Foot Locker, Directors Named in Securities Lawsuit After Significant Stock Decline

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Foot Locker and its board of directors face a proposed class action filed in New York Supreme Court over allegations that the retailer lost millions of dollars and damaged its “reputation, goodwill, and standing in the business community” by failing to fully recognize the negative impact of online and vendor sales on the company.

The 45-page suit explains that many conventional retailers like Foot Locker have struggled within the last few years, as vendors, i.e. Nike, have pivoted to selling more of their merchandise through online third-party sites such as Amazon. The way the suit puts it, companies that were once Foot Locker’s vendors have effectively become competitors fighting to get their products to the same flock of sneaker-focused consumers.

According to the lawsuit, Foot Locker and its directors should have realized the reality of the retail landscape and recognized the risks associated with consumers turning to online retailers and third-party vendors for their purchases. Instead, the complaint says, the defendants, “rather than admit the truth” that Foot Locker was adversely impacted by online and vendor sales, misled investors into believing Foot Locker was doing just fine. 

The case says that the truth finally emerged in August 2017 when Foot Locker announced that its financial results for the year’s second quarter were negative for the first time in 29 quarters. Moreover, Foot Locker reportedly said its total sales, comparable-store sales, gross margins, and net income had all fallen compared to previous quarters.

“In response to this news, the price of Foot Locker common stock declined nearly 28%, from a closing price of $47.70 per share on August 17, 2017, to close at $34.38 per share on August 18, 2017,” the lawsuit states. “The price of Foot Locker common stock continued to decline the following trading day, closing at $31.82 per share on Monday, August 21, 2017 – a total decline of more than 33%.”