What it takes to fix Foot Locker

Foot Locker shares fell 13 percent after its third-quarter earnings were released last week. Much of the loss was due to an estimate-beating third quarter that fueled speculation that the brand is nearing the end of its run as a high-growth retailer.

Foot Locker’s total revenue increased 1.2 percent to $1.5 billion year-over-year, but marked an end to the brand’s 11-quarter streak of 11-plus percent revenue growth.

On a conference call with investors last week, Foot Locker said that it expected to see declines in customer traffic and average transaction size in the upcoming holiday season. But on a call with investors last week, Foot Locker said that it expected to see declines in customer traffic and average transaction size in the upcoming holiday season.

Overall, the company recorded record earnings per share of $2.66, compared to $2.07 for the same period last year.

However, record earnings are no longer enough to make the company worth chasing. Shares of Foot Locker have fallen by more than 8 percent so far this year, according to the Bloomberg data that show the stock’s performance. (The SPDR S&P Retail ETF, a widely followed proxy for the consumer discretionary sector, has risen by less than 3 percent year-to-date.)

The footwear retailer’s earnings have come under intense scrutiny in recent months as other investors have raised concerns about the impact of its diminishing store traffic. Customers still buy many of the shoes the company sells, but it can only monitor transactions on a somewhat-scant inventory model, which leaves it more vulnerable to the fluctuations in the market for shoes. The introduction of Nike’s Air Max 270 and release of the Air Max 97 for the women’s division, which were expected to spark growth in both categories, failed to live up to expectations. The Air Max 10 and Air Force 1S, two other key releases, also faltered.

Foot Locker’s lowered holiday forecast is sure to exacerbate investor concern. Though the company has averaged annual revenue increases of more than 11 percent for the past 12 years, it’s possible that investors aren’t ready to give Foot Locker time to show it can turn things around.

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