shares Foot cabinet Shares of the sneaker retailer plunged about 30% on Wednesday after the company reported a holiday quarter loss, issued weak guidance for the year and said it missed financial targets.
Foot Locker Chief Financial Officer Mike Baughn said the company now expects the profit target it set at its investor day in March 2023 to be delayed by two years given the poor performance of the previous fiscal year. Baughn said it currently expects EBIT margins to reach 8.5% to 9% by 2028.
Here’s a look at the company’s fiscal fourth-quarter performance, compared with estimates from analysts polled by LSEG (formerly Refinitiv):
- Earnings per share: 38 cents adjusted, 32 cents expected
- Revenue: $2.38 billion, $2.28 billion expected
The company posted a loss in the three months to February 3. Foot Locker lost $389 million, or $4.13 a share, compared with revenue of $19 million, or 20 cents a share, a year earlier. Excluding one-time items, Foot Locker reported earnings of 38 cents per share.
Sales increased slightly to US$2.38 billion, an increase of approximately 2% from US$2.34 billion in the same period last year.
Foot Locker expects profit for the current fiscal year to be below analysts’ estimates. According to LSEG, it expects adjusted earnings per share to be in the range of $1.50 to $1.70, compared with expectations of $1.40 to $2.30. According to LSEG, sales are expected to fall 1% to grow 1%, compared with the previous forecast of a 0.5% decline.
With Wednesday’s plunge, Foot Locker has lost more than half its market value since May 2021.
Chief Executive Mary Dillon said in a statement that Foot Locker successfully drove full-price sales during the holiday quarter “in addition to compelling promotions.” But as the retailer ends its fiscal year, Foot Locker is slashing prices on more items to clear excess inventory, primarily in the apparel category. As a result, “higher price cuts” caused Foot Locker’s gross profit margin to drop by 3.5 percentage points.
“As we continue to evolve into a modern omni-channel retailer of ‘all sneakers,’ we have made important progress in strengthening brand partnerships, increasing customer engagement, transforming our real estate business and driving digital growth,” said Dillon. “
It’s been more than a year since Dillon took over the helm at Foot Locker. During her tenure, sales continued to decline as the retailer grappled with changes in its mix of sneaker brands and targeted consumers who felt the brunt of inflation more than higher-income groups.
Foot Locker has also been repositioning its Champs Sports brand and working to address high inventory levels, unlike its peers, which it has struggled to control. This quarter, Foot Locker relied on price reduction promotions and inventory levels decreased by 8.2% compared with the previous year.
In her previous life, ulta beautiful CEO Dillon deftly won over popular beauty brands and transformed the company into a powerhouse cosmetics retailer. When she took over as Foot Locker’s top boss in September 2022, she was seen as a much-needed savior for the legacy retailer.
Although Dillon inherited a host of problems that predated her arrival and remains highly regarded throughout the retail industry, her turnaround at Foot Locker has been slower than some analysts expected.
Dillon said the company had some positive results during the quarter despite a “dynamic” overall retail and economic environment. Overall comparable sales fell 0.7%, better than the company’s forecast and analysts’ expectations for a 7.9% decline, according to StreetAccount. Foot Locker and Kids Foot Locker North America comparable sales grew 5.2%
The company has made great progress in building an online sales pipeline, and digital revenue now accounts for about 20% of Foot Locker’s overall revenue. Foot Locker is working to increase that number to 25% by 2026.
Dillon established an executive leadership team and made changes to the merchant and purchasing teams and the finance organization “to ensure inventory accountability and enhance forecasting capabilities.”
The company also signed a new marketing deal with the NBA, laid out plans to enter India and said it was achieving its long-term goals.
Dillon is also working on revamping Foot Locker’s store layout. Many of the retailer’s stores are located in underperforming malls, and Dillon wants the company to focus on experiential stores that are better suited to the communities in which it operates. In the fourth quarter, Foot Locker opened 29 new stores, remodeled or relocated 66 locations, and closed 113 stores.
Last March, Dillon announced that he and NikeThis has long been the biggest driver of Foot Locker sales. She’s also trying to reduce the company’s reliance on the sneaker giant as it focuses on driving direct sales and squeezing out wholesalers.
This quarter, Nike accounted for 60% of total sales, down from about 63% in the same period last year. Dillon said the company is seeing more revenue from popular sneaker brands like On Running and Hoka, as well as legacy brands like Adidas, New Balance and Ugg.
The relationship between the two brands still appears to be in a state of flux.On earnings calls, Nike often points out dick’s sporting goods and Jingdong finish line as its valued wholesale partner.
But in mid-February, Foot Locker announced a new partnership with its long-time supplier. The partnership, called The Clinic, brings together Foot Locker, Nike and Jordan Brand and will feature “interactive activations, high-impact media, real-life basketball clinics, social media content, community events and more.”
The partnership officially launches during the 2024 NBA All-Star Game in Indianapolis.
“It’s important to note that our relationship with Nike is very strong,” Dillon said on a conference call with analysts. “The areas that we’re really focused on are our basketball, kids and sneaker culture, specifically we have a young, multicultural consumer and we bring them to the party, so, you know, that’s the way we work. The perfect example together is the activation we just did on them.”
Read the full earnings report here.
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