Dive Brief:
- Noting “softness” from its largest brand partner Nike, Foot Locker on Wednesday said its third-quarter sales declined 1.4%, per a company press release. Comps, however, were up 2.4% as the retailer continued to refresh some locations and close others.
- Foot Locker swung to a $33 million loss in the quarter, compared to net income of $28 million last year. The company also lowered its full-year guidance, now expecting sales to be down 1% to 1.5%, as opposed to up 1% to down 1%. Comps should land between 1% and 1.5%, though initial expectations were for comps to grow up to 3%.
- CEO Mary Dillon said on a call with analysts Wednesday that the company has made “meaningful” progress on its Lace Up strategy, but has been hurt by a weaker consumer that concentrated spending on the back-to-school season and pulled back in September and October.
Dive Insight:
Foot Locker suffered from a higher promotional environment than it expected in Q3, as well as a group of shoppers that pulled back from purchases later in the quarter in order to reserve spending for the holiday season.
The holidays should give Foot Locker another chance to win over shoppers, who are more inspiration-driven during the season, but the period will continue to be “very promotional and price-focused,” according to GlobalData Managing Director Neil Saunders.
“This may deflate sales growth, and it will also eat into margins. However, in our view, it is a price that must be paid to remain on the field,” Saunders said in emailed comments.
Promotions are just one of the short-term pressures impacting Foot Locker’s results, which were also hit by some softness at Nike, Chief Commercial Officer Frank Bracken said. The executive sought to quell any concerns about the partnership between the two companies, saying Foot Locker is confident in its relationship with the sportswear giant, including with the recent appointment of CEO Elliott Hill. Dillon added that Foot Locker has a longstanding relationship with Hill and feels good about the steps he’s taking to turn the sportswear giant around.
While the retailer’s sales declines and guidance cut were disappointing to analysts, Tom Nikic at Needham also noted that the latter was largely “an error of management's own making, as they had drastically overguided the back half of the year.” The retailer also successfully grew earnings per share year over year for the first time in three years, Nikic said in emailed comments, and should still see success next year.
“Our bullish stance is predicated on 2025 being a year of strong sales, margin, and EPS improvement, and they made progress on all those fronts in Q3 (just not as much as expected),” Nikic wrote. “The product assortment should continue to improve, they should be able to wean themselves off of discounts/promos, and SG&A investment is likely to taper off.”
Saunders also said that the quarter is not an indictment on Foot Locker’s strategy and that efforts to improve stores are critical to maintaining favor with shoppers — they just may need to move faster, if anything.
“The danger of moving too slowly here is that Foot Locker will become increasingly irrelevant and out of step and will permanently lose customers as a result,” Saunders said. “Longer term, we have more confidence in Foot Locker’s ability to grow. The company is pursuing the right strategies, and its management team is very focused on the customer.”
