Here's Why Shares of Foot Locker Are Down 13%

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What happened?

Shares of Foot Locker Inc. (NYSE: FL), the global retailer of shoes and apparel, had dropped 13% as of 11:40 a.m. EDT on Friday, after the company released its second-quarter earnings.

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So what

Despite the 13% drop, the results weren't abysmal. In fact, Foot Locker managed to beat estimates on the top and bottom lines. Compared to the prior year's second quarter, sales increased 4.8% to $1.78 billion, which beat analysts' estimates of $1.76 billion. Adjusted earnings per share checked in at $0.75, ahead of analysts' estimates calling for $0.70.

Although Foot Locker managed to beat estimates on the top and bottom lines, it fell short of expectations with a modest 0.5% increase in comparable-store sales, emphasizing that growth is still slow.

In a press release, CFO Lauren Peters said: "We are encouraged by the results we delivered, including a return to growth on the top line combined with gross margin expansion. We maintained our disciplined approach to inventory management in the second quarter, which is enabling us to flow improving merchandise assortments into the business for back-to-school and the holidays."

Now what

Investors are somewhat skeptical of Foot Locker, as it's not a direct-to-consumer shoe seller, and thus can be disrupted by e-commerce trends, especially with powerhouse companies such as Nike continuing to focus on a direct-to-consumer strategy. The main thing for investors to watch during the back half of 2018 is whether management's efforts to improve its product development and portfolio of premium styles can improve comps growth.

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Daniel Miller has no position in any of the stocks mentioned. The Motley Fool recommends Nike. The Motley Fool has a disclosure policy.