Foot Locker reaffirms FY outlook as ‘Lace Up’ strategy begins gaining traction

Higher average unit prices, less promotional pricing, and an improved pipeline of new products from key vendor partners in the months ahead, including Nike, has Foot Locker confident that it will meet its FY24 financial objectives. The group, celebrating its 50th anniversary this year and preparing to make a big splash during the Paris Games next month, intends to make progress toward its Ebit margin goal of 8.5 to 9.5 percent by 2028. Through brand partnerships, there will be store takeovers, pop-up shops, and special retail experiences across several cities in France this summer. 

Foot Locker’s more immediate FY24 goals include a 210- to 230-basis-point expansion in gross margin to a range of 29.8-30.0 percent, comparable sales growth of 1 to 3 percent, and a non-GAAP EPS range of $1.50 to $1.70 a share despite persistent consumer and macro challenges across global markets. The group expects to end the FY with 4 percent fewer doors but only 1 percent less square footage as it opens 40 new stores and closes about 140 locations. A new “re-invented” retail concept that debuted in Wayne, New Jersey, 1,115 sqm in size, will open in four new locations in 2024 – New York City, Melbourne, Delhi, and Paris. Meanwhile, the company says it’s committed to refreshing two-thirds of its global Foot Locker and Kids Foot Locker locations by the end of 2025. 

“We continue to make great progress in meeting our customers’ desire for choice and offering an exciting array of sneaker brands and styles,” said CEO Mary Dillon, who leads the retailer’s turnaround effort. “[We] expect the composition, productivity, and flow of our assortments to continue to improve throughout the year. […] We see flexibility in Q2 and beyond as we pivot more of our open-to-buys (purchases) towards higher productivity brands and franchises.”

In Q1, which ended May 4, Foot Locker’s operating income slipped by 71 percent to $18 million from $61 million, as net income tumbled by 78 percent to $8 million from $36 million. Gross margin fell by 120 basis points year-over-year to 29.1 percent as moderating markdowns from Q4 were partially offset by occupancy leverage. Merchandise inventories declined by 5.6 percent year-over-year to $1.7 billion. 

On the sales front, comps fell by 1.8 percent and were negatively impacted by the ongoing repositioning of the Champs Sports’ business. Global Foot Locker and Kids Foot Locker’s comparable sales increased by 1.1 percent. Total Q1 constant-currency revenues contracted by 2.4 percent to $1,874 million. Global digital comparable sales rose by 4 percent to help digital penetration increase by 80 basis points to 17.1 percent. Meanwhile, with a new Foot Locker app set to launch later this year, the company continues to target 25 percent e-commerce penetration by 2026. 

Geographically, the EMEA had the best results, with sales rising by 1.6 percent to $394 million. With the dual objectives of refreshing stores and improving assortments moving forward, Foot Locker will aim to capture positive momentum from its 145 stores in France, its strongest EMEA market, during the upcoming Olympics. Elsewhere, North American comparable sales fell by 2.5 percent to $1,369 million, and Asia-Pacific revenues dipped by 5.5 percent to $111 million. 

While total footwear sales increased in the low single digits in Q1, Foot Locker sees future segment growth being generated by key categories (basketball, lifestyle/performance running and lifestyle) and improved product pipelines from numerous key brands. Beyond seeing a return to sales growth for Nike in Q4, the group is already experiencing global momentum from Asics, On, Hoka, and New Balance in running and acceleration across all global retail divisions for Adidas lifestyle styles such as the Samba, Gazelle and Campus.