A sign hangs above the entrance to a Foot Locker store in Chicago, Illinois, on August 2, 2021.
Scott Olson | Getty Images
foot locker Shares plunged nearly 28% on Friday, prompting the company to slash its outlook just two months after its introduction, after sales fell by double digits due to a stronger-than-expected consumer downturn.
Good results that exceeded the expectations of major retailers such as the goal, TJ Max and walmart this week, With a variety of companies reporting earnings in the coming weeks, Footlocker’s meager report could signal trouble for other companies in the sector.
Footlocker missed targets in both sales and earnings, but aggressively promoted its products to clear skyrocketing inventory levels and persuade shoppers to spend more freely on shoes and clothing. said there was a need.
Here’s how sports apparel retail stores work Based on Refinitiv’s survey of analysts, first quarter results compared to Wall Street expectations were as follows:
- Earnings per share: Adjusted 70 cents, expected 81 cents
- Revenue: $1.93 billion vs. $1.99 billion expected
The company reported net income of $36 million, or 38 cents per share, for the three months ended April 29, compared with about $132 million, or $1.37 per share, in the same period last year.
Revenue was $1.93 billion, down 11.4% from $2.18 billion in the same period last year.
Footlocker now expects annual sales to fall 6.5% to 8%, compared with previous expectations of a 3.5% to 5.5% decline. Sales are expected to fall 7.5% to 9%, compared to the previous 3.5% to 5.5%.
Footlocker expects non-GAAP earnings per share of $2 to $2.25, compared with a prior guidance of $3.35 to $3.65.
The company expects gross margins to be in the range of 28.6% to 28.8%, compared to the previous range of 30.8% to 31%.
“As we all know, consumer demand has slowed since Investor Day. [earlier this year] “There are signs that we believe the pressure will continue,” Chief Executive Mary Dillon said on a conference call with analysts. “I knew there was pressure,” he said. We hoped that the situation would return to normal after that, but it turned out not to be as good as we expected or hoped. “
Dillon said the company’s shoppers are skewed toward middle- to low-income and face pressure on discretionary spending as inflation on household essentials such as gasoline, rent and groceries continues to rise. He added that the company is seeing “increased credit usage” as consumer debt hits new highs in the US.
Footlocker shoppers have “flocked” over the back-to-school and holidays, but the company said it has become accustomed to higher-than-usual promotions. Footlocker chief commercial officer and executive vice president Frank Bracken said shoppers had “resistance” to the full price in February, which combined with macroeconomic factors created “headwinds” for the company’s leading running brands. said to have caused
Footlocker’s poor reporting could be a harbinger of what’s to come, especially as retailers like it Coles, american eagle, abercrombie and fitch, ralph lauren and gap Get ready for next week’s earnings report.
Major retailers reported better-than-expected profits this week, but 45% of the sector has yet to report, according to Bank of America’s trading desk. The companies that will be set up in the future will not be as high quality as those reported this week, the bank said.
“Today’s commentary in Florida is a scathing blow to the sector and we believe it will add to the existing tensions that people have about the outcome coming out in the coming weeks,” the trading desk told clients. .
Foot Locker aggressively launched product promotions in April to boost sales, but heavy discounting and an increase in retail theft led to a 4-point drop in first-quarter profit compared to the same period last year. . The company expects promotions to put pressure on profit margins going forward.
Other softline retailers, or those selling soft goods such as apparel and shoes, also reported shrinking profit margins in the coming weeks due to increased industry-wide promotions to cater to price-sensitive consumers. An analyst previously told CNBC that it could.
Nike’s ‘reset’ contributed to sluggish sales
The earnings came eight months after Dillon joined Foot Locker and just two months after she announced the company’s new strategy at Bright Investor Day in March. .
Dillon said the company’s It “renewed” its partnership with Nike, its most prominent and largest vendor, and said it has “spent a great deal of time” reinvigorating the relationship since taking over Footlocker and the sneaker giant.
The company said on its investor day that Nike will continue to lead its portfolio of brands, with 55% to 60% of the mix. But on Friday, the company said a “reset” of its business had led to weaker comparative sales. He also noted that Nike products, which have long been one of the company’s biggest sales drivers, are in “suppressed supply.”
“We’re moving forward and diversifying our brand portfolio, as our non-Nike ratio was up a few points this quarter at 35%,” said outgoing CFO and senior vice president Robert Higginbotham. I feel,” he said. Investor Relations. “We don’t give year-over-year targets for Nike or vendor mix penetration. Still, over time, other vendor mixes will reach 40% or more of his mix by 2026. I am very much looking forward to it.”
After years of being a key part of the Foot Locker business, and sometimes even a lion’s share of sales, the sneaker giant is in the process of resetting itself internally. This reduces our reliance on Foot Locker.
Nike has cited Footlocker as a key partner, but has also spent the last few years ramping up its direct-to-consumer business and cutting ties with wholesalers. Over the past few quarters, the company’s wholesale revenue has increased, largely because Nike relied on these partners to clear excess inventory.
The company said in its March earnings call that it expects wholesale revenues to “moderate” in the next few quarters, which could pose more challenges for Footlocker going forward.