Foot Locker Earnings Forecast: Can the Retailer Buck the Weak Athletic Trend?

Shoshy Ciment
·3 min read

Foot Locker’s shares have more than doubled in the last six months — and ahead of its fourth quarter and full-year earnings report on Wednesday, analysts are looking to see if this jump is justified and sustainable. Two big factors: the tepid state of consumer spending and the chain’s reduction in Nike product.

The shoe retailer in November narrowed its outlook for the fiscal year 2023 and expects sales to be down between 8 percent and 8.5 percent and Non-GAAP EPS to be between $1.30 and $1.40. Comp sales are expected to be down between 8.5 percent and 9 percent.

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“If the company executes very well over the next 24 months, the stock’s current valuation is justified and the stock should tread water,” Wedush analyst Tom Nikic said in a Monday note to investors. “And if something goes awry, there’s a lot of multiple compression that could occur.”

He added that high promotional behavior in Q4 and a series of recent negative updates from other players in the industry such as Nike, Adidas and JD Sports, make for a cloudy prognosis for Foot Locker going into Q4. Nike in December lowered its sales guidance for fiscal year 2024 and JD Sports in January lowered its full-year profit outlook.

“Amid all these negative data points in the industry, it’s somewhat of a head-scratcher why Foot Locker would be bucking the trend and would be putting up better-than-expected Q4 sales,” Nikic said.

According to pricing data from UBS, Foot Locker increased its promotional activity in Q4, likely in an effort to drive more sales. UBS also noted that web traffic at Foot Locker and its WSS and Champs brands has slowed, which is a “sign of lagging brand heat and will contribute to lower-than-expected sales growth rates going forward,” UBS analyst Jay Sole said in a note last week. He also noted that Foot Locker is competing against top brands like Nike who are more focused on their direct channels for distribution.

“Over the last few years, Foot Locker has closed its Footaction, Eastbay, Runner’s Point, Sidestep, Lady Foot Locker, and its Asia business. Plus, its Champs business is set to close many of its stores,” Sole wrote. “We expect the trend to continue as market share continues to shift to brands.”

BTIG analyst Janine Stichter echoed this sentiment in a note last week explaining how a reduction in Nike product could slow Foot Locker’s growth plan. Giving the stock a Neutral rating, she said “while we are overall positive on the strategy CEO Mary Dillon is in the process of executing, there remain many uncertainties that make the recovery path likely to be non-linear.”

In a broader sense, Williams Trading analyst Sam Poser attributed Foot Locker’s potential challenges to a general “lack of focus” and loss of Nike product in a note last week, where he lowered his estimate on the stock. Rather than focusing on international expansion and digital consumer engagement, Poser said Foot Locker needs to get back its basics and rethink core elements like store distribution and basic digital infrastructure.

“Foot Locker will continue to lose share to JD/Finish Line, Hibbett, Dick’s Sporting Goods and others,” Poser said, noting that the company is relying too heavily on a historic model that hasn’t evolved enough.

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