‘This Is a Big Surprise,’ Says Needham on Foot Locker Stock Acquisition

It’s all kicking off in the footwear space. One week after the unexpected announcement that Skechers is to be taken private, Foot Locker (NYSE:FL) shares blasted ~86% higher in Thursday’s session following the news of its own buyout.

Dick’s Sporting Goods (NYSE:DKS) is behind the move, striking a deal to buy FL for $24 per share – an 80% premium over Foot Locker’s May 14 closing price. That puts the retailer’s total value at approximately $2.4 billion, with the transaction expected to close in the back half of the year.

Interestingly, Needham analyst Tom Nikic pointed out that the $24 buyout price happens to match his 12-month price target for FL – makes you wonder if someone at Dick’s has been reading his notes a little too closely.

The deal seems to add up for both sides. Foot Locker shareholders have already scored big, thanks to Thursday’s surge – something that would have been difficult to realize independently, given the stock’s tendency to trade at what Nikic believes are “unreasonably low valuation multiples.”

For Dick’s, the acquisition offers the opportunity to take over a business that is currently underperforming – EBIT margins are in the low-single-digit range compared to high-single-digits pre-Covid and even double digits at times in the past. The deal also appears reasonably priced, at roughly 14–15x the midpoint of FL’s FY25 EPS guidance ($1.35–$1.65) and just over 5x EBITDA.

From a strategic and operational perspective, DKS could play a meaningful role in supporting FL’s margin recovery – if nothing else, through cost synergies. The combined company would also benefit from increased scale, enhancing its leverage in negotiations with suppliers, landlords, and other partners. Moreover, DKS has developed one of the strongest private label apparel portfolios in the industry (including Calia, DSG, and VRST), which could be “leveraged to aid FL’s exclusive-brand ambitions.” Additionally, with footwear being a key strategic focus for DKS in recent years, FL’s deep expertise in athletic footwear could prove to be a valuable asset for the company.

On the regulatory front, Nikic thinks the risk of antitrust concerns is relatively low. While both DKS and FL operate in the athletic footwear space, their product assortments differ more than one might expect. DKS tends to focus on performance-driven products like cleats and running shoes, whereas FL leans more toward lifestyle and fashion-oriented offerings, such as retro Jordans. Although the distinction has become somewhat less defined in recent years – DKS has expanded into more sneakerhead-oriented styles, and FL has added more performance footwear – there remain some “key differences” in their core assortments.

“All in all,” Nikic summed up, “this news comes as quite a surprise to us, though it does seem to make sense for both parties.”

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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.