I have been on both sides of an acquisition, and neither side felt the way it looked from outside.
I was at Complex when Complex acquired Sole Collector, my former employer. So I got to watch a company I had bled for become a line item in somebody else’s org chart, from inside the company doing the acquiring. Later, at Stadium Goods, our parent company Farfetch was acquired by Coupang. Different scale, different decade, same feeling in the building. There is a version of that news that gets written up in an afternoon, and there is a version the people living it understand, and they are almost never the same story.
That is most of what I have been thinking about this week.
The facts first. On August 25, Dick’s reported its second quarter, the thirteen weeks ended August 1. Consolidated net sales of $5.59 billion, up 53.2 percent, which is what happens when a company the size of Foot Locker shows up in your reporting for a full half. The Dick’s business comped up 4.9 percent. The Foot Locker business comped down 3.6 percent on a proforma basis and posted a $31.9 million operating loss for the quarter. Full year guidance for the Foot Locker segment moved from a profit of $110 to $150 million to a loss of $40 to $80 million. The stock fell more than 30 percent that day, the worst single session in the company’s history.
That does not look good. I am not going to pretend otherwise, and neither did they.
The dominant take showed up before the call was even over. Dick’s overpaid for a mall business in decline, the $2.5 billion they closed on last September was a mistake, and this quarter is the proof.
I don’t see it that way. I think they bought it at a good price. I also think they bought it at one of the hardest moments in thirty years to own a business like this, and those two things are not in conflict.
Go back five months. In March, Dick’s publicly pulled back on the store closures it had planned, because an eleven store remodel pilot called Fast Break was outcomping the Dick’s business and improving gross margin while it did it. Ed Stack said out loud that stores he had been prepared to write off could be made very profitable instead. By spring the plan had scaled toward roughly 250 remodels by back to school, with assortment cut about 30 percent to focus the wall. In the first quarter, Foot Locker returned to comp sales growth and to profitability, up 0.6 percent, and the company raised its full year outlook on the strength of it.
That is not a business coming apart. That is a business that had finally started moving.
So something changed between March and August, and it was not the real estate, and it was not the operators, and it was not the remodels. Part of it Stack named on the call. The rest of it I paid for at the grocery store this week.
