Foot Locker (NYSE:FL) looks as though it got stomped this quarter. Not that you'd know it by looking this morning at its stock price, which was up nearly 8%.
Second-quarter results were dismal. The company implemented an aggressive inventory-liquidation strategy, yet even with the markdowns, customers still weren't interested in purchasing from the athletic retailer. Management even admitted that sales were worse than expected -- overall revenue fell 1.5%, and comps plummeted 7.3%. The disappointing sales results led to a bottom-line loss of $0.12 per share.
The heavily discounted merchandise sent the gross margin down 420 basis points. And despite lower sales, the company spent more on sales, general, and administrative expenses. But on a positive note, management thinks it is now better positioned for the fall season after tidying up its excessive inventory. Since it seemed as if no one was interested in the spring and summer merchandise, the company is keeping an eye on the athletic marketplace to maintain inventory that's more in line with currently sales trends.
It does look like a challenging market for athletic-shoe retailers, and this is certainly not the first time we've heard the "soft retail market" excuse. But the slope isn't going to get any easier. After a failed bid in May 2007, Foot Locker lost to competitor Finish Line (NASDAQ:FINL) to purchase Genesco (NYSE:GCO). That made its rival stronger. And Dick's Sporting Goods (NYSE:DKS) recently proved that it's still a champ.
Maybe its latest goods will be a hit. It certainly seems to be getting a fresh start, with inventory in its U.S. stores 4% lower than a year ago, and goods older than 12 months reduced by 40%. But the risks are just too great to warrant an investment right now. Management has decided not to give a forecast for the second half of the year, because of an unfavorable retail market, costs to close additional stores, and the impact of the recent merchandise initiatives. It's awfully difficult to assess a business if management can't even do so -- or refuses to make a statement about it.
Those looking for a bail-out sale might be disappointed. Undoubtedly, a year ago, when private-equity firms were flush with cash and the credit market was accommodating, a buyout very well could've happened. But given the current state of the markets, I'd say the chances of seeing it happen in the near future are pretty slim. That leaves an analysis of the business as a standalone company, and I just don't think it measures up right now. Its new campaign slogan is "I run because I refuse to sit," but I think I'm still going to sit this one out.
Related Foolishness:
- Foot Locker's Weak Kickoff
- Foot Locker Shoots and Misses: Fool by Numbers
- Uninspiring Performance for Finish Line
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Fool contributor Larry Rothman is happy to receive feedback, and he promises to read it when he's not being wrestled by his three children. Feel free to email him at [email protected]. He doesn't have any positions in the companies mentioned. The Fool has a disclosure policy.
