That old saw about the feet being the first to go may be as true for the economy as it is for the body, if Foot Locker's (NYSE:FL) first-quarter results are any indication.
For the quarter, the company's profits fell 72% to $17 million, or $0.11 a share, from last year's $59 million and $0.38 a share. Revenue for the quarter was down 3.6% to $1.32 billion, versus $1.37 billion last year.
Worse yet, the company sharply reduced guidance for the rest of the year. As recently as March, management projected full-year earnings of $1.55 to $1.65 a share, but on Wednesday, that range fell to $1.15 to $1.25.
"Our first quarter financial results reflected a weak performance in each of our U.S. businesses, partially offset by a solid profit increase at our international operations," said Matthew D. Serra, Foot Locker's chairman and CEO. "Because of the disappointing sales at our U.S. stores, we increased our promotion posture to help clear older goods and reduce our inventory levels. As a result, our gross margin in our U.S. store businesses fell significantly short of plan."
Despite its early-year woes, Foot Locker is moving forward with plans that could boost future results. Earlier this week, the company announced a partnership with Nike (NYSE:NKE) to open a chain of specialty basketball stores, "House of Hoops by Foot Locker." As many as 50 of the stores will open during the next three years; the first is scheduled for New York City's Harlem early in 2008. The new units will offer Nike's Converse and Jordan lines of basketball shoes, along with clothing and other equipment.
But while the Nike-Foot Locker information is intriguing, and could bode well for both companies, I'd like to circle back to the meaning of Foot Locker's sharp first-quarter drop. While most retailers' results in the quarter have generally exceeded expectations, I'm not sure that consumer spending can remain buoyant amid sharply higher gasoline prices and lingering housing softness. Given the highly discretionary goods Foot Locker sells, I'd encourage Fools to sit on the investment sidelines here, until the direction of the overall economy (and consumers in particular) becomes more clearly defined.
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Fool contributor David Lee Smith does not own shares in the companies mentioned. He welcomes your comments or questions. The Motley Fool's disclosure policy is as comfortable as an old pair of Chucks (and a lot more sturdy).
