Trading Down Could Affect Foot Locker in Back Half

Trading Down Could Affect Foot Locker
A Foot Locker store location.

NEW YORK — Analysts believe Foot Locker Inc.’s sales slide could continue well past the second quarter, as shoppers seek lower-priced footwear.

The New York-based company managed to post break-even profit for the three months ended Aug. 1, thanks to a reduction in expenses and inventories. Foot Locker last week reported earnings of $18 million, or 11 cents a share, exactly on par with last year’s earnings and 4 cents ahead of analyst estimates on Yahoo Finance.

Sales, though, fell 16 percent to $1.1 billion, from $1.3 billion in the second quarter of last year, versus an expected $1.17 billion from analysts. Same-store sales dropped 12.1 percent.

The company cited lower-than-anticipated U.S. sales, but noted a continued focus on cost cutting and inventory management. “Until we see signs of a pickup in overall consumer spending, we plan to continue to control the key controllables of our business, with an objective of reducing our operating expenses and optimizing inventory management,” Matthew Serra, Foot Locker’s chairman, said in a statement.

Analysts see a challenging second half in store for the retailer, as consumers trade down as a result of the difficult economy. “Our industry conversations suggest that athletic and sporting goods retailers will be shifting orders toward more lower-priced footwear over the next six months,” said Michael Binetti, an equity analyst with UBS Investment Bank. “While we believe focusing on value is the right thing to do amid ongoing sluggish retail trends, lower average prices will add to same-store-sales pressure for Foot Locker and its athletic peers near-term.”’

Christopher Svezia, an analyst at Susquehanna Financial Group, agreed. “While the company remains well-positioned to improve the bottom line, the top line will likely remain pressured in the second half,” he wrote in a research note. “For Foot Locker, even with more favorable comparisons relative to the second quarter, the third quarter will likely be driven on the margin, with lower clearance inventory and more prudent inventory receipts.”

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