Transcript
Dick (0:00)
Dick's Sporting Goods is set to acquire foot locker for $2.4 billion, according to CNBC. Dick's Sporting Goods said Thursday that it plans to acquire rival Foot Locker as it looks to expand its international presence, win over a new set of consumers and corner the Nike sneaker market. Under the terms of the agreement, Dick's will use a combination of cash on hand and new debt to acquire foot locker for $2.4 billion. Footlocker shares soared more than 80% after the deal was announced the Thursday. However, shares of Dick's fell slightly, or roughly 15%, as investors worried about the impact the merger could have on financial results. One analyst from TD Cowan even said that the deal was a, quote, strategic mistake as it downgraded shares of Dick's to hold from buy. Michael, I'm going to go to you first. Are you pro or con on Dick's acquisition of Foot Locker?
Michael (0:54)
So funny. My, my thoughts on this evolve almost to the minute. When I first read the headline, I was actually very surprised and I hated it. I. I really thought, why?
Dick (1:07)
Why?
Michael (1:08)
I think Foot Locker has issues. I think they're very fragmented. They're very reliant on Nike. And you want to talk about a gorilla in the marketplace. I mean, Nike can seal your fate within minutes, either positive or negative. And I also think that the sneaker game is a very fickle game in regards to the consumer interaction. And although there's a lot of spending power behind it, you have to be right with the style, skews, direction that you've chosen. And I think Foot Locker, based on the number of stores, based on the country saturation, I think it's a very, very difficult business to monitor and to manage and to run effectively. Now. They've done a decent job. They've had good times, they've had bad times. But it is a very, very specific type of business to run, which you have these third parties that it's basically out of your control. Your destiny may be out of your control. It's been highly publicized. When Nike wanted to pull out of the market, Foot Locker's business had a precipitous drop almost immediately. When Nike wanted to expand the marketplace and I'll call it use Foot Locker to gain market share, it was great. But the minute that wasn't great, it was a problem for Footlocker. So I think there's some huge inherent risks for Dicks. So that's number one. That's why I hated it. Then I started doing a little bit more and I flipped. So I started doing A little bit more research on the size and scale of Dicks, and I was a little mistaken in understanding how large they are. Yep, a pretty big entity. I think they're approaching $20 billion. Right. So at that size growth, organic growth is difficult. Right. One up 1% comp, down 1% comp, you're kind of happy. But if you're down 5% comp in a tough year, that is a massive hit to your revenue. So I like the fact that they actually acquired an adjacent business that's going to layer in a multibillion dollar revenue stream. I thought that was a very easy pickup. And in rereading the releases, either the CFO or the CEO said we are going to add in, I think, 4.5% comp sales in the first year, which I liked a lot. So it's so number three. My conclusion is the only way they will be successful with this is not integrating it into the Dick's business. It's sort of like a standal own, let Foot Locker run. If there's some back of the house IT or supply chain efficiencies you could create, great. If you start to sort of matrix it into the Dick's organization, I think that's a massive disaster. They should just leave it as its own entity, Let it run on its own, treat it as its own thing. Look for some economies to scale, but almost insulate and have it do that. And if they can do that, it may be very successful for them.