Foot Locker Shows It's Headed In The Right Direction With Its Turnaround Plan

On Thursday, Foot Locker FL showed its turnaround plan is working as it posted better-than-expected comparable sales, with shares surging 15% upon the release of its May quarter report. Although the footwear retailer is still in the black, its financials are declining at a slower rate.

Fiscal First Quarter Highlights

For the quarter ended on May 4th, revenue contracted about 3% YoY to $1.88 billion, in line with LSEG’s estimate. Net income plunged 78% to $8 million, or 9 cents per share. Adjusted earnings that exclude restructuring and other one-time items, amounted to 22 cents, surpassing LSEG’s estimate of 12 cents per share. Comparable sales declined only 1.8%, which is much better than StreetAccount’s 3.1% estimate, allowing CEO May Dillon to tout the progress of its turnaround plan. Moreover, as average selling prices increased during the quarter, this shows consumers are willing to pay full price for the right product. 

A Reaffirmed Full Year Outlook

Foot Locker guided for adjusted earnings per share in the range between $1.50 and $1.70, while LSEG’s consensus estimate was $1.57. The sneakers retailer expects comparable sales to grow between 1% and 3%, surpassing StreetAccount’s 1.5% estimate.

Early signs show that Dillon's Lace Up Plan is working

Foot Locker has been working to reverse an ongoing sales slump by revamping its stores and winning back brands. Dillon’s efforts have taken longer than expected, but they are starting to pay off.

Besides revamping its mobile app, Foot Locker is launching an enhanced FLX rewards program, which will both open new growth venues. Along with the return to growth with Nike Inc NKE during the holiday quarter, Chief Commercial Officer Frank Bracken believes that Nike is going back on offense. With the assortment of Nike products expected to grow again in the fourth quarter and the brand’s refocus on wholesale, management feels confident about the multiyear growth plan it developed together with Nike.

Besides raising both its online and store game, Foot Locker continues to diversify its brand. Back in April, Foot Locker opened its first store that represents its future concept that aims to improve various weak points, such as the historically-focused male desig. Bracken noted that its newest effort is already outperforming the balance of the chain and by significant margins. Therefore, although Foot Locker is still in the woods, the latest quarterly report provided some much needed signs of life and hope that its turnaround plan is working.

DISCLAIMER: This content is for informational purposes only. It is not intended as investing advice.

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