Foot Locker shares plunge 28% as it slashes guidance and blames 'consumer softness'

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Customers walk with Foot Locker shopping bags on the Third Street Promenade in Santa Monica, California.

Patrick T. Fallon | Bloomberg | Getty Images

Foot Locker reported another quarter of falling sales and slashed its outlook for the second time this year on Wednesday as inflation-weary consumers think twice before shelling out for footwear and apparel. The company’s stock closed Wednesday about 28% lower. Foot Locker’s shares are down 56% in the past year. Nike

fell 2.7% on Tuesday in sympathy.The sneaker company’s adjusted fiscal 2nd-quarter earnings were on par with Wall Street expectations but fell short on analysts’ estimates for sales. The margins also continued to be slimmer due to increased shrink and promotions. Here’s how Foot Locker did in the three-month period that ended July 29 compared with what Wall Street was anticipating, based on a survey of analysts by Refinitiv:

Earnings per share: 4 cents adjusted vs. 4 cents expected

Revenue: $1.86 billion vs. $1.88 billion expected

  • The company swung to a loss of $5 million, or 5 cents per share, compared with a profit of $94 million, or 99 cents a share, a year earlier. The company’s earnings per share were 4 cents excluding one-time items. Sales fell to $1.86 Billion, a 9.9% drop from $2.07 Billion a year ago. Foot Locker’s dismal quarter has prompted it to lower its projections again, just five months after they were first introduced. Foot Locker also suspended its quarterly dividend, which was previously approved by its board in October for 40 cents per stock. The company is now predicting a drop in same-store sales between 9% and 10%, as opposed to its previous guidance that stated a 7.5% to 9.0% decline. The company reduced its adjusted earnings guidance from $2.00 per share to $1.30 per share. “We saw a softening of trends in July, and we are adjusting 2023 outlook in order to compete with price-sensitive consumers while still leaning on the strategic investments that fuel our Lace Up Plan,” CEO Mary Dillon stated in a press release. Foot Locker’s sales have been boosted by promotions in the past two quarters because their primary customer base, who tends to be lower-to-mid income consumers, has cut back on discretionary purchases like clothes and shoes. Foot Locker’s margins dropped by 4.6 percentage points in the last year due to heavy markdowns. Foot Locker also said that shrink, a term used in the retail industry to describe merchandise lost through theft, damage, or any other means, had weighed heavily on its profits. Foot Locker did not disclose the amount of shrinkage that impacted its margins in comparison to promotions.
  • Comparable-store sales dropped by 9.4% during the quarter, which the retailer attributed to “ongoing consumer softness” and changes to its vendor mix. There is no information on which athletic apparel brands or vendors are changing. Nike, the company that has driven the majority of Foot Locker’s sales for many years, is currently undergoing a strategy shift towards a direct-to consumer model. It has also been pulling away from wholesalers over the past few years.

Foot Locker said that while its inventories were still high, they had increased 11% over the past year and now totaled $1.8 billion. However, levels are improving sequentially compared to the first quarter 2023.