Saddled with a bloated inventory level and softer sales trends in April and May, Foot Locker reported lower Q1 operating income and sales levels last week and simultaneously reduced its full-year outlook for revenues and gross margin. The retailer is now forecasting annual sales to decline by 6.5 to 8.0 percent as aggressive markdowns and a higher shrink rate lower the FY23 gross margin range to 28.6 to 28.8 percent. Second half comparable sales are forecast to drop by mid- to high-single digits due to ongoing consumer softness although there will be some sequential improvement from H1.

“While near-term tends are meeting our expectations, we are firmly committed to our ‘Lace Up Strategy’ and the long-term plans across banners and regions,” CEO Mary Dillon said. “While 2023 was always going to be a reset year for us, we now expect a sharper decline in both sales and earnings this year due to steeper macro headwinds combined with other dynamics of our transition…”

A plan to make 40 percent or more of its vendor mix from brands other than Nike by 2026 remains intact, but there is also an objective to begin growing its Swoosh business again in 2024.

In Q1, Foot Locker suffered a 73 percent drop in year-over-year net income to $73 million and 11.4 percent decline in revenues to $1,927 million. North America comps fell by 12.8 percent with “pockets of strength” offset by lower tax refund dollars for customers and the reset of Nike. Footwear sales comped down high-single digits with lifestyle running called the most disappointing segment, caused by consumer resistance to make full-price purchases of $120 to $200 after all the promotional selling in Q4. New Balance was Foot Locker’s best-performing brand in the period. Signature basketball models and performance running, helped by substantial sales growth from On, Hoka, Brooks, and Asics, had higher sales. Apparel and accessories sales declined by mid-teens, but private label brands increased by 13 percent.

With three pilot locations for its new ‘store of the future’ concept are already identified for Q1/24 openings, Foot Locker said the stores are being designed to deliver an omni-connected retail experience for its customers. Elsewhere, the retailer intends to increase its percentage of off-mall stores to 50 percent by the end of 2026 with new, larger Community or Power stores to represent 20 percent of the total.