Foot Locker stumbles in Q2 with big earnings miss

Foot Locker reported grim results for its second quarter, and suggested that it may be mulling store closures.



The athletic footwear and apparel retailer posted net income of $51 million, or $0.39 per share, for the quarter ended July 29, down from $127 million, or $0.94 per share, in the year-ago period. The results were negatively impacted by a $50 million pre-tax litigation charge related to a lawsuit regarding the company's pension plans for former employees. Excluding the charge, earnings were $0.62, far below analysts' estimates of earnings per share of 90 cents.



Revenue fell 4.4% $1.7 billion, missing analysts' estimates of $1.8 billion. Same-store sales fell 6%.



“While we believe our position in the market for premium sneakers remains very strong and our customers continue to look to us for compelling new athletic footwear and apparel styles,” said Richard Johnson, chairman and CEO, “sales of some recent top styles fell well short of our expectations and impacted this quarter’s results."



Footlocker CFO and executive VP Lauren Peters suggested that the firm may be mulling store closures.



“In light of the current sales challenges in this unprecedented retail environment, we are considering a range of expense alternatives, including adjustments to our largely productive store base; reductions in overall capital spending, as well as shifting of emphasis from real estate to digital and supply chain; and various additional expense initiatives to create a more flexible, efficient organization," she stated.



In addition to weak sales, Foot Locker said its second quarter performance was also affected by the limited availability of innovative new products in the market.



"We believe these industry dynamics will persist through 2017, and we expect comparable sales to be down 3% to 4% over the remainder of the year," Johnson stated.



While some industry experts said that Foot Locker's weak results were indicative that the sneaker sector is losing momentum, Neil Saunders, managing director of GlobalData Retail, commented that while overall consumer demand for sneakers was a little soft during the quarter, it did not fall by anywhere near the level of Foot Locker's decline. “In other words, the company lost market share,” he said.



"In our view, the main issue is that Foot Locker was a little off-pitch in terms of the styles it showcased and did not have anywhere near enough stock of the key lines and items that consumers wanted," Saunders said. "Taken together, these things reduced conversion rates and average spend. Foot Lockers' sudden fall from grace points to a truism in today's sports market: Customers want and demand constant newness and innovation and are punishing of firms that don't deliver it."



During the second quarter, the company opened 24 new stores, remodeled or relocated 38 stores, and closed 19 stores. As of July 29, 2017, Foot Locker operated 3,359 stores in 23 countries in North America, Europe, Australia, and New Zealand. In addition, 68 franchised Foot Locker stores were operating in the Middle East, as well as 14 franchised Runners Point stores in Germany.