uploads/2019/08/Foot-Locker-Q2-earnings.jpeg

Why Foot Locker Fell Over 12% after Its Q2 Release

By

Updated

  • Foot Locker (FL) disappointed as its second-quarter results fell short of estimates.
  • FL stock has fallen over 12% this morning.

Foot Locker stock fell after the shoe and apparel retailer’s second-quarter sales and earnings fell short of analysts’ estimates. Earlier, the company had maintained its 2019 sales guidance but lowered its EPS outlook. Therefore, its surprise drop in second-quarter sales didn’t sit well with investors.

President and CEO Richard Johnson confirmed that the second-quarter results “did come in at the low end of our expectations.” However, he remains optimistic and expects to benefit from the back-to-school season and fresh product offerings in this year’s second half.

Article continues below advertisement

In the second quarter, Foot Locker’s revenue fell about 0.4% YoY (year-over-year) to $1.77 billion, missing analysts’ estimate of $1.82 billion. Meanwhile, its comparable-store sales improved marginally, by 0.8%, but also fell short of analysts’ expectation. Currency volatility impacted the company’s top-line growth.

Foot Locker’s gross margin also remained weak and contracted by ten basis points in the quarter to 30.1%. Its SG&A (selling, general, and administrative) expense rate increased by 90 basis points to 22.2%. That growth reflected investments in growth initiatives, including digital capabilities.

The company’s narrower gross margin and higher SG&A rate weighed on its operating margin, and in turn, its EPS. Foot Locker’s adjusted EPS dropped 12% YoY to $0.66 in the second quarter, missing analysts’ forecast of $0.67.

Foot Locker sticks to guidance

The US-China trade war is hurting footwear and apparel retailers, which are concerned that more tariffs will hurt business. Footwear imported from China is subject to higher duties and could dent retailers’ sales and earnings.

Despite its weak second-quarter results and the tariff concerns, Foot Locker stood by its earlier guidance. It expects to sustain its sales momentum this year. In fiscal 2019, Foot Locker expects its comparable-store sales to grow by a mid-single-digit percentage. The company expects fresh products, store and digital investments, and the back-to-school season to boost sales in this year’s second half. This year, it foresees its adjusted EPS growing by a high-single-digit percentage.

Advertisement

More From Market Realist