Nike Trips, Foot Locker Eats the Pavement… And Investors Are Down Bad

Looks like Foot Locker’s heading for a holiday season straight out of Home Alone (except this time, they’re the Wet Bandits, and Nike just turned on the faucet to flood their Q4).

The Q3 earnings report was the retail equivalent of stepping on a Christmas tree ornament barefoot (I know you remember that scene). Foot Locker saw a 1.4% dip in sales, landing at $1.96 billion… well below Wall Street’s $2.01 billion expectations. Worse yet, the company posted a $33 million loss for the quarter, or 34 cents per share, compared to last year’s $28 million profit. Investors had hoped for 41 cents per share but got 33 cents instead (talk about a lump of coal).

Unsurprisingly, Foot Locker’s stock tumbled 15% after the report. I mean come on now… missing targets, losing money, and downgrading expectations doesn’t exactly inspire confidence heading into the holidays. CEO Mary Dillon blamed “softened” consumer spending after the back-to-school season (because apparently, kids only need one pair of sneakers to last a lifetime). Combined with heavy discounting across the retail landscape, Foot Locker is feeling the squeeze (or full on chokehold).

Then there’s Nike, which accounts for 60% of Foot Locker’s sales. Dillon noted “softness” in Nike’s performance, which isn’t new. Nike has been leaning too heavily on old styles that aren’t selling as well, while their direct-to-consumer strategy hasn’t taken off as planned. Add underwhelming performance in China, and you have a ripple effect that’s hitting Foot Locker hard. When your biggest brand partner is struggling, it’s tough to escape the impact.

Looking ahead, Foot Locker doesn’t have much to celebrate. The company has cut its full-year forecast, now expecting Q4 sales to drop between 1.5% and 3.5%, compared to last year’s 2% growth. Comparable sales growth is projected to rise just 1% to 1.5%, far below earlier expectations of up to 3%. They’ve also lowered their EPS forecast to $1.20-$1.30 from $1.50-$1.70. It’s clear this holiday season won’t deliver the bounce-back they were hoping for.

There is however, one small silver lining: Champs and WSS, Foot Locker’s smaller brands, managed modest growth. Comparable sales for Champs were up 2.8%, while WSS saw a 1.8% increase. It’s not much, but it’s a rare bit of good news in an otherwise tough report.

The big challenge remains Foot Locker’s reliance on Nike. Until Nike turns things around, Foot Locker will continue wandering out in the cold. And with Nike’s new CEO, Elliott Hill, still finding his footing, a recovery isn’t guaranteed anytime soon.

Wall Street isn’t optimistic, either. Morgan Stanley recently downgraded Foot Locker to “underweight” with a $17 price target, 15% below its current level. It’s clear investors are bracing for more challenges ahead.

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Stock.News has positions in Foot Locker, Nike, and Morgan Stanley mentioned in article.