Foot Locker Promotes Renewed Nike Relationship and Posts Income

foot cabinet CEO Mary Dillon announced a “renewed” and reinvigorated relationship on Monday Nikeincluding an emphasis on what she called “sneaker culture.”

Foot Locker shares fell about 6%. The sneaker and sportswear retailer also reported quarterly earnings and issued soft guidance on Monday morning.

During the holiday quarter, which ended Jan. 28, Foot Locker reported revenue of nearly $2.34 billion, down slightly from a year earlier. Earnings for the period were $19 million, or 20 cents a share, compared to $103 million, or $1.02 a share, a year earlier. Excluding one-time items, earnings per share were 97 cents compared to $1.46.

For the current fiscal year, which will include an extra week, Foot Locker expects revenue and comparable sales to decline 3.5% to 5.5% with adjusted earnings per share of 3.35 to 3.65 U.S. dollar.

The retailer plans to close about 400 underperforming malls but said it would open about 300 new format stores.

“Given that 2023 is more of a reset year and in the midst of a turnaround there is some conservatism in the forecast so I think the road isn’t as confident with what was given today” , said Jessica Ramirez. Senior Analyst at Jane Hali and Associates. “But overall it makes sense, and I think there are a lot of strong initiatives that Mary Dillon is bringing to the table.”

Since Dillon took over as CEO of Foot Locker in September, she has “spent significant time with Nike reinvigorating our partnership” after Nike moved away from wholesale channels to focus on expanding direct-to-consumer sales.

“Of course, Nike is our largest brand partner and a leader in the industry. From day one, I was welcomed into the industry by John and Heidi and their team,” said Dillon of Nike CEO John Donahoe and Heidi O’Neill. its President for Consumers and Marketplace.

Dillon, the former CEO of ultimatesaid Foot Locker and Nike have “restored joint planning and sharing of data and insights.”

“The fruits of our renewed commitment to each other will be seen this holiday year as we build momentum into 2024 and the 50th anniversary of Foot Locker,” said Dillon.

In recent years, Nike has worked to grow its direct-to-consumer business, partnering with numerous wholesale accounts to expand its e-commerce channels and open new stores.

However, like other retailers, Nike has been stuck in a glut of inventory in recent quarters caused by pandemic-related supply chain challenges and relied on these wholesale partners to get this product out.

In its fiscal second quarter, which ended Nov. 30, Nike’s wholesale sales rose 19% in the quarter after being virtually flat in prior quarters.

“We have starved the wholesale channel for six to eight quarters due to supply shortages and as we have had supply shortages we have prioritized adequate stock levels within NIKE Direct and so we are seeing strong demand when we return to our wholesale partners with supply available.” , Nike’s chief financial officer Matthew Friend told investors during a earnings call in December.

When asked about Nike’s direct-to-consumer plans in an interview with CNBC in January, Donahoe spoke about the importance of an omnichannel model.

“Our strategic wholesale partners, partners like Dick’s sporting goods or Foot Locker or JD, are very, very important because consumers want to be able to try on products, they want to be able to touch and feel them,” Donahoe said. “That’s why we’ve invested in strengthening these strategic relationships.”

While Nike was happy to get rid of that extra inventory last quarter, Foot Locker is now grappling with its own deluge of shoes and apparel that’s struggling to get off the shelves. At the end of the fiscal fourth quarter, inventories were $1.6 billion, up about 30% from the year-ago period, though slightly down from the fiscal third quarter.

As part of its new strategy under Dillon, Foot Locker is reviewing its store presence to increase sales and attract new customers. While the company plans to close about 400 underperforming malls in North America, it plans to grow its new-format stores from about 120 to more than 400 by 2026.

New formats include Foot Locker’s Community Stores, Power Stores and House of Play concept.

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