What happened
Shares of Foot Locker (FL -0.18%), one of the largest sneaker retailers in the world, fell roughly 12% when trading got underway on Nov. 19. The company's premarket third-quarter 2021 earnings release was the main reason, even though the numbers looked decent. There's an important nuance here that appears to have investors worried about the future.
So what
Foot Locker reported third-quarter 2021 sales of nearly $2.2 billion, up 3.9% from the roughly $2.1 billion it pulled in during the third quarter of 2020. The current quarter's sales tally was also 13% above the pre-pandemic third quarter of 2019. Those are solid numbers. On the bottom line, the retailer's adjusted earnings came in at $1.93 per share this year, up from $1.21 in the third quarter of 2020 and $1.13 in 2019. These results, notably, come as Foot Locker continues to adjust its store base, with 2,956 stores at the end of October versus 3,032 a year ago. In addition, the company actually beat Wall Street consensus estimates for both revenue and earnings.
Image source: Getty Images.
After that list of positives, most investors would expect a stock to be on the rise. And yet that didn't happen here. The problem seems to be that Foot Locker warned investors that supply chain issues could be a headwind through at least the fourth quarter of the year. That is generally the most important selling period for retailers, given the big, gift-giving holidays that occur at year-end. Although management made a point of stating that, "...we believe we are positioned for the holiday season, with positive momentum and inventory levels ready to meet customer demand," that clearly wasn't enough to assuage the concerns of investors looking at the massive backups clogging key U.S. ports, let alone the logistics of getting goods from a port to a store in the midst of trucker shortages.
Now what
It's clearly too soon to tell whether or not the fourth quarter will be good or bad for Foot Locker. Supply chain issues could, indeed, turn into a headwind. That said, this is a sizable company with a massive global presence in an industry niche that is very popular. Long-term investors should probably look at the supply chain issue as a "this too shall pass" situation.
