Dick's Sporting Goods' Warning Bodes Poorly for Nike and Lululemon Stocks

Dick's Sporting Goods, a key partner of Nike, has revealed that the struggling footwear market may not be improving soon. Executives at the sporting goods retailer said they are currently experiencing the "footwear hangover" and going through a reset with new shoe styles from various brands, including Nike, Adidas, On, and HOKA. Lifestyle sneakers from Nike have been a solid performer for Dick's in recent years, but they are becoming less popular with consumers.

Nike has implemented aggressive markdowns to clear slow-moving products, which has led to pricing pressure on styles from other brands. This domino effect is causing concern for Dick's, given their high reliance on Nike, and the growing dependence on other emerging brands. Dick's second quarter adjusted earnings per share (EPS) fell short of estimates, with the company slashing its full-year EPS outlook.

The shock in Dick's stock could signal more trouble ahead for Nike. In late June, Nike reported a 1% decline in fiscal fourth quarter revenue and a 4% drop in currency-neutral terms. While Nike's diluted earnings per share appeared strong, it was heavily influenced by a $0.52 per share one-time benefit from an expected tariff recovery.

The company projects a low-to-mid single-digit revenue decline for the first quarter and flat earnings per share growth over the next three quarters. No signs of a turnaround are expected in the foreseeable future due to execution issues, changing sneaker preferences, cautious consumers, and competition from companies like On Holding (ONON).

Nike's stock has dropped approximately 78% from its all-time high in 2021, with losses of 38% this year. The market's assumptions about athletic footwear growth and the rapid recovery of Foot Locker now require scrutiny.