Dive Brief:
- Foot Locker continued its string of declines on Wednesday, reporting Q3 sales of roughly $2 billion, down 8.6% from 2022. Comps likewise fell 8% due to consumer softness, a shifting vendor mix and the negative impact of repositioning the Champs Sports banner, according to a company press release.
- Net income was also down significantly, falling 71% to $28 million. The company is continuing to close stores, shuttering 14 in the quarter, while expanding in other areas, including a planned entry into India in 2024.
- Despite another difficult quarter, Foot Locker raised its guidance slightly, expecting sales to be down 8% to 8.5% for the year instead of a previous range of up to 9%. Comps are also expected to be down between 8.5% and 9% for the year versus up to 10% previously.
Dive Insight:
Although Foot Locker’s sales continued their tumble in Q3, the quarter came in ahead of the company’s expectations and it is now planning for slightly lower annual declines.
“Even so, on a two-year basis Q3 sales remain down by 9.3%,” GlobalData Managing Director Neil Saunders said in emailed comments, noting the company’s substantial declines in net income as well. “Compared to two years ago, Foot Locker is now making $130 million less in profit. This is partly the result of much higher rates of discounting which are necessary both to try and stimulate demand and to clear down excess inventory.”
Foot Locker is in a rebuilding period, as executives have emphasized all year, with CEO Mary Dillon just over a year into her tenure and a host of strategic initiatives in place to turn the footwear retailer around. Among those are efforts to revamp Foot Locker’s app and website, and rightsize its business by shuttering underperforming stores and banners.
At the start of the year, Foot Locker said it would shutter 400 mall-based stores by 2026, including 125 Champs stores. The retailer shuttered its Atmos stores and website in the U.S. in October. Chief Commercial Officer Frank Bracken on a call with analysts Wednesday said the business was on track to close 85 stores in 2023, but would push out about 30 closures into 2024 to give Foot Locker more time to sell off inventory and to “spread some of the operational burden” of the closures over a longer period of time.
Dillon also emphasized that the company is investing in its newer store concepts, like its community and power stores, and is working to improve current stores with better visual storytelling and shoppability. The company signed a multiyear deal with the NBA this month and released a new global platform called “The Heart of Sneakers” to better tie itself to the popular category.
Saunders said many of the elements of Dillon’s strategy are “sensible,” like introducing new brands, but the company needs to raise awareness about its broader assortment to better compete and it is “critical” that the Foot Locker business shows signs of progress next year. Janine Stichter, BTIG managing director and consumer retail and lifestyle brands analyst, said in emailed comments earlier this week that improvement might take longer than anticipated.
“While we continue to believe in the significant low-hanging fruit at [Foot Locker] and the company’s potential as CEO Mary Dillon implements her playbook, we believe the turn is likely to be more gradual than anticipated given ongoing macro headwinds, the reduction in Nike allocations, which will take some time to be fully offset by growth in other brands, and growing competition from other retailers,” Stichter said.
