Shoppers always love a good sale.
Insiders at big retail chains do, as well.
At Dick’s Sporting Goods (DKS), directors, officers and the chief financial officer have been loading up on their company’s stock in its big pullback. In the 42%-off sale on Dick’s shares since late June, these insiders have purchased $5.6 million worth of stock at prices up to 136.39.
You can still purchase the stock at prices not much above the upper end of their buy range, and it looks like it makes sense to do so.
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Why Dick’s Sporting Goods (DKS) Stock Is on Sale Now
The stock is down due to weak sales at its recently acquired Foot Locker chain. However, this is a fixable problem. Dick’s management has a decent track record of turning around their core retail chain. Now they are betting they can do the same at Foot Locker.
Foot Locker sales are weak in part because shoppers have fallen out of love with Nike, a heavily stocked shoe brand at Foot Locker.
While second-quarter comparable sales rose 4.9% at Dick’s stores (69% of sales), they slid 3.6% at Foot Locker (31%). Overall operating margin fell to 7.9% from 12.4%. Non-GAAP 2026 EPS guidance was cut to $11-$12 from $13.50-$14.50.
Investors have been selling because it looks like Dick’s Foot Locker purchase was a mistake, even though it paid only 0.3 times sales. Foot Locker’s problems are also linked to inventory clear-outs in the sportswear space overall. And Foot Locker has a lot of exposure to lower-income consumers and Europe, where consumer demand has softened.
How Dick’s Management Can Engineer a Turnaround
In short, Foot Locker is broken, which makes it a turnaround candidate. Dick’s management can boost Foot Locker sales with new merchandising, store remodeling, and brand-building advertising. Over the past few years, Dick’s has increased its own operating margins to above 10% from the mid-single digits, thanks to improved merchandising, remodeled stores, and digital capabilities. It can apply the same magic to Foot Locker.
Here are some other positives to the story.
* Dick’s has strong brand and customer loyalty. The chain offers a vast, on-trend product assortment and a good in-store experience. It has roughly 30 million ScoreCard loyalty members. They account for more than 75% of the company’s sales. Vendors like the chain because of the reach it offers and the store-within-a-store model to showcase products.
* Dick’s benefits from its House of Sport store concept (giant stores with popular offerings like climbing walls, batting cages and even ice rinks) and its GameChanger app for youth sports. GameChanger enhances consumer engagement and strengthens its database by offering consumers a platform to watch games, track statistics and interact.
* Insiders buying their own turnaround is often a profitable dynamic in investing. At Dick’s the insider buy signal is strong. These qualities enhance the insider signal. They are buying in size (the $5.6 million). This is a cluster buy. Seven insiders have purchased. There is C-suite buying, since the CFO purchased.
The bottom line: Insiders bought a lot of stock at prices up to 136.39. Consider buying now as a bet that Dick’s can get Foot Locker in shape. This is also a good candidate for put selling for income. The extreme stock price compression and insider buying in the low-to-mid-130s suggest, but do not guarantee, that further dramatic price declines (the big negative in put shorting) are less likely. Also consider owning for the decent 3.5% yield. Note that turnarounds take time. You should only consider buying as a multi-year hold.
For more stocks that look promising because of exceptional insider buying, consider subscribing to Cabot Insider Edge here.
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