Release Date: December 04, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Foot Locker Inc (FL, Financial) reported a 2.4% increase in comparable sales, led by gains in the Foot Locker and Kids Foot Locker banners.
- The company achieved a 230 basis point improvement in gross margin year-over-year, driven by merchandise margin recovery.
- Foot Locker Inc (FL) successfully executed its cost savings plan, achieving $90 million in savings, surpassing the prior expectation of $80 million.
- The company saw strong performance from brands like Adidas, New Balance, On, Hoka, Ugg, and Asics, with sales up strong double digits.
- Foot Locker Inc (FL) made significant progress in its store refresh program, completing 167 refreshes in the third quarter and targeting 400 for the year.
Negative Points
- Foot Locker Inc (FL) revised its full-year non-GAAP EPS guidance downward to a range of $1.20 to $1.30, from the previous range of $1.50 to $1.70.
- The company experienced a decline in apparel sales, with comps down in the low 20s, attributed to a lack of innovation in the category.
- Foot Locker Inc (FL) faced a more elevated and widespread promotional environment than anticipated, impacting margins.
- The company noted that consumer spending was concentrated around peak periods, with a pullback in September and October.
- Foot Locker Inc (FL) expects continued elevated promotional activity through the holiday season, impacting gross margin expectations.
Q & A Highlights
Q: Can you speak to the balance between sales and margin in the quarter? You improved both comps and gross margin but not to the expected degree. Can you provide more context on what fell short of expectations?
A: Mary Dillon, CEO: We are proud of the progress on the LASA plan, with positive comps and gross margin expansion, but performance fell below expectations. The LASA plan is working, evidenced by comp gains and inventory management. However, macroeconomic factors and consumer spending behavior, along with elevated promotions, impacted results. We expect these challenges to continue into the fourth quarter, but we remain committed to our long-term targets.
Q: On apparel, there's a significant decline. Do you think weather played a part in this shortfall?
A: Frank Bracken, EVP and Chief Commercial Officer: Weather wasn't a major factor as we're not heavily into outerwear. The decline is more about the need for innovation in the category. We're focusing on private label apparel, which is performing well, and working with partners to improve offerings for 2025.
Q: Regarding fourth-quarter guidance, are there any unusual factors to consider? How should we think about margins and trends moving forward?
A: Mike Bond, CFO: The midpoint of our guidance aligns with recent trends. We expect apparel to remain challenging and promotions to continue. For 2025, we aim to recapture promotional activity from 2023, contingent on market conditions. We view current dynamics as transitory, not structural.
Q: Can you elaborate on the performance of Champs and WSS, and any demographic trends you're seeing?
A: Frank Bracken, EVP and Chief Commercial Officer: Champs is making progress with its repositioning towards active athletes, showing strong back-to-school results. WSS saw positive results in August, focusing on value for the full family. However, the lower-income demographic faces pressure, particularly in California.
Q: Can you discuss the higher promotions in the quarter and their impact on Nike?
A: Mike Bond, CFO: Promotions were higher than expected, particularly in Europe and apparel. We expect these trends to continue, with elevated promotions in North America, especially in DTC and wholesale channels.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
