Actions of shoe drawer fell in premarket trading Wednesday after the sneaker retailer reported a loss in the holiday quarter, issued weak guidance for the current year and said it is behind on meeting its financial goals.
Given how bad its last fiscal year was, the company now expects the profitability target it set during its March 2023 investor day to be pushed back two years, Foot Locker CFO Mike Baughn said. It now expects to reach an EBIT margin of 8.5% to 9% by 2028, Baughn said.
Here's how the company fared in its fiscal fourth quarter, compared to estimates from analysts surveyed by LSEG, formerly known as Refinitiv:
- Earnings per share: Adjusted 38 cents vs. expected 32 cents
- Revenue: $2.38 billion vs. $2.28 billion expected
The company suffered a loss in the three-month period ending February 3. Foot Locker lost $389 million, or $4.13 per share, compared with revenue of $19 million, or 20 cents per share, a year earlier. Excluding one-time items, Foot Locker reported earnings of 38 cents per share.
Sales rose slightly to $2.38 billion, up about 2% from $2.34 billion a year earlier.
In the current fiscal year, Foot Locker expects profits to be worse than analysts expected. It anticipates adjusted earnings per share to be between $1.50 and $1.70, compared to estimates of $1.40 to $2.30, according to LSEG.
For fiscal 2024, Foot Locker expects sales to decline another 1% to 1%, compared to estimates of a half-percent drop, according to LSEG.
CEO Mary Dillon said in a statement that Foot Locker managed to drive full-price sales “in addition to attractive promotions” during its holiday quarter. But the retailer's gross margin fell 3.5 percentage points “primarily as a result of higher markdowns.”
“We proactively reinvested in markdowns to end the year with lower inventory levels compared to our expectations,” Dillon said. “As we continue to evolve into a modern, omnichannel 'everything sneaker' retailer, we are making significant strides in strengthening our brand partnerships, increasing customer engagement, transforming our real estate footprint and driving growth in digital.” .
Overall comparable sales declined 0.7%, which is better than the 7.9% drop analysts were expecting, according to StreetAccount. Comparable sales of Foot Locker and Kids Foot Locker in North America increased 5.2%
It's been just over a year since CEO Mary Dillon took the helm at Foot Locker. During her tenure, sales have steadily fallen as the retailer grappled with a changing mix of sneaker brands and a target consumer who has felt the brunt of inflation more acutely than those at higher income levels.
Foot Locker has also been repositioning its Champs Sports brand and has been dealing with high inventory levels that, unlike its peers, it has struggled to curb. During the quarter, Foot Locker relied on markdowns to reduce inventory levels by 8.2% compared to a year ago.
In his past life as Ulta Beauty CEO, Dillon skillfully won over trendy beauty brands and built the company into a powerful cosmetics retailer. When she took over as Foot Locker's top boss in September 2022, she was seen as the savior the brick-and-mortar retailer so desperately needed.
While Dillon inherited a number of problems that existed long before she took over, and is still highly regarded in the retail industry, her turnaround of Foot Locker has come more slowly than some analysts expected.
During its fiscal third quarter, Foot Locker delivered surprising results. Dillon told investors the company was moving forward with its turnaround efforts. The company signed a new marketing deal with the NBA, made plans to enter India and said the Christmas quarter was off to a good start.
Dillon has also worked to revamp the presence of Foot Locker stores. Many of the retailer's stores are located in underperforming shopping centers and Dillon wants the company to focus on more experiential stores that better fit the communities in which they operate. During the fourth quarter, Foot Locker opened 29 new stores and remodeled or relocated 66 locations. and closed 113 stores.
Last March, Dillon touted a renewed and revitalized relationship with Nike, which has long been Foot Locker's biggest sales driver. He has also tried to reduce the company's dependence on the sneaker giant as he has focused on boosting direct sales and eliminating wholesalers.
The relationship between the two brands still appears to be in a state of flux. On earnings calls, Nike routinely points out Dick's Sporting Goods and JD Finish Line as your valued wholesale partners.
But in mid-February, Foot Locker announced a new partnership with its longtime supplier. The partnership, called The Clinic, brings together Foot Locker, Nike and Jordan Brand, and will feature “interactive activations, high-reach media, real-life basketball clinics, social media content, community events and more.”
The partnership was officially launched during the 2024 NBA All-Star Game in Indianapolis, Indiana.
Read the full earnings release here.
