Key Points
- Foot Locker’s sales dropped 9.9% during its second fiscal quarter, which the company attributed to “consumer softness.”
- The sneaker colossus reported another quarter of decreased profits due to markdowns and shrinkage.
- The disastrous quarter prompted Foot Locker to reduce its forecast for the second time this year, less than five months after it was first introduced.
Wednesday, Foot Locker reported another quarter of declining sales and lowered its prognosis for the second time this year, as inflation-weary consumers pause before purchasing footwear and clothing.
The sneaker giant’s adjusted fiscal second-quarter earnings met Wall Street’s expectations, but fell short of analysts’ sales estimates and saw another quarter of slimmer margins due to promotions and increased shrinkage.
In premarket trading, shares dropped 30 percent.
Based on a survey of analysts by Refinitiv, here is how Foot Locker performed in the three-month period that ended on July 29 relative to Wall Street’s expectations:
- Earnings per share: 4 cents adjusted vs. 4 cents expected
- Revenue: $1.86 billion vs. $1.88 billion expected
The company posted a $5 million loss, or 5 cents per share, compared to a $94 million profit, or 99 cents per share, a year earlier. The company reported earnings of 4 cents per share, excluding one-time expenses.
Sales dropped to $1.86 billion, down 9.9% from $2.07 billion in the previous year.
The disastrous quarter prompted Foot Locker to reduce its forecast once more, just five months after it was initially introduced. In addition, the firm suspended its quarterly cash dividend beyond the recently-approved 40 cents per share payout for October.
The retailer of athletic apparel now anticipates a decline in sales of 8% to 9% for the entire year, up from a previous estimate of a decline of 6.5% to 8%. Compared to its previous forecast of a 7.5% to 9% decline in same-store sales, the company now predicts a decline of 9% to 10%.
The company lowered its adjusted earnings forecast from $2.00 to $2.25 per share to $1.30 to $1.50 per share.
CEO Mary Dillon stated in a press release, “We did see a softening in trends in July and are adjusting our 2023 outlook to allow us to best compete for price-sensitive consumers, while still leaning into the strategic investments that drive our Lace Up plan.”
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Sales Struggles: Foot Locker Turns to Promotions Amid Consumer Spending Shift
Foot Locker has been forced to rely on promotions to drive sales for the past two quarters because its primary consumer, who skews lower- to middle-income, has reduced spending on shoes and clothing.
These steep markdowns have reduced Foot Locker’s margins by 4.6 percentage points compared to the same period last year.
Shrink, the retail industry term for merchandise lost due to larceny, damage, or other causes, also impacted on profits, according to Foot Locker. It did not disclose how much shrinkage compared to promotions reduced its margins.
The retailer attributed the 9.4% decline in comparable store sales to “ongoing consumer softness” and adjustments to its vendor mix. It is unclear which suppliers or athletic apparel brands are undergoing change. Foot Locker has been attempting to diversify its vendor base and reduce its reliance on Nike.
Nike, which has historically been the largest contributor to Foot Locker’s revenues, has been transitioning to a direct-to-consumer business model and drawing back from wholesalers for several years.
Foot Locker’s inventory levels are still elevated, having increased 11% year-over-year to $1.8 billion, but they have improved sequentially compared to the first quarter of 2023, according to the company.
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Source: CNBC
