Foot Locker (FL -27%) is getting crushed after reporting a dismal quarter and guidance for the rest of the year. Adjusted earnings fell 34% to $0.62/share as comps fell 6% during the second quarter versus guidance for a low-single digit increase. May comps fell in the low-single digit range and June and July comps fell in the mid-to-high single digits. This was the first negative comparable store sales from the company since 2009.
After claiming a niche with ‘sneaker heads' and posting impressive same-store growth for many years, reduced traffic at malls has finally caught up to the company.
"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," said Richard Johnson, Chairman and Chief Executive Officer, "sales of some recent top styles fell well short of our expectations and impacted this quarter's results. At the same time, we were affected by the limited availability of innovative new products in the market."
Management said that it is still well positioned as the market leader in premium footwear and probably still gaining market share. The company does not believe vendors selling 'lower priced', 'un-differentiated' shoes on Amazon (AMZN) are a big threat because FL is at the high end of the market. Exclusive releases are an important competitive advantage.
Still, investors have reason to be concerned because Foot Locker's biggest vendors: Nike (NKE), Adidas (ADDYY) and Under Armour (UAA) are all ramping efforts to sell direct to consumers (DTC) on their own websites.
Foot Locker said the Jordan brand slowed considerably during the quarter. That was the first time we can recall anything negative uttered by FL about the Jordan brand, which has been a cash cow for Nike.
Foot Locker guided EPS for the second half of the year down 20-30% year-over-year with comps down 3-4%. Estimates had called for EPS growth in the low to mid-teens and comp growth north of 3%.
Investors shouldn't be totally surprised because Dick's (DKS) reported an similarly bad report on Tuesday morning.
The sector is getting hit again today: Finish Line (FINL) -8%, Hibbet (HIBB) -8%; NIKE (NKE) -5%, Under Armour (UAA) -4%, Adidas (ADDYY) -0.6%.
The stock hit a four-year low and now trades at ~9x earnings estimates for the year.