What happened

Shares of Foot Locker (FL 2.08%) were falling today after the company posted disappointing top-line results in its fourth-quarter earnings report.

As a result, the stock was down 6% as of 11:48 a.m. EST.

The entrance to a Foot Locker "power store"

Image source: Foot Locker.

So what

Following strong growth in the third quarter, Foot Locker surprised investors with a decline in comparable sales in the fourth quarter, which fell 2.7%. Overall revenue ticked down 1.4% to $2.19 billion, missing estimates at $2.29 billion. 

The company noted that more than 10% of its store fleet is currently closed due to COVID-19 restrictions, and also cited supply chain challenges for the poor performance as inventory fell by nearly 25% during the quarter.

Gross margin expanded 150 basis points to 33%, a positive sign, but selling, general, and administrative expenses also rose as a percentage of revenue, and adjusted earnings per share slipped from $1.63 to $1.55, though that was enough to clear the analyst bar at $1.35.

CEO Richard Johnson said: "Despite the challenging macro backdrop of COVID-related store closures and supply chain congestion, we delivered strong bottom-line results in the fourth quarter. Our customers responded well to our solid product offering and exciting holiday campaign, which drove stronger margins and continued acceleration of our digital business."

Now what

Due to the uncertainty around the pandemic, the company declined to give formal guidance for 2021. However, Foot Locker will be lapping easy comparisons for the first half of the fiscal year as it was forced to shutter half of its stores during the lockdowns last spring.

Foot Locker has been one of the better-performing apparel retail stocks on the market over the year as demand for athletic wear has been steady and its partnership with Nike is helpful. 

Even after today's pullback the stock is up 29% since the beginning of 2020. That may indicate that its upside in the economic reopening is limited.