Foot Locker, the popular sneaker retailer, experienced a significant drop in its shares, plunging over 20% after reporting a holiday-quarter loss and weak guidance for the current year. The company’s finance chief, Mike Baughn, stated that due to the poor performance of the past fiscal year, Foot Locker’s profitability goal, set during its investor day in March 2023, will be delayed by two years. The company now expects to reach an EBIT margin of 8.5% to 9% by 2028.
In terms of its fiscal fourth quarter performance, Foot Locker reported earnings per share of 38 cents, adjusted, compared to the expected 32 cents. The revenue for the quarter was $2.38 billion, surpassing the estimated $2.28 billion. However, the company swung to a loss of $389 million, or $4.13 per share, in the three-month period that ended on February 3. This is in contrast to the income of $19 million, or 20 cents per share, recorded in the same period the previous year. Excluding one-time items, Foot Locker’s earnings per share stood at 38 cents.
While Foot Locker managed to drive full-price sales and offer compelling promotions during the holiday quarter, it faced challenges in reducing excess inventory, particularly in its apparel category. As a result, the company experienced a decline in its gross margin by 3.5 percentage points due to higher markdowns. CEO Mary Dillon highlighted that Foot Locker is making progress in transforming into a modern, omnichannel retailer for sneakers. The company is strengthening brand partnerships, increasing customer engagement, transforming its real estate footprint, and driving growth in digital.
Since Mary Dillon took over as CEO of Foot Locker in September 2022, the company has faced declining sales as it grapples with changes in sneaker brands and a target consumer group that is more affected by inflation. Dillon, who previously served as Ulta Beauty’s chief executive, successfully transformed the cosmetics retailer into a powerhouse. However, her turnaround efforts at Foot Locker have been slower than anticipated.
Foot Locker has been working on repositioning its Champs Sports brand and reducing high inventory levels. During the quarter, the company relied on markdowns to decrease inventory levels by 8.2% compared to the previous year. Dillon has also focused on building out the company’s online sales channels, with digital revenue accounting for about 20% of Foot Locker’s overall mix. The goal is to increase this number to 25% by 2026.
In addition to these efforts, Dillon has made changes to the executive leadership team and implemented improvements in inventory accountability and forecasting. Foot Locker has also signed a new marketing deal with the NBA, expanded into India, and is on track to achieve its long-term goals.
Dillon’s strategy includes revamping Foot Locker’s store footprint by focusing on experiential stores that better suit the communities they serve. During the fourth quarter, the company opened 29 new stores, remodeled or relocated 66 locations, and closed 113 stores.
While Foot Locker’s sales heavily rely on Nike, the company has been working to reduce its dependence on the sneaker giant by driving direct sales and featuring other popular sneaker brands such as On Running, Hoka, Adidas, New Balance, and Ugg. The relationship between Foot Locker and Nike appears to be evolving, with the recent announcement of a new partnership called The Clinic. This partnership brings together Foot Locker, Nike, and the Jordan Brand to create interactive activations, basketball clinics, social media content, and community events.
Despite the challenges faced by Foot Locker in a dynamic retail and economic environment, the company managed to achieve some positive results during the quarter. Overall comparable sales decreased by 0.7%, which was better than projected and the expected drop of 7.9% according to analysts. Comparable sales at Foot Locker and Kids Foot Locker in North America increased by 5.2%.
Foot Locker’s journey to recovery continues as it focuses on strengthening its brand partnerships, enhancing customer engagement, and driving growth in digital. With Mary Dillon at the helm, the company is determined to overcome its challenges and regain its position as a leading sneaker retailer.
