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Investing.com -- Moody’s Ratings has announced that it has placed all ratings of Foot Locker (NYSE:FL), Inc. on review, with the direction of the review being uncertain. This action affects the company’s Ba3 corporate family rating, Ba3-PD probability of default rating, and B1 senior unsecured notes rating. Concurrently, Moody’s has shifted the outlook from stable to ratings under review. The speculative grade liquidity rating for Foot Locker remains at SGL-2.
The move by Moody’s comes in the wake of Dick’s Sporting Goods (NYSE:DKS), Inc.’s definitive agreement to acquire Foot Locker for an estimated enterprise value of $2.5 billion. This acquisition, which is pending regulatory and shareholder approval, is projected to be finalized in the second half of 2025.
Moody’s has expressed that the review will hinge on the completion of the acquisition by Dick’s Sporting Goods. If the transaction is successful, it is anticipated that Foot Locker’s ratings could be upgraded due to Dick’s higher credit standing. Conversely, should the deal fall through, a downgrade is possible, given the expected decline in revenue and earnings for Foot Locker in 2025. This forecasted downturn is attributed to anticipated higher product costs resulting from tariffs and reduced discretionary spending, particularly within Foot Locker’s core demographic.
Moody’s Vice President Raya Sokolyanska has noted that despite Foot Locker’s ongoing transformation initiatives, such as the Reimagine store format, technological investments, and partnerships with NIKE and other sportswear brands, the company continues to experience revenue declines and low operating margins.
The review will scrutinize the likelihood and timeline of the Dick’s acquisition, including the handling of Foot Locker’s existing debt. An upgrade to Foot Locker’s ratings could occur if the acquisition is completed or if the company shows a significant recovery in earnings and free cash flow. Conversely, ratings could be downgraded if there is no improvement in sales and operating income or if liquidity is compromised. Factors such as aggressive financial strategies, reduced access to key products, or a lasting shift in consumer preferences away from premium athletic footwear could also trigger a downgrade.
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