Foot Locker in Q4 loss; to unveil store of the future, revamp existing stores
Foot Locker ended its fiscal year on a slightly downbeat note, reporting a loss for the fourth quarter and issuing weak guidance.
Despite the loss, the athletic shoe and apparel retailer still beat analysts’ expectations. But it warned that it would not meet the profitability goal — to reach an EBIT margin of 8.5% to 9% by 2028 — it disclosed at its March 2023 Investor Day on time.
“Given our lower starting point exiting 2023, we expect a two-year delay in achieving that goal and now see reaching that target by 2028,” said Mike Baughn, executive VP and CFO, Foot Locker.
On the earnings call, Mary Dillon, who stepped into the CEO role in September 2023, said Foot Locker would launch an immersive store of the future model in April, with three additional locations slated to open later this year. Under her leadership, the chain launched its “Lace Up” strategy, which includes shifting to off-mall locations and opening new, more experiential formats.
In addition, Foot Locker is updating existing locations. It plans to revamp about two-thirds of its global Foot Locker and Kids Foot Locker stores during the next few years.
Foot Locker swung to a net loss of $389 million, or $4.13 a share, for the quarter ended Feb. 3, compared to net income of $19 million, or $0.20 a share, in the year-ago period. Adjusted earnings per share fell to $0.38, down from $0.97 last year, but topping estimates of $0.32.
Total revenue rose 2% to $2.38 billion, topping estimates of $2.28 billion. Total same-store sales fell 0.7%, which the retailer attributed to “repositioning the Champs Sports banner, consumer softness, and changing vendor mix.” Comparable sales at Foot Locker and Kids Foot Locker in North America rose 5.2%.
Foot Locker’s gross margin fell by 3.5 percentage points, which the retailer said resulted primarily from higher markdowns.
Foot Locker is helmed by former Ulta Beauty CEO Mary Dillion, who arrived in September 2023. Under her leadership, the chain launched its “Lace Up” strategy, which includes shifting to off-mall locations and opening new, more experiential formats. During the holiday quarter, Foot Locker opened 29 new stores, remodeled or relocated 66 locations and and closed 113 stores.
“As we continued to deliver on the strategic imperatives of our Lace Up Plan, we built significant momentum through the holiday season, driven by full-price selling in addition to compelling promotions,” stated Dillon. “We also proactively reinvested in markdowns to end the year with leaner inventory levels compared to our expectations."
In February, Foot Locker announced a new year-long program, dubbed "The Clinic," in partnership with Nike and Jordan Brand that includes interactive activations, high reach media, real life basketball clinics, social media content, community events and more.
In November 2023, Foot Locker and the NBA announced a multi-year partnership, establishing Foot Locker as an official league marketing partner in the U.S.
“As we continue evolving into a modern, omnichannel retailer for 'all things sneakers,' we are making important progress strengthening our brand partnerships, increasing customer engagement, transforming our real estate footprint, and driving growth in digital,” stated Dillon. “We are especially excited about strengthening our basketball leadership position, including a successful activation at NBA All-Star 2024. To further build on our progress, we are leaning into strategic investments in digital, store experience, loyalty, and brand-building in 2024.”
For fiscal 2024, Foot Locker expects adjusted earnings per share of $1.50 to $1.70, less than analysts forecast. Total sales are expected to be down 1% to up 1%.
As of Feb. 3, 2024, the company operated 2,523 stores in North America, Europe, Asia, Australia and New Zealand. In addition, 202 licensed stores were operating in the Middle East and Asia.