Foot Locker Inc. (FL) stock took a tumble in premarket trading on Thursday despite the company reporting better-than-expected second-quarter earnings. While the company managed to beat analyst estimates, investors seemed focused on other factors.
Foot Locker reported an adjusted EPS loss of 5 cents for the quarter, beating the consensus estimate of a 7-cent loss. Revenue also came in above expectations, reaching $1.896 billion compared to the projected $1.888 billion. Total sales rose 1.9% year-over-year, driven by a 2.6% increase in comparable sales, particularly fueled by a 5.2% growth in global Foot Locker and Kids Foot Locker comparable sales.
The company opened five new stores and closed 31 during the quarter. Additionally, they remodeled or relocated 14 stores and updated 67 to meet current design standards. Inventory decreased by 10% year-over-year.
Foot Locker saw a positive development in its gross margin, which increased by 50 basis points, despite a 40-basis point drag from the non-recurring FLX Rewards Program charge. The company’s adjusted net loss for the quarter came in at $(4) million, compared to a $4 million profit in the same period last year. At the end of the quarter, Foot Locker held $291 million in cash and cash equivalents, while total debt stood at $445 million. As of August 3, the company operated 2,464 stores across 26 countries, including North America, Europe, Asia, Australia, and New Zealand. Additionally, 213 franchised stores were operating in the Middle East and Asia.
CEO Mary Dillon expressed optimism about the company’s ‘Lace Up Plan,’ stating, “The Lace Up Plan is working, as evidenced by our return to positive total and comparable sales growth as well as gross margin expansion in the second quarter. Our top line trends strengthened as we moved through the quarter, including a solid start to Back-to-School.”
For the fiscal year 2024, Foot Locker reaffirmed its adjusted EPS guidance of $1.50-$1.70, aligning with the consensus estimate of $1.54. The company maintained its sales change forecast of (1%)-1% year-over-year, translating to $8.072 billion—$8.236 billion, compared to the consensus estimate of $8.130 billion. Gross margin guidance was adjusted to 29.5%-29.7% (prior 29.8%-30.0%) to account for promotional pressure in international markets and the WSS segment.
Despite the positive earnings report and CEO’s optimistic outlook, Foot Locker’s stock took a significant hit in premarket trading, falling by 8.11% to $30.15. It remains to be seen what factors are driving this negative market reaction.
