Consumer softness and increase in shrink. Those are Foot Locker’s reasons as to why their shares dropped nearly 33% this week.
We already knew that 2023 wouldn’t be Foot Locker’s year. And you know, that was okay at first. Because every business goes through such a phase. Heck, even the sneaker resell market, on the whole, went through such a state, at a certain point. But disappointment really hits when reality exceeds even the worst expectations. And that’s exactly the giant retailer’s case. As of this week, reports have it that Foot Locker shares dropped like never before. And the worst-case scenario Foot Locker had set in Q1 of this year has gotten even worse.
Foot Locker Shares Plummet
So, Foot Locker sales dropped 9.9% in the latest quarter. In other words, sales dropped from $2.1 Billion to $1.8 Billion in the same year! The New York-based retailer did expect a 6.5% to 8% decrease in sales. But when reality exceeds the worst expectations, even by a 1%, you know that it’s all gonna go down in even worse ways than ever imagined.
Following this sales plunge, the footwear chain also witnessed a sharp drop in their share prices. And when it came to yearly earnings, Foot Locker previously expected their EPS to be within the range of $2 and $2.25. Turns out, after some revision, that isn’t the case. The numbers are even more disappointing, as now they lowered the range to $1.30 and $1.50. Which means that they estimate even lower earnings than previously expected.
As a result, profits decreased due to increased markdowns (price reductions and discounts), shrinkage (shoplifting and employee theft), and increased promotion spending, according to the retailer. So, guess closing down Eastbay followed by plans to shut down 400 stores by 2026 wasn’t enough to stop the share price from plunging more than 58% (up till now) this year.
Foot Locker Sales Plunge Reasoning
Foot Locker’s reasoning also had something to do with Nike’s DTC strategy which had them having a “constrained supply” when it came to Nike products. And it kind of makes sense, you know. Foot Locker now doesn’t have the same supply as it did before, since Nike has been limiting the number of stock they’ve been giving sneaker retailers.
And their reasoning also included an increase in “consumer softness.” Which basically means a decrease or a slowdown in consumer spending or demand for sneakers.
We did see a softening in trends in July and are adjusting our 2023 outlook to allow us to best compete for price-sensitive consumer, Mary Dillon, Foot Locker CEO, stated.
But y’all know what? Foot Locker could’ve saved themselves from this plunge in sales and shares. Or let’s say they could’ve taken another route to soften the impact of this fall. All they needed to do was accept the Adidas Yeezy restock. “We fear a backlash,” they said. Well, if the sneaker giant itself decided to sell remaining stock to cut back on their losses, what has stopped Foot Locker from doing the same? The backlash? Well, “backlash” is better than “bankruptcy” if you ask us! Both start with Bs, but the former is the Best of the worst options available if we’re being honest.