Foot Locker shares tumbled in premarket trading Friday after the retailer said it expects revenue to drop in 2022 as it anticipates it will no longer be able to sell as many products from its top vendor, Nike.
Beginning in the fourth quarter of 2022, Foot Locker said no single vendor will represent more than 55% of its supplier purchases, compared with 65% in the year-ago period. On an annual basis, purchases from Nike won’t exceed 60% of total purchases this year, it said, down from 70% in 2021 and 75% in 2020.
Foot Locker said the adjustments reflect the accelerated shift by Nike to sell more of its sneakers and apparel directly to consumers. In turn, Foot Locker said it is ramping up its own direct to consumer efforts, by launching a number of private label brands including in clothing.
Sneaker brands such as Nike and Under Armour have been very clear about their efforts to reduce reliance on wholesale partners. By selling through their own brick-and-mortar stores and websites, these brands hope to reap higher profit margins. That has forced wholesalers, such as Foot Locker and Dick’s Sporting Goods, to launch more of their own lines.
Foot Locker shares were recently falling more than 16% in premarket trading. Its stock is down about 5% year to date.
Foot Locker’s net income for the three-month period ended Jan. 29 shrunk to $102 million, or $1.02 per share, from $123 million, or $1.17 a share, a year earlier. Excluding one-time items, it earned $1.67 per share, topping analysts’ estimates for $1.44, based on a Refintiv survey.
Sales grew 6.9% to $2.34 billion from $2.19 billion a year earlier. That beat expectations for $2.33 billion.
Same-store sales rose 0.8%, it said, with apparel revenue significantly outpacing footwear.
More concerning to investors was the footwear retailer’s bleak outlook for 2022. Foot Locker said Friday it expects sales to fall by 4% to 6% this year, and same-store sales are projected to decline by 8% to 10%.
Analysts had been looking for year-over-year revenue growth of 2%, according to Refinitiv.
Foot Locker also said this year it will be lapping a period where consumers had extra stimulus dollars in their pockets to spend.
The company said Friday it plans to implement a cost savings program, which it will kick off shortly, to cut back on about $200 million in expenses each year. Foot Locker’s board also approved a new $1.2 billion share repurchase plan.
Find the full financial press release from Foot Locker here.