Footwear and apparel retailer Foot Locker (NYSE:FL) missed Wall Street’s revenue expectations in Q4 CY2024, with sales falling 5.7% year on year to $2.25 billion. Its non-GAAP profit of $0.86 per share was 19.7% above analysts’ consensus estimates.

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Mary Dillon, President and Chief Executive Officer, said, "We delivered fourth quarter results above our previously revised expectations, as our investments and execution drove positive comparable sales and meaningful gross margin improvement compared to the prior year. Reflecting on 2024 overall, we made significant progress in elevating our in-store experience with our new Reimagined doors and store refresh program, enhancing our digital and mobile capabilities, expanding engagement with our FLX Rewards Program, and leaning into brand building through compelling campaigns and partnerships. Our return to positive comparable sales growth, gross margin expansion, and positive free cash flow in fiscal 2024 serve as proof points that our Lace Up Plan is working."

Company Overview

Known for store associates whose uniforms resemble those of referees, Foot Locker (NYSE:FL) is a specialty retailer that sells athletic footwear, clothing, and accessories.

Footwear Retailer

Footwear sales–like their apparel counterparts–are driven by seasons, trends, and innovation more so than absolute need and similarly face the bigger-picture secular trend of e-commerce penetration. Footwear plays a part in societal belonging, personal expression, and occasion, and retailers selling shoes recognize this. Therefore, they aim to balance selection, competitive prices, and the latest trends to attract consumers. Unlike their apparel counterparts, footwear retailers most sell popular third-party brands (as opposed to their own exclusive brands), which could mean less exclusivity of product but more nimbleness to pivot to what’s hot.

Sales Growth

A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years.

With $7.99 billion in revenue over the past 12 months, Foot Locker is a mid-sized retailer, which sometimes brings disadvantages compared to larger competitors benefiting from better economies of scale.

As you can see below, Foot Locker struggled to increase demand as its $7.99 billion of sales for the trailing 12 months was close to its revenue five years ago (we compare to 2019 to normalize for COVID-19 impacts). This was mainly because it closed stores and observed lower sales at existing, established locations.

This quarter, Foot Locker missed Wall Street’s estimates and reported a rather uninspiring 5.7% year-on-year revenue decline, generating $2.25 billion of revenue.

Looking ahead, sell-side analysts expect revenue to grow 3% over the next 12 months. While this projection implies its newer products will fuel better top-line performance, it is still below average for the sector.

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Store Performance

Number of Stores

The number of stores a retailer operates is a critical driver of how quickly company-level sales can grow.

Foot Locker listed 2,410 locations in the latest quarter and has generally closed its stores over the last two years, averaging 6.1% annual declines.

When a retailer shutters stores, it usually means that brick-and-mortar demand is less than supply, and it is responding by closing underperforming locations to improve profitability.

Same-Store Sales

A company's store base only paints one part of the picture. When demand is high, it makes sense to open more. But when demand is low, it’s prudent to close some locations and use the money in other ways. Same-store sales provides a deeper understanding of this issue because it measures organic growth at brick-and-mortar shops for at least a year.

Foot Locker’s demand has been shrinking over the last two years as its same-store sales have averaged 2.7% annual declines. This performance isn’t ideal, and Foot Locker is attempting to boost same-store sales by closing stores (fewer locations sometimes lead to higher same-store sales).

In the latest quarter, Foot Locker’s same-store sales rose 2.6% year on year. This growth was a well-appreciated turnaround from its historical levels, showing the business is regaining momentum.

Key Takeaways from Foot Locker’s Q4 Results

We enjoyed seeing Foot Locker beat analysts’ gross margin and EPS expectations this quarter despite a revenue miss. On the other hand, its full-year EPS guidance missed. Overall, this was a mixed quarter. The stock traded up 2.4% to $17.78 immediately after reporting.

Is Foot Locker an attractive investment opportunity at the current price? When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it’s free.