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: Foot Locker says supply-chain constraints will be a problem into next year, but inventory levels are ‘ready’ for strong holiday demand

Foot Locker Inc. said Friday that supply-chain troubles will persist throughout the holidays and into next year, and the stock tumbled, even as the athletic shoe and apparel retailer tried to dispel investor concerns by saying it had the inventory to support strong consumer demand.

The company reported ahead of the open fiscal third-quarter adjusted profit, sales and same-stores sales that all rose above analyst expectations, and cost of sales that fell to boost gross margin by 380 basis points (3.80 percentage points). In addition, the full-year outlook for adjusted earnings per share was raised to $7.53 to $7.60 from $7.00 to $7.15.

Inventory rose 9.1% from a year ago to $1.30 billion, which included the inventory from the acquisition of Eurostar Inc. (WSS), which was completed in September.

Despite the upbeat results and guidance, the stock
FL,
-11.92%

tumbled 11.4% in afternoon trading, on track for the biggest one-day selloff since it slid 14.2% on March 12. The stock has now retraced about two-thirds of the 20.7% month-to-date gain through Wednesday’s close.

Chief Financial Officer Andrew Page said on the post-earnings conference call with analysts that he believes the company is “well positioned” for the holidays given “strong customer demand and inventory levels to support that demand,” even as supply-chain issues are expected to continue.

“Like other companies, we expect global supply chain constraints, including factory shutdowns and port congestion to continue to be a headwind through the fourth quarter and into 2022, as such we remain appropriately cautious in the near term,” Page said, according to a FactSet transcript.

Chief Executive Richard Johnson looked to assuage investor concerns by saying on the call that the company has been “well aware” of the supply chain challenges, and that management is making every effort to manage the “fluid” situation.

He said that after a down quarter for inventory in the previous quarter, the target for the third quarter was “to get well positioned” for the holidays.

“So working with our vendor partner, working with our [supply chain team] and the logistics team…we were actually able to get ahead on the inventory,” Johnson said. “So again, I feel good about how we’re positioned for the fourth quarter and clearly consumer demand remains strong.”

Foot Locker’s stock has rallied 26.1% year to date, while the SPDR S&P Retail exchange-traded fund
XRT,
-2.53%

has soared 57.7% and the S&P 500 index
SPX,
-0.14%

has advanced 25.1%.

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