Foot Locker slumps as weak demand, heavy discounts drive annual outlook cut

By Deborah Mary Sophia

(Reuters) -Foot Locker Inc’s shares closed down 27% on Friday as the footwear retailer cut its annual sales and profit forecasts amid a sharp drop in demand and a hit from heavy discounts aimed at clearing excess inventories.

The company also missed analysts’ estimates for first-quarter results and named former Kohl’s Corp (NYSE:) executive Mike Baughn as its new finance chief, effective June 12.

U.S. consumers have sharply cut back on discretionary spending amid elevated levels of inflation, hurting sales at companies ranging from big-box retailer Target Corp (NYSE:) to home improvement chain Home Depot Inc (NYSE:).

Foot Locker (NYSE:) doubled down on discounts to drive demand, which coupled with an increase in theft-related inventory losses led to a 400-basis point hit to the company’s quarterly gross margins.

“We had forecast a pickup in growth in April … while trends did improve, they did not improve nearly to the extent we expected, and that weakness has continued into May,” Foot Locker Chief Executive Mary Dillon said on an earnings call, adding that the ramped up level of promotions would continue through the rest of 2023.

Foot Locker’s results wiped out more than $1 billion from its market value and weighed on the sportswear sector, with Nike Inc (NYSE:), Under Armour Inc (NYSE:) and Vans maker VF Corp (NYSE:) falling between 4% and 9%.

Other athletic goods retailers such as Hibbett Inc and Dick’s Sporting Goods (NYSE:) Inc also fell.

“We know trends have weakened, but just the magnitude of the guidance cut is what’s disappointing … it’s a surprise how big (Foot Locker) had to cut it just two months after they gave it,” said Telsey Advisory Group analyst Cristina Fernández, adding that the path to recovery was now steeper.

Foot Locker now expects full-year comparable sales to fall between 7.5% and 9.0%. It had expected a drop of 3.5% to 5.5% earlier.

The company also forecast annual adjusted per-share earnings between $2.00 and $2.25, compared with its previous outlook of $3.35 to $3.65.