Why Analysts Are Cautious on Foot Locker Ahead of Earnings Next Week
Analysts are taking a cautious view on Foot Locker ahead of the retailer’s earnings report next week.
In notes to investors this week, analysts warned that soft Nike sales, a weakened consumer base and a general lack of compelling product (including the absence of Yeezy sneakers) will likely play a role in challenging results for the footwear retailer in Q2.
“Foot Locker’s struggles are continuing, and appear to be worsening,” wrote Williams Trading analyst Sam Poser in a Thursday note to investors. While Foot Locker in March said it was revitalizing its partnership with Nike, analysts cited reduced allocations from the Swoosh as a potential headwind to overall sales.
Poser was also skeptical about potential progress in Foot Locker’s “Lace Up” plan, a multipronged strategy it rolled out in March to help it increase market share and grow sales to $9.5 billion by 2026. This strategy hinges on Foot Locker diversifying its brand portfolio, relaunching the Foot Locker brand with new store formats focused on an off-mall presence, maximizing its loyalty program and investing in technology to enhance the customer journey.
In its first quarter results reported in May, Foot Locker sales declined due to foreign exchange rate fluctuations and a general “tough macroeconomic backdrop,” CEO Mary Dillon said in a release. As a result of the miss, Foot Locker reduced its full-year guidance as it implements markdowns and promotions to clear through inventory and drive demand. For the second quarter, Foot Locker said it expects comps to be down high single digits, below its prior outlook of down mid-single digits.
Foot Locker is also facing headwinds from its its decision to stop selling Yeezy products last October in light of brand founder Kanye West’s antisemitic statements. While other retailers have started to sell the brand again for current drops, Foot Locker appears to have stayed away.
“It appears as though Foot Locker is sticking to its guns about cutting ties with Adidas’s Yeezy sub-brand,” Wedbush analyst Tom Nikic wrote in Tuesday note. “So, it appears that Foot Locker will not receive the modest bump in sales and gross margin that some investors had speculated they’d get from participating in this summer’s Yeezy releases.”
Analysts are taking a cautious view on Foot Locker ahead of the retailer’s earnings report next week.
In notes to investors this week, analysts warned that soft Nike sales, a weakened consumer base and a general lack of compelling product (including the absence of Yeezy sneakers) will likely play a role in challenging results for the footwear retailer in Q2.
“Foot Locker’s struggles are continuing, and appear to be worsening,” wrote Williams Trading analyst Sam Poser in a Thursday note to investors. While Foot Locker in March said it was revitalizing its partnership with Nike, analysts cited reduced allocations from the Swoosh as a potential headwind to overall sales.
Poser was also skeptical about potential progress in Foot Locker’s “Lace Up” plan, a multipronged strategy it rolled out in March to help it increase market share and grow sales to $9.5 billion by 2026. This strategy hinges on Foot Locker diversifying its brand portfolio, relaunching the Foot Locker brand with new store formats focused on an off-mall presence, maximizing its loyalty program and investing in technology to enhance the customer journey.
In its first quarter results reported in May, Foot Locker sales declined due to foreign exchange rate fluctuations and a general “tough macroeconomic backdrop,” CEO Mary Dillon said in a release. As a result of the miss, Foot Locker reduced its full-year guidance as it implements markdowns and promotions to clear through inventory and drive demand. For the second quarter, Foot Locker said it expects comps to be down high single digits, below its prior outlook of down mid-single digits.
Foot Locker is also facing headwinds from its its decision to stop selling Yeezy products last October in light of brand founder Kanye West’s antisemitic statements. While other retailers have started to sell the brand again for current drops, Foot Locker appears to have stayed away.
“It appears as though Foot Locker is sticking to its guns about cutting ties with Adidas’s Yeezy sub-brand,” Wedbush analyst Tom Nikic wrote in Tuesday note. “So, it appears that Foot Locker will not receive the modest bump in sales and gross margin that some investors had speculated they’d get from participating in this summer’s Yeezy releases.”
According to a recent note from BTIG analyst Janine Stichter, Foot Locker could also see a negative impact when student loan payments resume in the fall and impacted consumers find themselves with less available cash on hand for discretionary purchases like sneakers.
“Foot Locker’s customer base has the potential to be negatively impacted by student loan repayments given its younger demographic and the discretionary nature of its footwear assortment, which skews towards fashion/sneakerheads,” Stichter wrote, noting that two thirds of Foot Locker’s consumer base is under 34, with most between the ages of 25 and 34.
According to a BTIG survey of over 15,000 people, which asked consumers how they plan to adjust spending habits once student loan payments resume, consumers generally plan to cut back on footwear spending and 76 percent of Foot Locker customers with loans plan to spend less at these stores once student loans come in.
“Overall, survey data suggest a potential mid single digit percentage top-line hit [to Foot Locker] from student loan repayments resuming,” the note read, adding that BTIG reduced its price target for the stock, in part due to the student loan pressure.
At the same time, Poser noted that Foot Locker customers no longer have boosted spending power from stimulus payments and are generally being more selective in their spending, which could also impact results.
Foot Locker reports earnings for the second quarter before the market open on Aug. 23.