Foot Locker’s Weak Earnings Underscores Slowdown In Consumer Spending
A danger for the economy and market valuations is consumers’ continued willingness to spend in the face of rising inflation, generally weaker income tax refunds, and the ending of COVID-related transfer payments from the government. Consumer spending represents about 70% of the U.S. economy.
Consequently, the extremely disappointing quarterly results issued on May 19 by Foot Locker, Inc. (NYSE: FL) may represent a warning signal for near-term U.S. discretionary spending. Perhaps even more important, consumer spending at the specialty athletic retailer appears to have turned sharply lower over the last two months.
Foot Locker held a highly anticipated analysts’ day on March 20, when newly hired and highly-regarded CEO Mary Dillon shared her vision for the company. Ms. Dillon joined Foot Locker in September 2022; she had previously been a very successful CEO at Ulta Beauty, Inc. (NASDAQ: ULTA). At that meeting, Foot Locker issued fiscal 2023 comparable store sales guidance of negative 3.5% to negative 5.5% versus the year ended January 31, 2023. In fiscal 2023, sales of Nike products were planned to decline as Nike is transitioning to selling more products on a direct retail basis as opposed to selling wholesale to Foot Locker and other companies.
On May 19, Foot Locker reported adjusted 1Q FY 2023 (quarter ended April 29, 2023) EPS of US$0.70, well below the US$0.81 analysts’ consensus estimate. Even more discouraging, comparable-store sales plunged 9.1% in the quarter, prompting Foot Locker to slash its comp store sales forecast for FY 2023 to negative 7.5% to negative 9.0% versus FY 2022. Furthermore, Foot Locker CEO Dillion said that sales “weakness has continued into May.”
Phrased differently, the realized sales in 1Q FY 2023, together with the trends Foot Locker now expects to prevail over the next three quarters, prompted management to cut the FY 2023 sales forecast it issued just two months ago by four full percentage points.
Foot Locker’s sharp downward revision in expected consumer purchases, coupled with similar comments during the first quarter earnings calls from big box retailers, indicates the lower- to middle-income consumer is cutting back on spending. Comparably, both Target Corporation (NYSE: TGT) and Walmart Inc. (NYSE: WMT) reported that as the first quarter wore on, particularly after February, shoppers simply spent less. Discretionary merchandise, such as high-priced sneakers in Foot Locker’s case, was especially negatively impacted.
Foot Locker, Inc. last traded at US$30.21 on the NYSE.
Information for this briefing was found via Edgar and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.