Foot Locker Inc. reported earnings in the fourth quarter topped Wall Street’s consensus estimate but sales came in short.
Fourth Quarter Results
The company reported a net income of $123 million, or $1.17 per share, for the 13 weeks ended January 30, 2021, a decrease of 7.9 percent in earnings per share as compared with a net income of $134 million, or $1.27 per share, for the corresponding prior-year period. On a non-GAAP basis, the company earned $1.55 per share, a 4.9 percent decrease from non-GAAP earnings per share of $1.63 in the comparable prior-year period. Wall Street’s consensus estimate on an adjusted basis had been $1.34.
Fourth-quarter comparable-store sales decreased by 2.7 percent.
Total sales decreased by 1.4 percent, to $2,189 million this year, compared with sales of $2,221 million in the fourth quarter of 2019. Wall Street’s consensus estimate had been $2.29 billion. Excluding the effect of foreign exchange rate fluctuations, total sales for the fourth quarter decreased by 3.0 percent.
“Despite the challenging macro backdrop of COVID-19-related store closures and supply chain congestion, we delivered strong bottom-line results in the fourth quarter,” said Richard Johnson, chairman and chief executive officer. “Our customers responded well to our solid product offering and exciting holiday campaign, which drove stronger margins and continued acceleration of our digital business. Based on the resiliency we have shown over the course of 2020, I am looking forward with renewed optimism as we continue to advance our long-term strategies and build value for all our stakeholders.”
“Our teams continued to execute nimbly in the fourth quarter to manage against the headwinds to our top line. As a result, we delivered gross margin expansion and improved inventory turns while maintaining our discipline with expense management,” added Lauren Peters, executive vice president and chief financial officer. “Although over 10 percent of our store fleet is temporarily closed at present due to COVID-19 restrictions, the strength of our financial position leaves us well prepared to continue navigating the macro challenges, while protecting our bottom line and investing in our growth.”
Non-GAAP Adjustments
During the fourth quarter of 2020, the company recorded several adjustments. The items included:
- Pre-tax charges of $62 million related to the impairment of certain underperforming stores;
- $4 million charge related to the impairment of one of the company’s minority investments;
- $4 million charge related to the reorganization of its headquarters and support organization in EMEA;
- $11 million gain that primarily reflects an advance in its insurance coverage related to social unrest losses; and
- $5 million benefit on its deferred tax assets due to changes in Dutch tax law.
In the prior-year fourth quarter, the company’s results included the following items:
- Pre-tax charges of $38 million primarily related to the impairment of certain Footaction assets;
- $1 million charge related to the company’s previously-disclosed pension matter;
- $2 million benefit in its deferred tax assets due to changes in Dutch tax law; and
- $2 million tax charge for a valuation allowance on losses from certain foreign operations.
Fiscal 2020 Results
Sales for 2020 were $7,548 million, a decrease of 5.7 percent compared to sales of $8,005 million in fiscal 2019. Full-year comparable-store sales decreased 5.9 percent. Excluding the effect of foreign currency fluctuations, total sales decreased by 6.3 percent.
The company’s net income decreased to $323 million in 2020, or $3.08 per share, as compared to 2019 reported net income of $491 million, or $4.50 per share. On a non-GAAP basis, earnings per share totaled $2.81 in 2020, a 43.0 percent decrease compared to last year’s 52-week, non-GAAP earnings of $4.93.
Financial Position
At January 30, 2021, the company’s merchandise inventories were $923 million, 23.6 percent lower than at the end of the fourth quarter last year. Using constant currencies, inventory decreased by 25.5 percent.
At year-end, the company’s cash and cash equivalents totaled $1,680 million, while the debt on its balance sheet was $110 million. The company’s total cash position, net of debt, was $785 million higher than at the same time last year. During the fourth quarter of 2020, the company spent $27 million to repurchase 660,347 shares. For the full-year, the company repurchased 968,547 shares for $37 million, returning a total of $110 million to shareholders through its share repurchase program and dividends. In addition, the company invested $159 million in its store fleet, digital platforms, supply chain and logistics capabilities, and other infrastructure.
“As previously announced, our Board of Directors approved a meaningful increase in our quarterly dividend to $0.20 per share, a 33 percent increase from the prior $0.15 per share,” continued Peters. “Combined with the approval of a $275 million capital investment program for 2021, these actions reflect our Board’s confidence in the company’s strong financial position and ability to pursue our strategic initiatives while also returning more cash to shareholders.”
Financial Outlook
Given the ongoing uncertainty created by COVID-19, the company is not providing full-year 2021 guidance at this time.
Store Base Update
During the fourth quarter, the company opened 19 new stores, remodeled or relocated 39 stores and closed 53 stores. As of January 30, 2021, the company operated 2,998 stores in 28 countries in North America, Europe, Asia, Australia, and New Zealand. Also, 127 franchised Foot Locker stores were operating in the Middle East.
Photo courtesy Foot Locker