Foot Locker gets kicked as retail continues its rut 5/19/23

0:01Right now and fast in the shoe dog house shares of footlocker plummet dropping more than 25 % on an earnings miss and an outlook that reeked more than a teenager's sneakers after a long day of playing hopes. Consigual Mary Dillon, well, more than visual, it's snow. Weather the stock storm, we'll debate that. Plus, Japan's stock market doing something it hasn't done since. The Simpsons first hit the airwaves. Pretty woman ruled the box office and Wilson Phillips topped the billboard charts. You'll have to hold on to find out why we're going into this Tokyo way back machine. And later, Tesla's revved up weak.

0:36We'll take a look at why the stock charged nearly 7 % higher. Is this the start of a summer surge or just a one-week wonder? I'm Melissa Lee. This is Fast Money Live from the NASDAQ Market Sight. On the desk tonight, Karen Feinerman, Tim Seymour, Bono and Eisen, and Julie Beal. And we begin with a crushing day for Foot Locker, the stock plunging 27 % on scary guidance from this retailer, telling investors they are seeing a serious consumer slowdown, forcing them to use aggressive promotions to clear inventory. They also flagged retail theft for part of the drop in their margins. But Locker's now expecting sales to fall as much as 8 percent for the year.

1:11CEO Mary Dillon talked about the challenges this morning on Squawk on the Street. We skew more middle and lower income where the pressure is higher. I mean, the facts and the math are that pressure is going to be different depending on the household level of income. So again, I think we're seeing more pressure. I also am seeing some really strong signs already with improvements that we're doing in our digital experience and our loyalty program, that we are putting more things in our control to continue to drive that demand as we go forward. Footlocker is a name that Karen Feinerman has liked so much that she put it in her 2023 acronym.

1:46Yes, yes. And now what? Well, now, I mean, very, very difficult day, obviously. There was a lot to hate about this earnings release. You know, Mary Dillon talked about softer demand. Really, this was a combination softer demand and the discretionary spending by the consumer getting weaker. But also it was promotional for them. So they were just the revenue miss wasn't that bad. The bottom line miss was terrible. And that's they were just as promotional as they could be. And I don't think that's abating at all, which is why the rest of the guidance for the year was so bad. One other thing, they're not going to be giving guidance going forward.

2:24They didn't want to just cut that cold turkey. So they did give guidance for the rest of this year, which was dismal, absolutely dismal. They cited theft like others have, but that wasn't really the problem. It was a promotional activity and it didn't sound like traffic was really getting better. The question is like it was getting worse. I didn't hear that it was getting worse. I didn't hear that it was getting better, though. And so it's troubling that this was a very big change from the investor day. On the other side, there is another side of this, which is at their investor day in March, they talked about their multi-year plan, which is to get to$10 billion in sales with a 10 percent EBIT margin.

3:08That gets you to$8 a share of earnings. There was nothing that she said today that made her temper that at all. It was an opportunity to do that if she wanted, I think. She may end up doing it later. But if she's remotely close to that, remotely, then the stock is a buy here. We'll see how the rest of the year progresses. I think, I mean, this is a kitchen sink quarter. I hope, I really hope it was a tremendous kitchen sink quarter. You know, I'm here for the Mary Dillon turnaround. And so I'll stay here, sad for a while. I think that we'll see next quarter how it goes. I think that this is a combination read into the weakness at Foot Locker, the too much inventory at Foot Locker, and a more broad discretionary spending being hindered.

4:00Right. I mean, if you think about when they last gave guidance, which was March, you presume that things got worse. Oh, they did. Right. between then and now. And so, Tim, then you start worrying about the consumer overall, Foot Locker specifically, but also more broadly in terms of that sort of cadence to the quarter. I agree. By the way, some way before the end of the show, I want to do a Would You Rather on Wilson versus Phillips because I think there's a lot of star power in there. There's three people, actually. And if you can name the famous parents of the Wilson-Phillips crew. Brian Wilson is on the show.

4:31All right. So but the famous the famous, you know, other story at Foot Locker is Nike. Right. And if you think about what Foot Locker, I think, really has to overcome is that Nike relationship. Seventy percent of sales needs to move to 50 to 55, which is what has been talked about from the CEO's chair. And Karen's hit all the big issues. It's a margin compression, 400 basis points significantly lower. But the inventory didn't get that much better. It went from, you know, 30 percent last quarter to 28 percent quarter. And on a relative basis in this environment, when we've seen every other retailer get their house in order on inventory very quickly, this concerns.

5:06And it concerns. So the questions we were also asking on our calls and throughout the day, is this just a footlocker story or is this a broader discretionary in retail story? And, you know, this isn't too controversial. It's a bit of both. I think the lower end consumer is suffering more. And I think in that sense, this is where footlockers hit harder than others. Yeah, I'm with you. It is a bit of both, but I do think there are some things here that are very specific to the Foot Locker story. You mentioned the reliance on Nike, right? You talk about that inventory purge. If you remember, it was only six months ago or so where Nike kind of went through their own inventory build, purge, repositioning as a larger DTC presence, all of which I think do put a bit of pressure on Foot Locker.

5:44But as I said, they are looking to move from that 70, 75 percent mix to more of a 50, 55 percent mix. With that said, I think there's levers that Nike and some of the other vertically integrated manufacturer retailers have to pull that a Foot Locker, a wholesaler isn't going to have to pull. And that's why, yes, I do think it's going to be both because of the position of the consumer. But I think this is specific to a Foot Locker because they don't manufacture. They're kind of at the mercy of Nike and other manufacturers to provide them inventory. and for them also to get that inventory mix right and the seasonality right as they look to push inventory out to consumer.

6:22Yeah, I mean, that was one other silver lining that non-Nike penetration, that did increase, so they are moving away from that reliance to Nike, Julie. But in terms of, I mean, this is sort of the story of the department store, right? I mean, do you have that power if you are selling other manufacturers' goods? And so Foot Locker is like a department store for shoes. Exactly. That's exactly how I would liken it to. You know, the specialty retail, when it started to really take off, when Gap started to be this behemoth, it was really, really difficult for the department stores to compete. They just don't have the level of control and site and line of site into their inventory.

7:00And that makes running that business very, very difficult. And that's exactly what's happening here right now with Foot Locker. And it's very hard to replace something like a Nike, right? It's just the level of brand positioning that Nike has really speaks to why this business is struggling so much. But I think, you know, Mary really has her hands full with this business. And you look at what's happening with traffic. That is generally the lifeblood of the business. And seeing it do this, do this, go so poorly is really, really concerning. Yeah. I mean, how you impute this onto some of the other manufacturers, I mean, they said there was weak demand for boots.

7:35So we saw VFC move lower because the presumed weakness for Timberland. We saw Decker's. Decker's Sporting Goods, too. I mean, if you think about it, again, also a department store for sporting goods. Yeah, exactly. So Nike, if non Nike penetration is up, Tim, does that mean that Nike sales are down? Well, Karen, I were just talking about this for the show. I mean, some of Foot Locker's issues are that they had a fantastic environment to operate on in covid. And so they didn't have to be promotional and discount. This is Karen's quote. But when I think about Nike, I think the pull forward there, too.

8:05I just I realize that, you know, and I'm short Nike. I'm short Nike at 120 and I don't think the stock's going to get away from me. I love the company and it's kind of tactical and, you know, it's I'm not betting the farm. I do think it's going lower. And I do think that the multiple in this environment has to go lower. And I think the discretionary spend, we've only just started to see it. So I think if you look at that chart on Nike, I think you're going to get it down closer to 100. Yeah. Karen, what do you think? Well, I think this this quarter, I think that promotional environment just really will continue.

8:35They just have to fix this. It's disappointing that they hadn't. You know, we saw Walmart, Target do a better job of it. That lower consumer is really sort of, we didn't see it as much in Target as I thought we would, looking back now with this consumer here. It's interesting, in terms of the Nike mix, they did talk about On and Hoka and New Balance is having a renaissance. Performance running shoes did well. Well, they had Champs. Their Champs banner was a disaster. Down, I don't know, 34%, something like that. I'm really hoping this is a kitchen sink. If not, this is terrible. How many more quarters do you give Mary Dillon?

9:19Three. Three? Yeah. That's a pretty long leash. That could be a lot of pain. I mean, that's what he said. Well, there's only two more days like this we would need, right? Why only three quarters? Well, she's already had two. Yeah, but we're talking about a company that's got to have major format shift. I mean, they're going out of malls into, you know, non-traditional. She doesn't need to get to the finish line in two. In order for the stock to turn. She needs to be making progress. This is not, you know, this$10 billion and 10 % EBIT is not a. Not that big a deal. But it's not that 2024 goal.

9:51Right. It's further out than that. So if she's making progress, more time. But you're going to can her after three quarters. There's already been two. I'm not. If she's making progress, which is different. If there's no progress, it also, you know, depends on the backdrop of the world. Right. Right. Of course. The shift away from Nike is going to be challenging. Yeah. Let's get to regional banks. Rough end to a strong week for regional banks. The carry had been pacing for 10 percent gains this week. But then just a few hours ago, the banks reversed major gains. That's when reports surfaced. Treasury Secretary Janet Yellen told bank executives in a meeting yesterday that more mergers could be necessary.

10:24The implication being that there will be more troubled banks that will need to merge. Julie, should we still be concerned here? Yes, we should always be concerned because, you know, most recessions that happen are much, much worse if they are preceded by a financial crisis. So, you know, I continue to not be interested in banks, but that's just a long term view I have. But I agree that, you know, that kind of that kind of positioning from Janet Yellen is absolutely concerning and something you need to pay attention to. I worry a lot about the financial health, particularly. We all know about the commercial real estate, but I think the shadow banking is even more concerning, and we have no visibility into that.

11:02I'm 100 % with Julie here in terms of kind of establishing a position in your portfolio. But on the counter side, I really do think these banks present a wonderful opportunity if you're willing to trade around them. Because, one, I think, look at the positive news that we've had this week out of the White House, out of Yellen, whether it's like the debt ceiling crisis and them essentially saying, listen, we see actually a path forward where we can get this resolved in a week or two. OK, and you see, you know, beta get bought and you're seeing the swings, particularly in these regional banks. And then you drill down into like the percentage of book value, a tangible book that they're trading at.

11:36And essentially all of the the washout, the liquidation is essentially priced into these. And so when you get these sentiment swings, I really think they're going to drill down on tech, beta and these type of names, which will present an opportunity for you to buy and then sell and then kind of reenact that trading in the short term. How about the flip side to just the trade? How about a long term investment in these banks, Tim? Do you think five years from now we're going to say I should have bought the KRE? Yep, I do. And I think this is a case where an ETF is that diversified portfolio that gives you thematic exposure.

12:07Is it now? You know, I don't know. I do think and I said valuation wise attractive now. They've been priced for recession and you can't analyze capital flight risk. Coming up, the biggest market gains may be halfway around the world. The chart master tackles what is next for regions outperforming the U.S. And later, Elon Musk may be having his best week of the year following a CNBC interview, a new Twitter CEO announcement. Tesla stock surging more than 7 percent. Can he keep charging ahead? We'll debate that when Fast Money rolls on.

12:46Welcome back to Fast Money. stocks overseas soaring in 2023. Today, Germany's DAX touching an all-time high as a broader European stock 600 surged to levels not seen since February of last year. And in Japan, the Nikkei eclipsing its 2021 high, now trading at levels not seen since 1990. So how should you play the strength overseas? Let's go around the globe with the chart master, Carter Braxton Wirth. Carter. So that's right. So the third and fourth biggest economies in the world, Germany and Japan, Great allies now, two belligerents of the Second World War, are prospering, and their indices are both back at former highs.

13:21The decision, of course, whether you do allocate capital overseas as a U.S. investor, holding aside currency and holding aside what you think about their prospects as countries, you have to contend with weightings. What we know is that industrials and consumer discretionary are the biggest single weights in both the Nikkei and in the DAX. And so it's a technology or anti-technology bet. Let's look at a few charts. The first is the MSCI All-Country World Index, X the U.S., relative to the MSCI All-Country World Index. So what you're looking at is a chart that just goes down to the right. And there's that brief period where you outperform, and that's a function of the dot-com boom and bust.

14:12So that all things held equal, it's the technology waiting that has allowed America, of course, and the innovation to outperform both the DAX and the Nikkei. But looking at those two in particular, and let's do that now, the here and now chart, we've just, this is the long-term chart, excuse me, of the DAX. And that's, talk about up and to the right. I mean, godlike, gorgeous. But again, an underperformer relative to the U.S. The here and now chart in the DAX is we're just back, and you mentioned this, Melissa, right back to the former high. So in principle, before exceeding a high, you typically back and fill at the high.

14:46Let's look at the Nikkei. We know that the Nikkei had its peak in 1989. They were acquiring things like Rockefeller Center and Pebble Beach, appeared on Time magazine as the land of the rising sun. And, of course, that was the end of it, a classic magazine cover kind of stuff. I do think ultimately it will get back to the high as well. But the circumstances similar to the DAX, the here and now chart, final chart, we're right at the former high. And so as a matter of sequencing, before you really do break out, when you quickly move to a former high, you contend with it, which is to say you back and fill or back away.

15:19So there's still time to determine whether or not this will break to new highs. I think they will. And I think one should have exposure. But on a long term basis, it's pretty tough to beat America. Emerging market specialists and international. We had a show once called Trading the Globe. I mean, it was exciting. How much of it do you think is this anti-technology bet going on versus we think the prospects for Japan and Germany look better relative to the prospects here in the U.S.? I love that. I love him pointing that out because I just think that international stocks have underperformed U.S.

15:51stocks for a long time because of the lack of technology. There are no benchmarks. Look, what are you going to invest in in Germany? Siemens? So it's a great call. If you look at the inflection on the relative underperformance, most of these international indices pivoted in late 2022 to being straight down, not over a couple of years, over 10 years. And whether this is sustainable or not, I don't know. But look at Japan. Look at the euro stocks, 50. The reason why this is sustainable and specific, though, to Japan is there are standards on the TSE that have actually forced higher ROEs for Japanese companies.

16:22You have deflation is largely over. And the worst performing major currency in the world over the last five years was the Japanese yen. Currency strengthening as an investor in dollars is going to help you if you own Japanese stocks that are imputed back to dollars. So they'll outperform if their currency is actually outperforming. And you'll see it outperform. I think the yen, I think the dollar is going lower, not by tens of percents, but I think the yen has stopped going lower against the dollar. All right. Carter, thanks. See you in Options Action. We've got a news alert related to the DOJ winning its antitrust lawsuit aimed at breaking up the Northeast Airline Alliance.

16:56Phil Oboz got the statement now from JetBlue. Phil. Melissa, not surprisingly, JetBlue out saying that it is disappointed with the decision. Here is the statement from JetBlue we received just a few minutes ago. It says, we are disappointed in the decision. We made it clear at the trial that the Northeast Alliance has been a huge win for customers. Through the NEA, JetBlue has been able to significantly grow in constraint Northeast airports, bringing the airline's low fares and great service to more routes than would have been previously possible. Otherwise, we are studying the judgment in full and evaluating our next steps as part of the legal process.

17:34I should point out, in the past, when we have talked with representatives from JetBlue and American, they have indicated or had indicated that they would likely appeal if they were to lose this judgment. Though you can see from JetBlue's statement, they have not made that decision yet. And Melissa, we have not yet heard from American Airlines. Back to you. All right, Phil, thanks. Phil LeBeau. Still ahead, tech finally recouping its dot-com bubble losses 20 years later. How to hedge the group's next move? That's coming up in Options Action. But first, what a week for Tesla. More ads coming back to Twitter.

18:03Elon showing an openness to advertising for Tesla. Lots of buzz from his newsmaking interview with David Faber. The stock surged more than 7%. Can the good vibes last? We'll break that down. And throughout May, CNBC is celebrating Asian American and Pacific Islander heritage. Here's a founder and CEO of Poshmark.

18:23When I think of my Asian heritage and I think about how I grew up in a country where there's a lot of people, you know, India is a country of a billion people. Asia is one of the largest continents with a lot of population. You really have to work hard to distinguish yourself and stand out. And so so that real focus on working hard and and at the same time working with everyone, but also carving out a place for yourself is something I learned very early.

19:03Welcome back to Fast Money. Tesla is our chart of the week. The stock rallying more than 7 % at the shareholder meeting. Elon Musk signaled an openness to advertising Tesla to boost business. He stressed that with the new CEO at Twitter. He will spend less time at the social media company. And he also added in his interview with David Faber that he's going to say what he feels like saying it even if it costs him money. It costs his shareholders money. Seems like a Teflon kind of week for Tesla. Even a headline about offering discounts today on some Model 3s in the U.S. didn't dent Tesla's gains.

19:35They also talked about a Model 2, which a lot of investors were really looking toward. This seems like an interesting jumpstart here for a possible. I knew that. I knew that wouldn't fly. I mean, well, I was going to yawn, but I don't want to do that on television. 7 % move. Since when did we talk about 7 % moves in Tesla? Right. We're talking about like the beta of beta names. No. And I really think it depends on when in the time series you really want to look at this. So if you want to look at it over the week, yeah, sure. 7%. You want to look at it year to date. What are we, 43, 45 percent?

20:06But just go back to mid or fall 2022, and we're still essentially half of where we were. They still have got to get what they're going to do with pricing underway. Are they going to look at it every week? Are they going to look at it every day? Are they going to look at it every hour? No, I think this is kind of like a blip in what continues to be a pretty strong downtrend. If Linda Yaccarino can actually bring back revenue to Twitter and the concern had been that he would have to sell Tesla stock because of the debt covenants, too. then maybe there's hope here, Tim. There is a relationship, we know that, between Tesla's share price and what's going on at Twitter.

20:40And Linda Biaccarino, she's a great headline for Twitter. She really is. I think she's going to do interesting things. I think the combination of this shareholder meeting, maybe there's some anxiety around it. I think the new models and, you know, Gene Munster brought that up. I mean, just the size of the potential market there, I think is very significant. Let's not discount that mega cap tech has had a huge run. I mean, I bet if we plotted Amazon and Microsoft and Facebook, you know, they've had big weeks, too. So I think we just have to understand all this. By the way, hats off to Dave Faber for also not only nailing that interview, but throwing out the first pitch at Citi Field.

21:18And it was straight. Look, he may have missed a play, but it was straight. David's very calculating. He was just setting him up for the next pitch. Yeah, exactly. Time for the final trade. Let's go around the horn. Julie Beal. Bentley Securities is not cars, but infrastructure software, and I think it's wall position. Bono in. GLD. I think this thing had kind of gotten left for dead, but look at that run that it's had. Tim. Let's see. Boeing. I think if we talk about it, I was thinking about the Beach Boys. I was thinking about Brian Wilson. I was thinking about Wilson. Karen. Yes. So Sandy's in my ear saying, well, how can you not have Foot Locker?

21:56And I was saying, OK, let's talk about Foot Locker. You have to. If I own none, I'd wait the three-day rule at a minimum to start here. All right. That does it for us here on Fast Money for this Friday, but do not go anywhere. Options Action is up next.

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