May 20, 2022
Foot Locker forecast shows it's overcoming Nike pullback
Surprising insights to navigate the retail resurgence
Foot Locker Inc. shares climbed after its forecast showed the retailer is overcoming Nike Inc.’s move to sell more shoes via its own channels.
Foot Locker said Friday that it now expects full-year sales and profit to be at the high end of its prior expectations. Chief Executive Officer Dick Johnson said the company is “off to a strong start in 2022” as it focuses on improving inventory and vendor relationships. He also credited “broadening and enriching our assortment” of items for sale to meet consumers’ demand for choice.
The upbeat report bucked the trend for retailers this week. Profit cuts at companies such as Walmart Inc., Target Corp. and Ross Stores Inc. led to massive selloffs in those stocks and across the industry. US retailers have struggled with accelerating inflation as it cuts into profits and hinders shoppers’ purchasing power.
“Our consumer has remained resilient,” Johnson said on a conference call with analysts. “We have not seen a material change in consumer behavior to indicate a softening in demand for our category.”
Comparable-store sales, a key retail metric, fell 1.9 per cent in the first quarter ended April 30. That was better than the 3.5 per cent loss expected by analysts. Apparel significantly outpaced shoe sales in the quarter.
Shares of New York-based Foot Locker rose 8.1 per cent at 9:37 a.m. The stock had dropped 31% this year through Thursday’s close, including a huge drop after last quarter’s earnings report, when the initial full-year guidance came in well below Wall Street expectations.
Earnings per share, excluding some items, for the fiscal year ending in late January are now expected to be at the high end of the US$4.25 to US$4.60 forecast range, and sales are expected to be at the upper end of the forecast for a decline of four per cent to six per cent.
Johnson has moved to align Foot Locker with Nike’s top rival, Adidas AG, to compensate after the world’s largest athletic-wear maker pulled back some of its business. The pair are targeting sales of more than US$2 billion by 2025 -- triple last year’s level. Foot Locker also sees bigger roles for Puma SE and New Balance Inc.
Like much of the footwear industry, Foot Locker has struggled with supply-chain problems that have begun to improve in recent months. Merchandise inventories were US$1.4 billion at the end of the quarter, 37 per cent higher than a year ago, which the company said will allow it to fulfill demand going forward.
Getting those goods to stores has been expensive, as retailers pay higher prices for ocean freight and bypass logjams at ports by shipping more items by air. Foot Locker said higher supply-chain costs caused its gross margin to decline by 80 basis points in the first quarter compared with a year ago.
“The result does not change the company’s near-term challenge,” said Cristina Fernandez, an analyst at Telsey Advisory Group, in a note to clients. “Foot Locker is in the early stages of a transitional period away from an outsized reliance on Nike toward a more diversified vendor mix. This transition creates uncertainty.”