Foot Locker touts ‘renewed’ Nike relationship as it reports slide in holiday-quarter profit
Published March 20, 2023
Foot Locker CEO Mary Dillon touted a “renewed” and revitalized relationship with Nike, including an emphasis on “sneaker culture.”
Foot Locker also reported quarterly earnings and offered guidance for the fiscal year.
Nike had moved away from its wholesale relationships so it could build out its direct to consumer channels, but ended up with a glut of inventory.
Shares of Foot Locker more than 5%. The sneaker and athletic-apparel retailer also reported quarterly earnings and issued soft guidance Monday morning.
During the holiday quarter, which ended Jan. 28, Foot Locker posted just under $2.34 billion in sales, slightly lower than a year earlier. Its profit for the period came in at $19 million, or 20 cents a share, compared with $103 million, or $1.02 a share, a year earlier. Excluding one-time items, earnings per share were 97 cents, down from $1.46.
For the current fiscal year, which will include an extra week, Foot Locker expects sales and comparable sales to be down 3.5% to 5.5%, with adjusted earnings per share of $3.35 to $3.65.
The retailer plans to close about 400 under-performing mall stores but said it will open around 300 new format stores.
“Given how 2023 is more of a reset year and in the midst of a turnaround, there is some conservatism that the guidance had, so therefore I think the Street isn’t feeling as confident with what was given today,” said Jessica Ramirez, senior analyst at Jane Hali and Associates. “But in the big picture it makes sense, and I do think there are a lot of strong initiatives that Mary Dillon is bringing to the table.”
Since Dillon took over as chief executive of Foot Locker in September, she’s spent a “great deal of time with Nike revitalizing our partnership” after Nike moved away from wholesale channels to focus on building out direct to consumer sales.
“Of course, Nike is our largest brand partner and the leader in the industry. From day one I’ve been welcomed to the industry by John and Heidi and their team,” Dillon said of Nike CEO John Donahoe and Heidi O’Neill, its president of consumer and marketplace.
Dillon, the former chief executive of Ulta, said Foot Locker and Nike have “re-established joint planning, as well as data and insight sharing.”
“The fruits of our renewed commitment to one another will begin to show up in holiday this year as we build increasing momentum to 2024 and the 50th anniversary of Foot Locker,” Dillon said.
For the past several years, Nike has been working to grow its direct to consumer business and with it, cut partnerships with numerous wholesale accounts so it could grow its e-commerce channels and open new stores.
However, like other retailers, Nike was stuck with a glut of inventory brought on by pandemic-related supply chain challenges over the last few quarters and relied on those wholesale partners to move that product out.
During its fiscal-second quarter that ended Nov. 30, Nike’s wholesale revenue was up 19% for the quarter after it’d been effectively flat over the previous several quarters.
“We’ve been starving the wholesale channel for six to eight quarters because of supply constraints and so as we had supply constraints, we were prioritizing adequate inventory levels within NIKE Direct and so we’re seeing strong demand as we go back into our wholesale partners with available supply,” Matthew Friend, Nike’s chief financial officer, explained to investors during an earnings call in December.
In January, when asked about Nike’s direct to consumer plans during an interview with CNBC, 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,” Donahoe said. “And so we’ve invested in strengthening those strategic relationships.”
While Nike was glad to get rid of that extra inventory during its last quarter, Foot Locker is now dealing with its own glut of shoes and apparel it’s struggling to get off the shelves. At the end of its fiscal fourth-quarter, inventories stood at $1.6 billion, about 30% higher than the year ago period, although down slightly from the fiscal third quarter.
As part of its new strategy under Dillon, Foot Locker is revisiting its store footprint in a bid to drive revenue and acquire new customers. While it plans to close about 400 underperforming mall stores in North America, it plans to bolster its new format stores from about 120 to more than 400 by 2026.
The new formats include Foot Locker’s community stores, power stores and its house of play concept.