Foot Locker shares plunged 34% at the release of second-quarter earnings on Wednesday (Aug. 23) as the company faces a challenging retail environment and struggles to meet sales expectations.
The athletic footwear and apparel retailer reported a loss of $5 million, compared to a profit of $94 million in the same period last year. Sales declined 9.9% to $1.86 billion, down from $2.07 billion year over year.
Foot Locker has been heavily reliant on promotions to drive sales, particularly as its primary customer base, which skews lower to middle income, has reduced spending on discretionary goods like shoes and clothes.
The decline in comparable-store sales, which dropped by 9.4% during the quarter, was attributed to ongoing consumer softness and changes in its vendor mix. The retailer has been working to reduce its reliance on Nike — historically a major driver of sales for Foot Locker — and balance its vendor portfolio.
Ultimately, the disappointing quarter prompted Foot Locker to revise its forecast once again, just five months after its initial projection. The company now expects sales to drop 8% to 9% for the year, with a decline in same-store sales of 9% to 10%.
Despite these challenges, the American sportswear and footwear retailer has seen some improvement in its inventory levels, which rose by 11% year over year to $1.8 billion.
Commenting on the results, President and CEO Mary Dillon acknowledged “a softening in trends in July” and a “still-tough consumer backdrop,” as well as emphasizing the need to compete for price-sensitive consumers while still investing strategically to drive its Lace Up plan. “Importantly, we are continuing to make progress on our inventory levels and look to best position the business for the upcoming holiday season and into 2024,” Dillon added.
The Lace Up strategy, launched earlier this year, involves a revamp the Foot Locker brand and a reshaping its real estate footprint as it expands its community-oriented concept stores to areas where sneaker enthusiasts are most likely to gather.
Against that backdrop, the company closed 108 underperforming stores during the second quarter, while opening 15 new stores and remodeling or relocating 16 others during that same period.
“We remain committed to our Lace Up plan as introduced at our March 2023 Investor Day, and we are encouraged by the progress we are making against our strategic priorities heading towards the holiday season,” Dillon said.
As of July 2023, Foot Locker operated about 2,600 stores in 26 countries across North America, Europe, Asia, Australia and New Zealand, in addition to 184 franchised stores operating in the Middle East and Asia.