DKS Disastrous Day: The Foot Locker Acquisition Is Undoing The Stock

Yesterday (Tuesday) I wrote about a lazy trade I made on Monday. After a three day vacation from the market playing poker, working out and reading books in Rohnert Park, I was anxious to jump back in. Unfortunately, my over eagerness to do something caused me to take a bad trade.

I sold a few DKS Sep25 $165 Puts for ~$5 ahead of its 2Q26 earnings report Tuesday morning without sufficiently understanding the risk. To use a phrase from Mark Minervini, I was picking up pennies in front of a steamroller. Those puts are now worth > $40. In other words, I got steam rolled.

A few people asked me why I would write up such a bad trade since it’s bad marketing. The reason is that I wanted to publicly embarrass myself to imprint the trade in my memory so that I don’t make this mistake again. In poker they say that if you haven’t figured out who the fish is within 5 minutes you’re the fish. Yesterday I realized to my chagrin that I was the fish among sharks in the options market.

At the same time, when I see a 30% selloff in a stock that I consider to be a quality business it makes me want to look closer to discover if it’s an opportunity. While I already had a few shares of DKS in retirement accounts, Tuesday’s debacle caused me to do a deep dive.

What I learned is that DKS problems are almost entirely due to its acquisition of Foot Locker which was first announced on May 15, 2025. At best, the acquisition was poorly timed. At worst, it’s a disaster. But a 30% selloff does go a long way towards pricing in a lot risk.

DKS Guidance May 27, 2026

DKS Guidance August 25, 2026

Let’s be clear: DKS is now two businesses: Dick’s Sporting Goods and Foot Locker. And the problem is Foot Locker. You can see this in the significant decrease in guidance for the Foot Locker business in yesterday’s earnings release.

On May 27, 2026, DKS was guiding Foot Locker to full year comps of +1.5% to +3.0% and segment profit to $110 million to $150 million. Yesterday, they dramatically cut that -2.0% to 0.0% and -$80 million to -$40 million. While they did marginally cut segment profit margin guidance for the Dick’s Sporting Goods business, the disaster was almost entirely attributable to the huge decrease in guidance for Foot Locker.

DKS Consolidated Full Year 2026 Outlook August 25, 2026

What now?

While the Foot Locker acquisition is undoing the stock, a 30% decline goes a long way to pricing in a lot of risk. The Dicks Sporting Goods business is still doing quite well with full year 2026 comps expected to be +2.5% to +4.0%. The overall business is now trading for 11x the midpoint of 2026 EPS guidance of $11.00 to $12.00. While it could take a while to work through the issues at Foot Locker, patient investors will receive a 4% dividend for waiting.

To be clear the issues surrounding Foot Locker create risk for the stock. However, in my opinion, the current price represents an attractive entry point for long term investors with the patience to see things through. I significantly added to our positions on Tuesday.