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🔥 Top Movers
👟 Foot Locker: Time To Make Merry?
Sportswear and footwear retailer Foot Locker Inc. (FL) is stepping into a new era, with Mary Dillion taking charge next week. The company aims to make all the right noises after a crushing blow from Nike in February. Will the new CEO take the right steps to ensure the company scales new peaks?
The history of Foot Locker dates back to 1879, starting as part of the F.W. Woolworth Company. Almost a century later, F.W. Woolworth incorporated Woolworth Corporation in 1988 and put it in charge of operating Foot Locker stores.
Around the same time, the company looked to expand within enclosed shopping malls, aiming for 10 stores in every major mall across the US. The strategy never fructified as Woolworth never developed these many successful specialty store formats.
Woolworth changed its name to the Venator Group in 1998 and adopted its current name in 2001.
By 2018, Foot Locker became a shopping mall staple, with ~80% of its stores present there. But shopping malls are a dying concept. Credit Suisse projected that a quarter of all US malls would shut down by this year. The rise of Amazon & other e-commerce platforms ensures the glory days of shopping malls do not return.
Brands like Foot Locker are finding new ways to stand out amidst the e-commerce challenge. As part of its rebranding strategy, Foot Locker wants to empower youth culture and not just be a place to buy the latest footwear. It has made significant investments in youth-centric startups:
- $100M in sneaker reselling app Goat
- $2M strategic investment in footwear designer Pensole Inc.
- 12.5M in kids clothing company Rockets of Awesome and
- $3M in innovative children’s footwear and clothing business Super Heroic
Nike has been one of Foot Locker’s oldest vendors, contributing ~70% to its product mix. Things went awry in February this year when Foot Locker warned of not selling as many products from Nike as the latter wanted to focus on NIKE Direct – its direct-to-consumer initiative.
The management announced no single vendor would represent over 55% of supplier purchases starting Q4 2022. On an annual basis, assets from Nike will not exceed 60%, down from 70% last year and 75% in 2020. On expected lines, shareholders did not take the news well as the stock tanked over 30% in its worst trading session since 1980.
A Perfect Match?
Former Ulta Beauty CEO Mary Dillon will now be Foot Locker’s new CEO starting September 1. Incumbent Richard Johnson will retire after 29 years at the company and almost a decade in charge.
Johnson is credited with growing Foot Locker’s D2C business and turning a brick-and-mortar company into an interactive retail company. Under his leadership, the company has opened stores in Hong Kong, Malaysia, and Singapore. He is also credited with leading the growth of Foot Locker’s “Power Stores,” a concept part of the company’s pivot away from shopping malls.
To further accelerate this, the company acquired two small retailers – WSS and Atmos for $1.1B last year. As of Q2, Foot Locker’s “Off-mall” fleet of stores stands at 26% of the company’s roster from 21% last year.
The company is also laying the groundwork for reducing its reliance on Nike. It is teaming up with Adidas on two major launches later this year and has also been increasing the offerings of popular brands like Hoka and On. It will also play a key role when Adidas launches its new sportswear product. The company hopes to achieve $2B in retail sales through this collaboration by 2025.
Foot Locker’s sales dropped 9.2% in Q2 this year after a record quarter in 2021. Excluding forex impact, overall sales are down 6.1%. Net profit fell to $94M from $430M while comparable sales declined 10.1%. Yet, the management calls this a “solid quarter” despite challenging macros. Compared to 2019 levels, the company’s sales increased 16.4%.
Mary Dillon became Ulta Beauty’s CEO in 2013 when the company had 675 stores, a struggling online business, and ~$3B in annual revenue. During her eight-year tenure, the company has grown to ~$9B in revenue, has doubled its store count, and sells a third of its items online. Before Ulta Beauty, Dillon had stints at McDonald’s and US Cellular.
Analysts believe that Dillion’s appointment as CEO is the best announcement Foot Locker could make, adding that her agreeing to the job is enough proof that the company still has a spot to capture in the sporting-goods market. The stock received six upgrades post Dillon’s appointment.
Foot Locker wants investors to believe it has moved past Nike’s blow by taking several steps. With the company at an inflection point, it now has a new CEO to navigate these challenging times. Will shareholders who have barely made money over the last five years make merry under Mary? Well, they can surely take heart from the fact that “impossible is nothing!”
FL ended at $36.75, down 0.30%.
Company Snapshot 📈
FL 36.75 -0.11 (0.30%)
Analyst Ratings (21 Analysts) BUY 9% HOLD 86% SELL 5%
Later Today 🕒
- NVIDIA Corporation Earnings (NVDA)
- Salesforce Inc. Earnings (CRM)
- Snowflake Inc. Earnings (SNOW)
- Autodesk Inc. Earnings (ADSK)
- Box Inc. Earnings (BOX)
- Royal Bank of Canada Earnings (RY)
- Splunk Inc. Earnings (SPLK)
- Williams-Sonoma Inc. Earnings (WSM)
- 7:30 PM IST: Pending Home Sales Index
Today’s Fun Fact
Many hardcore fans of the brand mispronounce the name ‘Nike’. It is correctly pronounced ‘ny-kee’ and the name comes from the Greek goddess of victory