Release Date: March 05, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Foot Locker Inc (FL, Financial) achieved three consecutive quarters of positive comp sales and year-over-year gross margin expansion.
- The company's 'Lace Up' strategy is driving results, with significant progress made in 2024 and plans to continue this momentum into 2025.
- Foot Locker Inc (FL) saw a 2.6% increase in total comp sales in the fourth quarter, led by strong performance in the Foot Locker and Kids Foot Locker banners.
- The company improved its gross margin by 300 basis points year-over-year, driven by merchandise margin recovery and cost savings.
- Foot Locker Inc (FL) relaunched its FLX Rewards Program, achieving a 49% sales capture rate in North America, nearing its 50% target two years ahead of schedule.
Negative Points
- Foot Locker Inc (FL) experienced a 5.8% decline in total sales, primarily due to the lapping of the 53rd week in 2023 and foreign currency headwinds.
- The company noted consumer uncertainty and cautious spending behavior, impacting business performance in early 2025.
- Foot Locker Inc (FL) faced challenges in its apparel business, with comp declines in the mid-teens due to lagging innovation.
- The WSS banner saw a 3.3% decline in comparable sales, attributed to cautious consumer spending and external factors like inflation and fires in Los Angeles.
- Foot Locker Inc (FL) anticipates a softer start to 2025, with consumer sensitivity to external factors such as tax refund timing affecting sales.
Q & A Highlights
Q: Can you provide more color on the consumer behavior quarter-to-date and what you're seeing across demographics and regions?
A: Mary Dillon, CEO, noted that coming out of the holiday season, Foot Locker saw strong momentum, with January being the strongest month of the quarter. However, in February, consumer uncertainty began to pick up, leading to choppy performance. Consumers are responding well to exciting events but are cautious in between. The company has factored this into their 2025 outlook, focusing on their Lace Up strategies which are resonating well with customers.
Q: What are you factoring into the outlook for Q1, and what are your expectations for Nike's performance?
A: Michael Baughn, CFO, explained that the full-year guidance of 1% to 2.5% comp growth factors in recent consumer uncertainty. The upper end of the range assumes continued performance of initiatives and a stable macro environment. The company expects channel inventories to improve and promotional activities to moderate, with innovation and newness supporting full-price selling later in the year.
Q: Why aren't we seeing more SG&A leverage this year despite cost savings?
A: Michael Baughn, CFO, acknowledged that while progress has been made, the 24% SG&A rate is not supportive of long-term profit targets. The 2025 guide shows modest leverage, excluding normalization of incentive compensation, and the company is committed to further reducing SG&A.
Q: Can you elaborate on the Nike relationship and the impact of their promotional activities?
A: Mary Dillon, CEO, expressed confidence in the partnership with Nike, highlighting strategic collaborations and recent successful launches. The company returned to allocation growth in Q4 and is focused on optimizing merchandise mix and gross margin recovery. Nike's innovation pipeline is promising, and Foot Locker is balancing this with growth in other brand partnerships.
Q: What are your plans for store refreshes and the bottom part of the fleet?
A: Michael Baughn, CFO, stated that the 800 stores refreshed by the end of 2025 are expected to generate strong returns. The focus will shift to reimagined concepts for stores that require more investment. The company has reduced exposure to underperforming malls and feels confident about the health of their real estate portfolio.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
