Shares of Foot Locker fell in premarket trading on Wednesday after the sneaker retailer reported a holiday quarter loss, issued weak guidance for the current year and said it is behind on its financial targets.
Given how poorly the last fiscal year went, the company now expects the profitability target it laid out at its March 2023 investor day to be pushed back by two years, Foot Locker Chief Financial Officer Mike Baughn said. It now expects to achieve an EBIT margin of 8.5% to 9% by 2028, Baughn said.
Here's how the company fared in its fourth fiscal quarter, compared to estimates from analysts polled by LSEG, formerly known as Refinitiv:
- Earnings per share: 38 cents adjusted versus 32 cents expected
- Revenue: $2.38 billion vs. $2.28 billion expected
The company made a loss in the three-month period ending February 3. Foot Locker lost $389 million, or $4.13 per share, compared with income of $19 million, or 20 cents per share, a year earlier. Excluding one-time items, Foot Locker reported earnings of 38 cents per share.
Revenue rose slightly to $2.38 billion, up about 2% from $2.34 billion a year earlier.
For the current fiscal year, Foot Locker expects earnings to be worse than analysts expected. It expects adjusted earnings per share to be between $1.50 and $1.70, compared with estimates of $1.40 to $2.30, according to LSEG.
For fiscal 2024, Foot Locker expects sales to rise between 1% and 1%, compared with estimates of half a percent, LSEG said.
CEO Mary Dillon said in a statement that Foot Locker managed to drive full-price sales during the holiday season “in addition to attractive promotions.” But the retailer's gross margin fell by 3.5 percentage points, “mainly due to higher markdowns.”
We “proactively reinvested in price reductions to end the year with lower inventory levels compared to our expectations,” Dillon said. “As we continue to evolve into a modern, omnichannel retailer for all things sneakers, we are making important progress in strengthening our brand partnerships, increasing customer engagement, transforming our real estate footprint and driving digital growth.”
Total comparable sales fell 0.7%, which StreetAccount said was better than the 7.9% decline analysts expected. Comparable sales at Foot Locker and Kids Foot Locker in North America increased by 5.2%
It's been just over a year since CEO Mary Dillon took the helm of Foot Locker. During her tenure, sales have consistently declined as the retailer grapples with a changing mix of sneaker brands and a demographic that has felt the effects of inflation more keenly than those with higher incomes.
Foot Locker has also repositioned its Champs Sports brand and is struggling with high inventory levels that, unlike its peers, it has struggled to curb. During the quarter, Foot Locker relied on price cuts to reduce inventory levels by 8.2% compared to the previous year.
In her previous life as Ulta Beauty's CEO, Dillon expertly won the popular beauty brands and turned the company into a powerhouse cosmetics retailer. When she took over as Foot Locker's top boss in September 2022, she was seen as the savior the traditional retailer desperately needed.
Although Dillon inherited a host of problems that existed long before she took over and remains highly regarded in the retail industry, her turnaround at Foot Locker has come more slowly than some analysts expected.
During its fiscal third quarter, Foot Locker delivered surprising numbers on both the top and bottom lines. Dillon told investors that the company is making progress on its turnaround initiatives. The company signed a new marketing deal with the NBA, made plans to enter India and said the holiday quarter was off to a good start.
Dillon has also worked to revamp Foot Locker's retail footprint. Many of the retailer's stores are in underperforming malls, and Dillon wants the company to focus on more experiential stores that are better suited to 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 the biggest driver of Foot Locker's sales. She has also tried to reduce the company's dependence on the sneaker giant as the company has focused on boosting direct sales and cutting out wholesalers.
The relationship between the two brands still seems to be in flux. When it comes to earnings calls, Nike routinely points it out Dick's sporting goods And JD finish line as its valued wholesale partners.
But in mid-February, Foot Locker announced a new partnership with its old 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.