27 Aug Foot Locker’s Q2 Comps Soar 18.6 Percent
Foot Locker Inc. reported earnings rose 7.6 percent on an adjusted basis as same-store sales jumped 18.6 percent. Results were in line with a pre-announcement provided on August 10.
Second Quarter Results
Net income for the company’s second-quarter of 2020 was $45 million, or $0.43 per share, compared to net income of $60 million, or 55 cents per share in the corresponding prior-year period. Included in these results are the following pre-tax charges: 1) $19 million related to the wind-down of the Runners Point banner and the Eastbay restructuring, 2) $18 million for costs incurred in connection with the recent social unrest, and 3) $1 million related to administrative costs for its previously disclosed pension matter. Excluding these items, non-GAAP earnings were 71 cents per share for the second quarter of 2020, as compared to non-GAAP EPS of 66 cents for the same period in 2019.
Second-quarter comparable-store sales increased by 18.6 percent. Total second-quarter sales increased 17.1 percent, to $2,077 million, compared to sales of $1,774 million for the corresponding prior-year period. Excluding the effect of foreign exchange rate fluctuations, total sales for the second quarter of 2020 increased by 17.3 percent. The company’s gross margin rate decreased to 25.9 percent from 30.1 percent a year ago, while the SG&A expense rate decreased to 18.6 percent from 22.2 percent in the second quarter of 2020.
On August 10, the retailer said it expected comparable-store sales to increase by approximately 18 percent for the quarter. Net earnings were expected to be in the range of 38 cents to 42 cents per share due to charges with non-GAAP earnings before charges expected in the range of 66 cents to 70 cents. Prior to the pre-announcement, Wall Street had been projecting an adjusted loss of 16 cents.
“I’m proud of the exceptional effort from our team this quarter,” said Richard Johnson, president and chief executive officer. “Despite the challenging backdrop of the pandemic and social unrest, we achieved strong second-quarter results, led by our digital business, with a return to growth in both the top and bottom line. As our global fleet of stores reopened, our customers responded with enthusiasm and energy to our assortments and visited our stores with a high intent to purchase.”
“As the COVID-19 situation continues to evolve, we believe we have the right strategies and strong leadership in place to strengthen our customer connectivity, deepen our strategic relationships with our vendors, navigate the challenges ahead, and emerge from this period better positioned than ever.”
Year-To-Date Results
For the first six months of the year, the company posted a net loss of $65 million, or $0.62 per share on a GAAP basis, compared to net income of $232 million, or $2.08 per share, for the corresponding period in 2019. On a non-GAAP basis, earnings per share for the six-month period totaled $0.05, compared to $2.20 per share earned in the same period in 2019. Year-to-date sales were $3,253 million, a decrease of 15.6 percent compared to sales of $3,852 million in the corresponding six-month period of 2019. Year-to-date, comparable store sales decreased 14.5 percent, while total year-to-date sales, excluding the effect of foreign currency fluctuations, decreased by 15.1 percent.
Financial Position
As of August 1, 2020, the company’s merchandise inventories were $1,194 million, 2.7 percent lower than at the end of the second quarter last year. Using constant-currencies, inventory decreased by 3.7 percent.
The company’s cash totaled $1,373 million, while the debt on its balance sheet was $121 million, which reflects the repayment of the $330 million previously borrowed from the company’s credit facility. As part of its cash preservation measures, the company did not pay a dividend or repurchase any shares during the second quarter.
With the strong liquidity position and more stable cash outlook, the company announced today that the Board of Directors reinstated the quarterly dividend program and declared a quarterly cash dividend on the company’s common stock of $0.15 per share, which will be payable on October 30, 2020 to shareholders of record on October 16, 2020.
“The second quarter was truly a testament to our team’s ability to be nimble and to our financial and operational discipline. We delivered a meaningful increase in sales, managed our expenses tightly, and made progress towards our goal of improving our inventory position,” said Lauren Peters, executive vice president and chief financial officer. “Looking ahead, we believe the company is well-positioned financially to maneuver through the evolving COVID-19 pandemic. As a first step, the Board reinstated the dividend at a cautious but meaningful level to begin returning cash to shareholders. As always, the Board will continue to evaluate the dividend program on a quarterly basis.”
Financial Outlook
The company previously withdrew its full-year 2020 guidance in March. Given the uncertainty surrounding the evolving COVID-19 pandemic and its potential impact on the back-to-school season, team sports participation and additional government stimulus packages. The company does not plan to provide a full-year 2020 outlook at this time.
Store Base Update
During the second quarter, the company opened 18 new stores, remodeled or relocated 26 stores, and closed 31 stores. As of August 1, 2020, the company operated 3,100 stores in 27 countries in North America, Europe, Asia, Australia, and New Zealand. In addition, 134 franchised Foot Locker stores were operating in the Middle East, as well as 4 franchised Runners Point stores in Germany.