Foot Locker shares plunged 14.3% on Wednesday after the company reported earnings that missed estimates and slashed its yearly forecast on soft holiday demand – with the chief executive calling out Nike products in particular.
Mary Dillon, the former Ulta Beauty boss who took over Foot Locker in 2022, blamed the earnings misses on soft demand for Nike sneakers and more promotions than expected across the industry.
“There are definitely some brands that we’re seeing comp gains, and then, you know, we’re also contending with some more recent softness out of Nike,” Dillon told CNBC. “Given their size and scale, it kind of makes sense that it would have an impact.”
Foot Locker reported a $33 million loss, or 34 cents per share, in the three months ended Nov. 2.
Excluding one-time charges, including costs from closing its atmos website and stores, the company reported earnings of $31 million or 33 cents per share.
In the same period last year, the Manhattan-based company reported earnings of $28 million, or 30 cents per share.
Total sales fell 1.4% to $1.96 billion, down from $1.99 billion the year before. In a small sign that the company’s turnaround efforts may be paying off, same-store sales grew 2.4%, though it missed the 3.2% growth expected by analysts, according to StreetAccount.
Dillon said the company is dealing with consumers cutting back on spending in the periods between big sales holidays, as well as disappointing demand for Nike products – a major hit since the “Just Do It” brand accounts for 60% of Foot Locker’s sales.
Nike has been struggling to keep pace as innovative new rivals like Hoka and On race ahead in the sneaker sector.
Elliott Hill, a Nike veteran who worked at the company for 32 years, took the helm in October and has yet to reveal a turnaround plan.
“It’s not like across the board with all brands. Frankly…I would just say that there’s some that are more promotional, but in total, the category is pretty promotional,” Dillon told CNBC. “There’s an elevated promotional level in this category that we hadn’t forecasted to be as it is.”
Dillon said Foot Locker has confidence in Hill’s ability to boost Nike sales.
“We have a great relationship with him [and] feel very confident about where he and his team are going,” Dillon told CNBC. “I think we’re going to work through all that, that’s the thing.”
In the meantime, the shoe company slashed its holiday forecasts as retailers have been struggling to contend with a shorter-than-usual shopping period between Thanksgiving and Christmas, as well as deal-savvy customers who are not as willing to splurge as in past years. The shorter holiday season is expected to cost Foot Locker $100 million in lost sales, the company said in its earnings release.
Foot Locker said it expects sales to decline between 1.5% and 3.5% in the crucial holiday quarter, below a 2% gain in the same period last year.
The company said it expects comparable sales to rise between 1.5% and 3.5% in the fourth quarter.
Foot Locker now expects sales to drop between 1% and 1.5% for the full year, worse than the previous outlook between a 1% fall to a 1% gain.
The company also lowered its comparable sales forecast for the full year. Foot Locker expects comparable sales to rise between 1% and 1.5%, below the previous outlook of 1% to 1.3%.
The shoe retailer lowered its full-year earnings forecast to adjusted earnings per share between $1.20 and $1.30. Foot Locker had previously expected earnings per share between $1.50 and $1.70.
The new forecasts fell below analysts’ sales expectations for the fourth quarter and full year, according to StreetAccount and LSEG analysts.
Despite the dismal holiday and yearly outlook, Dillon said the company is confident in the future of its “Lace Up” strategy, which includes revamping store concepts, shuttering underperforming locations and focusing on its banner stores, like Champs Sports and WSS.
Champs, which had previously been a sore spot for Foot Locker, reported comparable sales growth of 2.8% in the third quarter. WSS also posted comparable sales up 1.8% in the same period.
