Foot Locker Spirals As Inventory Issues Trip Up Shoe-Sector Stocks

Foot Locker stock skidded lower early Friday after a disappointing first-quarter report. The New York-based shoe retailer doubled its expected full-year sales decline, rattling retail partners and other footwear stocks in premarket trading.


Foot Locker (FL) announced Q1 adjusted earnings plummeted 56% to 70 cents per share on an 11.4% drop in sales to $1.93 billion. Analysts polled by FactSet expected earnings of 76 cents per share on $1.99 billion in sales.

“Our sales have since softened meaningfully given the tough macroeconomic backdrop, causing us to reduce our guidance for the year as we take more aggressive markdowns to both drive demand and manage inventory,” CEO Mary Dillon said in the release.

Foot Locker reported merchandise inventory totaled $1.758 billion as of April 29, spiking 25% over year ago levels.

Meanwhile, comparable store sales fell 9.1%, driven by macroeconomic headwinds, lower income tax refunds in the U.S., a changing vendor mix and its repositioning of its Champs Sports subsidiary, Foot Locker said.

The company reported gross margins decreased by 400 basis points due to higher markdowns compared to historic low levels from last year, occupancy deleverage and an increase in theft-related shrink.

Foot Locker Slashes Guidance

Foot Locker slashed its adjusted earnings guidance to range from $2 to $2.25 per share for the year, from its prior estimates of $3.35 to $3.65 per share. Sales are expected to fall 6.5% to 8% for the year. The company previously guided a 3.5% to 5.5% decline.

Foot Locker guided a 7.5% to 9% decline in comparable sales based on a softer sales forecast for the industry for the rest of the year. It previously expected a 3.5% to 5.5% decline. Meanwhile, gross margin is now projected to range from 28.6% to 28.8%, down from the prior 30.8% to 31% range, due to more aggressive markdowns and higher inventory shrink.

Shoe Stocks

FL stock dove more than 25% premarket Friday following the results. Foot Locker shares are down 6% over the past three months but up 9.9% so far this year.

Meanwhile, the miss-and-cut results from Foot Locker tripped up many of its retail partners including Nike (NKE), Under Armour (UAA), Adidas (ADDYY) and Crocs (CROX).

Nike stock and Under Armour both declined roughly 2.5% premarket Friday following the Foot Locker announcement.

CROX stock and Adidas weakened roughly 2% before the opening bell.

Deckers Outdoor (DECK), maker of the popular HOKA brand carried by Foot Locker, slid 1.3% ahead of its earnings report Thursday.

On Holding (ONON) dipped further early Friday. ONON stock tumbled more than 16% this week on softer sales growth expectations despite earnings tripling for its Tuesday report.

You can follow Harrison Miller for more stock news and updates on Twitter @IBD_Harrison.


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