John Carney – Breitbart Economics Editor
Alex Marlow – Breitbart Editor-In-Chief
Investors were tripping over themselves on Wednesday to get out of Foot Locker.
The company reported quarterly earnings before the bell on Wednesday that showed adjusted second quarter earnings per share of four cents, which was relatively close to the consensus estimate from Wall Street analysts. Unadjusted second-quarter results showed a loss of $5 million, or 5 cents per share. A year earlier, the company had reported a profit of $94 million, or 99 cents a share.
Sales slightly undershot expectations, with revenue for the quarter coming in at $1.86 billion compared with expectations of $1.88 billion. A year ago, the company reported $2.07 billion in revenue for the quarter.
Shares crashed 30 percent on Monday, outpacing the rapid decline of Peleton shares following that fancy stationary bike company’s quarterly results. Investors appear to have been most bothered by the company lowering its full-year guidance, which it blamed on “softening” consumer trends in July that it said have continued into August. Early back-to-school sales have been weaker than expected.
This retreat in guidance has been very dramatic. As recently as the start of this year, Foot Locker was telling shareholders it expected to earn between $3.35 and $3.65 per share. Last quarter, it lowered this down to a range of $2.00 and $2.25. Now the company says its expects to make between $1.30 and $1.50 per share.
Back-to-back guidance downgrades have shaken confidence in the ability of the company to manage through the economic cycle and raised doubts about its long-term prospects.
“We did see a softening in trends in July and are adjusting our 2023 outlook to allow us to best compete for price-sensitive consumers, while still leaning into the strategic investments that drive our Lace Up plan,” CEO Mary Dillon said in a news release.
Getting Lapped By Bidenflation
It’s a bit surprising that investors were caught so flat-footed when it comes to the giant shoe retailer. Back in June, Nike said it was expecting revenue below Wall Street expectations “as cost-conscious consumers in North America cut back on sneaker and sports apparel purchases overshadowing a strong recovery in China,” as Reuters put it.
Given that China’s broad economic recovery has faltered, even that looks overly optimistic. And if Nike—a brand absolutely central to Foot Locker’s business—is worried about sales, it only stands to reason that sales will struggle at its distribution channels. What’s more, the Labor Department’s Consumer Price Index for July showed footwear prices falling 0.8 percent for the month and down 1.6 percent for the year, underperforming the prices of other apparel prices (which were up 0-2 percent for the month and 4.6 percent for the year).
No one should have been surprised at sagging demand for expensive sneakers.
The persistence of consumer inflation is likely playing a role here. As households spend more on necessities—food prices are up 4.9 percent year-over-year and shelter prices up 7.7 percent—they tend to pull back on discretionary items. Most people can probably afford to hold off on buying a new pair of sneakers for a few extra months, which in the aggregate slows sales for shoe makers and retailers.
One result has been that Foot Locker has been forced to resort to what retail analysts refer to as “promotions”—the rest of us call them clearance sales—to bring down unwanted inventory levels. This hurts margins. Foot Locker said its margins were down 4.6 percent compared with a year ago.
Foot Locker’s customer base is skewed toward lower- and middle-income households. If Biden’s economic programs really were working to grow the economy “from the bottom up and the middle out,” Foot Locker would be thriving. Instead, it is stumbling because its customers are those that are hit worst by inflation.
Foot Locker also said its profits had been hurt by “shrink”—retail jargon for theft. While it did not specify how much crime cut into profits, it is obviously a large enough factor that the company felt it should disclose it to shareholders. Like many other retailers, Foot Locker is finding itself taxed by the burgeoning crime wave in America.
