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Foot Locker (FL) Lowers Guidance on Q1 Earnings & Sales Miss

Foot Locker, Inc. FL posted first-quarter fiscal 2023 results where both its top and bottom lines missed the Zacks Consensus Estimate. This marks the company’s first miss after delivering its 11th straight earnings beat in the previous quarters. In the reported quarter, both earnings and revenues declined year over year.

Driven by a worse-than-expected consumer slowdown that led to a double-digit sales decline, management lowered the outlook for fiscal 2023. FL shares plunged 27.2% during the trading session of May 19.

Over the past three months, shares of this Zacks Rank #4 (Sell) company have decreased 29.4% compared with the industry’s decline of 17.8%.

Q1 Metrics

The athletic shoes and apparel retailer posted adjusted earnings of 70 cents per share, which missed the Zacks Consensus Estimate of 78 cents. The bottom line decreased from adjusted earnings per share of $1.60 in the prior-year quarter.

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Total sales of $1,931 million missed the Zacks Consensus Estimate of $1,995 million. Also, the metric declined 11.4% from the year-ago reported period. Excluding the foreign-currency fluctuation impact, total sales fell by 10%. Digital penetration was 16.3% of total sales in the reported quarter.

Comparable-store sales (comps) fell 9.1% due to lower income tax refunds in the United States and the changing vendor mix.

An Insight Into Margins

Foot Locker's gross margin rate in the reported quarter dropped 400 basis points (bps) from the prior-year quarter’s figure. Higher markdowns, occupancy deleverage and increased theft-related shrink caused a margin decline.

The selling, general and administrative (SG&A) expenses increased by 110 bps as a percentage of sales from the prior year due to underlying deleverage on the sales decline, inflation and investments in front-line wages and technology. However, this was partially offset by savings from the cost optimization program.

Foot Locker, Inc. Price, Consensus and EPS Surprise

Foot Locker, Inc. Price, Consensus and EPS Surprise
Foot Locker, Inc. Price, Consensus and EPS Surprise

Foot Locker, Inc. price-consensus-eps-surprise-chart | Foot Locker, Inc. Quote

Store Update

During the fiscal first quarter, Foot Locker opened 13 stores and remodeled or relocated 18 outlets. FL closed 35 stores.

As of April 29, 2023, Foot Locker operated 2,692 stores across 29 countries in North America, Europe, Asia, Australia and New Zealand. Also, FL had 163 franchised stores operating in the Middle East and Asia.

For fiscal 2023, management expects to reduce its store counts by 9%. The company is optimizing its stores by bringing the store count down to 2,400 stores by 2026.

Other Financial Details

Foot Locker ended the fiscal first quarter with cash and cash equivalents of $313 million. Long-term debt and obligations under finance leases amounted to $445 million and shareholders’ equity summed at $3,283 million. As of Apr 29, 2023, merchandise inventories were $1,758 million, up 25% from the year-earlier quarter’s end level.

During the first quarter of fiscal 2023, Foot Locker paid a quarterly dividend of 40 cents per share and paid a total of $38 million in dividends.

Outlook

For fiscal 2023, management expects the sales to decline 6.5-8%, including 1% from the extra week and the comps to fall 7.5-9% year over year. This is comparable with the earlier view of sales and comps declining by 3.5-5.5%.

Gross margin is anticipated in the range of 28.6-28.8% compared with the prior view of 30.8-31%. The company lowered the gross margin guidance on account of higher markdown activity, incremental occupancy deleverage and an increase in theft-related shrink. The SG&A rate is forecast at 22.4-22.6%, down from the earlier view of 22.6-22.8%.

The company envisions fiscal 2023 adjusted earnings per share of $2.00-$2.25, down from $3.35-$3.65 predicted earlier. Management predicts adjusted CapEx at $305 million for fiscal 2023, in line with the earlier estimate.

For the fiscal second quarter of 2023, the company anticipates comps to decline in high-single digits compared with its previous expectations of mid-single digits decline. Also, it expects a non-GAAP tax rate of more than 50% for the quarter. For the second quarter, it anticipates adjusted earnings per share to be below 5 cents.

Amid challenging macroeconomic trends, Foot Locker remains committed to its long-term strategy, which includes making required investments to drive its Lace Up plan.

3 Key Picks

Some better-ranked stocks are Tecnoglass Inc. TGLS, Hibbett, Inc. HIBB and The Kroger Co. KR.

Tecnoglass manufactures and sells architectural glass and aluminum products for the residential and commercial construction industries. TGLS currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Tecnoglass’ current financial-year sales and earnings per share suggests growth of 18.1% and 23.8%, respectively, from the corresponding year-ago reported figures. TGLS has a trailing four-quarter earnings surprise of 22.7%, on average.

Hibbett is an athletic-inspired fashion product company, currently carrying a Zacks Rank #2 (Buy).

The Zacks Consensus Estimate for Hibbett’s current financial-year sales suggests growth of 5.7%, while earnings per share are expected to fall by 0.1% from the corresponding year-ago reported figures. HIBB has a trailing four-quarter negative earnings surprise of 13.9%, on average.

Kroger Co. operates in the thin-margin grocery industry. It currently carries a Zacks Rank #2. KR has a trailing four-quarter earnings surprise of 9.8%, on average.

The Zacks Consensus Estimate for Kroger’s current financial year sales and earnings suggests growth of 2.5% and 6.6%, respectively, from the prior-year reported numbers.

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Foot Locker, Inc. (FL) : Free Stock Analysis Report

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Tecnoglass Inc. (TGLS) : Free Stock Analysis Report

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