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Why Foot Locker Stock Is Sinking Again Today

Motley Fool - Wed Aug 28, 11:56AM CDT

Foot Locker(NYSE: FL) stock is falling in Wednesday's trading. The company's share price was down 12.3% as of 12:30 p.m. ET, according to data from S&P Global Market Intelligence.

Foot Locker published second-quarter results before the market opened this morning and actually delivered results that beat Wall Street's expectations on most key fronts. But management paired the release with some concerning business commentary and underwhelming forward guidance, and the stock is losing ground in today's trading.

Foot Locker beat Wall Street's Q2 expectations

Foot Locker reported a loss of $0.05 per share on sales of $1.9 billion in the second quarter. For comparison, the average analyst expected the business to post a per-share loss of $0.07 on revenue of $1.89 billion.

The footwear retailer returned to posting annual sales growth in Q2, with overall revenue climbing 1.9% year over year. The company also posted same-store sales growth that beat the market's expectations, with its 2.6% sales increase coming in ahead of the average Wall Street target's call for growth of 1%. Foot Locker's gross margin also improved 50 basis points compared to last year's quarter.

However, the company also gave investors some concerning news

For the full-year period, Foot Locker reaffirmed its guidance and expects its non-GAAP (generally accepted accounting principles) adjusted earnings to come in between $1.50 per share and $1.70 per share. The company's guidance range topped the average analyst estimate, which had forecasted per-share earnings of $1.54 for the year. Revenue for the year is projected to come in between being down 1% and up 1%.

While the company's forward guidance for the year wasn't bearish on its own, announcements about its efficiency-focused turnaround strategy are worrying investors. Foot Locker plans to close its stores and e-commerce operations in South Korea, Denmark, Norway, and Sweden. The company has also signed agreements to transfer store and e-commerce operations in Greece and Romania to Fourlis Holdings Societe Anonyme.

While Foot Locker said that it planned to open 30 new stores this year, it will be closing 140 stores in Asia and 629 stores in Europe. The changes are expected to be completed in 2025 and suggest that the business will have a hard time delivering overall sales growth next year.

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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool recommends Foot Locker. The Motley Fool has a disclosure policy.