Foot Locker Inc. reported its first-quarter 2025 earnings, revealing a notable earnings per share (EPS) beat but falling short on revenue expectations. The company’s EPS of $0.86 surpassed the forecast of $0.72, a 19.4% surprise. However, revenue came in at $2.24 billion, missing the anticipated $2.32 billion. In premarket trading, Foot Locker’s stock rose by 1.32%, reflecting mixed investor sentiment. According to InvestingPro data, the company’s stock has experienced significant volatility, with a 36.7% decline over the past six months. InvestingPro analysis suggests the stock is currently trading near its Fair Value.
Key Takeaways
- Foot Locker exceeded EPS expectations by 19.4% despite a revenue shortfall.
- The stock rose 1.32% in premarket trading, showing cautious optimism.
- Strong growth in non-Nike brands contributed positively.
- Revenue miss suggests potential demand challenges.
- Strategic focus on cost savings and store refreshes continues.
Company Performance
Foot Locker’s performance in Q1 2025 was characterized by effective cost management, allowing the company to exceed EPS expectations despite a revenue shortfall. The company is navigating a challenging retail environment, with consumer uncertainty impacting sales. The focus on diversifying its brand portfolio beyond Nike appears to be paying off, with significant growth from brands like Adidas and New Balance.
Financial Highlights
- Revenue: $2.24 billion, below the forecast of $2.32 billion.
- Earnings per share: $0.86, exceeding the forecast of $0.72.
- Gross margin expected to expand 40-80 basis points in 2025.
Earnings vs. Forecast
Foot Locker’s EPS of $0.86 exceeded the forecast by $0.14, a 19.4% positive surprise. Revenue, however, fell short by $80 million, or 3.4%. This mixed performance highlights effective cost management but potential challenges in driving sales.
Market Reaction
In premarket trading, Foot Locker’s stock increased by 1.32%, reaching $17.60. This modest gain reflects investor optimism about the EPS beat, tempered by concerns over the revenue miss. The stock remains well below its 52-week high of $34.71, indicating broader market challenges. InvestingPro analysis reveals the company maintains strong liquidity with a current ratio of 1.67, though its market capitalization has contracted to $1.65 billion. For deeper insights into FL’s valuation and 8 additional key ProTips, consider exploring InvestingPro’s comprehensive research report.
Outlook & Guidance
Foot Locker expects 1% to 2.5% comparable sales growth for the full year 2025. The company is focusing on cost savings, with a $60-70 million target for 2025, and reducing capital expenditure to approximately $300 million. The second half of the year is expected to see an acceleration in comparable sales and gross margin improvements. InvestingPro data shows analysts are projecting profitability this year with an EPS forecast of $1.22, despite challenging market conditions. The company’s gross profit margin stands at 28.2%, highlighting its operational efficiency in a competitive retail environment.
Executive Commentary
CEO Mary Dillon emphasized the company’s focus on key pillars such as basketball, kids, and sneaker culture. "We remain confident that our strategies and actions are putting Foot Locker on the continued path toward sustainable growth," she stated. CFO Mike highlighted comfort with the company’s margin improvement algorithm, indicating confidence in future profitability.
Risks and Challenges
- Consumer uncertainty and cautious spending patterns could impact future sales.
- Revenue miss suggests potential demand issues that need addressing.
- Macroeconomic pressures and competitive retail environment pose ongoing challenges.
- Reduced capital expenditure may limit growth opportunities.
- Dependence on non-Nike brands requires careful management to maintain diversification benefits.
Q&A
During the earnings call, analysts questioned the impact of consumer uncertainty and Foot Locker’s approach to managing tariff exposure. The company detailed its store investment strategy and technology investment approach, indicating a focus on optimizing existing resources for higher returns.
Full transcript - Foot Locker (FL) Q4 2025:
Mike, CFO, Foot Locker: As Mary noted, following our net closure trajectory over the last several years, combined with our store investments including Refresh and Reimagine, we expect that 2025 will be a year where we’ve appropriately re baseline to a healthier store fleet size from which we can operate in the near term and grow in the future. We expect to end the year with a meaningful portion of our tighter and optimized fleet at Brand Standard, which we expect can continue to fuel positive comps and competitive share gains over time. Turning to gross margin, we expect gross margin expansion of between 40 to 80 basis points to a rate of 29.3% to 29.7%. While we expect margin recapture this year, our expectations are being somewhat tempered by the elevated consumer uncertainty and marketplace backdrop. On SG and A, we expect deleverage between twenty and forty basis points to a rate of 24.3% to 24.5%.
Excluding some ongoing normalization of our incentive compensation levels in 2025, we do expect modest leverage on an underlying basis within our cost structure. Our plans include ongoing progress in our cost optimization efforts, including an additional $60,000,000 to $70,000,000 in cost savings targeted this year, after which our $350,000,000 savings plan will be completed. Switching to cash flows, our adjusted capital expenditure outlook for the year is approximately $300,000,000 which is lower than the average implied $330,000,000 to $340,000,000 in our prior $1,000,000,000 cumulative CapEx guidance from 2024 through 2026. Recognizing the need to better match our capital spending with our top line, learning, we’re moderating our CapEx spend as we come into 2025 with an emphasis on our customer facing investments. Embedded in that 300,000,000 figure is a greater emphasis on our store projects, including reimagines and refreshes versus the prior year.
As you can see highlighted within our investor presentation, the reason why we are leaning into these investments is because of the solid cash on cash returns and favorable paybacks they are generating. For our average reimagine location, we are seeing roughly $4,000,000 to $5,000,000 in sales and 20% EBITDA margins in year one and are generating cash on cash returns of approximately 50%. For our refreshes, we are also seeing attractive cash on cash returns of 35% to 45%, driven by annualized sales productivity lifts in the low to mid single digit dollar growth range and mid single digit lifts in merchandise profit dollars. As we complete 300 plus refreshes in 2025, following over 400 last year, we will shift to investing in reimagined formats going forward and expect our store investments to continue to drive returns and generate cash for the business. While our technology investments will continue the next few years, we are adjusting the timing of some of the non customer facing technology investments, so we can prioritize the projects with highest cash on cash returns in the medium term.
For the year, we expect to continue to be free cash flow generative in 2025 as our sales and margin recovery continues along with our broader inventory and working capital management efforts. Moving on to our assumptions on the shape of the year, recall that we will be lapping the non recurring FLX charge in the second quarter of twenty twenty four, which we will get back in this year’s results. That charge represented an approximate $11,000,000 revenue, but not comp headwind in the second quarter, a 40 basis point drag on our gross margin in the quarter and a $0.09 detriment to our EPS last year. With our strategic initiatives building through the year, specifically in real estate, we expect comps to accelerate from the first half to the second with the first half closer to the lower end and the second half closer to the upper end of our guidance. We expect our gross margin improvements to be greater in the second half compared to the first half as our initiatives continue to build and allow us to pair back on promotional levels.
On earnings, we expect our first half earnings in total flat compared to the prior year inclusive of lapping of that $0.09 FLX charge in the second quarter. As such, our earnings growth is expected to be weighted towards the second half of the year. Within the first half of the year specifically, we expect profitability to be weighted towards the second quarter as we lap the non recurring FLX charge from last year. Before we turn it over to questions, I want to reiterate that we remain confident in our execution of the lease up plan as well as the profitable market share gains we are seeing as we implement our strategies and manage our expense and investment profile to generate sustainable shareholder value creation. We look forward to updating you on our progress against our goals next quarter.
And with that, operator, please open the call for questions.
Conference Operator: Thank you. We will now begin the question and answer session. And the first question will come from Ana Adriza with Piper Sandler. Please go ahead.
Ana Adriza, Analyst, Piper Sandler: Great. Thank you so much. Good morning. Thank you for all the color and taking our question. First to Mary, just on quarter to date, can you provide a bit more color on what you’re seeing?
You mentioned the more cautious consumer. Are you seeing that across demos and regions? And Mike, what are you factoring into outlook for 1Q? And can you guys also speak to what you’re expecting for NIKE either for the year or the first half as they continue to rationalize the marketplace here in the first in the near term? Thank you.
Mary Dillon, CEO, Foot Locker: Thank you, Anna. I’ll start with your question about the consumer quarter to date. Coming out of holiday, we felt really good about the momentum in the business. And January, in fact, was the strongest month of the quarter. Our global comps for the quarter were plus 2.6%.
So it felt good. As we came into February, I’d say we just started to see some consumer uncertainty begin to pick up. I’d say that was kind of across the board. It led to some choppy performance. So what we’re seeing is for sure people coming out to buy when there’s an exciting call to action, but cautious in between those times.
So we talked about just now our All Star Weekend activation, Valentine’s Day. Last weekend we had a Jordan Retro 12, all of those were really exciting call to action for consumers and worked well. I’d say in between what we’re just looking at is consumers with some uncertainty. So our customers are young by definition, they’re more limited in their discretionary budget. This is for sure a category that they prioritize in their lives.
But we’re watching as they’re thinking about overall cost of living plus some uncertainty about tariffs. So we factored that into our twenty twenty five outlook, Reiterating, we know our latest strategies are working and our customers are responding really well to those. So we’re going to continue to drive those this year, whether it’s a store improvements, digital, loyalty, etcetera. So I’ll turn it to Mike to give a little more detail about the assumptions about the consumer and our guidance.
Mike, CFO, Foot Locker: I think when we think about the full year outlook, really in our guide of 1% to 2.5% comp, really at the lower end, we’re factoring in some of that recent consumer uncertainty that Mary just highlighted. And at the higher end is really where we’ve run for the last three quarters and it factors in our initiatives continuing to perform in a more stable macro environment. I think as you think about our initiatives for the year, it’s important to think through both the wraparound benefits from what we did in 2024 and the new benefits that we’ll add in 2025. From a refresh standpoint, the 400 stores we did in 2024 were really back half loaded. And we called out in our investor presentation, they’re generating low to mid single digit sales and profit slightly above that.
And then from a store investment in 2025, ’90 percent of the refresh and reimagines that we will complete will really occur in the first three quarters of the year. Across the digital space, our mobile app really launched in November of twenty twenty four within The U. S. And then we’ll have that expand into KFL and Champs in the first part of the year. SLX was really a midyear benefit in The U.
S. From the new program and we’ll add that midyear in EMEA in 2025 as well and then we’ll continue to add doors with key and trending brands like ON and HOKA. So a lot of initiatives that are supporting our comp build, but once we acknowledge there is some consumer uncertainty that we’re seeing in the beginning part of the year. As we think about the marketplace more generally, I think in ’20 coming into 2025 channel inventories do seem to be in better shape. The promotional tenure in DTC specifically seems to be moderating as we come through the year.
And then as we move through the year closer back to school and holiday, we do think the pace of innovation and newness will keep moving in the right direction, which should be supportive of more full price selling.
Ana Adriza, Analyst, Piper Sandler: Okay. That’s terrific. Thank you so much. And can I ask just a follow-up to Mike? On SG and A, I guess, why aren’t you guys seeing bigger cost savings coming through a bit more?
Why aren’t we seeing more SG and A leverage this year? And thank you again.
Mike, CFO, Foot Locker: Absolutely, Anna. So acknowledging a lot of moving pieces in our results, structurally we have made progress, but also acknowledge that 24% SG and A is not supportive of our long term profit targets and we’ll continue to make steps to lower that. Our 25% guide is modestly leveraged excluding the normalization of some incentive comp. And said differently, if you sort of look at what we comped or what we guided coming into 24% versus what we’re guiding into 25% which would have normalized incentives, we are showing some leverage within the SG and A category and you’ll continue to see us work on that going forward.
Ana Adriza, Analyst, Piper Sandler: All right. Well, thank you so much for all the color.
Conference Operator: The next question will come from Adrienne Yih with Barclays. Please go ahead.
Adrienne Yih, Analyst, Barclays: Great. Thank you very much and congrats on the progress. Mary, I wanted to talk about the Nike relationship and sort of, I’ll use the word surprise or for us like during the quarter, that how promotional they got in their own channel, which then created kind of a halo of a promotionality. According to their guidance, they are sort of really taking a lot more gross margin hit in this next quarter. And so I know there’s a delay between the marketplace and their business.
How far along is this big three franchise management through in the system, in the marketplace? And if you can talk about, you’re probably starting to see some of the new innovation coming down the pipeline for fallwinter. So if you can talk about anything that you’re seeing there that is surprisingly exciting. And then really quickly, I have to ask the tariff question. I know the answer, but I got to ask it anyway.
Can you talk about kind of your direct exposure to China, Mexico, Canada? And then in the last iteration of it in 2018, ’20 ’19, how well were you able to negotiate kind of to partner and kind of split some of that cost or passing along? Thank you so much.
Mary Dillon, CEO, Foot Locker: Great. It’s a big two parter question. I’ll start with the tariff question first. And I mean certainly this is a rapidly evolving situation and it’s on consumers’ minds. We’re watching it closely, of course, how this would impact overall costs and pricing for consumers across multiple categories could have impact.
I would say, first of all, the industry has done some good work over the years to diversify portfolio outside of China. So that’s an advantage. And also I would say that our direct exposure is pretty moderate to small. And I’ll have Mike add a little bit more detail on that. But what we’re doing is really just working with our brand partners in communication regularly as the situation continues to unfold.
Mike, do you want to add some more?
Mike, CFO, Foot Locker: Just a couple of specifics. Within our direct business, we do have some modest exposure to China. It’s about half of our private label business. But for Total Foot Locker, it’s really a low single digit percentage of our sales. We also do have some minor exposure tied to fixtures across China, Mexico and Canada.
Pretty modest impact to how we’re thinking about our capital plans this year and our return profile for those investments are still very healthy. So we’ll continue to monitor that as we go.
Mary Dillon, CEO, Foot Locker: Great. And then let’s just Nike, let me step back big picture and then I’ll also ask Frank to add more. But one thing I’m just I’m really proud about the strength of our partnership is we’re focused on our key pillars of basketball, kids and sneaker culture. We have a nice strategic partnership with the clinic and home court with Nike and Jordan brand. And also our weekend activation, I think is a great example of the power of our partnership.
We have a lot of faith in Elliot and his team. The actions brand and overall marketplace and longer term for us as they rebalance our portfolio to make way for the future innovations. And we feel good about within the pipeline, I’d say at a high level. And there’s been some real recent wins like the Black Label path, the Jordan Retro 12, etcetera. So we did return to allocation growth in the fourth quarter.
But now we’re actually really focused on longer term strategies and growth plans between our two companies, which we’re quite excited about. I might just add though that, of course, we’re also leaning into our wider product portfolio, which still remains very much in focus for us. It’s reflected in what our consumers want, which is seeing full loggers, I guess, all things sneakers, we like to say, and we’ve seen double digit growth in the rest of the portfolio led by Adidas, New Balance, ASICS, ON, HOKA, UGG, Timberland. So all drove really positive comps in the quarter. So we’re balancing that well, I would say.
I’ll ask Frank to add a little bit more about NIKE.
Frank, Executive, Foot Locker: Sure. Yes. As Mary said, very happy with the partnership and the level of engagement with NIKE. As we said in the prepared remarks, we did return to allocation growth in Q4 and you saw that read through in our results in the Jordan brand and our launch business. So we really do consider the business to be reset, so to speak.
This year, as you mentioned, we’re really focused on optimizing our merchandise mix and do see sequential top line as well as gross margin recovery with the Nike partnership. We’re definitely supportive of the actions being taken on those big three basketball classic franchises and we’re actually quite bullish on some of the innovation and storytelling that’s coming in the latter part of the year and think that we’ll be net benefactors of that delivery. Meanwhile, very excited about the future in terms of innovation. Nike shots, running construct with PEG Vomero and Structure all looks incredible and the recent launches have been well received by the consumer. Basketball, of course, continues to see diversification.
Jah, Sabrina, Book, Kobe all performing well with consumers. And then the Max Air franchise, again, we’re launching DNA later this week and super excited about our go to market plans globally for that franchise. So we’re very clear eyed and working closely with our Nike partners in 2025 to improve the performance of the business. More importantly, the long term outlook is very strong with our partners there.
Adrienne Yih, Analyst, Barclays: Fantastic. That’s great to hear. Best of luck. Thank you.
Conference Operator: The next question will come from Michael Binetti with Evercore ISI. Please go ahead.
Michael Binetti, Analyst, Evercore ISI: Thanks for taking our question here. So as we look at the guidance you just gave, the at the high end this year, the algorithm is 2.5% same store sales growth with EBIT margins up 60 basis points on that level of comp and SG and A levering 30 basis points. Let me see the first quarter and the first half are below that rate, but is that a rate that you could look at and say this is the high end of this rate you’ve referred to a couple of times as normal. Is that a normal algorithm? Can you do 60 basis points of EBIT on a two to three comp going forward?
And should we think about it for next year for 2026 when the consensus model has I think only 30 basis points of total margin expansion, particularly considering I think with this year’s guidance gross margins will still be more than 200 basis points below 2019 levels?
Mike, CFO, Foot Locker: Michael, this is Mike. We do feel comfortable with that algorithm, especially in the next few years as we’re continuing to recapture some improvement in margin that we owe. We’ll continue to make SG and A leverage as we continue to focus on our cost structure. And I think the other thing that will be supportive of that, Mary alluded to it in her earlier comments is just the health of our store fleet and the work that we’ve done to have a tighter healthier store portfolio. But the high end of that comp range and the 60 basis points of EBIT rate growth, we do feel comfortable with.
Michael Binetti, Analyst, Evercore ISI: And Let me ask you about the stores. You’re going to add you’re going to refresh 300 more this year. We heard the reimagine plan. I’m curious, it seems like they’re fairly low touch, not disruptive refreshes. I think the capital was quite low and you didn’t have to have them closed for long.
Why slow to 300 this year from 400 given the over 2,000 stores globally? And I understand the brand standard math you’re doing as we think about more of the fleet being refreshed and reimagined. But talk about the bottom part of the fleet. What do you think you need for the stores that aren’t eligible for refresh or won’t be converted into reimagine? How do you think about what to do with the bottom part of the fleet to help to contribute more to the overall P and L of the company going forward?
Mike, CFO, Foot Locker: Yes. So Michael, this is Mike. A couple of things tied to that. One is the 800 stores from a refresh standpoint that we’ll have completed by the end of this year are really the store portfolio or the store composition that we feel comfortable can generate the returns that we committed to within our investor profile. As we look forward with the reimagine concept, we do have stores that would have been more costly to do from a refresh standpoint and are in markets or locations that are worthy of the full reimagined scope.
I think as we think through our broader portfolio, one of the things that we’re really pleased with is when you look at I think 2019 versus 2024, we have about 20 points more of our penetration into the higher end AB malls and off mall and we’ve really reduced our exposure into the underperforming or the lower tiered malls. So again, I’d like you to take away from this that we feel really good about the construct of our real estate portfolio, especially with the remaining actions we take to close another set of stores this year.
Conference Operator: Okay, thanks a lot. Appreciate the detail. The next question will come from Janine Stitchter with BTIG. Please go ahead.
Janine Stitchter, Analyst, BTIG: Hey, good morning. Thanks for taking my question. As a follow-up to the real estate piece of things, it sounds like you’re reallocating CapEx to new concepts, refreshes and then pulling back on some of the IT spend. Can you just elaborate on the areas that you’re pulling back in and how you think about the tech investments or IT investments that might be needed over the medium term? Thank you.
Mike, CFO, Foot Locker: Janine, this is Mike. So we are from a technology perspective, very much maintaining the consumer facing side of our technology investments and mobile app and setting up FLX in EMEA, for example. So we’re very focused on that. We do have core technology pieces that we are really moderating or adjusting the timing of that, just acknowledging that we do have these investments that are paying back quicker that we want to lean into. So I would I’d like you to take away from this the reinvestments or the reallocation into more consumer facing and strong cash on cash return projects and an elongation of the technology investments that are more sort of back of house related.
Janine Stitchter, Analyst, BTIG: Great. And then maybe just on WSS, obviously the consumer has been pressured there and you’re pulling back on the store growth. What do you think is the fix there and what would it take for you to reaccelerate the unit growth there?
Frank, Executive, Foot Locker: Yes, this is Frank. I’ll jump in there. So first of all, I think the team has been very focused on the consumer and been sensitive to some of the conditions that they’ve been going through. Prolonged inflation, particularly in the state of California, where more than two thirds of our store fleet lies, but also just some of the recent dynamics going on with the consumer, which has caused them to be even more cautious. So we are doubling down on our value proposition.
So really recommitting to sub-one hundred dollars footwear, really tapping into some of the passion points of global football, but also acknowledging Workwear is a key category and instrument of growth for us. We’re doing a lot of work on the merchandise mix and our pricing strategy and we continue to connect with the consumer at a very local level. So we’re being very prudent as we talked about in terms of capital allocation. So really only one new store in 2025 and our focus is really on improving the profitability and productivity of our existing fleet here while we go through this transitory period with the consumer. Long term, we have a lot of faith in that Hispanic community in terms of what they mean to the marketplace and their purchase power.
And so we’re going to stay the course and work through this.
Janine Stitchter, Analyst, BTIG: Great. Thanks so much.
Conference Operator: The next question will come from Jay Sole with UBS. Please go ahead.
Jay Sole, Analyst, UBS: Great. Thank you so much. Maybe if you could elaborate a little bit on what you’re seeing in Europe and the differences there between Europe and North America, that’d be super helpful. Thank you.
Frank, Executive, Foot Locker: Yes, I can jump in. It’s Frank again. So, definitely, it’s been a challenging macro both from an economic as well as a political environment, very choppy and volatile to say the least. That said, really proud of the work that the team did turning in a 2% comp gain in Q4 and comp positive sales for the year with good market share gains in the footwear category. We do feel that while it was relatively promotional in both footwear and apparel, we are seeing channel inventories clean up and directionally headed in the right direction.
We also, as Mike mentioned, have an aggressive refresh program in 2025. So over two thirds of the refreshes will happen in Western Europe and The UK. So that’s going to significantly improve the productivity as we’ve seen in terms of sell through margins and cash on cash returns in that marketplace. And then meanwhile, we’re working very closely with our brand partners upstream on new ideas in both footwear and apparel to excite the consumer and make sure our inventory stay fresh and our margin and top line continues to move in the right direction.
Jay Sole, Analyst, UBS: Got it. And then can you just clarify what the comments on the guidance for the first half of the year? How should we think about Q1 really in that context? Thank you.
Mike, CFO, Foot Locker: Jay, this is Mike. So I think from the really articulating that we think the first half in general is going to be flattish overall from a profit standpoint to what we had versus last year. In Q2 from a year over year standpoint would benefit from the FLX charge not anniversarying, which is worth $0.09 So that does put some pressure on how we’re thinking about the first quarter.
Jay Sole, Analyst, UBS: Got it. And then is there a difference in the sales growth expectation for Q1 versus Q2?
Mike, CFO, Foot Locker: I would say across if you think about the guidance of the first half being at the lower end and the second half being at the higher end of our guide, we would expect somewhat of a ramp across the Q1 to Q2 within that.
Jay Sole, Analyst, UBS: Got it. Okay. Thank you so much.
Mike, CFO, Foot Locker: Thanks, Jay.
Conference Operator: This concludes our question and answer session. I would like to turn the conference back over to Ms. Mary Dillon for any closing remarks. Please go ahead.
Mary Dillon, CEO, Foot Locker: Thanks, everybody, for joining us today. We remain confident that our strategies and actions are putting Foot Locker on the continued path toward sustainable growth. I want to extend my thanks to the entire Foot Locker team from our global Stryker community to those working on distribution centers to our headquarters for their dedication, passion and commitment every day. We look forward to updating you on our progress next quarter and thank you.
Conference Operator: The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.
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