Foot Locker (FL -0.57%) investors were seeing red this week. Their stock was trading down by 29% through early Friday trading compared to a 1% rally in the wider market, according to data provided by S&P Global Market Intelligence. That slump added to a difficult period for shareholders in the footwear retailer. Its stock has fallen 43% in the past year, even as the S&P 500 has gained 30%.
This week’s decline came as Wall Street learned that Foot Locker’s growth rebound will take longer than management initially expected.
Mixed results
Sales results were mixed in the company’s fiscal 2023 fourth quarter, which captures the key holiday shopping season. For the period, which ended Feb. 3, revenue rose slightly and comparable-store sales improved to a 1% decline from the prior quarter’s 8% drop. These results surpassed the short-term outlook that management had issued in late November.
“We are pleased to report fourth quarter results ahead of our expectations,” CEO Mary Dillon said in a press release.
Yet there were ample signs of stress on the business. Foot Locker had to cut prices significantly to keep inventory moving. This contributed to a declining gross profit margin and much lower earnings. The chain reported a net loss of nearly $400 million in the quarter, compared to net income of $19 million in the prior-year period.
Looking ahead
Investors zeroed in on management’s updated outlook for the next few years, which wasn’t encouraging. The company’s weak earnings results in fiscal 2023 suggest that it will take two additional years for Foot Locker to reach its profitability goals. Adjusted profit margin won’t land at 9% of sales until 2028, management said, as opposed to 2026. Foot Locker is also choosing to delay reinstating its dividend for at least another year. “2024 will serve as a cash rebuilding year,” CFO Mike Baughn told investors.
The good news is that Foot Locker sees a return to comparable-store sales growth ahead, with comps rising by about 2% in 2024 following last year’s 7% slump. And markdowns will put less pressure on earnings. But the retailer‘s stock likely won’t show positive momentum as long as strong annual earnings results appear to be years away.
