Foot Locker, a prominent footwear retailer, experienced a significant setback in its fiscal second quarter, reporting a loss on a year-over-year basis while also adjusting its full-year gross margin outlook downward. The company now projects its gross margin to be between 29.5% and 29.7% for fiscal 2024, a reduction from the previous forecast range of 29.8% to 30%.
The primary driver for this revision was attributed to 'promotional pressure' both globally and specifically within the WSS brand, leading to a notable 8.3% decline in share price during Wednesday's premarket trading, according to market reports. This downward trajectory in stock value can be understood as a result of 'a combination of the stock's strong rally leading up to the earnings print' coupled with the revised gross margin forecast, as observed by analysts at Wedbush Securities in a communication with their clients. Despite these challenges, Foot Locker has maintained its adjusted earnings guidance per share, which remains set at $1.50 to $1.70 for the current fiscal year.
The consensus estimate among analysts on Capital IQ is pegged at $1.54. Furthermore, the retailer has a sales projection that ranges from a minimal decline of 1% to a slight gain of 1%, with comparable sales expected to increase between 1% and 3% for the year. For the quarter ending on August 3, Foot Locker reported an adjusted loss of $0.05 per share, a stark contrast to earnings of $0.04 per share reported for the same quarter the previous year.
Analysts had anticipated a normalized loss of $0.07, yet the company's sales rose by 1.9% year over year, reaching nearly $1.9 billion—slightly surpassing the market's estimate of $1.89 billion. Note that sales were impacted by a non-recurring charge of $11 million due to the rollout of the retailer’s enhanced rewards program across the United States. The comparable-store sales rose by 2.6%, outperforming the analysts' collective expectation of a 1% increase, showcasing a stronger market performance.
The company's gross margin also expanded by 50 basis points year-over-year, indicating a slight but notable improvement in profitability margins. In terms of operational adjustments, Foot Locker closed 31 stores and opened five new locations during the quarter. Chief Executive Mary Dillon commented, 'The Lace Up Plan is working, as evidenced by our return to positive total and comparable sales growth as well as gross margin expansion in the second quarter.' She emphasized that the trends in their top line were encouraging as they progressed through the quarter. Wedbush analysts expressed optimism regarding the company's performance, noting, 'We are encouraged by the company posting its first positive comparable sales since 2022, along with the simultaneous positive comparables and gross margin expansion that the company experienced for the first time in almost three years.' However, they advise a cautious approach, indicating a 'wait-and-see' strategy amid a challenging macroeconomic landscape and other related factors. Looking ahead, Foot Locker plans to streamline its operations by closing or shifting the management of approximately 30 out of its 140 stores in the Asia Pacific region alongside 629 stores throughout Europe.
The company targets to finalize these adjustments by mid-next year as part of its broader operational strategy. Additionally, the retailer has announced plans to relocate its global headquarters to St. Petersburg, Florida, by late 2025, marking a significant transition in its corporate structure and geographic focus..