Foot Locker, Inc. reported net income for its fourth quarter ended January 29, 2005 increased 21% to 57 cents per share, or $89 million, from 47 cents per share, or $71 million in Q4 last year. Sales increased 15.1% to $1.54 billion this year compared with sales of $1.33 billion for the corresponding prior year period. Fourth quarter comparable-store sales increased 2.5%.
“Our fourth quarter earnings per share increase of 21 percent was above the high end of our original guidance range, and reflected a solid comparable- store sales increase, an improving operating profit margin rate and a lower effective income tax rate,” stated Matthew D. Serra, Foot Locker, Inc.’s Chairman and Chief Executive Officer. “The financial highlights of the fourth quarter also included a strong total sales increase, a higher gross margin rate and continued effective expense management.”
Full year net income increased 35%, to $1.88 per share, or $293 million, compared with $1.39 per share, or $207 million last year. Results from discontinued operations reflect an income tax benefit of $38 million, or 24 cents per share, in 2004, versus a loss related to revisions in estimates to discontinued reserves of $1 million, or a penny per share, in 2003. Income from continuing operations increased 17% to $1.64 per share, or $255 million, versus $1.40 per share, or $209 million last year. Full year sales increased 12.1% to $5,355 million, compared with sales of $4,779 million last year. Comparable-store sales increased 0.9%.
The Company utilized its strong cash flow during 2004 to fund acquisitions, support its capital expenditure program, reduce its liabilities and increase cash dividends to its shareholders. At the end of the year, the Company’s cash and short-term investment position stood at $492 million, and its financial position strengthened due to the following initiatives that were completed during 2004:
- $150 million of 5.5% convertible notes were converted to equity
- Federal income tax return examinations through fiscal 2003 were completed, resulting in $47 million reduction of income tax liabilities
- Under funded pension liability was reduced by $71 million
- Company’s $200 million revolving credit facility was amended and restated, with its term extended to 2009
- New 5-year, $175 million term loan was negotiated with the Company’s existing bank group
Mr. Serra continued, “We are pleased that during 2004 we continued to produce a meaningful and consistent earnings increase. 2004 was a milestone year for our Company, in many respects, including the celebration of the 30th anniversary of the opening of our first Foot Locker store, the acquisition of the 349-store Footaction chain as well as the expansion into our 18th country by acquiring 11 stores in the Republic of Ireland. We concluded the year with a strong balance sheet that provides financial flexibility should appropriate investment opportunities arise.”
Operating Highlights
During 2004, Foot Locker continued to focus on maximizing the productivity of its existing store base while also implementing programs to grow its business. The Company opened 457 new stores during the year, including 360 stores that were acquired, remodeled/relocated 225 stores and closed 100 stores. At January 29, 2005, the Company operated 3,967 stores in 18 countries in North America, Europe and Australia. Excluded from this total are 10 former The Athlete’s Foot stores that the Company recently purchased through the Bankruptcy Court, that it expects to open in fiscal 2005.
2005 Outlook
The Company is encouraged that it will continue to build upon its track record of generating solid sales and earnings per share increases. For 2005, a comparable-store sales increase in the low-to-mid single digit range is currently expected with earnings per share growth of 10-to-20 percent. The Company currently expects its first quarter earnings per share to increase towards the high end of this 10-to-20 percent range, with an opportunity to exceed this guidance if its current sales trend continues. Capital expenditures are planned at $170 million for 2005, including the opening of up to 100 new stores and remodeling/relocating of 275 stores.
FOOT LOCKER, INC.
Condensed Consolidated Statements of Operations
(unaudited)
Periods ended January 29, 2005 and January 31, 2004
(In millions, except per share amounts)
Fourth Quarter Fourth Quarter
2004 2003
Sales $1,535 $1,334
Cost of sales (4) 1,058 920
Selling, general and administrative expenses 302 263
Depreciation and amortization (4) 42 37
Interest expense, net 3 4
1,405 1,224
Income from continuing operations before
income taxes 130 110
Income tax expense 41 39
Income from continuing operations 89 71
Loss on disposal of discontinued operations,
net of tax --- ---
Net income $89 $71
Diluted EPS:
Income from continuing operations $0.57 $0.47
Loss on disposal of discontinued operations,
net of tax --- ---
Net income $0.57 $0.47
Full Year Full Year
2004 2003
Sales $5,355 $4,779
Cost of sales (4) 3,722 3,297
Selling, general and administrative expenses 1,088 987
Depreciation and amortization (4) 154 152
Restructuring charge 2 1
Interest expense, net 15 18
4,981 4,455
Income from continuing operations before
income taxes 374 324
Income tax expense 119 115
Income from continuing operations 255 209
Income/(loss) on disposal of discontinued
operations, net of tax 38(1) (1)(2)
Cumulative effect of accounting changes, net
of tax --- (1)(3)
Net income $293 $207
Diluted EPS:
Income from continuing operations $1.64 $1.40
Income/(loss) on disposal of discontinued
operations, net of tax 0.24(1) (0.01)(2)
Net income $1.88 $1.39
(1) Income tax benefit related to discontinued businesses.
(2) Represents revisions in estimates to reserves for discontinued
businesses.
(3) Related to adoption of SFAS No. 143 "Accounting for Asset Retirement
Obligations."
(4) Certain amounts in the prior fiscal year have been reclassified to
conform to the presentation in the current fiscal year related to the
accounting for construction allowances received from landlords.
