Shares of Foot Locker fell greater than 20% on Wednesday after the sneaker retailer reported a holiday-quarter loss, issued weak guidance for the present yr and said it’s behind on meeting its financial goals.
Given how poorly its past fiscal yr went, the corporate is now expecting the profitability goal it laid out during its March 2023 investor day to be delayed by two years, Foot Locker’s finance chief Mike Baughn said. It now anticipates to achieve an EBIT margin of 8.5% to 9% by 2028, said Baughn.
Here’s how the corporate did in its fiscal fourth quarter, compared with estimates from analysts surveyed by LSEG, formerly generally known as Refinitiv:
- Earnings per share: 38 cents adjusted vs. 32 cents expected
- Revenue: $2.38 billion vs. $2.28 billion expected
The corporate swung to a loss within the three-month period that ended Feb. 3. Foot Locker lost $389 million, or $4.13 per share, compared with income of $19 million, or 20 cents per share, a yr earlier. Excluding one-time items, Foot Locker reported earnings of 38 cents per share.
Sales rose barely to $2.38 billion, up about 2% from $2.34 billion a yr earlier.
In the present fiscal yr, Foot Locker is expecting profit to be worse than analysts had expected. It anticipates adjusted earnings per share will probably be between $1.50 and $1.70, compared with estimates of $1.40 to $2.30, in accordance with LSEG. It’s expecting sales to be between down 1% to up 1%, compared with estimates of down half a percent, in accordance with LSEG.
CEO Mary Dillon said in an announcement that Foot Locker managed to drive full-price sales “as well as to forcing promotions” during its holiday quarter. But because the retailer wound down its fiscal yr, Foot Locker marked down more items to filter out excess inventory, primarily in its apparel category. Consequently, “higher markdowns” drove Foot Locker’s gross margin down by 3.5 percentage points.
“As we proceed evolving into a contemporary, omnichannel retailer for ‘all things sneakers,’ we’re making vital progress strengthening our brand partnerships, increasing customer engagement, transforming our real estate footprint, and driving growth in digital,” said Dillon.
It has been a bit of over a yr since Dillon took the helm of Foot Locker. During her tenure, sales have consistently fallen because the retailer grappled with a changing mixture of sneaker brands and a goal consumer that has felt the brunt of inflation more acutely than those in higher-income brackets.
Foot Locker has also been repositioning its Champs Sports brand and has grappled with high inventory levels that, unlike its peers, it has struggled to curb. Throughout the quarter, Foot Locker relied on markdowns to cut back inventory levels by 8.2% compared with the prior yr.
In her past life as Ulta Beauty’s chief executive, Dillon skillfully won over buzzy beauty brands and turned the corporate right into a powerhouse cosmetics retailer. When she took over as Foot Locker’s top boss in September 2022, she was seen because the savior the legacy retailer sorely needed.
While Dillon inherited a slew of problems that existed long before she took over, and remains to be highly regarded across the retail industry, her turnaround of Foot Locker has come more slowly than some analysts had expected.
Dillon said the corporate still managed to see some positive results throughout the quarter despite a “dynamic” overall retail and economic environment. Overall comparable sales decreased 0.7%, which is best than the corporate had projected and the 7.9% drop that analysts had expected, in accordance with StreetAccount. Comparable sales at Foot Locker and Kids Foot Locker in North America increased 5.2%
The corporate made strides in constructing out its online sales channels, and digital revenue now accounts for about 20% of Foot Locker’s overall mix. Foot Locker is working to get that number to 25% by 2026.
Dillon has built out the manager leadership team and has made changes to its merchant and buying teams, together with its finance organization, “to make sure inventory accountability and enhanced forecasting.”
The corporate has also signed a recent marketing cope with the NBA, made plans to enter India and said it’s on its approach to achieving its long-term goals.
Dillon has also worked to revamp Foot Locker’s store footprint. Most of the retailer’s stores are in underperforming malls, and Dillon wants the corporate to give attention to more experiential stores which can be higher fitted to the communities they operate in. Throughout the fourth quarter, Foot Locker opened 29 recent stores, remodeled or relocated 66 locations, and closed 113 stores.
Last March, Dillon touted a renewed and revitalized relationship with Nike, which has long been the biggest driver of Foot Locker’s sales. She has also sought to cut back the corporate’s reliance on the sneaker giant because it has focused on driving direct sales and squeezing out wholesalers.
Throughout the quarter, Nike accounted for 60% of overall sales, down from about 63% within the year-ago quarter. Dillon said the corporate is seeing more revenue come from buzzy sneaker brands like On Running and Hoka, in addition to legacy brands like Adidas, Recent Balance and Ugg.
The connection between the 2 brands still appears to be in a state of flux. On earnings calls, Nike routinely points to Dick’s Sporting Goods and JD Finish Line as its treasured wholesale partners.
But in mid-February, Foot Locker announced a recent partnership with its longtime supplier. The partnership, dubbed The Clinic, brings together Foot Locker, Nike and the Jordan Brand, and can feature “interactive activations, high reach media, real life basketball clinics, social media content, community events and more.”
The partnership officially launched throughout the 2024 NBA All-Star Game in Indianapolis.
“It is vital to notice our relationship our partnership with Nike is powerful,” said Dillon on a call with analysts. “The areas that we actually align around are our basketball, kids and sneaker culture, especially with the incontrovertible fact that now we have a younger, multicultural consumer that we bring to the party and so, you recognize, an ideal example of how we’re working together is the activation we just did with them.”
Read the total earnings release here.
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