Dick's Sporting Goods Inc

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 Dix Sporting Goods second quarter 2025 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, Simply press star followed by the number one on your telephone keypad. And if you would like to withdraw your question, again, press star one. Thank you. 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.dix.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 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 the reconciliation of our non-GAAP financial measures referenced in today's call. For future scheduling purposes, we are tentatively planning to publish our third quarter 2025 earnings results on November 25th, 2025. With that, I'll 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, Vicks 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 omni-channel athlete experience, or 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 8th. We remain very enthusiastic about the strategic benefits from the deal. By bringing together Dixon 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 omni-channel athlete experience, differentiated product assortment, best-in-class teammate experience, and our ability to create deep engagement with the Dix 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 CompSales 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 T2 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 one additional house and 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 four new Fieldhouse locations in Q2. We expect to open six 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 Game Changer and the DIX Media Network. I want to close with a brief comment on how enthusiastic I am about the future growth potential of the DIX and Gulf 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 omni-channel retailers. This growth represents a 9.5% two-year comp stack and 11.5% three-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. Pre-opening 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 13.83% 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 shares was $4.71. This includes non-cash gains from non-operating investment in Foot Locker stock, as well as merger and integration and financing costs related to the pending footlocker 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 and 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 footlocker 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 microeconomic 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 pre-opening expenses to be in the range of $65 million to $75 million. For the back half, we expect most of the pre-opening expenses to be concentrated in third quarter to support our 13 planned house of sport and six field house openings. 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 first 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 strategies. We remain very enthusiastic about the future of our business. This concludes our prepared remarks. Thank you for your interest in exporting goods. Operator, you may now open the line for questions.

Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. And if you would like to withdraw your question, again, press star 1. We also ask that you limit yourself to one question and one follow-up. Your first question comes from the line of Brian Nagel with Oppenheimer. Please go ahead.

Good morning. Nice quarter. Congratulations. Thank you. I want to focus on your pending acquisition in Foot Locker. Fort Locker reported results just recently, stark contrast to Dick's, much weaker. So the question I want to ask is, as you're thinking about this acquisition, which will close shortly, any update on how you plan to revitalize, if you will, that Fort Locker business under Dick's ownership and the timing of their 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? 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. Nope. 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 with the Foot Locker team, both at our various headquarters and also in the stores with the stripers, we are increasingly optimistic and 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 8th 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.

Thank you, Lou, and I appreciate the details. And if I can just focus a big picture, but more, I guess, on the Dix business, just the topic du jour, if you will, in the tariffs. So where is Dix within the tariff conversation, your mitigation efforts? And to the extent that either Dix or your supply partners have started to adjust prices, have you seen any impacts 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 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 a 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.

That's very helpful. I appreciate it. Thank you.

Thank you. Your next question comes from the line of Simeon Gutman with Morgan Stanley. Please go ahead.

Hey, good morning, everyone. 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 technical technicity. That's all in the product, both again, hard lines and soft lines. So we're seeing with bat launches as well as apparel, as well as technical running and the new running constructs that are out in the market. So again, 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, I mean, just to build on what Lauren said, as you can imagine, you know, 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, or 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 and 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 stabilizes?

Yeah. So, Simran, let me – I think there are three questions there, and I'll try to answer all three of them and let me know if I missed something. Starting with Q2, like Lauren indicated, we were very pleased with the business here in Q2. Not only did we deliver a 5% calm, 9.5% two-year stack, but we delivered that on strong gross margin and merge margin expansion. So our margins expanded 33 basis points, gross margins, and the merge margin expanded by 18 basis points. The drivers of that expanded merge 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 Game Changer and Text 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 a 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 a top line and an EPS basis. You'll continue to balance that between the opportunity that we see to create long-term differentiating opportunities like Game Changer, Dix 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.

Okay, thank you very much. Good luck.

Your next question comes from the line of Adrian Yee with Barclays. Please go ahead.

Yes, thank you. Good morning, and I'll add my congratulations.

Well done.

Lauren, you're welcome. Lauren, so my question is sort of higher level kind of what we're seeing in the industry overall. You know, 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, you know, 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 may be shifting in your favor. And I'm wondering if you can discuss that from a broad, you know, long-term perspective. And then, Abdeep, 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? Thank you.

Okay, Adrian, 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 that's also team sports as well as golf. So we are finding growth in all of those. And you're right, as Foot Locker becomes part of the Dix 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 insight sharing, trend identification, product development. So we're very, very focused on that. I don't know why I 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 into the categories that we serve, be it 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 sport. Our brand partners are rooted in sport. And we are very optimistic about the future. Abdeep, I'll turn it to you.

Yeah, 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 transactions. 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 and much more comprehensive basket. And so that means more units for transaction. That is also a driver. in addition to the product mix as well. So it's 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 at 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 new 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 a plan for 2026.

Thank you very much.

Best of luck.

Thank you.

Your next question comes from the line of Robbie Owens with Bank of America. Please go ahead.

Hey, good morning, guys. Great quarter. I was wondering if Lauren, we could get a little more color on 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 more towards promotions or things like that?

Thanks, Robbie. 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 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 lunchboxes, we have a terrific, 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. 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.

That sounds great. Thank you.

Thank you. Your next question comes from the line of Michael Lasser with UBS. Please go ahead.

Good morning. Thank you so much for taking my question.

Getting feedback and .

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. 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? Thank you so much.

Yeah, Michael, thanks for that question. I think the first part of your question broke up, but I think so 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 six straight quarters of over 4% comp. And you can also imagine the pricing and the promotion landscapes 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 expectation, expanded bottom line expectation, and still continue to expect gross margin expansion driven by the new drivers like Game Changer, DMN, but predominantly driven by the differentiated product assortment and balancing that against the SG&A investment opportunities.

Thank you for that. My follow-up question is given the performance of of your stock price, it's likely that you'll have to issue more shares now for the footlocker 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?

Yeah, Michael, great question. As you know, that the shareholder election is on the 29th. So based on the consideration mix between the stock and cash, you know, 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 8th. We'll be having our own detailed evaluation of the opportunities that we see with the core business. We talked again about the synergies and the confidence we have of $100 to $125 million of synergies and balancing that against the consideration mix. So much more good questions, much more to come as we share the outlook as part of the Q3 call.

Okay. Thank you very much and best of luck.

Thanks, Michael. Your next question comes from the line of Mike Baker with DA Davidson. Please go ahead.

Great. Thanks. I wanted to ask about Game Changer. Sometimes you get some statistics in terms of users and the like. Any update on any of those Game Changer type numbers?

Yeah, thanks, Mike. Great question. Game Changer 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 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. We're almost a 50% revenue growth on that. And so everything is going great with Game Changer. I would say one of the more exciting things that's happening also is that the Dix and the Game Changer 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, top athletes and rating all of the new equipment for the year. Game Changer and Dix were working on sharing data so that we can be more personalized. And Game Changer is a huge piece of our DIX 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 Game Changer is doing fantastic.

Yeah, Mike, I'll just build on what Lon said. I think we want to give a shout out to the Game Changer 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 Game Changer because we feel the brand awareness is another unique opportunity that we see with the Game Changer business. Couldn't be more excited about the results the team is driving and how sustained and differentiated those results are. Yep, sounds great.

One more follow up, and you'll probably pump 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, it 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 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 8th and be back to you in Q3. So you are right.

Okay, fair enough.

Yep. Your next question comes from the line of Chris Horvers with JP Morgan. Please go ahead.

Thanks and good morning. I wanted to follow up on the share count question. In the original release, you did talk about, you know, they expected that the deal would be accretive on an earnings basis, I believe, in the first full year post acquisition. Is the answer that, you know, because I think it's about 11 million shares, obviously, you know, Foot Locker stock's 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'll be accretive but on an operating profit dollar basis?

Yeah, Chris, all are great questions. As you can imagine, there are multiple moving pieces when you're trying to understand the accretion dilution. Share count just happens to be one of them. Like Lauren indicated, synergy expectation, the timing of synergy would be another driver. The core business performance would be another driver. So there is definitely more work to be done. But what we continue to remain confident is that this would be accretive, but level of accretion will be depending based on the consideration mix. But that is the work that is ahead of us. Once we are past September 8th, we'll be working very closely as a collective company to refine those expectations and share a deeper outlook as part of our Q3 and Q4 call.

Got it. Makes sense. And then as you think about the momentum that you've seen in the business, the excitement around the newness, what seems to be a pretty good back to school season in the implied comps in the back half are, I understand you mentioned you've raised them, but it does signal a sharp deceleration. So is that just Is it just more caution around what might happen with the consumer sort of in between events, given the uncertainty with tariffs?

Thanks, Chris. Yeah, we are balancing the incredible momentum that we have in the business with just some appropriate caution about the uncertain macroeconomic environment. We've now included tariffs and everything we know about tariffs. And keep in mind, we're also lapping incentives. second half comps that are aggressive, 50 basis points stronger than the first half. So we are really confident. We never guide to the highest possible outcome, but we have a tremendous momentum and are just appropriately cautious as we guide.

Yeah. So Chris, just as a reminder, what Lauren is alluding to is the fact that we'd actually delivered a 6.4% comp in Q4. So that has also been contemplated as we gave the second half outlook. But unlike you rightly pointed out, we raised our second half outlook versus a prior guidance based on the strength of the core strategies, strength of the assortment that we have, as well as how well our teams are executing.

Understood. Have a great back school season. Thank you.

Thanks, Chris.

Your next question comes from the line of Joe Feldman with Kelsey Advisory Group. Please go ahead.

Yeah. Hi. Good morning, guys. Thanks for taking the question. Lauren, I think you mentioned customers are responding to innovation and technology in some of the products. And I was wondering if you could share a little more color on that and maybe which categories you're seeing the most innovation in or just which products and what people are looking at there. Thanks.

Yep. Thank you. We are seeing, as I said, growth across the entire business. And we are absolutely seeing consumers lean into innovation and technical aspects of the product and performance. So you see it in the running construct from Nike, for example, doing really well. You see it, as I've mentioned, in some of the hardline categories. We're actually having tremendous excitement in the license category, and we've got small tests going on with trading cards that are doing very well. There is excitement. I think it speaks to the fact that The consumer and sport and culture are intertwined in ways that have never been this powerful. And the consumer is very, very interested in newness, the lifestyle of sport and the performance of sport. And we're carrying those products. So I could point to the entire portfolio and say there are areas of incredible excitement and things that we're very excited about coming down the pike.

That's great. Thanks. And maybe a quick separate sort of question, which is, Can you talk a little bit about how you guys are incorporating new technologies into the business like AI or computer vision and machine learning and how that's maybe going to help on the back end and the front end? Thanks.

Yeah, that's a great question. As you know, we have been investing in SG&A for some time now. And a lot of that is in marketing, but also technical tools that are really enabling our business. And we've been investing in things like the digital businesses to make our e-commerce and the game changer business even stronger. We're investing in the marketing stack so that we can even be more personalized. We're investing in tools for our teammates so that they use RFID to help find products around the store and to be able to send products faster to athletes. And we have AI embedded in many of these tools. We've got search function, supercharged search on e-com that is based on AI enablement, and as is teammate scheduling and product and merch assortment planning. So early innings with AI, but the tools that we are building are powered by them and will continue to be more so. And this is a very significant part of how we're driving productivity and also empowering our teammates to spend more time with athletes in a sales and service mode rather than on tasking.

That's great. Thanks. Good luck with this next quarter.

Thank you. Your next question comes from the line of John Kiernan with TD Cowan. Please go ahead.

Thanks for taking my question. Congrats on a nice quarter. Lauren, can you talk to the athletic footwear cycle where you think we are? Prices seem to be moving a little bit higher and probably will so through the first half of next year. How do you think the consumer's ability to absorb these price increases stands. And I got a quick follow-up after that. Thank you.

Yes. Yes. Well, as I've said, the footwear business continues to be very, very strong. There have been some selective price increases, but we and our brand partners are very surgical about when, where, and how much we can bring in some minor price increases to offset some of the tariffs. But we are always conscious of what the consumer will be able to afford and the profitability of the business. So with a 5% comp, you know, we have not seen the consumer having any issue with the price increases, the small level of price increases that have gone in. And we're seeing incredible demand for footwear.

Got it. And now, Dee, maybe a quick question for you. Just the tariff impacts on cost of goods sold and gross margin in the back half. What are your assumptions and How do you think this will trend into the first half of next year? Thank you.

Yeah, John, you know, minimal impact on tariffs in Q2. There is small impact in the second half that has been contemplated into our outlook that we shared for the margin as well as the full year profitability. You know, we'll share much more around the FY2026 in due course, but as you can imagine, this is an active body of work between us with our manufacturers, with the national brand partners, and also looking at the pricing and promotion opportunities that we see. So plenty of work that is still ahead of us. Feel great about the outlook and how our teams have been managing through this situation.

Got it. Best of luck in the fall.

Thank you.

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

Hey, good morning, guys. I was wondering if you could talk a little bit about how traffic compares between field house and house sports stores versus the chain average and how you're thinking about the dynamics between ticket and transactions moving forward.

Yeah, Joe, we don't break that level of details out, so I'll not do that right now. As you can imagine, we continue to remain really, really enthusiastic about the performance that we are seeing from house of sports stores, the field house stores, not just from a traffic perspective, but overall basket building opportunity, the work that our teams are doing in fully servicing these athletes that are walking into these locations, the experiences that we are able to provide. So You know, traffic probably is a very niche way to look at it. And we are looking at the overall aggregate level of performance coming out of these stores. And as we have shared, we are very excited about the top line momentum as well as the bottom line momentum. More importantly, how well these are resonating with our brand partners is a very differentiating capability that we are excited about. In terms of the dynamics... Yeah, tickets and transaction, you know, we won't guide at that level. As you can consistently see over the last several quarters, you know, our growth in comp sales has been consistently coming from more transactions as well as ticket. And that goes back to continue to being the case where Dix is seen as the right destination for sport and culture. And that's what gets us really excited as we look at the balance of the year this year.

Got it. Makes sense. And then if I could just squeeze in one more, just wanted to ask about the recent retail media investments and how we should think about that business scaling through this year and then maybe how we're thinking about it in 2026 versus 2025.

Yeah, we are thrilled with our Dix Media Network. We have been building it for some time now. It is getting increasingly more powerful as we leverage the automation of the data and the reporting technology. Our brand partners and non-endemic partners are very excited, but we are still in early innings. So we haven't broken out exactly how much we are expecting from the Retail Media Network this year nor next year, but I would look to this as being a long-term growth, profitability driver, margin driver, and revenue. We're very, very pleased. We have a unique network here where we have access to youth sports and actually live sports. If you look at the Game Changer platform, and it's something that is being recognized as being very unique in the industry.

Yeah, Joe, I'll actually connect your last question and this question on DMN, because there is a very unique opportunity that exists at the intersection of Fieldhouse and House of Sport with Dix Media Network as well, where we are able to activate the brands, both endemic and non-endemic, and really, really showcase those brands in front of the athletes while they are visiting House of Sport and Fieldhouse. So that's what the unique opportunity that we see between Game Changer, the retail location, as well as some of the online platforms that we have.

Great. Thanks so much.

Your next question comes from the line of Paul Lejez with Citi. Please go ahead.

Hey, thanks, guys. Sorry if I missed it, but did you talk about the performance of your private brands this quarter? And then just along those lines, from a tariff perspective, curious what kind of cost increases you're seeing due to tariffs on the product that you direct import and what your plans are with price for those items. And then same question for national brands. So the price increases that you are seeing, what's happening with price? ARE YOU LOOKING TO MAINTAIN MARGIN OR ARE YOU LOOKING TO MAINTAIN PROFIT DOLLARS?

THANKS. GREAT, PAUL. THANKS FOR THE QUESTION. I'LL START OFF. OUR VERTICAL BRANDS CONTINUE TO DO VERY, VERY WELL. AND I SPECIFICALLY WOULD POINT TO OUR FLAGSHIP APPAREL BRANDS, DSG, CLEA, AND BURST, DOING VERY WELL IN MEETING A CONSUMER NEED IN OUR STORES FOR PRODUCT THAT IS NOT BEING COVERED ELSEWHERE. IT'S REALLY A GREAT INCREMENTAL OPPORTUNITY. Our vertical brands also still have 700 to 900 basis points higher margin than the average national brand. And we are the number one or two vendor in a lot of key categories for ourselves, accessories, athletic apparel, fitness, golf, team sports. So across the board, vertical brands doing very well. I'll turn it to Nadif to answer the second part of your question.

Yeah, so Paul, just to build on the tariff question as well as pricing, you know, as you can imagine, we have seen some of the brand partners, you know, as we manage our business, they are managing theirs. And there is a little bit of an increase in prices that we have seen. both on the vertical brand side as well as from the national brand partners. However, you know, consistent with what we have been doing for a few years now, as well as you look at the prior cycles, we take a very surgical and a flexible approach to pricing. We are consistently working very closely with our manufacturers and our brand partners, trying to make the right decision that balances the needs of that athlete, so that we continue to drive the top line momentum at the same time balance against the profitability of the business. And this all has been contemplated in the updated outlook that we provided for the second half.

Your next question comes from the line of Justin Kleber with Baird. Please go ahead.

Hey, good morning, everyone. Thanks for taking the question. Just wanted to follow up there on Paul's vertical brand question and ask it in a bit different way, specifically as it relates to how you envision leveraging your success in vertical brands and perhaps introducing some of these into the Foot Locker stores.

Justin, it's too soon for us to talk about that. We have to immerse into the business. We haven't closed yet. We don't know. We think there's a lot of merchandising opportunities We think there's apparel opportunities over in Foot Locker, but vertical brands, way too soon to tell.

Okay. And then just one clarification. The new comp and sales guide, does that just flow through the first half upside? Or I thought, Lauren, I heard you mention that you did take up your second half assumptions. So just wanted to clarify that. Thank you.

Yes, we did take up the second half assumptions modestly. Navdeep, do you want to give some specifics?

Yeah, absolutely. Justin, like Lauren indicated, we flowed through the beat on Q2 against our own internal expectations, and we have modestly raised our second half comp expectations modestly also for the back half.

All right. Thank you, guys. Best of luck.

Thank you.

Thanks, Justin.

Your next question comes from the line of Eric Cohen with Gordon Haskett. Please go ahead.

Hi, thanks for the question and great quarter. Historically, Dix has had a pretty diversified offering across categories, the footwear, apparel, and hard lines. But then post the locker acquisition, your footwear category is going to become a much more meaningful part of the business. So I guess how do you ease concerns that the business is not going to have incremental inherent risk by being much more tied to a single category than you have been in the past?

Thanks, Eric. Footwear is the engine that pulls the train. We always have said the outfit starts with the footwear. Footwear is key for performance. It's key for sport lifestyle. As sport and culture continue to intertwine, footwear is the key product. we are quite confident. We're serving different consumers, both at JICS and at the Foot Locker banners, and we are going to be delivering them what they need in a category that we think is fairly important, both long-term, short-term and long-term.

Great. And just as you continue to open up, have opened up more House of Sport in different market sizes and locations within markets, have you seen a difference in sort of the sales productivity or how they ran? Because certainly now you're going to accelerate the openings, anything to think about just of those performance should just be consistent as you expand more?

Yeah, Eric, we are very happy with the performance that we are seeing. Actually excited also by the fact that, you know, even some of the smaller markets are able to support a house of sport locations very, very productively. So that actually expands the opportunities for us to think broadly about the house of sport strategy as we look to the next few years.

Great. Thanks a lot.

Thank you. And that concludes our question and answer session. And I will now turn it back over to Lauren Hobart, President and CEO, for closing comments.

Thank you all for your time today and for your interest in exporting goods and a shout out to our teams across the country and a welcome to our new Foot Locker teammates. We're excited to get going after September 8th. Thank you all very much.

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