Wall Street is keenly watching Foot Locker’s (NYSE:FL) first-quarter results, due Thursday morning, to see if the company’s turnaround efforts are making an impact. CEO Mary Dillon noted that 2024 will be another significant investment year, focusing on improving its digital business, store experience, and brand loyalty.
Foot Locker’s same-store sales are expected to decline by 1.93%, a slower drop compared to the 9.1% slide in the same quarter last year. Overall revenue is anticipated to fall to $1.89 billion from $1.93 billion a year ago. However, its direct-to-consumer business is projected to increase by 3.52% to $325.05 million in sales.
Despite these efforts, Foot Locker’s shares have dropped nearly 27% year-over-year, compared to the S&P 500’s roughly 11% gain.
Evercore ISI analyst Michael Binetti cautioned that Q1 will be “tough,” with results from new initiatives likely appearing in Q2 or later. Binetti highlighted that low-income consumers, who form a significant part of Foot Locker’s customer base, will pose additional challenges.
Following the previous quarterly results, CFO Michael Baughn warned that promotional activities would continue to pressure merchandise margins through Q1. The company aims to reduce inventory levels over the year but expects it will take time to adjust consumer expectations from higher promotional levels.
Foot Locker’s partnership with Nike (NYSE:NKE), which constitutes about 60% of its sales, is projected to turn positive in the fourth quarter for the first time in two years. “Looking to 2025, Foot Locker stands to benefit from Nike strengthening its presentation and product availability at wholesale accounts, as well as a stronger pipeline of innovation,” said Cristina Fernández of Telsey Advisory Group.
JP Morgan analyst Matthew Boss, who holds an underweight rating on Foot Locker shares, highlighted potential strength in the latter half of the year due to store refresh initiatives, digital enhancements including a new mobile app, loyalty programs, and renewed growth with Nike.
The company’s planned store remodels are showing early positive results. “Early results have been very encouraging on both our productivity and margin basis,” Dillon stated in the last earnings call. Foot Locker aims to refresh two-thirds of its global Foot Locker and Kids Foot Locker locations over the next few years.
The loyalty program, set to launch formally in Q2, is already showing higher activation and transaction metrics in tests. Binetti expects it to provide more consumer insights, with Foot Locker currently seeing only 20% of transactions through its loyalty program compared to the retail industry’s 60-80%.
Foot Locker’s turnaround is being closely watched by investors, with hopes that these strategic initiatives will drive improved growth and stability in the coming quarters
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