Foot Locker (FL) earnings Q3 2023

Shares of Foot Locker rose Wednesday 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.

Foot Locker shares surged about 16% on Wednesday.

On a call with investors, CEO Mary Dillon said the company has made progress with its turnaround initiatives. She pointed to a new marketing deal with the NBA and said the holiday quarter is off to a strong start.

Over Thanksgiving week, Foot Locker saw solid traffic and sales in stores and online, with some gains in the amount that customers spent and number of items they put in their baskets, she said. Dillon added shoppers have shown they’re willing to pay full price for items “when the product is new, compelling, and trend right.”

But she said it is still early.

“We know we’re vying for wallet share with a value-conscious consumer this holiday season,” Dillon said.  “While our customers remain discerning with their discretionary dollars and we expect that will continue to through the season, we’re also seeing them respond to newness at key moments.”

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:

• Earnings per share: 30 cents adjusted vs. 21 cents expected
• 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.

Dillon said in a news release that the company remains on track to end the fiscal year with inventory levels flat or down slightly compared with the prior year.

Other pressures on the company remain. Foot Locker’s gross margins in the quarter declined year over year, as it had higher promotions and shrink, a term used to describe losses from theft and damage to merchandise.

As Foot Locker deals with those challenges, it has also chased new ways to attract customers and drive sales growth. Earlier in November, it announced a multiyear deal with the NBA that will give Foot Locker exposure with on-court virtual signage during national broadcasts and on NBA social media platforms. The company’s holiday ad campaign also features NBA stars, including Kevin Durant and Steph Curry.

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.

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