Foot Locker, Inc. looked to a fresh management team in Europe to deliver some light at the end of the tunnel in the third quarter in a region that is keeping both retailers and vendors up at night. The team, led by former Lady Foot, And 1, and Footaction exec, Keith Daly, is apparently making some headway by taking a much more focused approach on the business.
A senior spokesman at Foot Locker, Inc. told Sports Executive Weekly that “sales have clearly picked up” in the European region as the team there established a market-specific approach to the business. “We are seeing encouraging signs from the management team in Europe,” he said. “They understand that some markets are more promotional and are also doing a better job of allocating product by market.” While the region did not comp positive for the period, there was a clear improvement from recent trends as same-store sales declined in very-low-singles for the third quarter. An increase in targeted promotional activity was cited as a key driver for the improving trend for the period. In a release last week, company chairman and CEO Matt Serra indicated the initiative also led to “a lower division profit margin in Europe, albeit at a rate still anticipated to be in the low-double-digit range.”
The total International business posted flat comps for the year, with Canada again shining as the “strongest of the International businesses.”
Comparable store sales for the U.S. business were up in mid-single-digits for the quarter, with the U.S. Foot Locker group, which includes the Foot Locker, Lady Foot Locker, and Kids Foot Locker nameplates, comping up in low-singles for the period. Footaction has entered the comp store picture with a bang, posting a double-digit comp sales gain for the quarter. The Champs business was close behind, comping up “nearly double-digits” for the third period.
From a merchandise perspective, Foot Locker sees continued growth in the marquee footwear business, but “its not really performance-based.” The retailers spokesman did acknowledge a shift away from classics, but also indicated that “not every classic shoe is declining.” He said some of the shift is from classics from one brand to another, with fashion driving the move.
He also indicated that some of the shift in classics is moving to the low-profile product as well.
Total comparable store sales for Foot Locker, Inc. rose 2.7% for the fiscal third quarter ended October 29, while total sales grew 3.0% to $1.41 billion from $1.37 billion in the year-ago period. Excluding the effect of FX rate fluctuations, total sales increased 2.6% for the period.
Mr. Serra said the increased promotional strategy in Europe has contributed to an expected lower consolidated gross margin rate for the company in Q3. He also pointed to the impact of the three hurricanes in the quarter, indicating that the company will take a charge of $4 million, or two cents per share, to write down merchandise inventory and fixed assets that were destroyed as a result of the storms. Additional charges, net of credits, totaling $3 million, or a penny per share were recorded during the third quarter, primarily related to the potential insolvency of one of the company's third party insurance administrators and the settlement of litigation proceedings.
The company is now forecasting third quarter net income EPS from continuing operations to be in the range of 39 cents to 41 cents per share, but would have been in the 42 cents to 44 cents range without the indicated charges.
