24 Feb Foot Locker’s Q4 Races Past Wall Street’s Targets
Foot Locker Inc. reported fourth-quarter earnings that easily topped Wall Street’s estimates while showing a 5 percent gain in same-store sales.
Net income for the company’s fourth quarter ended January 28, 2017 was $189 million, or $1.42 per share, compared with net income of $158 million, or $1.14 per share in the same period of 2015. Excluding a tax benefit, earnings would have been $1.37 a share. Wall Street’s consensus estimated been $1.31.
Total sales increased 5.3 percent, to $2.11 billion this year, compared with sales of $2.0 billion for the corresponding prior-year period. Sales were in line with Wall Street’s targets. Excluding the effect of foreign currency fluctuations, total sales for the fourth quarter increased 6.1 percent.
The company’s gross margin rate improved to 33.7 percent of sales from 33.6 percent a year ago, and the selling, general, and administrative expense rate improved 60 basis points to 18.7 percent of sales.
“Generating our seventh consecutive year of meaningful sales and profit growth is a strong testament to Foot Locker, Inc.’s solid position at the center of sneaker culture,” said Richard Johnson, chairman of the board and chief executive officer. “All credit goes to the incredibly talented team of associates we have around the world, and I want to thank them sincerely for another outstanding performance in 2016. Due in part to the change in the cadence of income tax refund check distribution, we are facing a challenging retail sales environment as we enter 2017; however, we believe the strategic initiatives we have in place, coupled with our strong vendor relationships, will enable us to deliver another year of record performance.”
Non-GAAP Adjustments
During the fourth quarter, the company’s tax expense was affected by two non-recurring items. The first was a tax rate change in France which caused the company to lower the value of certain deferred tax assets by $2 million, decreasing GAAP earnings by two cents per share. The second item stems from new regulations issued under Section 987 of the U.S. tax code which required the company to record a non-cash $9 million reduction in tax expense related to foreign currency translation gains and losses of foreign businesses operated as branches. This tax benefit increased our GAAP earnings by seven cents per share.
Excluding these items, the company earned $1.37 per share this quarter on a non-GAAP basis, an 18 percent increase over the non-GAAP earnings of $1.16 per share in the comparable 13-week period in 2015.
Fiscal Year Results
Sales for 2016 were $7,766 million, an increase of 4.8 percent compared to sales of $7,412 million in fiscal 2015. Full-year comparable store sales increased 4.3 percent. Excluding the effect of foreign currency fluctuations, total sales increased 5.2 percent.
The company’s net income increased to $664 million in 2016, or $4.91 per share, compared to net income of $541 million, or $3.84 per share in 2015. On a non-GAAP basis, earnings per share totaled $4.82 in 2016, a 12 percent increase over last year.
“We continued to make substantial progress in 2016 towards our long-term goals,” said Lauren Peters, Executive Vice President and Chief Financial Officer. “Our earnings before interest and taxes surpassed $1 billion for the first time in our history and the EBIT rate improved to 13 percent of sales. Our adjusted net income margin increased to 8.4 percent and our sales per gross square foot reached $515. Although we currently face a softer sales environment than at this time last year, we are planning for a mid-single digit comparable sales gain and a double-digit earnings per share increase for the full year of 2017.”
Financial Position
At January 28, 2017, the company’s merchandise inventories were $1,307 million, 1.7 percent higher than at the end of the fourth quarter last year. Using constant currencies, inventory increased 2.0 percent.
The company’s cash totaled $1,046 million, while the debt on its balance sheet was $127 million. The company spent $80 million to repurchase 1.1 million shares during the quarter and paid a quarterly dividend of $0.275 per share. For the full year, the company invested $284 million in its store fleet, its digital platform, and infrastructure. The company also returned $579 million to shareholders between its stock repurchase program and dividends, spending $432 million to repurchase 7.0 million shares, and paying $147 million in dividends.
“As announced last week, our Board of Directors authorized another double-digit percentage increase in our quarterly dividend and a new share repurchase program that is 20 percent larger than our prior program,” added Peters. “Our excellent financial position has enabled us to both return substantial amounts of cash to our shareholders while also sustaining a strong, $277 million capital investment program in 2017.”
Store Base Update
During the fourth quarter, the company opened 20 new stores, remodeled or relocated 59 stores, and closed 51 stores. As of January 28, 2017, the company operated 3,363 stores in 23 countries in North America, Europe, Australia, and New Zealand. In addition, 59 franchised Foot Locker stores were operating in the Middle East and South Korea, as well as 15 franchised Runners Point stores in Germany.