Foot Locker has published its results for the first quarter ended 30 April:
- Total sales increased by 1% to US$2.18bn from $2.15bn in the first quarter of 2021.
- Comparable-store sales decreased by 1.9%, with apparel significantly outpacing footwear.
- Net income amounted to $133m, compared with net income of $202m for the corresponding prior-year period.
- Gross margin declined by 80 basis points compared with the prior-year period, driven by higher supply chain costs and slightly higher markdowns versus historically-low levels.
- Foot Locker expects to achieve the upper end of its revenue and earnings guidance for the full year.
“We are off to a strong start in 2022, reporting a solid quarter against the tough comparisons of fiscal stimulus and historically-low promotions from last year,” says Richard Johnson, Foot Locker chairman, and CEO. “Our progress in broadening and enriching our assortment continues, as we continue to meet our customers’ demand for choice. These efforts helped drive our strong results in the first quarter, and we believe will allow us to more fully participate in the robust growth of our category going forward.”
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Commenting on the numbers, Neil Saunders, managing director of GlobalData, notes while sales growth of 1% may seem meagre, Foot Locker has done well to advance its top-line after last year’s record-breaking 83% uplift.
“On a three-year basis, which compares sales to the pre-pandemic period, revenue rose by almost 5%. That said, all the growth has been driven by physical expansion as, on a comparable basis, sales fell by 1.9%. Given the very high hurdle of last year this is not disastrous, but it represents a material slowdown in momentum after a long period of acceleration. While the top line has held up well, the same cannot be said for the bottom line. Here, net income dropped by 34.7%. This is mostly a function of considerably higher inflation in freight, although more markdown activity also contributed to the deterioration.
“The markdown position is interesting as it signals that demand is starting to weaken after an extended period of strength. This is especially so for footwear, as apparel is holding up relatively well thanks to Foot Locker’s launch of private label apparel brands such as Wacker and Cozi. Partnerships with brands like Just Don, which Foot Locker worked with to launch an exclusive basketball apparel collection called All City, have also helped to increase interest in, and sales of, clothing at the chain.
“As much as we applaud reducing the reliance on sneakers, there is no denying that Foot Locker is still very dependent on this part of the business to drive sales. There has been a lot of work to widen the offer and reduce the reliance on NIKE by amplifying interesting styles from other brands like adidas and Puma and even Crocs. This has worked exceptionally well, especially as it chimes with the desire of younger consumers to seek out more diverse and individualistic styles rather than simply defaulting to Nike.
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By GlobalData“Our fear is that the efforts Foot Locker has made cannot and will not override choppiness in the demand environment over the year ahead. A lot of sneaker buying is discretionary and, over the past 18 months, quite a bit of demand has been fueled by consumers being flush with cash thanks to stimulus payments. It is also worth noting that among a small but sizeable cohort of younger sneaker buyers, activities like day-trading, crypto investments, and even NFTs, have provided a nice stream of income some of which has been spent on sneakers. Our view is that these favorable dynamics are now petering out. Indeed, there has been a moderate but noticeable slowdown in the appetite for new product from some consumer segments over the past couple of months.
“Against the backdrop of this tougher environment, we are encouraged by some of the steps Foot Locker is taking, such as growing its physical presence with new off-mall formats which have more of a destination feel and are better able to showcase its ranges. This should help enlarge the number of customers and improve conversion and basket sizes. Meanwhile, the ongoing expansion of drop-shipping for some products should also help protect the bottom line as it will save costs.
“Foot Locker is a company on the front foot, and we think it will weather the upcoming economic storm well. However, it is not immune from some of the challenges so we forecast the year ahead will be uncharacteristically soft.”
Foot Locker management lamented the impact of a shrunken portfolio from Nike in March as the sneaker giant accelerates its direct-to-consumer strategy, with the retailer warning of a 2022 revenue drop.
