Foot Locker sees FY sales at top end of estimates as Q1 hit estimates

The U.S. retail chain Foot Locker said it now expects full-year sales to be at the high end of guidance after better than expected first-quarter results. Comparable store sales fell 1.9 percent in the first quarter to April 30, better than the 3.5 percent decline expected by analysts. The company said apparel “significantly outpaced” shoe sales. The fall reflected declines in the U.S. due to the sizable government stimulus last year, partially offset by strong comparable gains in other regions, particularly Europe, which saw significant store closures last year during the Covid pandemic.

Earnings fell to $133 million (€126m) from a record $202 million a year earlier. Total sales grew 1 percent to $2.175 billion (€2.05bn), slightly below consensus forecasts of $2.2 billion (€2.08bn). On a constant currency basis, total sales were up 3 percent. Gross margin declined by 80 basis points compared with the prior-year period, driven by higher supply chain costs and slightly higher markdowns versus historically-low levels and the inclusion of WSS and Atmos, which were acquired last September.

Chief executive Dick Johnson said the company was focusing on improving inventory and vendor relationships as he moved to align Foot Locker with Nike rival Adidas after the world’s largest athletic-wear maker reined in some of its business. Foot Locker in February warned that current-year same-store sales would fall between 8 to 10 percent due largely to reduced Nike allocations after the latter decided to consolidate its wholesale distribution, including splitting with some retail partners as the brand accelerated its plan to increase direct-to-consumer sales. Johnson said that despite the overall fall in sales, most of the company’s top 20 vendors posted sales gains in the quarter, citing Adidas and Puma, while New Balance, Crocs and Converse were up more than 50 percent. He added that although the macroeconomic environment “has become more uncertain in many ways over the past few months with interest rates and inflation increasing rapidly, our consumer has remained resilient. We have not seen a material change in consumer behavior to indicate a softening in demand for our category”. Johnson also noted that Foot Locker’s plan to diversify into apparel and accessories continued to gain traction in the early days. “Private label continues to be an important driver of our apparel business with Locker and Cozy […] and co-created brands like All City and Melodia performing well with new drops in March and April,” he said.

On a geographical basis, North American comparable sales were down 11.8 percent, with Canada up by mid-single digits. At the same time, Foot Locker US was down high single digits, and Kids Foot Locker and Champs were both down low double digits. U.S. sales in the previous year received a large boost as the government issued stimulus cheques to households during the Covid pandemic.

Overall, comparable sales in EMEA grew more than 50 percent as open store days improved to 97 percent from 39 percent last year. In APAC, sales rose 10 percent with strong performance in both Pacific and Asian regions as Covid-related restrictions eased across the firm’s markets there.

Inventories were 37 percent higher year on year at the end of the quarter, said CFO Andrew Page, “putting us in a strong position to fulfill demand going forward.” “The supply chain picture remains volatile. We’ve benefited from the improved receipt flow during the quarter, which positions us well to fulfill demand going forward,” he added.

Foot Locker said it expects earnings and sales for 2022 to land at the upper end of the range set at the start of the year due to the solid first-quarter results, strong inventory position and stronger vendor relationships. It also said that in the current quarter-to-date comments, trading was in line with expectations. The company said it now expected revenue towards the upper end of prior sales guidance for a total decline of 4 to 6 percent and a comparable sales decline of 8 to 10 percent.

The second and fourth quarters were forecast to be the toughest comparisons of the year against 2021’s stimulus measures and lockdowns in Europe which forced store closures, while the final three months would see the start of reduced allocations from Nike. Overall gross margin decline forecasts were revised downwards to 360 to 380 basis points from 410 to 430 points after better-than-expected markdown performance in the first quarter.

“We still assume that markdowns will begin to normalize through the year as we come off of the historically low markdowns that persisted in 2021, but they have been slower to materialize than we originally expected,” the company said. It also expected supply chain cost “to be a drag on our margins as well with that dynamic playing out about as we expected so far.”