Shares closed 28% lower at $16.69, their worst day since February 2022. The stock has lost nearly 56% this year.

Higher borrowing costs and rentals weighed on the retailer's lower-income cohort, leading to a low double-digit decline in comparable sales in July, with the company flagging a weaker start to back-to-school shopping.

Foot Locker's limited selection compared to peer Dick's Sporting Goods hindered its back-to-school sales, said Zak Stambor, senior analyst at Insider Intelligence.

The sportswear retailer now expects a steeper fall in annual sales after it missed quarterly sales expectations, and said it would pause its quarterly dividend payouts beyond October.

"The full weight of the macro environment on our lower income consumer ... became much more evident through the second quarter," CEO Mary Dillon said on a post-earnings call.

Similar to other retailers, Foot Locker has resorted to higher discounts to appeal to price-sensitive consumers. The company said heightened promotions from competitors was impacting sales.

Foot Locker's tumble dragged shares of peers Dick's Sporting Goods and Under Armour down about 3% each. Shares of European peers Adidas and Puma fell 4% to 6%.

Shares of top supplier Nike fell about 5%, extending its longest losing streak to ten consecutive days. Nike supplied 65% of Foot Locker's merchandise in 2022, a company filing showed. "Given Nike is still a very large percentage of Foot Locker's sales, (investors) will conclude Nike must be having the same issue in its own distribution channels," said UBS analyst Jay Sole.

Foot Locker's second quarter also took a hit from inventory shrink, or retail theft, and steeper discounts. Its gross margins slumped 460 basis points, and the company also trimmed its profit forecast.

Dick's Sporting Goods on Tuesday also cut its full-year profit targets, slammed by hits to margins from retail theft.