Foot Locker’s 2018 Outlook Has Investors Worried About the Future of Athletic

Investors are selling off Foot Locker Inc.’s shares rapidly today after the athletic giant posted fourth-quarter results and an outlook for 2018 that stoked fears about the future of athletic.

As of 12:15 p.m. ET, the stock had dropped more than 15 percent to $38.96.

Hurt by waning momentum at Nike and other athletic brands, Foot Locker posted a Q4 net loss of $49 million, or 40 cents per share. On an adjusted basis, earnings per diluted share were $1.26, in line with Wall Street’s forecast.

Sales rose 5 percent year over year to $2.2 billion, which was also consistent with market watchers’ bets. Comparable sales declined 3.7 percent, worse than consensus bets for a decline of 2.4 percent.

On the heels of three or more years of blockbuster earnings growth — amid red-hot athletic trends, stoked by growth at Nike and a resurgence at Adidas — as the tides turn, Foot Locker may be falling victim to ambitious expectations of “beat and raise”-minded investors.

The firm’s outlook — which forecasts minimal to no growth — also created stock challenges today. Foot Locker called for 2018 comp sales to be flat to up low single digits.

“The first quarter of 2018 will likely see the continuation of sales and margins in line with trends in the second half of 2017,” noted EVP and CFO Lauren Peters. “However, we are confident that we will inflect back to positive comparable store sales by the middle of 2018, with the pace of sales continuing to gradually strengthen in the second half of the year, based on the improving depth and variety of premium products we see coming from our key vendors.”

She added that the firm also expects a double-digit percentage increase in annual earnings per share, with an effective tax rate in the 27 to 28 percent range and a lower share count contributing to this performance.

On a call with investors today, chairman and CEO Dick Johnson touted a series of initiatives that the firm has been working through in recent months geared toward boosting consumer engagement, enhancing digital and supply chain capabilities, remodeling stores and reducing its exposure at “deteriorating malls.”

“We’re doing everything we can to accelerate — not just our digital initiatives but every facet of our business,” Johnson said. “It’s critical for each of us in the business to move faster and embrace the inevitable change that is affecting retail. Only by doing so can we continue to create meaningful engagement with our customers on their quest for self-expression and fulfill their passion for personalized connections to the people, experiences and products that are important to them.”

Johnson noted that one additional initiative for 2018 is the expansion of Foot Locker banners into Asia.

For the full-year 2017, the company reported sales of $7.8 billion, an increase of 0.2 percent over the prior year. Full-year comparable store sales decreased 3.1 percent. Net income decreased 57 percent to $284 million, or $2.22 per share. On an adjusted basis, diluted EPS were $3.99, a 17 percent decrease over last year’s adjusted diluted EPS.

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