Shares of Foot Locker fell about 30% on Wednesday after the sneaker retailer reported a loss in the vacation quarter, issued weak guidance for the present yr and said it was behind on meeting its financial targets.
Given last fiscal yr’s poor performance, the corporate now expects the profitability goal it set at its investor day in March 2023 to be delayed by two years, said Mike Baughn, Foot Locker’s chief financial officer. It now expects to realize an EBIT margin of 8.5% to 9% by 2028, Baughn said.
Here’s how the corporate performed within the fiscal fourth quarter in comparison with estimates from analysts surveyed by LSEG, formerly often called Refinitiv:
- Earnings per share: 38 cents adjusted versus 32 cents expected
- Revenue: $2.38 billion vs. expected $2.28 billion
The company posted a loss for the three months ended Feb. 3. Foot Locker lost $389 million, or $4.13 a share, compared with a profit of $19 million, or 20 cents a share, a yr earlier. Excluding one-time items, Foot Locker reported profit of 38 cents per share.
Revenue rose barely to $2.38 billion, up about 2% from $2.34 billion a yr ago.
In the present financial yr, Foot Locker expects a worse profit than analysts expected. Adjusted earnings per share are expected to be between $1.50 and $1.70, compared with estimates of $1.40 to $2.30, in keeping with LSEG. According to LSEG, sales are expected to fall between 1% and 1%, in comparison with estimates of a half percent decline.
With Wednesday’s plunge, Foot Locker has lost greater than half of its market value since May 2021.
CEO Mary Dillon said in an announcement that Foot Locker managed to drive full-price sales in the vacation quarter “in addition to compelling promotions.” But because the retailer wrapped up its fiscal yr, Foot Locker reduced other items to clear excess inventory, particularly within the apparel category. As a result, “higher markdowns” resulted in a 3.5 percentage point decline in Foot Locker’s gross margin.
“As we continue to evolve into a modern omnichannel retailer of all things sneaker, we are making important progress in strengthening our brand partnerships, increasing customer loyalty, transforming our real estate presence and driving digital growth,” said Dillon.
It’s been slightly over a yr since Dillon took the reins at Foot Locker. During her tenure, sales continued to say no because the retailer struggled with a changing mixture of sneaker brands and a demographic that felt the brunt of inflation greater than those in higher income brackets.
Foot Locker has also been repositioning its Champs Sports brand and scuffling with high inventory levels that the corporate has struggled to contain, unlike its competitors. During the quarter, Foot Locker used markdowns to cut back inventory by 8.2% year-over-year.
In her previous life as Ulta Beautys CEO Dillon skillfully won over the most well liked beauty brands and transformed the corporate into a number one cosmetics retailer. When she took over as Foot Locker’s top boss in September 2022, she was seen because the savior the legacy retailer so desperately needed.
While Dillon inherited a lot of problems that existed long before she took office and stays highly regarded throughout the retail industry, Foot Locker’s turnaround has been slower than some analysts expected.
Dillon said the corporate was still in a position to deliver some positive results in the course of the quarter despite a “dynamic” overall retail and economic environment. Overall, comparable sales fell 0.7%, higher than the corporate forecast and the 7.9% decline expected by analysts, in keeping with StreetAccount. Comparable sales at Foot Locker and Kids Foot Locker in North America increased 5.2%
The company made progress in expanding its online sales channels, and digital sales now account for about 20% of Foot Locker’s total mix. Foot Locker is working to extend that number to 25% by 2026.
Dillon expanded the leadership team and made changes to its merchant and buying teams in addition to its finance organization “to ensure inventory accountability and improved forecasting.”
The company has also signed a brand new marketing cope with the NBA, made plans to enter the Indian market and said it’s heading in the right direction to realize its long-term goals.
Dillon also worked to revamp the Foot Locker storefront. Many of the retailer’s stores are situated in underperforming malls, and Dillon wants the corporate to deal with more experiential stores which can be higher suited to the communities during which they operate. In the fourth quarter, Foot Locker opened 29 latest stores and renovated or relocated 66 locations. and closed 113 stores.
Last March, Dillon announced a renewed and rekindled relationship Nike, which has long been Foot Locker’s biggest revenue driver. She has also sought to cut back the corporate’s dependence on the sneaker giant because it has focused on boosting direct sales and edging out wholesalers.
During the quarter, Nike accounted for 60% of total sales, in comparison with about 63% within the year-ago quarter. Dillon said the corporate is seeing more sales from hot sneaker brands like On Running and Hoka, in addition to heritage brands like Adidas, New Balance and Ugg.
The relationship between the 2 brands still appears to be in flux. Nike usually mentions this when announcing profits Dick’s Sporting Goods And JD finish line as its valued wholesale partners.
But in mid-February, Foot Locker announced a brand new partnership with its longtime supplier. The partnership, called “The Clinic,” brings together Foot Locker, Nike and the Jordan Brand and features “interactive activations, high-reach media, real-life basketball clinics, social media content, community events and more.”
The partnership was officially launched in the course of the 2024 NBA All-Star Game in Indianapolis.
“It’s important to note that our relationship with Nike is strong,” Dillon said in a call with analysts. “The areas we’re really focused on are our basketball, kids and sneaker culture, especially given the indisputable fact that we’ve a younger, multicultural consumer that we’re bringing to the party and due to this fact, you recognize, an ideal example of how we work together is the activation we just did with them.
Read the total earnings release Here.
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