shares Foot locker It fell about 30% on Wednesday after the sneaker retailer reported a loss in the holiday quarter, issued weak guidance for the current year and said it was behind on its financial goals.
Mike Bogen, Foot Locker's chief financial officer, said that given how poorly the last fiscal year went, the company now expects to delay the profitability target it set during its March 2023 investor day by two years. It now expects to reach an EBIT margin of 8.5% to 9% by 2028, Bogen said.
Here's what the company did in its fiscal fourth quarter, compared to estimates from analysts surveyed by LSEG, formerly known as Refinitiv:
Earnings per share: 38 cents adjusted vs. 32 cents expected Revenue: $2.38 billion vs. $2.28 billion expected
The company swung to 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, the previous year. 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 the previous year.
In 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 to estimates of $1.40 to $2.30, according to LSEG. Sales are expected to decline between 1% and 1%, compared to estimates of a half-percent decline, according to LSEG.
With the decline witnessed on Wednesday, Foot Locker has lost more than half of its market value since May 2021.
Foot Locker was able to increase full-price sales “plus compelling promotions” during the holiday quarter, CEO Mary Dillon said in a statement. But as the retailer trims its fiscal year, Foot Locker has discounted more items to get rid of excess inventory, especially in the apparel category. As a result, the “higher price cuts” reduced Foot Locker's gross profit margin by 3.5 percentage points.
“As we continue to evolve into a modern, omnichannel retailer of all things sneaker, we are making important progress in strengthening our brand partnerships, increasing customer engagement, transforming our real estate footprint, and driving growth in digital,” Dillon said.
It's been just over a year since Dillon took the helm at Foot Locker. During her tenure, sales continually declined as the retailer grappled with a changing mix of sneaker brands and a target consumer who felt the brunt of inflation more acutely than those in higher income brackets.
Foot Locker also repositioned its Champs Sports brand and faced high inventory levels, which, unlike its peers, it 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 past life as well Alta Beauty Dillon, CEO, skillfully acquired popular cosmetics brands and transformed the company into a powerful cosmetics retailer. When she took over as senior director at Foot Locker in September 2022, she was seen as the savior the legacy retailer sorely needed.
While Dillon inherited a slew of problems that existed long before she took office, and remains highly regarded throughout the retail industry, her turnaround at Foot Locker has been slower than some analysts expected.
Dillon said the company was still able to see some positive results during the quarter despite the overall “dynamic” retail and economic environment. Total comparable sales fell 0.7%, better than the company expected and the 7.9% decline that analysts expected, according to StreetAccount. Comparable sales at Foot Locker and Kids Foot Locker in North America increased 5.2%
The company has made great strides in building out its online sales channels, and digital revenue now represents about 20% of Foot Locker's total mix. Foot Locker is working to raise that number to 25% by 2026.
Dillon built out its executive leadership team and made changes to its merchandiser and purchasing teams, along with its finance organization, “to ensure inventory accountability and enhance forecasting.”
The company also signed a new marketing agreement with the NBA, made plans to enter India and said it was on track to achieve its long-term goals.
Dillon also worked to revamp Foot Locker's store footprint. Many of the retailers are located in underperforming malls, and Dillon wants the company to focus on more experiential stores that better fit the communities in which it operates. During the fourth quarter, Foot Locker opened 29 new stores, and remodeled or relocated 66 locations. 113 stores were closed.
Last March, Dillon touted a renewed and revitalized relationship with Nike, which has long been the biggest driver of Foot Locker sales. It has also sought to reduce the company's dependence on the sneaker giant as it focused on increasing direct sales and putting pressure on wholesalers.
During the quarter, Nike accounted for 60% of total sales, down from about 63% in the same quarter last year. Dillon said the company is seeing more revenue coming from athletic shoe brands like On Running and Hoka, as well as legacy brands like Adidas, New Balance and Ugg.
It seems that the relationship between the two brands is still in a state of flux. On earnings calls, Nike routinely refers to… Dick's sporting goods And Finish Line JD As our dear wholesale partners.
But in mid-February, Foot Locker announced a new partnership with its longtime supplier. The partnership, dubbed The Clinic, brings together Foot Locker, Nike and Jordan Brand, and will include “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.
“It is important to note that our relationship with our partnership with Nike is strong,” Dillon said on a call with analysts. “The areas that we're really rallying around are basketball culture, kids and sneakers, especially with the fact that we have a younger, multicultural consumer that we bring to the party, and, you know, a perfect example of how we work together is the activation we just did with them.”
Read the full earnings release here.
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