Foot Locker store location on 34th street in New York City.
Courtesy: Foot Locker
Foot Locker said Wednesday it expects another year of deep discounts in the sneaker industry as its largest brand partner Nike continues its reset and relies on markdowns to clear through stale inventory.
The footwear giant delivered mix results for its holiday quarter, beating Wall Street’s expectations on earnings but falling short on sales. In the year ahead, it anticipates that trend will reverse. For fiscal 2025, Foot Locker is expecting profits to be lower than Wall Street estimated, while the high end of its comparable sales guidance is better than analysts had forecast, according to LSEG and StreetAccount.
Here’s how Foot Locker performed in its fiscal fourth quarter compared with what Wall Street was anticipating, based on a survey of analysts by LSEG:
- Earnings per share: 86 cents adjusted vs. 72 cents expected
- Revenue: $2.25 billion vs. $2.32 billion expected
The company’s reported net income for the three-month period that ended Feb. 1 was $49 million, or 51 cents per share, compared with a loss of $389 million, or $4.13 per share, a year earlier. Excluding one-time items related to impairment charges and net losses from discontinued operations, Foot Locker reported adjusted earnings per share of $82 million, or 86 cents per share.
Sales dropped to $2.25 billion, down nearly 6% from $2.38 billion a year earlier. In the year-ago period, Foot Locker – like other retailers — benefited from an extra week, which has skewed comparison results.
While Foot Locker improved profits by more than 100% compared to the prior quarter, it’s not expecting that trend to continue in its current fiscal year, thanks to deep promotional activity across the sneaker marketplace. It’s expecting adjusted earnings per share to be between $1.35 and $1.65, well behind Wall Street estimates of $1.77, according to LSEG.
Meanwhile, it’s expecting comparable sales to rise between 1% and 2.5%, which at the high end beats expectations of up 1.9%, according to StreetAccount.
“While we expect consumer and category promotional pressures to remain uncertain into 2025, especially within the first half, our Lace Up Plan strategies continue to resonate with our customers and brand partners,” CEO Mary Dillon said in a statement. “Our return to positive comparable sales growth, gross margin expansion, and positive free cash flow in fiscal 2024 serve as proof points that our Lace Up Plan is working.”
Foot Locker’s expectations that promotional pressures will weigh on margins in the year ahead indicates that it’s still having issues with Nike, its largest brand partner. The sneaker giant is in the midst of a turnaround under its new CEO Elliott Hill, and said previously it’s relying on deep discounts to clear out inventory. When Nike is promotional, it impacts Foot Locker’s business because the brand still represents about 60% of sales.
In December, Hill outlined his strategy to return Nike to growth and said deep discounting was to blame for declining revenue and profit. The company is aiming to drive full-price sales on its website, but first, it said it needs to aggressively liquidate old inventory through “less profitable channels,” executives said.
Plus, just because Nike shoes are selling for a discount on its own website doesn’t mean that Foot Locker’s website will run those same promotions. For example, a Nike Air Force 1 ’07 model – the type of legacy style that Nike is trying to clear out of in favor of new, more innovative sneakers – is selling for as much as 39% off on Nike’s website.
Meanwhile, the same silhouette, albeit in different colors, is selling for full price on Foot Locker’s website for $115. That’s a problem for Foot Locker because it makes it more likely that a customer will just buy from Nike directly, which is part of the challenge of running a multi-brand company in the age of direct-to-consumer sales.
