Shares of Foot Locker Inc (FL.N) plunged 25% premarket on Friday, after the footwear retailer cut its annual sales and profit forecasts due to a sharp drop in demand and a hit from heavy discounts aimed at clearing excess inventories. The company also missed Wall Street estimates for its first-quarter results and named former Kohl's Corp (KSS.N), Mike Baughn its new finance chief, effective June 12.
U.S. consumers have sharply cut back discretionary spending, worn thin by persistent inflation, denting sales at a wide range of companies including big-box retailers Target Corp. and Home Depot. Revenue fell more than 11% to $1.93 billion in the quarter ended April 29, missing analysts' average estimate according to Refinitiv IBES data.
Foot Locker reported first-quarter revenue of $1.93 billion, down from $2.18 billion in the year-earlier period, with comparable store sales declining as much as 9%. The bleak print also included misses on revenue and earnings per share for the first quarter.
Other athletic apparel brands like Nike (NKE)and Under Armour also declined on the news, as investors watch for a potential consumer slowdown.
The footwear chain is in the midst of its turnaround strategy dubbed 'Lace Up' which plans to close 400 underperforming stores primarily located in lower-tier malls while focusing more on off-mall locations.
"Our sales have since softened meaningfully given the tough macroeconomic backdrop," said CEO Mary Dillon.
Foot Locker reported an 11.4% drop in sales during Q1 of this year pushing net income down $97 million compared to last year's figures.This follows weak sale reports from Target and Home Depot earlier this week; Home Depot reported their biggest revenue loss in over two decades which led them to lower their forecast for 2023.
Foot Locker also said its expected sales loss would increase by 6.5% to 8%, due to larger trends like interest rate hikes and inflation. Target's sales had barely grown in the beginning of the year, despite earnings and revenue surpassing analyst expectations.
Home Depot also reported their biggest sales miss in about 20 years with organized retail theft contributing significantly to this dent in Target's Sales.
Foot Locker (FL) reported quarterly earnings of $0.70 per share, missing the Zacks Consensus Estimate of $1.78 per share which represents an earnings surprise of -10.26%. Over the last four quarters, Foot Locker has surpassed consensus EPS estimates three times but this could change as estimate revisions indicate shares are expected to underperform the market in the near future.
Investors should be mindful that industry outlook can have a material impact on stock performance moving forward.