Shares of athletic-gear retail chains Dick's Sporting Goods Inc. and Foot Locker Inc. tore in opposite directions on Thursday after the former struck a $2.5 billion deal to buy the latter, prompting analysts to question the benefits and the risks.

Foot Locker's $(FL)$ stock launched 86% higher on Thursday, its biggest percentage gain on record. Shares of Dick's $(DKS)$, meanwhile, slid 14.6% - their biggest percentage drop since Aug. 22, 2023, when they fell 24.15%.

The deal, reported a day earlier by the Wall Street Journal, would give Dick's more access to the sneaker market and markets abroad, as well as more sway with suppliers, UBS analysts said. Cost cuts might prove attractive to investors, and the deal would give Dick's a deeper look at Foot Locker's consumer data.

But they also noted a number of risks. Those include the price of the acquisition, Foot Locker's struggles amid Dick's market-share gains, competition, potential regulatory scrutiny and difficulties that have emerged from retail-industry tie-ups in the past.

"Retail integrations tend to be challenging," the UBS analysts said in a research note on Thursday. "There's a far longer list of retail mergers that were not successful than those that were."

The deal also arrives as sneaker culture, where the bar for credibility can be high, moves increasingly online. It also lands as sneaker makers, and the stores that sell them, cope with the U.S.'s new tariff regime and inflation-fatigued consumers.

Both stores sell a good amount of sneakers and other gear made by Nike Inc. $(NKE)$, which has been overhauling its merchandise assortment to focus more on athletes' needs and depends on factories in Vietnam, Indonesia and China to make the vast majority of its footwear. Both Foot Locker and Dick's, in their most recent annual reports, said that significant portions of the products they bring to shelves are manufactured abroad.

Under the terms of the deal, Foot Locker shareholders can choose whether to receive payment for their stock in the form of $24 per share in cash or 0.1168 share of the combined company per Foot Locker share. Before the Journal reported on the deal, Foot Locker shares as of Wednesday's close were trading at $12.87.

Dick's said the addition of Foot Locker's business will add to its earnings per share in the first fiscal year after the close, excluding one-time costs. The companies are projecting cost savings of $100 million to $125 million "in the medium term" as they tighten up the way they source products. The deal is expected to close in the second half of this year.

Dick's, which operates 850 stores, said the deal with Foot Locker gives it access to international retail space for the first time, adding that it aims to build a "global leader in the sports retail industry." Foot Locker operates 2,400 retail stores in 20 countries and rang up $8 billion in sales last year.

Thanks to Thursday's gains, shares of Foot Locker have rebounded into positive territory over the past 12 months. Still, as of Wednesday's close, they were were down 41.9% over that period.

Elsewhere, TD Cowen analyst John Kernan downgraded Dick's Sporting Goods to hold from buy and cut his price target on the stock.

Adding Foot Locker's business would increase Dick's exposure to Nike products to 38% of inventory purchases, up from 24%, and increase its mix of streetwear and lifestyle fashion trends, as well as mall-based retail, Kernan said.

At these retail points, it'll be "competing with smaller, more nimble sneaker retailers and marketplaces that are gaining share," he noted.

Truist analyst Joseph Civello reiterated a buy rating on Dick's but said he was cautious about the benefits of the deal. He added that he believes it can create long-term value for Dick's given the company's track record of execution. The acquisition would more than double footwear revenue for Dick's Sporting Goods, he said.

"Adding this scale (and especially serving a much wider customer base) would make [Dick's] an even stronger partner to athletic apparel [and] footwear brands," Civello said.

The tie-up comes after comfort-footwear maker Skechers USA Inc. $(SKX)$ inked a deal earlier this month to be taken private. That transaction led one analyst to say similar ones could arise amid current market uncertainty.

Sam Holland, chief operating officer of the media and sneaker company CultureKicks, also noted differences between Dick's Sporting Goods and Foot Locker that could complicate connections with sneakerheads. Where Dick's, with its big-box suburban focus, is more about athletics, Foot Locker has leaned more more deeply into sneaker culture over recent years, he said.

"Today's sneaker consumer isn't just an athlete, they're collectors, fashion lovers and lifestyle buyers who see sneakers as self-expression, not just performance gear," Holland said over email. "That's where the challenge lies for Dick's."

The UBS analysts said that the deal between Dick's Sporting Goods and Foot Locker would likely draw comparisons to the merger of Family Dollar and Dollar Tree Inc. $(DLTR)$, which ultimately didn't work out. They also saw potential parallels to mergers between General Parts and Advance Auto Parts Inc. $(AAP.AU)$, Safeway and Albertsons Cos. Inc. $(ACI)$, and Sears and Kmart.

"Simply put, it's difficult to bring together disparate systems, cultures, models, infrastructures and teams," they wrote. "At least some of the financial benefits are often offset by dis-synergies from integration."

They added that a merger with Foot Locker would complicate what had been a more "straightforward story" for Dick's, which they said had "been building a track record of outperformance."

The analysts also noted investors' increasing receptiveness to Dick's House of Sport locations, which have things like climbing walls and outdoor areas for activities like yoga and soccer. And they pointed to its investments in so-called retail media, which allows other brands to advertise on retailers' websites and apps.

"The key question that the market will contend with is whether the risk of [Dick's] buying a struggling retailer is more than compensated by the accretion and synergies," the UBS analysts said in a separate note. "Time will tell."