Foot Locker’s shares plummeted by approximately 27% on Wednesday following the retailer’s announcement of lower-than-expected profit projections for 2024. The significant drop was driven by plans for increased investments across its operations aimed at stimulating demand.
Despite a robust performance during the holiday quarter, Foot Locker disclosed that it would postpone achieving its long-term profit margin target until 2028, which dashed hopes for a swift margin recovery. This setback was primarily attributed to heightened promotional activities, which had been eating into profit margins.
Based in New York, the company, amidst a restructuring effort initiated in March of last year, highlighted progress with its “Lace Up” strategy, credited with enhancing its digital presence and driving more full-price sales, albeit at the expense of markdowns to clear inventory.
Chief Financial Officer Mike Baughn announced that the company would not reinstate dividend payments, foreseeing another year of substantial investments in 2024. This move suggested that reduced discounts would further impact demand in the early part of the year.
Foot Locker projected full-year adjusted earnings ranging between $1.50 and $1.70 per share, falling short of analysts’ average estimate of $1.93 per share. This deviation from expectations prompted market analysts to reevaluate Foot Locker’s position in the retail sector, resulting in a downward revision of its stock rating by CFRA Research analyst Zachary Warring to “strong sell.” Warring cited Foot Locker’s inconsistency in growing revenue and profit within the evolving retail landscape as the primary reason for the downgrade.
Despite the gloomy outlook, the retailer anticipates steady demand for popular sneakers, such as Nike’s Air Force 1’s and Dunks, Adidas AE 1 shoes, and New Balance sneakers. As a result, it forecasts full-year same-store sales growth of 1% to 3%, above market expectations of 0.7%. Investors remain cautious as they await further updates on Foot Locker’s strategies to navigate through challenging market conditions and regain profitability amidst the evolving retail landscape.
