Foot Locker warns of declining sales as holiday sales outlook dims

In the United States, Foot Locker recently reported disappointing financial results for its fiscal third quarter ending on November 2, 2024. The company experienced a significant drop in sales, with revenue reaching $1.96 billion, falling short of the anticipated $2.01 billion. Foot Locker's earnings per share adjusted were 33 cents, which also missed expectations of 41 cents. As a result of this disappointing performance, the retailer has revised its full-year guidance downward, indicating a potential decline in sales between 1% and 1.5%, instead of the previous forecast of an increase from down 1% to up 1%. This situation reflects broader challenges in the retail space, particularly among its primary partner, Nike. Foot Locker reported a loss of $33 million for the quarter, compared to a profit of $28 million in the same period the previous year. The company attributes this decline largely to soft consumer demand and increased promotional activities across the marketplace, which pressured sales margins. More specifically, Nike, which constitutes approximately 60% of Foot Locker's sales, has been underperforming after facing difficulties with its product styles, impacting Foot Locker significantly as a key retailer for the brand. Despite some bright spots, such as improved gross margins and the highest conversion rate of the year, the overall outlook remains pessimistic for the upcoming holiday quarter. The company's management has acknowledged these challenges and noted a strained relationship with Nike, stating that while some brands are performing well, there is noteworthy softness with Nike. Foot Locker anticipates sales during the holiday season to decline between 1.5% and 3.5%, which is a stark contrast to the previous year's growth of about 2%. Additionally, the adjusted earnings per share forecast has been lowered to between $1.20 and $1.30, lagging behind Wall Street expectations of $1.54 per share. This is partially due to the shortened calendar year impacting an estimated $100 million in sales. Looking ahead, Foot Locker's efforts to turnaround performance through store refurbishment programs and other strategic initiatives are ongoing. The new CEO has been described as playing a crucial role in stabilizing the business relationships with significant partners. However, the current market challenges present a daunting task for Foot Locker as it navigates through a promotional retail environment and evolving consumer preferences while reflecting on its reliance on Nike's product offerings.