Foot Locker (FL): Significant momentum in digital sales provides optimism in challenging times

Shares of Foot Locker Inc. (NYSE: FL) were up 6% in afternoon hours on Monday. The stock has gained over 9% in the past three months. The company reported strong results for the second quarter of 2020 last week.

Sales rose 17% year-over-year while comparable store sales grew 18.6%. Adjusted EPS increased 7%. While the company faced store closures due to the pandemic and social unrest during the quarter, its digital sales delivered strong growth. The direct-to-consumer channel has posted higher sales increases in the first and second quarter of 2020 than seen over the past three years.

Digital channel performance

Over the past three years, direct-to-consumer (DTC) channel sales have increased steadily. Foot Locker posted an 8.5% year-over-year increase in DTC sales in 2017 followed by a growth of 10.5% in 2018. In 2019, the growth rate of the DTC channel slowed down slightly but sales rose nearly 5% year-over-year. DTC made up 16.1% of total sales in 2019.

However, in the first quarter of 2020, as the COVID-19 pandemic forced stores to close down and consumers moved to online shopping, the DTC channel saw a 13.1% growth in sales and comprised nearly 31% of total sales.

In the second quarter, the direct-to-consumer channel witnessed tremendous growth with a 173% jump in sales. The DTC channel made up 33.2% of total sales. The growth was driven by strong product assortments and higher promotional activity.  

Comparable sales in the DTC channel has increased steadily over the past three years going from an increase of 6.9% in 2017 to 12.3% in 2018. Comp sales rose 5.6% in 2019. In the first quarter of 2020, comparable sales rose 14.3%.

In the second quarter, comp sales were down in the high single digits in May while in June and July, comps saw high double digit gains. The footwear category was the strongest, up double digits, fueled by momentum across men’s, women’s and kids. Apparel also saw robust mid single digit growth. Accessories fell double digits due to softness in bags and shoe care.

Foot Locker has been investing in several key technology initiatives. The company rolled out new websites in nine European countries that built off the modernized platform launched in North America last year. These websites are more compatible with the company’s updated ecommerce systems.

The company integrated a new payment platform globally which supports a vast number of payment options, and also rolled out a new order management system that improves functions such as inventory management and merchandising. These initiatives are expected to help drive growth going forward.

Store fleet

Last quarter, Foot Locker’s sales from its stores fell 53.7% year-over-year. In the second quarter, store sales dropped 7.6%. Although 90% of the global store fleet is open, the company still has around 260 stores temporarily closed due to safety protocols as well as due to impacts from the social unrest.  

Click here to read the full transcript of Foot Locker Q2 2020 earnings call