FL slides 7% as it misses on the top line

Foot Locker (FL) reported its Q3 results, delivering mixed performance with a revenue miss but beating expectations on adjusted EPS. The company posted adjusted earnings per share (EPS) of $0.30, exceeding the consensus estimate of $0.22. However, revenue for the quarter came in at $1.88 billion, missing the expected $1.91 billion and marking a decline of 9.4% year-over-year as the company faced ongoing challenges in consumer demand.

Guidance for the remainder of the fiscal year was reiterated, with the company maintaining its outlook for total sales to decline 8% to 9%, comparable store sales to decrease by 9% to 10%, and gross margins in the range of 27% to 27.5%. Adjusted EPS guidance was also reaffirmed in the range of $1.30 to $1.50, reflecting the company's cautious optimism as it navigates a challenging retail environment.

Key metrics showed continued pressure on sales and margins, reflecting a tough retail landscape. Comparable sales dropped 8.7% year-over-year, consistent with management’s prior commentary about softer consumer spending and promotional pressures. Inventory levels declined 15.5% year-over-year, signaling effective management of stock and alignment with demand. Gross margins improved sequentially to 27.4%, though they were down compared to the prior year.

One of the key drivers highlighted was Foot Locker's ability to manage costs effectively, which contributed to the earnings beat despite weak top-line performance. Additionally, inventory management was a bright spot, with the company reducing stock levels significantly compared to last year, positioning it better for the holiday season and improving operational efficiencies.

Foot Locker's "Lace Up" strategy, aimed at driving brand differentiation and operational efficiency, continues to gain traction. Management noted progress in expanding partnerships with top-tier brands and enhancing its digital footprint, which it believes will provide long-term benefits. However, the challenging macro environment and declining discretionary spending continue to weigh on near-term performance.

Looking ahead, Foot Locker emphasized its focus on cost control and margin protection while continuing to drive engagement through its brand partnerships and omnichannel initiatives. While the near-term outlook remains difficult, the company’s execution in managing its inventory and protecting profitability provides some optimism for gradual improvement heading into fiscal 2024.