Wall Street is hoping that Foot Locker (FL) took a step in the right direction.
CEO Mary Dillon said 2024 “will be another year of significant investment” on a call with investors following its previous quarterly results, as it looks to improve its digital business, the store experience, and loyalty and brand building.
Now, Wall Street is waiting for its first quarter results, out Thursday morning, to see if any of its initiatives are stopping the bleed.
Same-store sales are expected to decline by 1.93%, compared to the 9.1% slide in the first quarter of last year. Overall revenue is expected to drop to $1.89 billion, compared to $1.93 billion from a year ago.
Its direct-to-consumer business is estimated to see a 3.52% increase to $325.05 million in sales. As of the previous quarter, the company expected same-store sales to come in “flat to down low single digits” in Q1.
Its shares have dropped nearly 27% year over year, compared to the S&P 500’s (^GSPC) roughly 11% gain.
Evercore ISI analyst Michael Binetti wrote in a client note that Q1 will be “tough,” as results from the company’s new initiatives likely won’t be seen until Q2 or later.
Binetti added that “pressured low-income consumers” will add to Foot Locker’s challenges. Per Telsey Advisory Group’s Cristina Fernández, roughly 50% of Foot Locker’s main customer base has a household income of approximately $50,000 or less.
Following its previous quarterly results, CFO Michael Baughn said the company expects promotional activity to cause “ongoing merch margin pressure through the first quarter.” It will look to bring down inventory as the year progresses, but it will “take some time to transition consumer expectations away from those higher promotional levels,” per Baughn.
Its partnership with Nike, which makes up roughly 60% of its sales, is expected to turn positive for the first time in two years in the fourth quarter.
“Looking to 2025, Foot Locker stands to benefit from Nike strengthening its presentation and product availability at wholesale accounts, as well as a stronger pipeline of innovation,” Fernández said.
JPMorgan analyst Matthew Boss, who has an Underweight rating on shares, pointed to strength in the back half of the year from “initiatives around store refresh, digital (including new mobile app), loyalty, and the return to Nike growth [driving] improved growth.”
The store remodel (pictured below) is expected to provide a boost. “Early results have been very encouraging on both our productivity and margin basis,” Dillon said on the last earnings call.
The company plans to refresh two-thirds of its global Foot Locker and Kids Foot Locker locations over the next few years.
Its loyalty program, which has been in testing and is expected to formally launch in Q2, is showing early signs of “higher activations and average transaction metrics in test,” per Binetti.
He expects it will allow the company to gain more consumer insights. Just 20% of Foot Locker’s transactions happen through its loyalty program, compared to 60-80% for the retail industry.
The earnings breakdown
Here’s what Wall Street expects from Foot Locker compared to last year’s first quarter results:
Adjusted earnings per share: $0.12, compared to $0.70
Revenue: $1.89 billion, compared to $1.93 billion
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Athletic stores: $1.56 billion, compared to $1.61 billion
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Direct-to-consumer: $325.1 million, compared to $314 million
Same-store sales growth: -1.93%, compared to -9.1%
As of the previous quarter, the company expects to end the year with same-store sales growth in the range of 1% to 3%.
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Brooke DiPalma is a senior reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.