Possibly providing Wall Street with a healthy dosing of schadenfreude, the narrative surrounding athletic apparel retailer Foot Locker (US:FL) couldn’t get much worse than it did last Friday. Following a poor earnings report along with issuing a disappointing outlook, FL stock hemorrhaged more than 27% of equity value. 

The downfall erased an auspicious start to 2023, with the Foot Locker stock price now down 18.46% on a year-to-date basis.

Turning to the print for the first quarter of fiscal year 2023, Foot Locker posted adjusted earnings per share of 70 cents, missing the Wall Street consensus target that called for 78 cents per share. In the year-ago quarter, the retailer posted EPS of $1.60.

On the top line, the company posted revenue of $1.93 billion, missing the Street’s consensus target by more than 3%. One year ago, Foot Locker rang up $2.18 billion in sales. Also, this year, comparable store sales slipped 9.1%, presenting a worrying framework.

“Our sales have since softened meaningfully given the tough macroeconomic backdrop, causing us to reduce our guidance for the year as we take more aggressive markdowns to both drive demand and manage inventory,” Chief Executive Mary Dillon said in a statement.

Other Shoe Drops

Regarding the regional breakdown, only the Asia-Pacific (APAC) market stood out optimistically, delivering overall brand growth of 8.9%. On the other hand, Europe, Middle East and Africa (EMEA) slipped 0.1% while North America suffered a staggering 12.8% drop.

Moreover, management lowered its guidance for the rest of the fiscal year. For adjusted EPS, Foot Locker expects the metric to land between $2.00 and $2.25, comparing poorly to the prior guide of between $3.35 and $3.65. For revenue, the top line may decrease between 6.5% to 8%. Previously, management forecast sales to decline between 3.5% to 5.5%.

"This year will be a reset year for the footwear industry," NPD Group analyst Beth Goldstein wrote in a February report. "After three years of ups and downs, we can expect sales and price trends will level out as consumers settle into their now-familiar lifestyles." 

Put Options Surge

Not surprising, the shockingly poor results and guidance sparked activity in the derivatives market, as seen on Fintel’s screener for unusual stock options volume. Specifically, put volume for FL options hit 51,864 contracts against an open interest reading of 49,899. On average, put volume comes out to 1,871 contracts.

Looking to the other side, call volume reached 41,496 contracts against open interest of 41,293. Typically, call volume prints only 1,500 contracts.

Tellingly, options sentiment overall is negative, with the put/call ratio of FL stock standing at 1.22. Since puts generally represent bearish bets, a ratio greater than one indicates bearish sentiment.

Consumer Sentiment Wanes

Unfortunately, circumstances may continue to get worse for FL stock. Primarily, all consumer discretionary retailers face a consumer sentiment reading that languishes near multi-year lows. In addition, data from the Board of Governors of the Federal Reserve System indicates that credit card loans recently breached the $985 billion level.

If that wasn’t troubling enough for FL stock, The Wall Street Journal notes that Americans in their 30s are racking up debt at historic rates. Notably, millennials in the aforementioned age range incurred more than $3.8 trillion of debt. According to one source, Foot Locker’s target consumer age range is between 15 and 35.

"There's not a lot of silver linings here," Wedbush analyst Tom Nikic summed it up in a note to clients on Friday evening. "The macro environment is proving to be far more challenging than thought, and there are company-specific issues to deal with as well" he wrote, referring to Foot Locker's (US:NKE) reduced Nike allocations. The brokerage continues to rate the shares 'neutral', with a $30 per share 12-month price target.