Foot Locker Has a Nike Problem
Problems at Nike are bleeding into one of the brand’s top wholesale partners: Foot Locker.
The sneaker chain’s stock dropped on Wednesday morning after it reported a sales and earnings miss in the third quarter, in part driven by a weaker consumer and an overly promotional environment. And in a call with analysts, Foot Locker chief commercial officer Frank Bracken noted that among other challenges, the chain was “contending with some more recent softness” from Nike, its largest brand partner, which also impacted Q3 results.
To address a general decline in demand for Nike and Jordan products, the Swoosh has recently set out to reduce the presence of its popular franchises, such as the Air Force 1, Air Jordan 1 and Dunk. At the same time, Nike has utilized promotions to manage higher levels of inventory that have accumulated as a result of slower than expected retail sales. As such, partners like Foot Locker have faced competition from deeper discounts during the fall season this year compared to the prior year.
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“As Nike rebalances their product mix, inventory levels in the near term across the basketball classics franchises we are seeing some short-term negative impacts on our business,” Bracken said. “We are seeing higher promotional levels in the marketplace across both DTC and competition which is having a cascading impact as we need to react and compete with those dynamics headed into the holiday season.”
For the third quarter, Foot Locker revenues were down 1.4 percent to $1.958 billion, short of the $2 billion expected by analysts surveyed by Yahoo Finance. Net loss was $33 million in the third quarter, compared with a net income of $28 million in Q3 the prior year. Non-GAAP earnings per share was 33 cents, which was short of analysts’ expectations of 40 cents. When it came to brand mix, Foot Locker’s percentage of non-Nike brand sales held steady at 40 percent, in line with the company’s goal to have more than 40 percent of its brand mix be outside Nike by 2026. In this realm, brands like Hoka, On, Adidas and New Balance were standouts this quarter.
“We have a nice mix and a broad diverse portfolio of brands,” Foot Locker chief executive officer Mary Dillon told FN in an interview. “And our customers are showing that they like having choice.”
Nike is still Foot Locker’s largest brand partner by a long shot. But despite the slowdown at the Swoosh, Foot Locker executives were confident about the future of its partnership with Nike, which is now helmed by a slew of new leaders including Elliott Hill in the CEO spot.
“We feel really great about our partnership with Nike and our key areas of strategic focus together around basketball, sneaker culture and kids,” Dillon said in a call with analysts, highlighting Foot Locker’s recent efforts to create special Nike and Jordan branded outposts inside some stores to highlight basketball‘s central roll in sneaker culture.
“While we work through some of the short-term pressure on some of the sell-throughs in some of the classics and lifestyle running, we are seeing that rightsize throughout the quarter,” Bracken said. “And as we work into 2025, we feel that there’ll be a better demand balance.”
