Foot Locker Says Soft Consumer Trends, Heavy Promotions Led to Rocky Q3
Foot Locker Inc. on Wednesday downgraded its outlook for fiscal year 2024 after reporting Q3 sales and earnings that fell short of its expectations.
Mary Dillon, the sneaker retailer’s chief executive officer, told FN in an interview that weaker consumer demand and a highly promotional environment impacted Foot Locker’s results in the third quarter. She also noted that sales were generally slower outside of key shopping events like back-to-school and Thanksgiving weekend.
“We’re operating an environment that is temporarily impacting our business and offsetting some of the progress that we’re making,” Dillon told FN. “People are coming out to spend and then pulling back.”
Shares of Foot Locker dipped almost 10 percent by mid morning on Wednesday.
Watch on FN
For the third quarter, Foot Locker revenues were down 1.4 percent to $1.958 billion, short of the $2 billion expected by analysts surveyed by Yahoo Finance. Net loss was $33 million in the third quarter, compared with a net income of $28 million in Q3 the prior year. Non-GAAP earnings per share was 33 cents, which was short of analysts’ expectations of 40 cents.
Comparable sales, which were up 2.4 percent in the quarter, were a bright spot for the retailer. Dillon called out this growth, along with general share gains and gross margin expansion, as a testament to the retailer’s progress within its Lace Up plan, a strategy announced in 2023 to diversify brand portfolio mix, relaunch the Foot Locker brand with new store formats focused on an off-mall presence, maximize the loyalty program and invest in technology to enhance the customer journey.
“We’re really proud of the progress that we’re making on the Lace Up plan,” Dillon said, noting that the chain achieved its highest annual conversation rate in Q3 as well.
Foot Locker also continued updating its store fleet in line with its broader retail enhancement plan. In the third quarter, Foot Locker remodeled or relocated 20 stores, refreshed 167 stores, closed 24 stores and opened 10 new stores.
Also in the third quarter, the percentage of non-Nike brand sales held steady 40 percent, in line with the company’s goal to have more than 40 percent of its brand mix be outside Nike by 2026. Dillon highlighted other standout brands like Hoka, On, Adidas and New Balance.
“We have a nice mix and a broad diverse portfolio of brands,” Dillon said. “And our customers are showing that they like having choice.”
Like other footwear executives, Dillon said Foot Locker will monitor any updates related to potential tariff changes that could possibly impact business. Ninety-nine percent of the shoes sold in the United States — including many athletic shoes — are imported from primarily China, Vietnam and Indonesia, regions that could be subject to potential tariff changes. As it relates to Foot Locker, direct exposure to China is more limited, though brand partners could see more of an impact.
“What’s in our direct view of what we buy is pretty small,” Dillon said. “And as it relates to our brand partners, it’ll be up to them how they want to pass along if those costs happen. But we were watching it closely and feel like we have a good handle on it.”
Looking ahead to the rest of the year, Foot Locker downgraded its outlook for fiscal year 2024 and now expects sales to be down between 1.5 percent and 1 percent. Comparable sales are expected to be up between 1 and 1.5 percent and Non-GAAP EPS is expected in the range of $1.20 to $1.30. Foot Locker also downgraded its outlook for gross margin, which is now expected to be between 28.7 percent and 28.8 percent, due to promotional pressure.
For the fourth quarter, Foot Locker expects sales to be down between 3.5 percent and 1.5 percent. Comparable sales are expected to be up between 1.5 percent and 3.5 percent. Non GAAP EPS is expected in the range of 70 cents to 80 cents.
