Shares of Foot Locker fell in premarket trading 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 expects to succeed in an EBIT margin of 8.5% to 9% by 2028, said Baughn.
Here’s how the corporate did in its fourth fiscal 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 an 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 profits to be worse than analysts had expected. It anticipates adjusted earnings per share can be between $1.50 and $1.70, compared with estimates of $1.40 to $2.30, in line with LSEG.
For fiscal 2024, Foot Locker is expecting sales to be between down 1% and up 1%, in comparison with estimates of down half a percent, in line with LSEG.
CEO Mary Dillon said in a press release that Foot Locker managed to drive full-price sales “as well as to forcing promotions” during its holiday quarter. However the retailer’s gross margin fell by 3.5 percentage points “primarily in consequence of upper markdowns.”
We “proactively reinvested in markdowns to finish the yr with leaner inventory levels in comparison with our expectations,” said Dillon. “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.”
Overall comparable sales decreased 0.7%, which is best than the 7.9% drop that analysts had expected, in line with StreetAccount. Comparable sales at Foot Locker and Kids Foot Locker in North America increased 5.2%
It has been just a little over a yr since CEO Mary 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% in comparison 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 Sept. 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.
During its fiscal third quarter, Foot Locker eked out surprise beats on the highest and bottom lines. Dillon told investors the corporate was making progress with its turnaround initiatives. The corporate inked a latest marketing take care of the NBA, made plans to enter India and said the vacation quarter was off to a powerful start.
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 suited to the communities they operate in. Throughout the fourth quarter, Foot Locker opened 29 latest 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 most important 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.
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 latest partnership with its longtime supplier. The partnership, dubbed The Clinic, brings together Foot Locker, Nike and 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 in the course of the 2024 NBA All-Star Game in Indianapolis, In.
Read the total earnings release here.