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Foot Locker's New Vision

Thomas Paulson
Mar 24, 2023
Foot Locker's New Vision

Foot Locker's incoming CEO Mary Dillon presented her vision for Foot Locker during a Capital Markets Day (CMD) event. Given her success at Ulta, Wall Street is giving her the benefit of the doubt that she can restore Foot Locker to a sustained grower with stronger margins (greater than 10% from below 7% at present) and returns (ROIC to mid-teens from sub-10%). That combination would allow for a higher valuation multiple and greater earnings.

The CMD event was not just for investors, but for the athletic brands as well. To that audience, the message was that Foot Locker is a trusted partner for brand-enhancing and brand-accretive growth. That proposition is bolstered by new investment to transition Foot Locker to a modernized omnichannel retailer with convenient (i.e., off-mall), newly updated, and sharply staffed stores. Over the past year, we have written about how the performance athletic category has become highly competitive with HOKA, On Running, lululemon, and incumbents New Balance and Brooks producing solid strides and putting Adidas’ and Nike’s run/athletic apparel businesses under pressure. This battle of the brands and the unprecedented amount of newness hitting the market puts retailers in a stronger position with large incumbent brands like Adidas and Nike, and allows retailers like Foot Locker to reposition themselves and improve their businesses. Dillon is seizing that opportunity.

  • 2023 is to be a reset year for Foot Locker with comparable-store sales expected to be down -4.5%, square footage down -4%, and profits down 30%. However, from that base, the company expects to drive a +3 comp, +5% square footage growth, and low- to mid-twenties earnings per share (EPS) annualized growth for the following three years (2024-2026).
  • Below are four slides from the CMD presentation that best show Dillon’s vision for Foot Locker, which is to recast its store portfolio to better capture market share in female casual sneakers, performance footwear (On Running, HOKA, Brooks, etc.), and the sub-$100 market (Champs and WSS), while also holding onto its kids, basketball culture, and sneaker-geek businesses. From a footwear brands perspective, Dillon sees an opportunity to double its non-Nike business.
  • In terms of reshaping the store portfolio, that includes adding 300 new concept locations and closing over 400 mall locations. The reshaping will boost the off-mall store mix from 35% to over 50%. During 2023, 125 Champs locations will be closed.
  • Dillon also wants to increase the “digital business” from $1.5B in sales to $2.5B over the next three years. To achieve that goal, it intends to improve its regional DCs to allow for mostly 2-day delivery to customers and stores and invest $300m to create a fully modernized omnichannel architecture and supply chain.  

Source: Foot Locker Investor Day Event and Q4 2022 Earnings Slides

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Thomas Paulson

Director of Research and Business Development,

Thomas Paulson spent 20 years as a Wall Street analyst and a member of asset management teams at AllianceBernstein and Cornerstone Capital, representing top-50 ownership positions including Target, Home Depot, Nike, Amazon, Google, and many more. He brings consumer related expertise and knowledge of enterprises in retail, CPG, financial services, telecom, and entertainment.

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