Dick’s Sporting warns Foot Locker reset could cost up to $750 million; shares drop

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(Reuters) -Dick’s Sporting Goods on Tuesday missed estimates for third-quarter profit and warned of up to $750 million in charges tied to a sweeping review of its recently acquired Foot Locker business that includes store closures and inventory cleanup.

Shares of the company fell nearly 6% in premarket trading. The footwear retailer also forecast a sharp drop in quarterly gross margin at Foot Locker.

Over the last few years, Foot Locker has lost market share as brands such as Nike expanded their direct-to-consumer business. Falling customer visits to malls, where most of its stores are located, have also weighed on sales.

Dick’s Sporting Goods bought the smaller rival for $2.4 billion in May.

The company was “taking decisive actions to ‘clean out the garage’ by clearing unproductive inventory, closing underperforming stores,” Dick’s executive chairman Ed Stack said in a statement on Tuesday.

Those moves, along with merger and integration costs, are expected to result in pre-tax charges in the range of $500 million to $750 million.

Excluding items, the company reported adjusted earnings per share in the quarter ended November 1 of $2.07, compared with estimates of $2.71, according to data compiled by LSEG.

The company expects fourth-quarter gross margin at Foot Locker to drop to 1,500 basis points from 2,500 a year earlier, with pro-forma comparable sales down mid- to high-single digits as it works to clear excess stock.

Still, Dick’s raised its annual sales and profit forecasts. It expects annual comparable sales to rise 3.5% to 4%, compared with its prior forecast of 2% to 3.5% growth.

The company forecast annual adjusted earnings per share between $14.25 and 14.55, compared with $13.90 to $14.50 earlier.

(Reporting by Sanskriti Shekhar in Bengaluru; Editing by Sahal Muhammed)