Foot Locker Earnings May Be the First Big Sign Athletic Momentum Is Weaning

Update: CEO Dick Johnson Confirms Ramping-Up of Store Closures

During a second-quarter conference call with investors this morning Foot Locker Inc. president, chairman and CEO Dick Johnson confirmed that the firm will close more stores this year than previously planned.

“In this environment, we are accelerating our ongoing process of reviewing our store portfolio, [and] we will be as aggressive as necessary in rationalizing our [fleet] to help improve our active consumer leverage as we navigate the repositioning of [retail] in the U.S.,” Johnson said. “As a result, we’ll be closing more stores this year than the 100 we mentioned at the beginning of [the year].”

Original Story:

Investors are punishing Foot Locker Inc. shares today — as of 9:50 a.m. ET, the stock remained down nearly 25 percent at $35.87 — after the athletic giant reported disappointing second-quarter results.

Foot Locker — which had previously evidenced some immunity to retail industry softness — said its sales fell 4.4 percent during the period to $1.7 billion, missing Wall Street’s consensus for sales of $1.8 billion. Comparable sales also declined 6 percent.

Profits took an even greater tumble — declining 60 percent year-over-year to $51 million, or 39 cents per diluted share. On an adjusted basis, profits were 62 cents per share — a significant miss against analysts’ forecasts for earnings per share of 90 cents.

For the past two-plus years, Foot Locker has successfully reaped the benefits of strong athletic trends, but chairman, CEO and president Dick Johnson suggested that sneaker momentum has been weaning in recent months.

While we believe our position in the market for premium sneakers remains very strong and our customers continue to look to us for compelling new athletic footwear and apparel styles, sales of some recent top styles fell well short of our expectations and impacted this quarter’s results,” Johnson said. “At the same time, we were affected by the limited availability of innovative new products in the market.”

Johnson further said the company believes negative industry dynamics will persist through 2017 and that the firm now expects comparable sales to be down 3 to 4 percent over the remainder of the year.

Meanwhile, CFO and EVP Lauren Peters suggested that the firm may be mulling store closures to protect its balance sheet in “light of the current sales challenges in this unprecedented retail environment.”

We are considering a range of expense alternatives, including adjustments to our largely productive store base; reductions in overall capital spending, as well as shifting of emphasis from real estate to digital and supply chain; and various additional expense initiatives to create a more flexible, efficient organization,” Peters said.

The first indications of softness at the athletic retail came when it preannounced first-quarter results in April that slightly missed estimates. When Foot Locker announced Q1 in May, Johnson said he was considering a “Plan B.”

“We are obviously disappointed in the results for the quarter, and our team is working quickly to adjust our operations to a changed retail landscape in which we are seeing our consumers move faster than ever from one source of inspiration or influence to another,” Johnson said. “In addition to working with our vendor partners to identify and capture new trends faster, we are also evaluating a realignment of our capital expenditure priorities and additional expense reductions so we can regain our momentum on both the top and bottom lines and deliver long-term value for our shareholders.”

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