Foot Locker (NYSE:FL) reported a narrower-than-expected loss for the second quarter of 2024, with sales slightly beating estimates, but shares fell more than 14% following the results.
The specialty athletic retailer posted an adjusted loss of $0.05 per share for the quarter ended August 3, compared to the analyst estimate of a $0.08 loss. Revenue rose 1.9% YoY to $1.9 billion, edging past the consensus estimate of $1.89 billion.
Comparable sales increased 2.6%, led by global Foot Locker and Kids Foot Locker comparable sales growth of 5.2%. The company's gross margin expanded by 50 basis points YoY to 29.5-29.7%.
"The Lace Up Plan is working, as evidenced by our return to positive total and comparable sales growth as well as gross margin expansion in the second quarter," said Mary Dillon, President and CEO of Foot Locker.
Foot Locker reaffirmed its full-year 2024 adjusted EPS outlook of $1.50 to $1.70, which includes a $0.09 drag from a non-recurring FLX Rewards Program charge. The company expects comparable sales to grow 1% to 3% for the year.
As part of its strategic updates, Foot Locker announced plans to streamline its international operations by closing stores in South Korea, Denmark, Norway, and Sweden. The company also plans to relocate its global headquarters to St. Petersburg, Florida in late 2025.
Following the results, analysts said "July comps were up mid-single-digits slightly exceeding June up mid-single-digits relative to May down low-single-digits.
"Importantly, improvement in same-store-sales coincided with a reduction in markdown activity as consumers responded to FL’s enhanced composition of products from the new merchant/buying team, elevated marketing campaigns, improved store experience (w/ new store concepts representing 17% of 2Q global sq. feet vs. 12% LY), in-store productivity improvement from the rollout of FL’s new workforce management tool, and the relaunch of the FLX rewards program across the U.S. which drove an improvement in loyalty penetration to 24% of net sales (vs. 22% LY)," they added.
Telsey Advisory Group said the company delivered on the sales improvement, with the comp of 2.6% coming in better-than-expected.
"Foot Locker also pulled back promotions, leading to higher-than-expected gross margin expansion of 54 bps (TAG +10%; FS +30 bps)," they wrote. "However, given ongoing investments and a return to normalized incentive comp, the higher sales did not allow for a better SG&A ratio, which was in line with expectations.
The firm added that Foot Locker maintained its 2024 EPS, sales, and operating margin guidance, "which might disappoint investors given 1H24 EPS came in at 10% of the annual guidance, the high end of the range of 5%-10% of annual EPS."
However, they believe that maintaining the guidance "seems prudent" given the consumer uncertainty in 2H24 and where the company currently is on its turnaround plan.