Foot Locker just posted disappointing results for the second quarter, with sales down 9.9 percent and a loss of $5 million. But that’s not fazing CEO Mary Dillon, who maintained confidence in the retailer’s ability to pick business back up with its turnaround strategy.
As she approaches the one year mark as CEO, Dillon said she feels as excited and confident about Foot Locker’s potential as she did on day one.
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“Now we really have the right team, and the plans in place to return our company to sustainable longterm profitable growth,” Dillon told FN in an interview on Wednesday, adding that the company is already seeing “green shoots” in its turnaround plan.
Foot Locker in March rolled out its “Lace Up” plan, a multipronged strategy meant to help Foot Locker increase market share and grow sales to $9.5 billion by 2026 by diversifying its brand portfolio, relaunching the Foot Locker brand with new store formats focused on an off-mall presence, maximizing its loyalty program and investing in technology to enhance the customer journey.
Dillon said while Foot Locker has made progress on several of these initiatives, some of the short-term impact is what is showing up in Q2 results right now. For example, while Foot Locker maintains a strong partnership with Nike, the retailer is gradually moving to a more diverse product mix and decreasing the percentage of Nike sales overall. Sales of non-Nike brands increased to 36 percent in Q2, up from 31 percent in the same quarter last year. The goal is for Nike sales to make up between 55 percent and 60 percent of Foot Locker’s total sales mix by 2026, which has led to some short term sales challenges as the retailer recalibrates its assortment.
“It’s well known that coming into this year, it was going to be a reset year for us as we’re transitioning through the reset of Nike in terms of allocating across the marketplace.” Dillon said. “That’s, I think, probably the largest part of why our sales are down now.”
Once the reset period concludes, Dillon said the plan is to work with the Swoosh on further growth plans in key categories like basketball and kids.
Dillon also reaffirmed Foot Locker’s commitment to stop selling Yeezy products last October in light of brand founder Kanye West’s antisemitic statements. While other retailers have started to sell the brand again for current drops, Foot Locker is not going back.
“I appreciate the thoughtful approach that Adidas is taking and donating proceeds to benefit to community groups, but we’re just remaining consistent with our decision,” she said.
With no Yeezy and fewer Nike products, Foot Locker is leaning into other high growth brands like Hoka, On and New Balance.
Moving through August, the retailer anticipates the consumer to remain price sensitive and discerning as the current promotional environment persists.
“There’s elevated levels of inventories and there’s a lot of strong players competing for the shared wallet of the customer in this category,” Dillon said. “And so we anticipate that will continue to be a factor and that spills into our guidance.”
EVP and CFO Mike Baughn added that Foot Locker’s guidance has accounted for potential headwinds from the resumption of student loan payments in the fall. However, Baughn noted that Foot Locker has a higher exposure to lower income consumers, who are less likely to have student debt. This should mitigate the impact to some extent.
“We do expect that people with student loan repayments will be discerning with their discretionary dollars,” Baughn said.
Despite the rocky Q2 results, Dillon stood by the need to create “a plan that drives long term, sustainable, profitable growth,” even at the expense of short-term profit gains.
“Sometimes it takes a minute,” she added. “But at least in the long term, investing in the right places, I think is critical for every business because the world is changing rapidly.”
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