Foot Locker failed to meet its revenue and earnings expectations in Q3 ended Nov. 2 due to three key developments—a persistent promotional environment in both Europe and North America, softer consumer purchase trends in September and October, and soft sales trends from Nike. However, the group’s senior management made it clear that the retailer is committed to its go-forward relationship with its largest vendor.
“We have full confidence in…the strength of our (Nike-Foot Locker) partnership, how Nike is positioning the brand for the future, and how that will benefit the category, the industry, and Foot Locker,” President and CEO Mary Dillon told analysts. The company will return to sales growth with Nike in Q4 on an allocation basis and the brand has a favorable launch calendar during the period.
Foot Locker’s operating income tumbled 74 percent to $12 million from $47 million in Q3 as total sales dipped by 1.4 percent to $1,958 million from $1,986 million. The net loss was $33 million against a year-ago profit of $28 million, but gross margin improved by 230 basis points year-over-year to 29.6% on fewer markdowns. FL shares fell by 8.9 percent yesterday as it updated its FY guidance to include a new sales growth target of -1.5% to +1.0%, versus -1.0% to +1.0% previously, and a gross margin range of 28.7% to 28.8%, versus 29.5 to 29.7 percent previously.
The retailer experienced a more elevated, widespread promotional environment in Q3 than it had projected three months earlier. Comparable sales rose by 6.4 percent in Europe as the region’s total period sales grew by 6.1 percent to $445 million. But Foot Locker had to contend with an elevated promotional market across the EU, particularly in the digital and apparel segments. Foot Locker, which said it continues “to navigate (the region’s) choppy environment,” opened its second Reimagined store near Amsterdam in Q3.
A closer look at Q3 results
Footwear comparable sales increased by high-single digits, fueled by strong gains from Adidas, New Balance, On, Hoka, UGG, and Asics, as Foot Locker introduced the Anta brand in several doors and online. The apparel business, meanwhile, was down in the low 20 percent range, despite strength from the retailer’s private label CSG and CSG Active brands at Champs Sports.
Comparable sales were higher across all banners and Europe but fell by 7.3 percent in Asia Pacific where total sales equaled $108 million. Kids Foot Locker posted the strongest comp improvement in the home North American market at +3.2% as total banner revenues equaled $183 million. Foot Locker North America sales dipped by 3.3 percent to $769 million but its comparable sales growth was up 1.6 percent.
Early Q4 results
While Foot Locker’s overall business underperformed during the first three weeks of November, it rebounded nicely in the month’s final week which corresponded with Thanksgiving Weekend in the US. However the combination of a slow sales start in November with an elevated promotional environment and a shortened holiday calendar this year led Foot Locker to adjust both its annual and Q4 outlooks downward.
