Foot Locker, Inc. (NYSE:FL) was the disaster of the day on Wall Street for Aug. 18, the shares falling 20% in premarket trading after results that disappointed the street.
The company reported same-store sales that were 6% below the numbers of a year earlier, and net income of $51 million, 39 cents per share, was less than half the $127 million, 94 cents per share recorded a year ago.
CEO Richard Johnson blamed poor sales of some new shoes and a shortage of innovative inventory for the problems, saying sales will be down 3%-4% for the full year. He claimed his team was working quickly to adjust to “a changed retail landscape.”
All that set off panic among retail investors, and investors in retailers. The mall is dead, they cried. Stores are dead. It was similar to what happened to Dick’s Sporting Goods Inc (NYSE:DKS) early in the week — a sudden, sickening loss of value with no response from bargain hunters.
Just the Shoes?
The fall was made worse by the optimism which had preceded the results.
InvestorPlace writers were among those pounding the table for the stock recently. Luke Lango called it an opportunity for contrarian investors in June. In February, Hillary Kramer had called Foot Locker a “no-brainer” buy.
Investors had already tried hard to swallow the company’s excuses for its poor first quarter, a delay in tax refunds that left earnings short of expectations. Shares that had been priced near $80 at the start of the month dropped to below $60, and were still bouncing down to the Aug. 17 close of $47.70 before the latest release. They opened today at $36.55.
It’s hard to see how a company could fool the smart people at Morgan Stanley, which upgraded the stock earlier in August, and Ms. Kramer unless something fundamental is happening experts didn’t expect.
Death of the Middle-Class Shoe Cult Hits FL Stock
Stores like Foot Locker and suppliers like Nike Inc (NYSE:NKE), which has also had a rough August with shares that dropped 4% overnight after the Foot Locker numbers came out, have depended on middle-class athletic aspiration, the hope that with the right equipment a kid could become the next LeBron James, or at least pretend to that.
Going to the mall to get the latest “kicks” now looks terribly old-fashioned. Kids would rather be hip-hop artists than basketball stars, and companies that bought the trend like Adidas AG (ADR) (OTCMKTS:ADDYY) have done well, their shares up 42% so far this year. The whole Foot Locker experience suddenly looks dated.
Then there’s the continual split in the middle class, the growing distance between the upper-middle class that can make its dreams come true and a lower-middle that can only dream. These people used to meet at the local shopping mall. Now those with means just order online while those without go to thrift stores.
The Bottom Line for Foot Locker
The bottom line here is grim.
What the fall of Foot Locker, the suburban shopping mall, and even its out-parcels, is telling us is that the middle class is being torn apart, that the economic center cannot hold for much longer.
Usually such a story would be a sideshow, but there are growing indications this is the real economic story. If it is, it’s not just Foot Locker that’s in trouble, but every stock in your portfolio. This may be a good time to raise cash.
The panic at the mall could easily spread to the street. Oceans rise, empires fall, meaning recoveries, like anything else, can have a sell-by date, and bear markets are a real thing.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this article.