What happened
Shares of Foot Locker (FL 0.23%) plunged 28.3% in the first half of 2023, according to data provided by S&P Global Market Intelligence.
The fall in the sneaker company's shares was in stark contrast to a 16% rise in the bellwether S&P 500 index over the same period.
Image source: Getty Images.
So what
Foot Locker's CEO, Mary Dillion, is going through a baptism by fire as she eliminated jobs across the company, wound down one of its brands in Europe, and closed a call center in Wisconsin. These moves are designed to "simplify the business" and could save the business up to $18 million a year. The multi-brand sneaker company is navigating a tough retail environment as consumers hold back on purchases of high-priced running shoes.
The company also unveiled its new "Lace Up" strategy, in which it plans to shutter more than 400 stores in shopping malls. Out of a total of 1,300 stores in the U.S., Foot Locker will close as many as 420 to focus on better-performing ones. At the same time, management plans to open 300 "new concept" stores that cater to a niche audience by 2026. Three new store formats were revealed: a large 15,000-square-foot store for sneaker advocates, a 10,000-square-foot store in shopping areas to cater to a broader segment of consumers, and a smaller 7,500-square-foot store that will be positioned for children. The company will also build up its loyalty program and optimize its global brand platform to drive sustainable growth in three years.
These lofty goals failed to impress investors, though, as they sold down the stock following the release of the company's fiscal 2023 first-quarter earnings. Sales declined by 11.4% year over year to $1.9 billion while comparable store sales dipped 9.1% year over year. Net income plunged by nearly 73% year over year to $36 million, and the company continued to generate negative free cash flow of $177 million for the quarter. To make matters worse, Foot Locker also downgraded its prior 2023 guidance. It now expects sales to fall by between 6.5% and 8% from the previous range of 3.5% to 5.5%. Gross margin is also projected to be lower due to inventory markdowns.
Now what
The situation looks tough for the company but it has soldiered on with its expansion in Southeast Asia. Just this week, it opened its first brick-and-mortar store in Thailand. The country is its fifth within the region after it opened stores in Singapore, Indonesia, Malaysia, and the Philippines. Foot Locker is also reportedly in talks to expand into India after it pulled out of both Hong Kong and Macao earlier this year. This steady expansion could benefit the business in the coming quarters as it finds its footing amid a challenging economic climate.
