Foot Locker's Evolution Will Take More Time Than Expected

Foot Locker FL shares tanked almost 30% on Wednesday as the shoe chain posted a holiday loss and delayed the realization of its key profitability goal, while it works on becoming less reliant on Nike Inc NKE. Despite its successful diversification beyond Nike, the two are still deeply connected as Nike remains its biggest vendor.

Fourth Fiscal Quarter Highlights

For the quarter ended on $2.38 billion February 3rd, Foot Locker recorded sales rose almost 2% YoY to $2.38 billion, topping the estimated $2.28 billion. Comparable store sales were down 0.7% for the quarter.

Foot Locker had to use more compelling promotions and discounts to drive holiday sales and that hurt its profit margins. As a result, Foot Locker lost $389 million, or $4.13 per share, while making a net income of $19 million, or 20 cents per share during last year’s comparable quarter. Adjusted earnings of 38 cents surpassed LSEG’s estimate of 32 cents.

A Worse Than Expected Fiscal Year

For the fiscal year ended on February 3rd, Foot Locker reported sales of $8.2 billion, with adjusted earnings of $1.50 to $1.70 a share, falling short of analysts’ expectations.

A Muddled Fiscal Year Outlook 

Management is expecting return to positive comparable store sales this year, forecasting a 1% to 3% rise. Foot Locker guided for adjusted earnings per share between $1.50 and $1.70, while LSEG estimates guided for a range between $1.40 to $2.30, Sales are expected to go from 1% down to 1% up, while LSEG analysts estimated a drop of half percent.

Delayed Financial Goal

After a sluggish 2023, the shoe chain pushed back its planned route to reaching $9.5 billion in annual sales by two more years, more precisely by 2028.

Foot Locker’s turnaround will take more time than expected.

With CEO Mary Dillon at the helm, Foot Locker has embarked on an evolving journey to become an omnichannel retailer for ‘all things sneakers’ by undiversifying brand offerings, opening new store formats and enhancing its loyalty programs. Last quarter, Foot Locker succeeded in having 40% of its business in non-Nike brands, marking a 3% YoY improvement as it aims to lower its dependency on Nike shoes. But Foot Locker still hasn’t fully experienced the power of the booming running market due to it being a highly competitive field. Therefore, expanding its footprint in sneaker culture will take more time than initially expected.

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