Foot Locker, Inc. slightly lifted its outlook for the year after reporting third-quarter sales and earnings came in above expectations. Comparable-store sales in the third quarter increased 0.8 percent year-over-year.
Earnings of $1.27 a share topped Wall Street’s consensus target of $1.14. Revenue for the quarter of $2.17 billion was ahead of Wall Street’s consensus target of $2.1 billion.
“Foot Locker’s solid third-quarter results in the midst of ongoing macroeconomic challenges are a testament to the strengths of this organization that I am honored to now be leading,” said Mary Dillon, president and chief executive officer. “Despite the tough environment, our expanding customer base remained resilient, and I’m proud that our team delivered sales above our expectations, thanks to their exceptional execution.”
Dillon continued, “I see tremendous opportunity to further leverage the power of our brand equity and our incredible field team to drive our growth in this exciting category.”
Third Quarter Results
The company reported a net income of $96 million, or $1.01 per share, for the 13 weeks ended October 29, 2022, compared with $158 million, or $1.52 per share, for the corresponding prior-year period, representing a decline of 39.2 percent.
On a non-GAAP basis, the company earned $1.27 per share, compared with non-GAAP earnings of $1.74 per share in the prior-year period, a decline of 27.0 percent.
Third-quarter comparable-store sales increased by 0.8 percent against record sales levels last year, driven by demand, the company’s brand diversification efforts and improved access to inventory. Total sales decreased by 0.7 percent, to $2,173 million, compared with sales of $2,189 million in the third quarter of 2021. Excluding the effect of foreign exchange rate fluctuations, total sales for the third quarter increased by 3.3 percent.
Gross margin declined by 270 basis points compared with the prior-year period, driven mainly by higher markdowns on increased promotional activity across the industry, and modest supply chain cost pressure.
SG&A increased by 60 basis points, driven mainly by labor inflation, partially offset by early savings from the company’s cost optimization program.
Year-To-Date Results
For the first nine months of the year, the company posted net income of $323 million, or $3.38 per share, compared with $790 million, or $7.54 per share, for the corresponding prior-year period. On a non-GAAP basis, earnings per share for the nine-month period totaled $3.98, compared to $5.80 in the corresponding prior-year period. Year-to-date sales were $6,413 million, a decrease of 3.1 percent compared to $6,617 million in the corresponding nine months of 2021. Year-to-date, comparable store sales decreased 3.9 percent, while total year-to-date sales, excluding the effect of foreign currency fluctuations, decreased by 0.1 percent.
Financial Position
As of October 29, 2022, merchandise inventories were $1,685 million, up 29.5 percent compared to the end of the third quarter last year. Current inventory quality and aging continue to be healthy and position the company well to fulfill the demand for the holiday season and the fourth quarter overall. At quarter-end, the company’s cash and cash equivalents totaled $351 million, while debt was $454 million.
During the third quarter of 2022, the company paid a quarterly dividend of $0.40 per share, for a total of $37 million.
Financial Outlook
Andrew Page, executive vice president and chief financial officer, said, “Following better-than-expected results for the third quarter and strong momentum coming out of the quarter, we are increasing our outlook for the fourth quarter and the full year. While the macroeconomic environment remains uncertain, our demand trends and inventory position in high-quality product gives us the confidence we can achieve our new range, while also remaining flexible to manage through ongoing volatility.”
Updated guidance for the full-year calls for:
- Total Sales, down 4 percent to 5 percent (prior, down 6 percent to 7 percent);
- Comp Sales, down 4 percent to 5 percent (prior, down 8 percent to 9 percent);
- Gross Margin, 31.7 percent to 31.8 percent (prior, 31.1 percent to 31.2 percent);
- SG&A Rate, approximately 22.0 percent (prior, 21.3 percent to 21.4 percent); and
- Non-GAAP EPS, $4.42-$4.50 (prior, $4.25-$4.45);
Updated guidance for the fourth quarter calls for:
- Total Sales, down 8 percent to 10 percent, partly reflecting ongoing foreign currency pressure;
- Comp Sales, down 6 percent to 8 percent;
- Gross Margin, 29.0 percent to 29.3 percent against 33.0 percent, reflecting ongoing promotional pressure;
- SG&A Rate, 23.3 percent to 23.4 percent against 22.4 percent, reflecting labor inflation, partially offset by
cost optimization; and - Non-GAAP EPS: 45 cents to 53 cents against $1.67.
Photo courtesy Foot Locker