Foot Locker's stock tumbles 28% as company suspends dividend after swinging to a loss

By Ciara Linnane

Like rivals, Foot Locker says business is being hurt by shoplifting and theft

Foot Locker Inc.'s stock slid 28% Wednesday, after the sporting goods retailer swung to a loss in the second-quarter, lowered its full-year guidance and said it's suspending its quarterly dividend to conserve cash.

The news comes a day after a disappointing report from rival Dick's Sporting Goods Inc. (DKS), which that company blamed on a spike in shoplifting.

Foot Locker (FL) had a net loss of $5 million, or 5 cents a share, for the quarter, after income of $94 million, or 99 cents a share, in the year-earlier period. Adjusted per-share earnings came to 4 cents, matching the FactSet consensus.

Sales fell 9.9% to $1.891 billion from $2.065 billion, missing the $1.879 billion FactSet consensus. Same-store sales were down 9.4%, to match the FactSet consensus.

"Our second quarter was broadly in line with our expectations, despite the still-tough consumer backdrop," said Chief Executive Mary Dillon, in a statement.

"However, we did see a softening in trends in July and are adjusting our 2023 outlook to allow us to best compete for price-sensitive consumers, while still leaning into the strategic investments that drive our Lace Up plan," she said, referring to the strategic plan outlined at a March investor day.

The company lowered its full-year guidance and now expects adjusted EPS to range from $1.30 to $1.50, down from prior guidance of $2.00 to $2.25. It expects sales to range from down 8.0% to 9.0%, versus prior guidance of down 6.5% to 8.0%.

The company said it's pausing its quarterly cash dividend beyond its recently approved October payout to conserve cash for strategic investments.

"We intend to update the market on our go-forward capital allocation plans and the timing around our longer-term financial targets when we report fourth quarter results," said Dillon.

Gross margin fell 460 basis points in the second quarter, driven by a rise in promotional activity, which included higher markdowns, as well as occupancy deleverage and higher shrink.

Shrink, a factor emerging in many quarterly earnings from retailers can include damaged goods, but increasingly refers to shoplifting, which companies say is frequently being conducted by organized gangs. The issue is costing companies in the retail sector billions of dollars a year, according to executives.

See: Walmart's 'shrink' challenges differ from those of other retail giants, CEO says

Related: Target facing 'unacceptable amount' of retail theft and organized retail crime, CEO says

Dick's on Tuesday blamed its poor earnings squarely on the issue.

"Organized retail crime, and theft in general, is an increasingly serious issue impacting many retailers," Chief Executive Lauren Hobart told analysts on the company's earnings call.

Organized retail crime was "significantly higher than we anticipated," said Chief Financial Officer Navdeep Gupta on the call.

For more, see:Dick's Sporting Goods CEO highlights impact of organized retail crime: 'It's quite alarming what's going on'

Foot Locker's stock has fallen 59% in the year to date, while the S&P 500 has gained 14%.

-Ciara Linnane

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08-24-23 0623ET

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