Foot Locker Stock: Other Shoe Storage

With Foot Locker (NYSE:FL) stock plummeting nearly 30% in one day, investors may be wondering if the company is going under. That’s not the case at all, as Foot Locker’s still-latest financial data actually beat Wall Street’s expectations.

But improving performance alone isn’t always enough to calm investor concerns. In fact, it appears that panic selling is underway for Foot Locker stock, and it will not be easy for the company to gain traction next year.

favorable? It depends on how you measure it.

Traders drove up the price of Foot Locker stock weeks before the company’s fourth-quarter earnings report was released, possibly in anticipation of positive sales and earnings results. As a result, they were right in some ways, but they still lost money.

Before we begin our financial data marathon, we should warm up with a note about Foot Locker’s inventory. Product oversupply has generally been an ongoing problem for retailers, so any reduction in inventory is actually good news.

Therefore, investors should be pleased to know that Foot Locker’s merchandise inventory was down 8.2% year-over-year as of February 3 (compared to the end of the fourth quarter of 2022). So at least we can conclude that Foot Locker has been able to keep sneakers off its shelves despite inflationary pressures.

But not all news is positive. In the fourth quarter of 2023, Foot Locker same-store sales decreased by 0.7%. Among other contributing factors, the company blamed “consumer softness.” So American consumers may not be as resilient as some experts suggest.

Switching to traditional sales metrics, Foot Locker’s total sales increased 2% to $2.38 billion, which isn’t a terrible result, but it’s nothing to write home about. Still, the results exceeded Wall Street’s consensus estimate by nearly $100 million.

Foot Locker’s fourth quarter earnings per share (EPS) are a bit complicated. The company said it had a diluted loss of $4.13 per share, which looks like a dire result compared to Foot Locker’s earnings of 20 cents per share in the year-ago period.

Meanwhile, using non-GAAP measures, Foot Locker earned 38 cents per share in the fourth quarter. So at least the company can claim profitability per share from that perspective.

Nonetheless, these results represent a sharp decline compared to the non-GAAP earnings of 97 cents per share that Foot Locker reported in the same period last year. But the company topped Wall Street’s consensus forecast for the fourth quarter of 2023 of 32 cents per share in earnings based on non-GAAP measures.

So, like I said, it’s complicated. Ultimately, investors can see Foot Locker’s glass as half empty or half full. But investors generally took a half-empty view, as Foot Locker stock fell 30% after the company issued its quarterly press release.

“Strategic Investment” Costs

Sometimes you have to spend money to make money. At least that seems to be the philosophy of Foot Locker President and CEO Mary Dillon.

“To further advance our progress, we are focusing on strategic investments in digital, store experience, loyalty and brand building in 2024,” Dillon announced in Foot Locker’s fourth quarter 2023 press release.

This sounds perfect, but this type of “strategic investment” has its drawbacks. Ultimately, the massive capital spending could hurt Foot Locker’s earnings in coming quarters.

To add some numbers to this concept, Foot Locker provided 2024 non-GAAP earnings guidance of $1.50 to $1.70 per share. This guidance range fell short of analysts’ consensus estimate of $1.93 per share.

BTIG analyst Janine Stichter summed up the market’s concerns by saying, “I think it’s all in the context of forward projections. The problem is actually forward projections that are significantly below consensus.”

Perhaps this is the main reason why investors decided to sell Foot Locker stock. Moreover, Foot Locker shareholders may not want to wait for the company to turn around.

“(A) lot of the improvements they’re expecting will actually happen in the second half of 2024, so they won’t be immediate improvements,” Stichter said.

Short-term stock traders aren’t known for being extremely patient, so the rout in Foot Locker stock makes sense in this context. Going forward, Foot Locker faces the inevitable challenge of converting ‘strategic investments’ into short-term profits. Unless this happens, the market will likely continue to dump Foot Locker inventory like old, worn-out sneakers.