Customers stroll with their shopping bags from Foot Locker along the vibrant Third Street Promenade in Santa Monica, California.
According to reports, Foot Locker has reported another decline in sales and has revised its outlook for the second time this year. Consumers, burdened by inflation, are becoming more cautious about spending on footwear and apparel.
Foot Locker faced a significant drop in sales and lowered its sales expectations for the year. This led to a more than 30% decline in the company’s shares, while Nike shares also dropped about 4% in solidarity.
Despite Foot Locker’s adjusted earnings meeting Wall Street’s expectations, the company fell short of analysts’ estimates on sales, resulting in slimmer profit margins due to increased promotional activities and higher levels of stolen merchandise.
The results of Foot Locker’s three-month period ending on July 29 were as follows, compared to Wall Street’s projections:
- Earnings per share: $0.04 adjusted, in line with expectations
- Revenue: $1.86 billion, slightly lower than the expected $1.88 billion
In comparison to the previous year, the company suffered a loss of $5 million or $0.05 per share, contrasting with a profit of $94 million or $0.99 per share. However, excluding one-time items, the adjusted earnings per share were $0.04.
Sales also experienced a decline, reaching $1.86 billion, down 9.9% from the previous year’s $2.07 billion.
Foot Locker’s underwhelming performance caused the company to lower its forecast, only five months after its initial release. Additionally, the company temporarily halted its quarterly cash dividend, except for the previously approved payout of $0.40 per share in October.
The athletic apparel retailer now predicts a sales decrease of 8% to 9% for the year, compared to the previous forecast of a decline between 6.5% and 8%. Furthermore, it anticipates a drop in same-store sales of 9% to 10%, instead of the previous guidance of a decrease between 7.5% and 9%.
Adjusted earnings guidance has been revised to $1.30 to $1.50 per share, down from the initial range of $2.00 to $2.25 per share.
In a news release, CEO Mary Dillon stated, “We observed a softening in trends in July and adjusted our 2023 outlook accordingly. This allows us to effectively compete for price-sensitive consumers while continuing to invest strategically in our Lace Up plan.”
Over the past two quarters, Foot Locker has heavily relied on promotions to boost sales, as its primary customer demographic, which consists of lower to middle-income individuals, has reduced spending on discretionary items such as apparel and footwear.
These promotions have negatively impacted Foot Locker’s profit margins, which lowered by 4.6 percentage points compared to the same period last year. Additionally, issues of stolen merchandise, known as shrink, have also affected profits without disclosure of its exact impact in relation to promotional activities.
Comparable-store sales dropped by 9.4% during the quarter, a decline attributed to ongoing consumer softness and changes in the vendor mix. The specific vendors or athletic apparel brands involved in these changes remain unclear. However, Foot Locker has been actively reducing its dependence on Nike and seeking to diversify its vendor mix.
Nike, which has historically been Foot Locker’s top sales driver, has been transitioning towards a direct-to-consumer business model and gradually reducing its presence in wholesale partnerships.
Foot Locker’s inventory levels remain high, with a year-over-year increase of 11% to $1.8 billion. However, the company claims that inventory has improved compared to the first quarter of 2023.
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