Foot Locker has seen sales tank after cutting its full-year forecast and delivering results on the back of a “torrid” prior year, which saw total sales dip by 9.9%, according to GlobalData analyst Neil Saunders.
He explains: “The only small comfort in the 9.9% sales decline is that the number has improved modestly since last quarter’s 11.4% dip. On a two-year basis, sales are now down by a sharp 18.1%.”
The GlobalData analyst links Foot Locker’s sharp decline to the winds of a consumer slowdown as “constrained consumers cut back and style preferences move modestly towards more formal shoes and the fact that the sneakerhead community has been under financial pressure”.
Foot Locker president and CEO Mary Dillon comments that the second quarter was broadly in line with the company’s expectations, despite the difficult consumer backdrop.
Dillon says: “We did see a softening in trends in July and are adjusting our 2023 outlook to allow us to best compete for price-sensitive consumers, while still leaning into the strategic investments that drive our Lace Up plan.”
Key highlights from Foot Locker Q2 results:
- Total sales decreased by 9.9% to $1.9bn compared to $2bn in the second quarter of 2022
- Operating income dropped to $1m from $142m in the prior year
- Net income dropped to $31m, down from $226m in 2022
- Q2 2023 saw a $5m loss, compared to a $94, profit in Q2 2022.
Comparable store sales at Foot Locker declined 9.4% and gross margin declined by 460 basis points compared with the prior year, driven by an increase in promotional activity, which included higher markdowns, as well as occupancy deleverage.
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While the retailer’s numbers can be partially attributed to the current economic situation, GlobalData’s Saunders notes that some challenges are unique to Foot Locker itself.
He explains: “Some of this is down to the pullback from NIKE distribution, some is due to Foot Locker being underrepresented when it comes to new and innovative sneaker brands, and some is a consequence of elevated inventory levels which make some stores appear more cluttered with older styles.”
Saunders believes this has made Foot Locker a less desirable place for consumers to shop, resulting in a drag down in trade and conversion rates.
Foot Locker is suffering in comparison to its competitor Dick’s Sporting Goods which, despite also reporting a disappointing performance in its Q2 results (23 August), has still managed to provide a better all-round experience for shoppers.
“Foot Locker needs to invest more in its experience – and that goes beyond the simple enhancement of the loyalty programme which the company has prioritised,” Saunders adds.
However, Foot Locker’s Dillon adds: “We remain committed to our Lace Up plan as introduced at our March 2023 Investor Day.
“To ensure that we have the flexibility to continue to fund our strategic investments appropriately, we are pausing our quarterly cash dividend beyond our Board’s recently-approved October payout.
“We intend to update the market on our go-forward capital allocation plans and the timing around our longer-term financial targets when we report fourth quarter results.”