U.S. Debt Limit Debate Stalls

Last time we talked about shoe retailer Foot Locker, it was in a precarious position. However, executives were optimistic things were turning the corner. Unfortunately for investors, they were not able to deliver on that optimism during the first quarter.

The company’s adjusted earnings per share (EPS) of $0.70 missed the $0.81 expected. Revenues of $1.93 billion were also below the $1.99 billion expected. 👎

The retailer said it needed to aggressively promote and discount merchandise in order to clear high inventory levels. Retailers far and wide have said discretionary purchases continue to suffer in the current environment. And shoes and clothes certainly fall into that category. 🛍️

Despite the current macroeconomic environment and lower tax refunds, executives had hoped demand would snap back. However, as the quarter went on, it became clear that optimism did not match reality. As a result, executives cut their guidance aggressively. ✂️

Here are their new full-year estimates vs. previous expectations:

• Sales -6.5% to -8% YoY vs. -3.5% to -5.5%
• Comparable sales -7.5% to -9.0% YoY vs. -3.5% to -5.5%
• Non-GAAP earnings of $2 to $2.25 vs. $3.35 to $3.65
• Gross margins of 28.6% to 28.8% vs. 30.8% to 31%

With the many headwinds facing consumers currently, it’s going to be a difficult environment for Foot Locker to perform. It’s expecting to continue the promotional activity to bring in shoppers and reduce inventory. That’s going to weigh on margins and earnings for the foreseeable future. 🔻

Longer-term, the company hopes to continue diversifying its brand mix away from Nike. This quarter that mixes outside of Nike was 35%, up a couple of points since the last year. They’re still pushing to get that number above 40% by 2026. It’s also working to rationalize costs to preserve cash until the environment improves.

However, what’s missing is a clear strategy on how it’s going to boost sales. As a result, $FL shares plummeted 27%, failing to get a grip among investors. 😬

We last spoke about Deere & Co. in February, when shares were trading just below all-time highs. Since then, prices have fallen roughly 15%, and today’s results failed to get it back on track.

The world’s largest farming equipment maker reported earnings per share of $9.65 on revenues of $17.39 billion. Both numbers topped the $8.58 and $14.89 billion anticipated by analysts. 💪

Here’s how that 30% YoY revenue growth broke down:

• Production & precision agriculture sales +52.9% YoY to $7.82 billion
• Small agriculture & turf sales +16.1% to $4.15 billion
• Construction & forestry sales +22.9% to $4.11 billion

Executives remain optimistic about its full-year results. They raised guidance for net income from $8.75 to $9.25 billion to $9.25 to $9.50 billion. They also lifted its Small Agriculture & Turf outlook from flat to +5% and its Construction & Forestry from up to 15%. 📈

They referenced favorable market conditions and an improving operating environment in their outlook. The company and other industrial giants have struggled with supply chain issues. However, this quarter many of these companies these conditions remain far from optimal but are improving.

Higher pricing has been a major tailwind for Deere, but as inflation subsides, some analysts are concerned that could weigh on results. Additionally, they noted some investors may think it’ll be hard for things to get better for the company from here. If a major order backlog and record results can’t push the stock up, maybe many of those bullish expectations are already priced in. 🤔

Whether that’s true remains to be seen, but that’s how the market is currently acting. $DE shares initially rose 7% but closed down 2%. 🔻