Foot Locker’s Q2 Beats Street

Foot Locker’s Q2 Beats Street

Profits at Foot Locker Inc. jumped 72.5 percent in the second quarter, exceeding expectations. On an adjusted basis, profits rose 21 percent. Same-store sales inched up 0.5 percent, improving from a decline of 2.8 percent seen in the first quarter, and stronger growth continues to be expected for the second half.

Second Quarter Results

Net income for the company’s second quarter ended August 4, 2018 was $88 million, or 75 cents per share, compared to net income of $51 million, or $0.39 per share, in the same period of fiscal 2017. Wall Street’s consensus estimate had been 70 cents a share.

Second quarter comparable store sales increased 0.5 percent, slightly below Wall Street’s target of a 0.7 percent gain. Total second quarter sales increased 4.8 percent, to $1,782 million this year, compared to sales of $1,701 million for the corresponding prior-year period and ahead of analyst targets of $1.763 billion.

Excluding the effect of foreign exchange rate fluctuations, total sales for the second quarter increased 3.9 percent. The company’s gross margin rate increased to 30.2 percent from 29.6 percent a year ago, while the SG&A expense rate increased to 21.3 percent from 19.9 percent in the second quarter of 2017.

“Our performance reflects the work we are doing on several fronts to position the company to succeed in a rapidly evolving retail environment,” said Richard Johnson, chairman and chief executive officer. “We remain optimistic that our improving product flow and depth in premium styles positions us to deliver stronger comparable sales growth in the second half of 2018.”

Lauren Peters, executive vice president and chief financial officer, added “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.”

Non-GAAP Adjustments

During the second quarter, the company recorded an incremental $3 million pre-tax charge related to the company’s previously-disclosed pension litigation. The company also recorded $2 million of tax benefits related to 1) an adjustment to the levy for the deemed repatriation of offshore earnings, and 2) changes in regulations which required the company to record a reduction in tax expense related to foreign currency translation gains and losses of foreign businesses operated as branches. Excluding these items, the company earned 75 cents per share during the second quarter on a non-GAAP basis, a 21 percent increase over the non-GAAP earnings of 62 cents per share in the comparable 13-week period in 2017.

Year-To-Date Results

Net income for the company’s first six months of the year increased to $253 million, or $2.14 per share on a GAAP basis, compared to net income of $231 million, or $1.74 per share, for the corresponding period in 2017. On a non-GAAP basis, earnings per share for the six-month period totaled $2.21, a 12 percent increase compared to the same period in 2017. Year-to-date sales were $3,807 million, an increase of 2.8 percent compared to sales of $3,702 million in the corresponding six-month period of 2017. Year-to-date comparable store sales decreased 1.2 percent, while total year-to-date sales, excluding the effect of foreign currency fluctuations, increased 0.9 percent.

Financial Position

As of August 4, 2018, the company’s merchandise inventories were $1,254 million, 2.8 percent lower than at the end of the second quarter last year. Using constant currencies, inventory decreased 2.4 percent.

The company’s cash totaled $950 million, while the debt on its balance sheet was $124 million. The company repurchased approximately 1.8 million shares for $93 million during the quarter and paid a quarterly dividend of $0.345 per share, spending $40 million.

Store Base Update

During the second quarter, the company opened 13 new stores, remodeled or relocated 33 stores, and closed 21 stores. As of August 4, 2018, the company operated 3,276 stores in 24 countries in North America, Europe, Australia and New Zealand. In addition, 107 franchised Foot Locker stores were operating in the Middle East as well as 10 franchised Runners Point stores in Germany.