Why Athletic Retailer Foot Locker's Shares Are Plunging Today?

Specialty athletic retailer Foot Locker Inc FL stock is slumping more than 30% following its Q2 results and lowered 2023 sales and earnings guidance. The company is also pausing its dividend to enhance flexibility.

FL reported a second-quarter FY23 sales decline of 9.9% year-on-year to $1.86 billion, missing the analyst consensus of $1.88 billion.

Adjusted EPS of $0.04 was in-line with the analyst consensus.

Comparable store sales decreased by 9.4% versus last year, driven by ongoing consumer softness, changing vendor mix, and the repositioning of Champs Sports.

The gross margin contracted 460 basis points, driven by an increase in promotional activity, which included higher markdowns, as well as occupancy deleverage and higher shrink.

Selling, general and administrative expenses fell 2.2% Y/Y to $442 million.

Operating income for the quarter was $1 million versus $142 million last year.

The company held $180 million in cash and equivalents as of July 29, 2023. Merchandise inventories were $1.8 billion, an 11% Y/Y increase.

As of July 29, 2023, the company operated 2,599 stores in 26 countries. In Q2, it opened 15 new stores, remodeled or relocated 16 stores, and closed 108 stores.

"To ensure that we have the flexibility to continue to fund our strategic investments appropriately, we are pausing our quarterly cash dividend beyond our Board's recently-approved October payout," said CEO Mary Dillon.

The company is pausing its quarterly cash dividends beyond its recently-approved payout on October 27 to holders of record on October 13.

Outlook: Foot Locker cuts FY23 comparable sales guidance from down 7.5%-9% to down 9%-10%.

FL slashed FY23 sales guidance from down 6.5%–8% to down 8%-9%.

FL also cut FY23 gross margin guidance from 28.6%-28.8% to 27.8%-28%, citing more aggressive markdowns.

FL cut the Adjusted FY23 EPS outlook from $2.00-$2.25 to $1.30- $1.50 versus the consensus of $2.01.

Price Action: FL shares are trading lower by 31.9% at $15.80 in premarket on the last check Wednesday.