Foot Locker Inc. shares fell on Wednesday after the retailer reported a sales drop and loss in the second quarter.
Total sales for Q2 were $1.86 billion, down 9.9 percent over the prior year and slightly short of the $1.88 billion expected by analysts surveyed by Yahoo Finance. The retailer reported a loss of $5 million in the second quarter compared with net income of $94 million prior year. Non-GAAP earnings per share decreased to 0.04 cents per share, in line with analysts’ expectations.
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Comparable-store sales were down 9.4 percent, in line with the retailer’s projections from last quarter. Foot Locker attributed this drop to “ongoing consumer softness, changing vendor mix, and the repositioning of Champs Sports.” Foot Locker said in March it would close 400 underperforming stores, including close to 125 underperforming Champs locations.
Q2 profits also took a hit due to an increase in promotional activity, including higher markdowns and more shrink.
Foot Locker shares fell sharply on Wednesday by 28.3 percent to close at $16.64.
Given the results, Foot Locker once again downgraded its outlook in part due to a softening sales trend that began in July. Foot Locker now expects sales for fiscal year 2023 to be down between 8 percent and 9 percent, compared with a previously outlined guidance of down 6.5 percent and 8 percent. Non-GAAP EPS is expected to be between $1.30 and $1.50, compared with a prior expectation of between $2.00 and $2.25. Comp sales are expected to be down 9 percent to 10 percent.
Foot Locker president and CEO Mary Dillon said in a statement that this outlook will help the retailer “compete for price-sensitive consumers” while acting on its turnaround strategy, dubbed the “Lace Up” plan, which Foot Locker rolled out in March. This multipronged strategy is meant to help Foot Locker increase market share and grow sales to $9.5 billion by 2026 by diversifying its brand portfolio, relaunching the Foot Locker brand with new store formats focused on an off-mall presence, maximizing its loyalty program and investing in technology to enhance the customer journey.
Dillon reaffirmed her committments to the strategy and said she is “encouraged by the progress we are making against our strategic priorities heading towards the holiday season.” Dillon also noted that the retailer would pause its quarterly cash dividend beyond an October payout that was recently approved.
Prior to the results, analysts largely took a cautious view on the sneaker giant, warning that soft Nike sales, a weakened consumer base and a general lack of compelling product (including the absence of Yeezy sneakers) would likely play a role in challenging results for the footwear retailer in Q2.
And according to a recent note from BTIG analyst Janine Stichter, Foot Locker might also see a negative impact when student loan payments resume in the fall and impacted consumers find themselves with less available cash on hand for discretionary purchases like sneakers.
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