Foot Locker Inc. reported a net loss of $98 million in the first quarter as sales dropped 43.4 percent.
Highlights of the quarter include:
- Reopening Stores in Phased Approach, with Over 1,400 Stores Now Open
- Substantive Actions Taken to Offset Impact of Store Closures and Protect the Business
- Company in a Solid Financial Position; Cash and Cash Equivalents Over $1 Billion
- Board Temporarily Suspends Quarterly Dividend to Preserve Financial Flexibility
“Against the backdrop of the pandemic and our global store closures, our team has focused intently on controlling what we can in order to protect our business. We have taken full advantage of the investments we have made in technology in recent years in order to stay connected with our customers and serve them online, worked aggressively to protect our financial position and flexibility, and taken actions to ensure we are well-positioned to drive our business forward,” said Richard Johnson, chairman and chief executive officer. “Today, thanks to the unwavering efforts of our team, we are in the early stages on our road to recovery. Our phased reopening of stores is underway, and our plan is to build, be back, and be better than before.”
Lauren Peters, executive vice president and chief financial officer, added, “As the severity of COVID-19’s impact on the global retail industry became more evident, we took actions across our organization to control costs, bolster our financial position and increase our liquidity. We believe the operational and financial actions we have taken will enable us to create a safe environment in our stores and protect the health of our business to ensure that we emerge even stronger.”
Actions taken by the company to preserve cash and increase liquidity included: borrowing $330 million under the company’s $400 million credit facility; limiting capital expenditures to essential projects and reducing the full-year capital expenditure forecast by 50 percent to $138 million; minimizing non-essential spending, including reductions in marketing, extending payment terms, limiting rent payments, and reducing merchandise purchases; and reducing salaries and deferring incentive compensation for the CEO and senior executives.
Additionally, while Foot Locker remains committed to returning capital to shareholders, the company’s Board of Directors has decided to temporarily suspend the cash dividend beginning with the second quarter payment. The Board will continue to evaluate the dividend policy on a quarterly basis. As previously disclosed on April 22, the company also temporarily suspended its share repurchase program.
First Quarter Results
The company reported a net loss of $98 million, or 93 cents per share, for the first quarter of 2020, compared to net income of $172 million, or $1.52 per share in the corresponding prior-year period.
Total first-quarter sales decreased 43.4 percent, to $1,176 million, compared to sales of $2,078 million for the corresponding prior-year period. Excluding the effect of foreign exchange rate fluctuations, total sales for the first quarter of 2020 decreased 42.9 percent. First-quarter comparable-store sales decreased 42.8 percent.
The company’s gross margin rate decreased to 23.0 percent from 33.2 percent a year ago and the SG&A expense rate increased to 26.9 percent from 20.0 percent in the first quarter of 2019. The deleverage for both gross margin and SG&A reflects the significant decline in sales due to the COVID-19 related store closures.
During the first quarter, the company recorded a pre-tax charge of $1 million related to administrative costs for its previously-disclosed pension matter. In addition, the company recorded a tax charge of $27 million arising from a periodic revaluation of certain intellectual property rights pursuant to a non-US advance pricing agreement. Excluding these items, the company’s non-GAAP loss was 67 cents per share during the first quarter, compared to non-GAAP earnings of $1.53 per share for the comparable period in 2019.
As of May 2, 2020, the company’s merchandise inventories were $1,458 million, 20.4 percent higher than at the end of the first quarter last year. Using constant currencies, inventory increased 21.3 percent. The company’s cash and cash equivalents totaled $1,012 million, while the debt on its balance sheet was $451 million, which includes $330 million borrowed from the company’s credit facility.
During the quarter, the company paid a quarterly dividend of 40 cents per share.
Store Base Update
During the first quarter, the company opened 5 new stores, remodeled or relocated 9 stores, and permanently closed 21 stores. As of May 2, 2020, the company operated 3,113 stores in 27 countries in North America, Europe, Asia, Australia, and New Zealand. In addition, 54 franchised Foot Locker stores were operating in the Middle East, as well as 4 franchised Runners Point stores in Germany.
Photo courtesy Foot Locker