brand has just been great as a real family brand. Our team has done a great job marketing that brand and what we bring it to life in the stores. So our vertical brands will continue to grow. Some people have asked us what the percentage of that of our business can be. And it will grow a bit as a percentage, but I don't think it will ever get to be super high because our footwear business is such an important part of that business, and we're not going to be in the vertical brand footwear business. There are certain baseball bats, there's a real technology involved there, and the kids want to be playing what is being played and the College World Series or the Wood Bat tournaments of what the pros are playing. So it's got its niche, and it's very helpful and will continue to grow, and it will help our margins.

Do you want to talk about MaxFly and the success we're having there with Ben and...

Yes. our MaxFly ball has just been great. So we've got a number of people -- a couple of people on tour playing it. Lexi Thompson is playing it, Fred Funk's is playing it, and Ben Griffin is playing it and Ben won twice on tour with it this year. And with the marketing around that and the popularity of Ben, that business has just gone right through the roof. And we couldn't be happier that he's now playing in the Ryder Cup. So we've got our MaxFly ball being played in the Winter Cup. And MaxFly is a brand that has a great history. It's won 13 majors, over 100 tournaments. People have won with MaxFly before we got this thing, heading back on tour again. But this has been a rousing success. And our team did a great job with it. And all you golfers out there if you haven't tried it, try it, you'll really -- you'll love the ball.

This is a good segue just to golf. I feel like maybe golf doesn't get top billing all the time, but it's a huge part of your business. Just how do you think about the category going forward, certainly, the entire industry has had a resurgence? And what does the innovation cycle look like?

The golf business has been -- there was not many good things that came out of COVID. Golf was a real beneficiary of COVID because people got to be outside. And there's some new people -- a number of people came in to golf, they found that I really like to play golf and it's stuck.

So the golf business has been great. A lot of people have kind of got an opening price point, set a golf clubs, if you will, went out and played it. And now we're starting to see that cadre of golfers come back and upgrade their equipment. And there's some real technology advances that have come on out there between what's going on with the drivers and hybrids and high lofted fairway woods and the innovation cycle in golf is really very good.

And so our golf business has been great. We expect that's going to continue for some time. And it is our third largest department. And we also think there's a huge opportunity from a golf apparel standpoint, of how we merchandise golf apparel in the stores going forward, and we think that there's a real upside from a golf apparel standpoint going forward.

And just to kind of close the loop, I know you have the Golf Galaxy Performance Centers now. Is there anything you can maybe update us on what you're seeing with that?

Yes. They've been really great. And we -- our golf business is really a roll-up of a couple of gold stores that we did originally. And then it's a roll-up of a Golf Galaxy, which was started in Minneapolis and then the number of Golfsmith stores when they went out of business. And as we looked at this, it was -- these stores are good, but they're not great.

They're not kind of on the same part of what we should be doing, what we're doing on the DICK'S side. So we developed the Golf Galaxy Performance Center where we've got real performance statistics in there. We've got a better apparel assortment. We've got a broader service assortment, we're given lessons and the Golf Galaxy Performance centers have knock on one -- it worked very well, and we'll continue to open these stores.

Great. If you can maybe move down the P&L and talk the margins for a little bit. Obviously, it's been a big discussion about how much higher your margins today than they were pre-pandemic. Of the drivers you've listed in the past such as differentiated product, what do you think has been the biggest driver? What do you think can be the driver going forward and then go from there?

Yes. So we have talked about consistently 3 big drivers of the gross margin expansion when you look at 2019 versus 2024. The 3 big drivers, first and foremost, is the differentiated product. The access to the differentiated product allows you to get the full price selling, gets you access to some of the product that does not go on any kind of promotion.

And you are a little bit immune to the promotional intensity that may be within the marketplace. So that's the first driver. Second, we talked about the work that our vertical brand team has done over the last several years. And sometimes people miss the fact that Field & Stream used to be our largest vertical brand product when we look at 2019. We have exited that category and not only replace that all of that sales into new categories like DSG, CALIA, but these have much higher margins than what Field & Stream margin used to be. The third one I will put it is mix.

And within that, there are 2 parts of mix. One, we used to hunt, which was a big part of our business, definitely significantly lower margin than where the operating margins or the merch margins of the company are. And then the second is the work that has been done through our clearance management and going, going gone and the pricing and promotion capabilities that we have built.

So those 3, we continue to see as the drivers of the gross margin expansion even into the future. The 2 additional things that we have started to talk more extensively actually since late last year and into this year is the work that the team has done around game changer platform. Game changer platform is the -- is probably the best platform that is out there in the youth sports ecosystem. And that platform, $100 million of sales last year, very profitable.

We expect that business to grow to $150 million. This is a SaaS business with recurring revenue. So it has margins not that of a retail product margin. This is a true SaaS business. So that, as it continues to become bigger and bigger part of the portfolio of the business, that drives the gross margin expansion. And then there are retailers that are ahead of us in this journey, but the work our team has done on media network or the retail media network nobody that has an asset that we have from the athlete database access to the customer. And a customer who walks into our store, on an average has more than 1 brand in their basket. So to be able to really understand the basket and the interactivity of that customer with us. We are uniquely positioned to be able to leverage that data to grow the DICK'S Media Network. So those are the 2 new drivers and believe that these will continue to be the drivers of the growth as -- for merch margin going into the future.

I believe both are contributing to margin already. But especially with DICK'S Media Network, which does seem to be maybe an earlier stage, when do you see that becoming more needle moving?

Yes. I'll take that one. We have -- you're right, we've been speaking more publicly about game changer and the revenue and the fact that it's growing 40-plus percent CAGR over year. The media network is a step behind but catching up quickly and really leveraging the power of game changers so that we have this incredibly unique asset with the media network.

I think we've invested in infrastructure, technology, reporting for our brand partners and for the people who will be investing in the media network. We're just creating -- we've created a much better mousetrap, and we're ready to go. So we've got a sales force now we haven't guided to how much when and where, but I would expect it's going to become a more meaningful part of our business going forward.

And maybe I'll update on that. I think this is another unique opportunity, right? When you walk into a House of Sport location, and I want you all when you get a chance, we'll slowly expand this even further. The way we are bringing the DICK'S Media Network together in a House of Sport location where you can not only interact with the product, but actually see the information about that product right in front of you when you are in the store will be another differentiating capability on the DICK's Media Network and retail locations.

So that was actually kind of my next question. So it's not just traditional advertising you're going to see on the DICK'S website. It's going to be website, game changer and then in-store as well.

And the fourth component is off-site completely. So we leverage the DICK's Media Network to buy media on behalf of our partners out in the -- be it Meta, be it -- whoever they're buying from. We can buy the data, anonymized, tokenized we take our data rather than buy the media so that they can be much more targeted.

Great. That's great. I just wanted to make sure, I asked a question around back-to-school. Just now that September, New York just started today, but I think most of the country has been in school for a while. Just how would you characterize the back-to-school season so far? How much of an indicator is it for your holiday business?

Yes. We -- Q2 has a chunk of back-to-school and Q3 hasn't come back to school as well, the only talk about the Q2. But with a 5% comp, we felt really great about the trends in back-to-school, and we saw that broad base of growth across footwear, apparel, team sports, all of the back-to-school and back to sport categories.

So we're really enthusiastic. Holiday, I feel great for all the same reasons, different categories -- in cases, not all, but we have incredible assortment coming down the pipe. This newness that we've been talking about, the innovation we're seeing from our brand partners. We have a new business -- trading card business that we're working on with Fantastics that we're very excited about, very small right now, but incredibly giftable. So we're bullish. That's why we took our guidance up.

We did Vrst. I think that's going to be on the Christmas list.

We did Vrst?

We did Vrst.

For sure. We have [indiscernible], yes.

We had [indiscernible] we were really on that one. .

Yes, we were and I see them everywhere right now.

Our last question before we go into kind of our rapid fire questions just around unit growth. You're actually not changing your units, you're not opening new units, but maybe square footage is increasing a little bit with the House of Sport. So can you talk a little bit about how you're thinking about the House of Sport and Field House mix going forward? And how many locations will ultimately open in both concepts?

Yes. So like you said, we don't anticipate significant amount of changes in the total number of units exception might be the Golf Galaxy growth opportunity that Ed talked about. Within the core decks, we think that the unit growth will be relatively flattish, but you will see the square footage increase because one of the things that we are clearly focused within the company is to make sure that we don't have a tired old chain.

We want to make sure that we are investing in these -- in the retail square footage in driving the innovation and kind of a retail theater and the experience with our athlete. So what we have shared is we will open 16 House of Sport locations this year. We have a significant number of those being opened in Q3. So those of you that are in New York, you will get a chance to experience our latest House of Sport opening here in New Jersey.

Next week. it's going to be huge.

Next week. So that -- we are excited about that. We're able to bring that to such a big market. We have 13 plants openings in Q3, and we will finish by the end of this year with 35 House of Sport location. Our plan for next year is approximately the same, current 15 to 16 house of sport openings next year, and our long-term aspiration till 2027 that we have shared is to get to 75 to 100.

the opportunity outside of House of Sport, I know somebody -- one of the investors called out that you all talked so much about House of Sport, you don't talk about field. We couldn't be more excited about the Field House. As we say, Field House is the workhorse, right?

The vast majority of our portfolio is 50,000 to 60,000 boxes. Field Houses stores are doing fantastic as well. So we have taken some of the core learnings from the House of Sport platform and cascaded and brought them to life in our 50,000 format. We continue to -- so going forward, we will continue to open all the 500 in the Field House format.

So all the new store openings or relocations or conversions will be to the Field House format.

We have 5 questions we're asking every company that sits on stage with us. And so we've touched upon some of them already. But in terms of your expectations for the environment in the second half, and you just mentioned you raised guidance. But in terms of the health of the consumer second half versus first half, do you expect this to be the same, better or worse?

I would say...

No worse.

No worse. I was going to say same. Yes.

Yes. Same.

Same.

Half full, half empty.

Pricing, and we've talked about this a little bit, too. But in places maybe you have taken price on like-for-like, not necessarily a new innovation or anything. Have you seen any elasticity response? Are you anticipating any of that in your back half results?

Very, very small changes that have gone in very, selective, very surgical. So we are keeping a very close eye on what is happening to the demand elasticity, so more to come, but we are very conscious on those changes. .

With regards to inventory, and we've heard some retailers talk about a pull forward of inventory to take advantage of price or just to ensure that they're going to be in stock. What is your expectation for inventory growth in the second half?

So we're -- sorry, go ahead.

We've been signaling, and we continue to say that we are going to have decelerating growth in our inventory. So our inventory actually was a significant investment that we made in the past several months because we had some outages. We wanted to be more size, color appropriate. We wanted to be more regionally relevant. But that tapered this past quarter, as Navdeep said, and we will continue to see that growth narrow.

And then with regards to margins outside of tariffs, we've been asking about your expectations into '26 for freight, wages and materials. Will that be better, same or worse?

Well, TD will be keeping a close eye. As you know, there is a lot that will be changing in the next 6 months. So we'll see. But the teams do a fantastic job. Lauren and I always and Ed talk that we have become an employer of choice, that there is so much amount of activeness in coming and working at DICK's Sporting Goods.

Our retention rates are phenomenal right now, more and more people, the engagement within our stores is phenomenal. In terms of freight, we feel good about capabilities, but we'll let this landscape play out.

And then with regards to the competitive landscape, again, we've touched upon this a little bit. But we have seen an increase in door closures and bankruptcies this year outside of sporting goods. But across a lot of retail post, I think, COVID surge. Do you think market share consolidation will speed up, slow down or be the same in '26.

I think it would speed up from a consolidation standpoint. I think tariffs could have an impact on it. I think -- so I think it will speed up.

And just in our last couple of minutes, I'm not sure if I'm the longest analyst that's covered DICK'S, I think I am now at almost 20 years. But in your opinion, there is such a difference, I think, between some of the narrative pre-pandemic with regards to the business versus where you are today, whether it's vertical brands, the amount of innovation. Just what do you think has been kind of like the change agent to get to this place in the company's history versus maybe 10 years ago?

I think we -- so everybody kind of looks at the time point of pre-pandemic, post pandemic. But as we were coming out before the pandemic started, we were in the process of, as we talked about, changing virtually everything we do. After the shooting at Parkland, we decided, we're done with the gun business. I didn't want to be involved in that anymore, and exited. That whole outdoor business was roughly $1 billion in business.

The gun business was a big part of that business. As we looked at this, we said we don't want to be in this business any longer. And as we were exiting that business, we said we only had margin rates of roughly 1,700 basis points low in that aspect of the business than the company average. We said if we can recapture roughly 3% of the sales, we'll be fine from a gross profit dollar standpoint.

So we tested 10 stores. And what we found is we didn't capture 60%, we captured 105%. So at that point, we said, okay, we -- there's something really going on here. We did another 25 stores. And at that point, we started to look and change. Lauren and I have talked about, we changed virtually everything that we did.

So how we marketed. We weren't doing the circulars in the newspaper any longer. We really want to much more brand marketing, more digital marketing. We got out of the gun business. We expanded into the team sports business. At that time, we started to make the investment in our Footwear business and got out of the shared service footwear with all the product on the floor.

I went to a more Premium Footwear business, which gave us access to new products that Nike and some other brands wouldn't sell to us. So we changed our entire Footwear business. We have changed our -- what we're doing from an apparel standpoint. We really leaned into these vertical brands, launched -- got really behind CALIA launched VRST, got into the DSG business.

We had licensed some product from Reebok. We said we're going to do this ourselves when we did the DSG business. We changed virtually everything we did and then pandemic started. And we had already started -- if you take a look at our sales progression before the pandemic, we had several quarters that had started to really ramp up. And then the pandemic hit. We all did what we needed to do to get through the pandemic.

And then as the pandemic was over with, our business went sky. Part of that was because there was such pent-up demand and people really thought that we have pandemic beneficiary and the business would start to go back down and the margin rates would start to go back down. What they didn't understand is we had already started this work before the pandemic to change what we were doing, and it didn't slow down.

All the business continued to go up. We maintain those margin rates. All the things that we did were paying those dividends. Our Footwear business was entirely different, and we had access to products that we didn't have before, that as Navdeep said, were that differentiated product that didn't go on sale. So the margin rates went up. What we did with our vertical brands with those higher margin rates and the penetration moved up, so the margin rates went up.

And what we put in place were very durable, sustainable changes that would move that margin rate. And then we started talking about -- and I won't go into the whole story about it. But we said, okay, we've got to do this store -- look at the store of the future. And we kind of started to store the future project a few years before the pandemic, and we designed the whole thing and sometimes things don't translate from paper to reality the way that you want them to.

And we built parts of that in our lab store down in the office, and we walked through it. We said not different enough from what we're doing today. So we scrapped it. We came back now this is probably 6 or 7 years ago with the whole idea that we need to build this ecosystem of the future. And the whole precept of is, we need to build the concept that will kill DICK'S Sporting Goods. We need to build the concept that if somebody else has built this store across the street from us, we'd be out of business. And that's what we did with House of Sport.

And now what we've done with House of Sport is we've taken some of the key elements, the most successful elements of House of Sport and put those into the -- into our Field House concept, which is our -- footwear area is roughly 50% bigger than what a traditional DICK'S store was. We've got House of Cleats in there. In some of the places we've got some interactivity like similar to the climbing wall. So if you go back over the last 10 years, Kate, we do virtually nothing the same as we did that, and it's been very successful. The team has done a wonderful job. And we'll continue -- our plan is we'll continue to innovate, and we'll have another conversation 10 years from now that we've changed a whole lot 10 years in the future from what we do today.

Yes. It's an amazing story. Thank you so much.

Appreciate it.

Thanks, Kate.

Thank you.

Ladies and gentlemen, thank you for standing by. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome you to the DICK'S Sporting Goods Second Quarter 2025 Earnings Conference Call. [Operator Instructions]

I would now like to turn the conference over to Nate Gilch, Senior Director of Investor Relations. Nate, please go ahead.

Good morning, everyone, and thank you for joining us to discuss our second quarter 2025 results. On today's call will be Ed Stack, our Executive Chairman; Lauren Hobart, our President and Chief Executive Officer; and Navdeep Gupta, our Chief Financial Officer. A playback of today's call will be archived on our Investor Relations website located at investors.dicks.com for approximately 12 months.

As a reminder, we will be making forward-looking statements, which are subject to various risks and uncertainties that could cause our actual results to differ materially from these statements. Any such statements should be considered in conjunction with cautionary statements in our earnings release and risk factor discussions in our filings with the SEC, including our last annual report on Form 10-K and our most recent quarterly report on Form 10-Q as well as cautionary statements made during this call. We assume no obligation to update any of these forward-looking statements or information. Please refer to our Investor Relations website to find a reconciliation of our non-GAAP financial measures referenced in today's call.

Finally, for future scheduling purposes, we are tentatively planning to publish our third quarter 2025 earnings results on November 25, 2025.

With that, I will now turn the call over to Ed.

Thanks, Nate. Good morning, everyone. As announced earlier this morning, we delivered a very strong second quarter with comps of 5%. Our momentum continues to build, which is a clear reflection of the strength of our long-term strategies and investments.

We're really in a great lane. The convergence of sport and culture has never been stronger, and we're seeing tremendous momentum and opportunity across our industry. As a company rooted in sport, DICK'S is uniquely positioned to seize this opportunity. We have a deep understanding of our athletes, and we execute with precision from our differentiated on-trend product assortment to our industry-leading omnichannel athlete experience, we're operating from a position of strength.

Before Lauren and Navdeep take you through the Q2 details, I'd like to provide a brief update on our pending acquisition of Foot Locker. As previously shared, Foot Locker shareholders approved the transaction, we've also received all regulatory approvals, and we anticipate the transaction will close on September 8. We remain very enthusiastic about the strategic benefits from the deal. By bringing together DICK'S and Foot Locker's iconic brands, we will create a global leader in the sports retail industry to serve a broader set of consumers, strengthen our partnerships with the world's leading sports brands and meaningfully expand our total addressable market. We look forward to providing more details on our plans for Foot Locker on our third quarter call.

I will now turn the call over to Lauren, who will go over our Q2 results and full year outlook.

Thank you, Ed, and good morning, everyone. We are very pleased with our strong Q2 results. As Ed said, our performance continues to show how well our long-term strategies are working, the strength and resilience of our operating model and our team's consistent execution. Our sustained momentum is powered by our compelling omnichannel athlete experience, differentiated product assortment, best-in-class teammate experience and our ability to create deep engagement with the DICK'S brand.

Today, we're raising our full year outlook. This updated guidance reflects our strong Q2 results and the ongoing confidence we have in our business, grounded in our team's execution of the four strategic pillars I just mentioned. We now expect comp sales growth for the year to be in the range of 2% to 3.5% and EPS to be in the range of $13.90 to $14.50.

Now moving to our results. Our Q2 comps increased 5% with growth in average ticket and transactions. These strong comps were on top of a 4.5% increase last year and a 2% increase in 2023, and we continue to gain market share from online-only and from omnichannel retailers. Our second quarter gross margin expanded over 30 basis points, and we delivered non-GAAP EPS of $4.38.

As we continue to execute against our strategic pillars, we're seeing strong momentum across the three growth areas that we are focusing on for this year. First, we're making great progress repositioning our real estate and store portfolio. This past quarter, we opened 1 additional House of Sport location. And in Q3, we expect to open 13 more, marking our highest number of House of Sport openings within a single quarter. We continue to expect to open approximately 16 total House of Sport locations this year, which will bring our year-end total to approximately 35.

We also added 4 new Field House locations in Q2. We expect to open 6 more in Q3 and are on track to open approximately 15 total for the year, taking us to approximately 42 by year-end. These investments are driving powerful financial results, strong engagement with our athletes, brand partners and communities, and importantly, they're laying the foundation for sustainable, long-term profitable growth.

Second, supported by our differentiated product access and flagship vertical brands, our focus on driving growth in key categories is fueling significant athlete excitement and demand across our portfolio. In fact, during Q2, more athletes purchased from us, they purchased more frequently, and they spent more each trip compared to the same period last year. We remain encouraged by the strong product pipeline from our brand partners.

And third, our multibillion-dollar highly profitable e-commerce business is standing out as a growth driver, once again growing faster this quarter than the company overall. Our app has been instrumental in creating a strong launch culture across key categories, driving energy and sell-through. At the same time, our stores are executing at a very high level. They're building an athlete-centric service and selling culture and really bringing our differentiated product assortment to life for our athletes.

Lastly, as part of our broader digital strategy, we're harnessing the power of our athlete data, and remain very enthusiastic about the long-term growth opportunities we see with GameChanger and the DICK'S Media Network.

I want to close with a brief comment on how enthusiastic I am about the future growth potential of the DICK'S and Golf Galaxy businesses as well as the compelling range of opportunities that we see in our acquisition of Foot Locker. We've talked a lot about the strategic and financial benefits of this transaction. And as we continue on the path to closing, we remain confident in those benefits and expect a really exciting future for both companies.

Before concluding, I'd like to thank all of our teammates across the company for their outstanding efforts and continued commitment to DICK'S Sporting Goods. Their passion and hard work are the driving force behind these results.

With that, I'll turn it over to Navdeep to share more detail on our financial results and 2025 outlook. Navdeep, over to you.

Thank you, Lauren, and good morning, everyone. Let's begin with a brief review of our second quarter results. We are very pleased to deliver a consolidated sales increase of 5% to $3.65 billion. As Lauren said, our Q2 comps increased 5%, and we continue to gain market share from online only and from omnichannel retailers. This growth represents a 9.5% 2-year comp stack and 11.5% 3-year comp stack. These strong comps were driven by a 4.1% increase in average ticket and a 0.9% increase in transactions. We saw broad-based strength across our key categories.

Gross profit for the second quarter remained strong at $1.35 billion or 37.06% of net sales and increased 33 basis points from last year. This increase was driven by higher merchandise margin and leverage on occupancy costs due to higher sales. On a non-GAAP basis, SG&A expenses increased 9.9% to $864 million and deleveraged 105 basis points compared to last year's non-GAAP results.

As we discussed previously, this year-over-year deleverage was expected and driven by strategic investments digitally, in-store and in marketing to better position ourselves over the long term. Preopening expenses were $12.3 million, an increase of $3.4 million compared to the prior year.

Non-GAAP operating income was $475 million or 13.02% of net sales. This compares to non-GAAP operating income of $480.5 million or 13.8% of net sales in Q2 of 2024. Non-GAAP EBT was $472.6 million or 12.96% of net sales. This compares to EBT of $482.3 million or 13.89% of net sales in Q2 of last year.

In total, we delivered non-GAAP earnings per diluted share of $4.38. This compares to earnings per diluted share of $4.37 last year. On a GAAP basis, our earnings per diluted share was $4.71. This includes noncash gains from nonoperating investment in Foot Locker stock as well as merger and integration and financing costs related to the pending Foot Locker acquisition. For additional details on this, you can refer to the non-GAAP reconciliation tables of our press release that we issued this morning.

Now looking to our balance sheet. We ended Q2 with approximately $1.2 billion of cash and cash equivalents and no borrowings on our new $2 billion unsecured credit facility. Our quarter end inventory levels increased 7.1% compared to Q2 of last year. As we enter into Q3, we believe our inventory is well positioned to continue fueling our sales momentum.

Turning to our second quarter capital allocation. Net capital expenditures were $213 million, and we paid $96 million in quarterly dividends.

Now moving to our outlook for 2025, which does not include acquisition-related costs, investment gains or results from previously announced Foot Locker acquisition. As Lauren said, we are raising our expectation for comp sales and EPS. Our updated guidance reflects our strong Q2 performance and includes the expected impact from all tariffs currently in effect. Our guidance balances our confidence in the outcomes we are driving through our strategic initiatives and our operational strength against the ongoing complex and dynamic macroeconomic environment. We now expect full year comp sales growth in the range of 2% to 3.5% compared to our prior expectation of 1% to 3% growth. Consolidated sales are expected to be in the range of $13.75 billion to $13.95 billion compared to our prior expectation of $13.6 billion to $13.9 billion.

Driven by the quality of our assortment, we expect to drive gross margin expansion for the full year. We anticipate this expansion to be offset by SG&A deleverage as we are making strategic investments digitally, in-store and in marketing to better position ourselves for the long term. We continue to expect full year preopening expenses to be in the range of $65 million to $75 million. For the back half, we expect most of the preopening expenses to be concentrated in third quarter to support our 13 planned House of Sport and 6 Field House opening. We continue to expect operating margins to be approximately 11.1% at midpoint and at the high end of our expectations, we continue to expect to drive approximately 10 basis points of operating margin expansion.

We now expect EPS in the range of $13.90 to $14.50 compared to our prior expectation of $13.80 to $14.40. As contemplated in our 2025 annual plan, we expect EPS to decline year-over-year in Q3 and increase in fourth quarter. Our earnings guidance is based on approximately 81 million average diluted shares outstanding and an effective tax rate of approximately 25% compared to our prior expectation of approximately 24%. We continue to expect net capital expenditures of approximately $1 billion for the full year.

In closing, we are very pleased with our second quarter performance and the success of our long-term strategy. We remain very enthusiastic about the future of our business.

This concludes our prepared remarks. Thank you for your interest in DICK'S Sporting Goods. Operator, you may now open the line for questions.

[Operator Instructions] Your first question comes from the line of Brian Nagel with Oppenheimer.

Nice quarter, congratulations. I want to focus -- instead of focusing on the DICK'S business, I want to focus on your pending acquisition in Foot Locker. So Foot Locker reported results just recently in stark contrast to DICK'S, I mean, much weaker. So the question I want to ask is, I mean, as you're thinking about this acquisition, which will close shortly, any update on how you plan to revitalize, if you will, that Foot Locker business under DICK'S ownership and the timing of your key initiatives there?

Sure, Brian. Thank you...

Actually, it looks like we may have lost Ed. Ed is actually in Europe visiting some Foot Locker stores. Ed, are you there?

I'm here, can you hear me?

No, we can't hear you. So I will answer the question, Brian, and we'll work to get Ed's line restored. Ed, try one more time?

Can you hear me?

No. Okay. So thank you for the question. We really appreciate it. We see a tremendous opportunity with the Foot Locker business. We think this acquisition is going to be great for our consumers, our employees, our vendor partners and also our shareholders. And the more time that we spend in our -- with the Foot Locker team, both at our various headquarters and also in the stores with the Stripers, we are increasingly optimistic and [indiscernible]. This is a team that really, really wants to win.

What we plan to do? We are going to be working with our brand partners who are very excited about the opportunity to turn the business around who are already sharing really strong insights. We plan to invest in stores. We plan to invest in marketing, and we know that there are opportunities from a core merchandising standpoint. We're excited about apparel opportunities and also bringing in a new assortment of products. So across the board, we're very excited.

Brian, I would say we haven't closed the transaction yet. So we are on September 8, moving toward doing that. And we will be back to you at our Q3 call with more specific details. But rest assured, we are very excited about the opportunity that we see in Foot Locker, and we are moving forward with a lot of enthusiasm.

I appreciate the details. And then if I can just focus a big picture, but more, I guess, on the DICK'S business, just the topic du jour, if you will, the tariffs. So where is DICK'S on the -- within the tariff conversation, your mitigation efforts. And to the extent that either DICK'S or your supply partners have started to adjust prices, have you seen any act or any impact upon demand on the part of your consumers?

Thanks, Brian. We actually -- we come off a quarter where we had 5% comps, and we're feeling really strong about all aspects of our business. Our long-term strategies are clearly working. Everything from the differentiated assortment that we have in the stores, our athlete experience, which we continue to invest in and reinvent in our stores, our online business, our app, but also in our reinvention of our product -- of our portfolio of stores with our House of Sport and our Field House concept. So I would point to the execution of our team, which has just been absolutely extraordinary. And their passion to win and their passion to produce results are really driving so much of our business.

As you look to the back half, we just did take up our top line and bottom-line guidance, and that includes all of the impact of tariffs that we see. We did also just come off of Q2 where our gross margin expanded, and we are navigating very well through an uncertain tariff environment. We've seen some sporadic price increases, but they are surgical and not across the board, and we're seeing our consumer, obviously, with a 5% comp, we're seeing the consumer respond really well. So I'm very pleased that we are navigating well and still increasing our guidance and our gross margin for the back half.

Your next question comes from the line of Simeon Gutman with Morgan Stanley.

So Lauren, you mentioned the business is vibrant. Can you talk about the second half comp assumptions? Are there any signs that the consumer is slowing in any categories? Is there some just caution because of comparison and maybe tariff impact that the consumer could face?

Yes. Thanks for the question, Simeon. We are not seeing any signs of slowdown with the consumer. In fact, one of the most exciting things about the quarter that we just delivered is the broad-based nature of the growth that we saw. We saw growth across all of our key segments. So footwear, apparel, team sports and golf, all doing really, really well. So we do not see signs that the consumer is slowing.

I would say, if anything, if you look to the assortment and the partnership that we have with our key brands, there is a trend toward innovation and newness in the products that are coming down the pike that are keeping the consumer really, really energized and they're responding very well to some of that technicity that's all in the product, both again, hardlines and softlines. So we're seeing it with bat launches as well as apparel as well as technical running and the new running constructs that are out in the market. So we think we're going to be navigating really well. We did just take our comp assumptions up for the back half. So we are confident we can deliver that guidance.

Yes, Simeon, just to build on what Lauren said, as you can imagine, the overall macroeconomic situation continues to remain dynamic, and that's the reason we continue to have in the range of an outlook that we have provided. But the things that we control, the core strategy, the assortment that we have access to, how well our inventory is positioned for the back half, we are really excited about all the opportunities that we continue to see ahead of us.

Okay. And then my follow-up, it's on margin. There's maybe like a near-term component and then a medium term. The near-term gross, the language in the presentation changed a little bit. And I don't know if you mentioned merch margin in Q2. So some clarification on the level of expansion you expect plus what happened in Q2.

And then the medium-term question is more on expenses within the margin. At what point does the leverage threshold of the business change, meaning you have the curve of House of Sport expense, technology, whatever else you're dealing with in SG&A, when does that level off such that the comp leverage point actually moderates or at least stabilize?

Yes. So Simeon, let me -- I think, so there are three questions there, and I'll try to answer all three of them, and let me know if I missed something. So the first, starting with Q2, like Lauren indicated, we are very pleased with the business here in Q2. Not only did we deliver a 5% comp, 9.5% 2-year stack, but we delivered that on strong gross margin and merch margin expansion. So our margins expanded 33 basis points, gross margins. And the merch margin expanded by 18 basis points.

The drivers of that expanded merch margin continues to be consistent with what we have been talking about, about the quality of our assortment, the favorable mix that we continue to see from the core categories that are performing exceedingly well as well as some of the early benefits that we have started to see from GameChanger and DICK'S Media Network. And as we look to the back half, those three drivers will continue to remain to be the drivers of our expanded gross margin outlook that we have shared on a year-over-year basis for the full year as well.

In terms of the leverage point, so we're not sharing the long-term rubric here. But the way we have consistently said in the past, we believe that we can deliver kind of a leverage on the SG&A at a low single-digits comp, and that will be balanced between the margin outlook that we share as well as the SG&A investment opportunity. But what we have been saying is you can continue to look to us to drive consistently the strong top line and the strong bottom line momentum on the top line and EPS basis. We will continue to balance that between the opportunity that we see to create long-term differentiating opportunities like GameChanger, DICK'S Media Network, some of the work that our technology team has been doing in personalization, RFID. These are the differentiating capabilities that we are investing in that are driving sustained top line results as well as strong profitability growth.

Your next question comes from the line of Adrienne Yih with Barclays.

I'll add my congratulations. Well done. Lauren, so my question is sort of higher level kind of what we're seeing in the industry overall. Athleisure apparel and even performance footwear, they generally, right, have been under some pressure year-to-date. Seemingly, the retail channel, the wholesale part of their business is doing better than maybe their own DTC. And then you have kind of your -- the deal with Foot Locker makes you a bigger [ present ] for Nike. So it just feels like to me, some of the balance of power might be shifting in your favor. And I'm wondering if you can discuss that from a broad long-term perspective.

And then Navdeep, can you talk about how much of your comp came from current day price increases? What do you foresee for third and fourth quarter? And then you're working on spring orders. So are brands raising prices, right, because there's this rolling impact of the tariffs in the spring season more intensively than fall?

Okay, Adrienne. Thanks for the question. So starting with what we're seeing in the industry and overall, we are seeing, as I just mentioned, growth across all aspects of our business. So that's footwear, and that's apparel and it's also team sports as well as golf. So we are finding growth in all of those. And you're right, as we become a -- Foot Locker becomes part of the DICK's family, we are an even more important brand to our wholesale partners. And that's part of the thesis and the strategy is that we want to be involved in that long-term -- just long-term insight sharing, trend identification, product development. So we're very, very focused on that.

I don't know what I would say the balance of power would shift. I think what I would say is our strategic relationship is very, very strong. And as the consumer continues to vote with -- into the categories that we serve, be it all -- be it the high heat footwear as well as the bats and all of the newness and the innovation that are coming down the pike, we feel terrific. We are rooted in sports. Our brand partners are rooted in sport, and we're very optimistic about the future.

Navdeep, I'll turn it to you.

Yes, Adrienne, in terms of just drivers of the business, when you look at the comp, almost 1% of our comp came from the increase in transaction and the remaining came from the overall basket increase. As Lauren indicated, we are seeing really strong affinity towards the innovation as well as newness that is available in the products. And so that continues to be a big driver of the overall basket selling and the work that our teams are doing in stores and helping sell a much more comprehensive basket. And so that means more units per transaction. That is also a driver in addition to the product mix as well. So it's a combination of all three of those things that we are seeing a continued improvement in our basket selling as well as continued increase in transactions.

In terms of the outlook for 3Q and 4Q, we typically don't break that out between that level of detail. So I won't do that right now. And then as far as the outlook for the spring season, we will share that in the due course of time. As you can imagine, we are working very closely with the national brand partners and our own vertical brands to come up with the plan for 2026.

Your next question comes from the line of Robby Ohmes with Bank of America.

Great quarter. I was wondering if, Lauren, we could get a little more color on the -- what you're seeing from your customer? You gave us a lot already, but I think you're seeing, it sounds like more shifting to online versus in stores. Could you tell us how back-to-school went for you guys and how you think you did there versus last year? And are you seeing your customer gravitating work towards promotions or things like that?

Thanks, Robby. Thanks for the question. We are seeing strength with our consumer across the board. Our consumer is responding to our assortment, they're responding to the athlete experience. And there's -- we're seeing growth. We've been saying that we are outperforming in e-commerce, but we're seeing incredibly strong growth in all of our channels. So it's not a shift as much as it is just overall consumer demand.

We feel terrific about back-to-school. A lot of those sales are in Q3. And so we will be reporting on back-to-school when we come back to you in a few months. But between the amazing footwear that we have, the apparel, the backpacks, the lunch boxes, we have a terrific assortment. And promotional activity hasn't been an enormous factor for us. We are navigating, as we always do, we're surgical and the differentiated assortment that we have enables us to really lean into newness and innovation rather than a deep promotional cycle.

So I just would point to, I think our consumer across the board is doing so well. And you see that in the fact that we don't -- we're not seeing trade down from best to better or better to good. We're seeing growth across all income demographics. We have products for absolutely every consumer, and that's taking us into the back half.

Your next question comes from the line of Michael Lasser with UBS.

[indiscernible] and stock price is under a bit of pressure, that is probably related to some of the commentary around the gross margin where previously there was an explicit expectation that it was going to be up 75 basis points for the year. And now the expectation is simply that it's going to be up. So a, what is the most realistic expectation you anticipate now for your gross margin? And b, why would it be less than up 75 basis points like it was before?

Michael, thanks for that question. I think the first part of your question broke up, but I think your question is around the gross margin and the outlook that we have for the full year. So we still expect the gross margin to expand on a full year basis. And that has been shared as part of the updated outlook. As you can imagine, we are balancing several puts and takes as we navigate the landscape that we have in front of us between tariffs, our consistent focus on keeping our inventory really vibrant because that inventory and the assortment is what is driving this consistent top line momentum that we have been delivering 6 straight quarters of over 4% comp. And you can also imagine the pricing and the promotional landscape always remains very dynamic.

So we're trying to balance all of those different drivers as we look to the back half and balance that against our SG&A expectations from an investment perspective because what we have also reiterated is that at the high end of the guidance, we still expect our operating margins to expand by 10 basis points, which is very consistent with what we had been talking as we thought about the full year.

So really excited about the overall outlook we have shared, expanded top line expectations, expanded bottom line expectation and still continue to expect gross margin expansion driven by the new drivers like GameChanger, DMN, but predominantly driven by the differentiated product assortment and balancing that against the SG&A investment opportunity we see.

My follow-up question is, given the performance of your stock price, it's likely that you'll have to issue more shares now for the Foot Locker deal than what was maybe previously anticipated. So how does that impact the potential flow-through that you're going to get from the deal in the first year after you acquire it? And would you still expect it to be accretive given those additional shares you may have to deliver?

Yes. Michael, great question. As you know that the shareholder election was on the 29th. So based on the consideration mix between the stock and cash, that will determine the level of accretion. And all of that we are working through right now. Once we are on the other side of September 8, we'll be having our own detailed evaluation of the opportunities that we that we see with the core business. We talked again about the synergies and the confidence we have of $100 million to $125 million of synergies and balancing that against the consideration mix. So much more -- good question, much more to come as we share the outlook as part of the Q3 call.

Your next question comes from the line of Mike Baker with D.A. Davidson.

Great. I wanted to ask about GameChanger. Sometimes you give some statistics in terms of users and the like. Any update on any of those GameChanger type numbers?

Yes. Thanks, Mike. Great question. GameChanger continues to do incredibly well, highly profitable, fast-growing software-as-a-subscription business. And in Q2, that continued. So we have -- saw 7.4 million unique active users in Q2. And on average, 5.5 million monthly active users were in the app. That's up 16% year-over-year. We're still on track for the growth numbers. We hit over $100 million last year, and we're on track for almost a 50% revenue growth on that. And so everything is going great with GameChanger.

I would say one of the more exciting things that's happening also is that the DICK'S and the GameChanger businesses are working closer than ever on things like, what we're calling a live experience called Bat Lab, where we're rating with -- bringing in top athletes and rating all of the new equipment for the year. GameChanger and DICK'S, we're working on sharing data so that we can be more personalized. And GameChanger's a huge piece of our DICK'S Media Network, where we have actually live sports where we can tap into people who are fully engaged in the moment while they're watching their kids, their grandkids play sports in a highly personalized way. So GameChanger is doing fantastic.

Yes, Mike, I'll just build on what Lauren said. I think we want to give a shout out to the GameChanger team as they have been driving some of the most sustained and differentiated results in overall youth sports industry. And in Q1, hopefully, you all got a chance to see the first time that we actually did a brand advertising for GameChanger because we feel the brand awareness is another unique opportunity that we see with the GameChanger business. Couldn't be more excited about the results the team is driving and how sustained and differentiated those results are.

Yes. Sounds great. One more follow-up, and you'll probably punt this to the third quarter. But just on Foot Locker, the more you've gotten to know them and see them and visit them, et cetera, any change to those synergy numbers? I believe in the past, they didn't really include any revenue synergies, but you're talking about ways to improve the assortment, et cetera. And as part of the deal being approved, I didn't see anything on divestitures. Are there going to be any required divestitures?

No. Too soon for us to comment on all that. We are not changing the synergy numbers. We had said $100 million to $125 million in synergies, and that is -- we're still very much going after that. We will be diving in once we get past the transaction on September 8 and be back to you in Q3. So you are right.

Your next question comes from the line of Chris Horvers with JPMorgan.

I wanted to follow up on the share count question. In the original release, you did talk about the expected that the deal would be accretive on an earnings basis, I believe, in the first full year post acquisition, is the answer that -- I think it's about 11 million shares, obviously, Foot Locker stock price moving here. But to the extent that you get a full share conversion, would you expect it to be -- still be accretive on an earnings basis? Or is that more of like it will be accretive, but on an operating profit dollar basis?