Foot Locker Shares Jump More Than 15% After Earnings Beat

Key Takeaway
1. Foot Locker beat third-quarter earnings and sales expectations.

2. The shoe and apparel retailer said it expects better same-stores sales this year than it previously did.

3. Foot Locker has been hit by customers dealing with inflation and Nike’s focus on direct sales.

Shares of Foot Locker rose today in premarket trading after the company posted surprise earnings and sales beats and said it saw strong results over the Thanksgiving weekend.

The sneaker and sportswear retailer narrowed its full-year forecast, reflecting slightly better sales trends. It said it now expects sales to drop by 8% to 8.5% for the year, compared with a previously issued forecast of an 8% to 9% decrease. It projects a same-store sales decline of 8.5% to 9%, compared with its previous guidance of a 9% to 10% drop.

Yet Foot Locker lowered the high end of its adjusted earnings guidance, dropping the range to $1.30 to $1.40 per share, down from the previous $1.30 to $1.50 per share.

Here’s how Foot Locker did in the three-month period that ended Oct. 28 compared with what Wall Street was anticipating, based on a survey of analysts by LSEG, formerly known as Refinitiv:

i. Earnings per share: 30 cents adjusted vs. 21 cents expected
ii. Revenue: $1.99 billion vs. $1.96 billion expected

In the fiscal third quarter, Foot Locker reported net income of $28 million, or 30 cents per share, compared with $96 million, or $1.01 in the year-ago period. Total revenue fell about 8.6% from $2.18 billion in the year-ago period.

Foot Locker’s same-store sales fell 8% year over year, which the company said reflected “ongoing consumer softness,” a change in its mix of vendors and a 3% negative impact as it closes some Champs stores. Even so, that was slightly better than the 9.7% drop that analysts expected, according to FactSet.

Digital sales fell by 5.6% year over year, Chief Commercial Officer Frank Bracken said on the company’s earnings call. Yet excluding Eastbay, a digital brand that the company wound down last year, digital sales rose 0.4%.

Like many retailers, Foot Locker has gotten hurt by shoppers cutting back on discretionary spending as inflation forces them to spend more on food, housing and everyday needs and as experiences, rather than goods, become a priority. Foot Locker has also faced company-specific troubles, such as having some stores in struggling malls and leaning heavily on merchandise from Nike, a brand that’s making a bigger push to sell directly through its own stores and website.

Too much inventory has also been a problem for Foot Locker, particularly as shoppers watch their spending. At the end of the third quarter, the retailer’s inventory was 10.5% higher than at the end of the year-ago period. Foot Locker said about 6% of that was strategic, as the company stocked up on merchandise to sell during the holiday season.

On Wednesday, Foot Locker said it will enter a new market, India, next year. It said it has struck a long-term licensing agreement with two operators in India, Metro Brands Ltd., one of India’s largest footwear and accessories specialty retailers, and Nykaa Fashion, an e-commerce retailer. Those two companies will have exclusive rights to own and operate Foot Locker stores and sell its merchandise online in India.

As of Tuesday’s close, shares of Foot Locker had tumbled by about 37% this year. That compares with the approximately 19% gains of the S&P 500 during the same period. Foot Locker’s stock closed at $23.84 on Tuesday, bringing its market value to $2.25 billion.

Technical Analysist