The Foot Locker store is located on 34th Street in New York City.
Courtesy: Foot Locker
Foot cabinet On Wednesday, after reporting a rough set of quarterly results, the company slashed its full-year guidance in a move that could be a warning sign for its biggest brand partner, Nike.
The sneaker giant missed Wall Street expectations for both revenue and profit, blaming weak consumer demand and increased promotions across the market. CEO Mary Dillon told CNBC the company also saw “weakness” in Nike.
“There are definitely some brands where we’re seeing comparative growth, and then, you know, we’re also dealing with some of the recent weakness in Nike,” Dillon said. “Given their size and scale, it makes sense that it would have an impact.”
Foot Locker’s shares fell 15% in pre-market trading after the company announced its results.
Foot Locker’s fiscal third-quarter performance compared to Wall Street expectations is as follows, according to a survey of analysts by LSEG:
- Earnings per share: Adjusted 33 cents, expected 41 cents
- income: $1.96 billion vs. $2.01 billion expected
Foot Locker lost $33 million, or 34 cents a share, in the three months ended Nov. 2, compared with a profit of $28 million, or 30 cents a share, a year earlier. Excluding one-time items related to the atmos brand impairment charge and other charges, Foot Locker reported earnings of $31 million, or 33 cents per share.
Sales fell to $1.96 billion, down about 1.4% from $1.99 billion a year earlier.
Dillon explained that consumers show up during key shopping moments, such as back-to-school and most recently the period between Thanksgiving and Cyber ​​Monday, but shop less between those events, causing peaks and troughs to be larger than expected. sharp. Foot Locker also faces weak demand from Nike, which is trying to turn around its business after relying too heavily on same-brand products to drive sales.
Nike veteran Elliott Hill take the helm The company has been around for less than a month, and Wall Street has yet to hear about his strategy. Given Foot Locker’s third-quarter performance, Nike may report another less-than-stellar set of quarterly results when it reports earnings on Dec. 19.
Nike is Foot Locker’s largest brand partner, accounting for about 60% of sales. If Nike struggles, Foot Locker will inevitably suffer as well.
“It’s not one size fits all. Frankly… I’m just saying there are some brands that are more heavily promoted, but overall, the category is heavily promoted,” Dillon said. “The level of promotion in this category was very high, which we were not expecting.”
She reiterated that Foot Locker’s relationship with Nike and its new CEO is “very strong” and expected the slowdown in demand to be temporary as Hill gains a foothold.
“We have a great relationship with him and are very confident in the direction he and his team are going,” Dillon said. “I think we’re going to solve all of these problems and that’s it.”
rough guide
Given Nike’s struggles and the pressure on lower-income Foot Locker consumers, the company slashed its full-year guidance and issued a disappointing holiday forecast.
Foot Locker expects holiday quarter sales to fall 1.5% to 3.5%, after rising about 2% in the same period last year. The company said it added one sales week last fiscal year.
Foot Locker’s guidance range was mostly below analysts’ expectations for a 1.6% decline, according to LSEG. The company also expects comparable sales to rise 1.5% to 3.5%, largely below the 3.4% growth forecast, according to StreetAccount.
Foot Locker now expects full-year sales to decline 1% to 1.5%, compared with previous guidance of a 1% decline to a 1% increase. Analysts expected a 0.4% drop, according to LSEG.
The retailer also lowered its full-year comparable sales forecast, now expecting comparable growth to be between 1% and 1.5%, compared with previous guidance of 1% to 3%. Analysts expected the gauge to rise 1.8%, according to StreetAccount.
Foot Locker also lowered its full-year profit forecast and now expects adjusted earnings per share to be between $1.20 and $1.30, below Wall Street expectations of $1.54. Foot Locker had expected earnings in a range of $1.50 to $1.70 per share.
The company attributed the revised guidance in part to increased promotions and shorter years, which it expects will impact sales by about $100 million.
Despite significant guidance cuts and a bleak holiday outlook, some Highlights period. for for the second consecutive quarterFoot Locker’s comparable sales increased compared with the previous year, an increase of 2.4%. The figure was lower than analysts’ expectations of 3.2%, according to StreetAccount, but it’s indicative of Dillon’s Turnaround plan is continuing to show signs of life.
Champs, which has been a drag on Foot Locker’s overall business, also posted positive comparable sales growth, up 2.8%, as did WSS, up 1.8%.
Dillon said Foot Locker’s gross profit margin also improved by 2.3 percentage points in the quarter due to fewer promotions compared with the same period last year, and it achieved its highest conversion rate for the year.
The former Ulta Beauty boss added that the company plans to continue using cash on hand to fund its store renovation program and feels “very good” about the progress it’s making.
“It’s kind of a tale of two worlds, we feel like what we’re doing is working really well, but in the market that we’re seeing right now, we feel like it’s the right thing to do,” said Dillon of the decision to cut guidance. “This does not shake our confidence in the direction that Project Tie is heading, nor does it shake our confidence that these are the right things to do.”
