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Foot Locker reported another quarter of declining sales on Wednesday and cut its outlook for the second time this year as shoppers wary about inflation hesitate to spend money on shoes and clothing.
The price of the company’s shares fell by nearly 28% on Wednesday. Foot Locker shares have dropped 56% this year as a result of the slump. On Wednesday, Nike fell 2.7% in sympathy.
The sneaker industry giant’s adjusted fiscal second-quarter earnings met Wall Street projections, but sales lagged behind analyst expectations, and margins continued to narrow as a result of promotions and greater shrinkage.
In contrast to a profit of $94 million, or 99 cents per share, a year earlier, the corporation switched to a loss of $5 million, or 5 cents per share. The company posted earnings of 4 cents per share after taking one-time items out.
Sales decreased to $1.86 billion from $2.07 billion a year earlier, a 9.9% decrease.
Only five months after it was first introduced, Foot Locker cut its prediction once more in response to the disappointing quarter. In addition, the corporation suspended its quarterly cash dividend after its board recently approved a 40 cent per share payout for October.
In contrast to a previous projection that stated sales would decline 6.5% to 8%, the athletic gear company now projects an 8% to 9% annual decline. In contrast to its previous estimate of down 7.5% to 9%, it now expects same-store sales to decrease by 9% to 10%.
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From Earnings Forecast to Consumer Trends
From $2.00 to $2.25 per share, the company reduced its adjusted earnings estimate to $1.30 to $1.50 per share.
Because its main client, who tends to be lower to middle income, has reduced spending on discretionary items like shoes and clothing, Foot Locker has been forced to rely on promotions to drive sales for the past two quarters.
These significant markdowns hurt Foot Locker’s margins, which fell by 4.6 percentage points from the same period last year.
Profits were also affected by shrink, a word used in the retail sector to describe goods lost due to theft, damage, or other reasons, according to Foot Locker. It omitted to say how much shrink reduced its profits in comparison to promotions.
Comparable-store sales decreased by 9.4% during the quarter, and the retailer blamed changes in its vendor mix and “ongoing consumer softness” for the decline. Uncertain sellers or brands of athletic apparel may be altering. Nonetheless, Foot Locker has been working to balance its vendor mix and lessen its dependency on Nike.
Nike, which has consistently been the main contributor to sales at Foot Locker, has been renouncing distributors as part of its own strategy change toward a direct-to-consumer approach.
Although Foot Locker’s inventory are still high—up 11% year over year to $1.8 billion—the business noted that sequential improvements have been made since the first quarter of 2023.
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Source: CNBC
