Some people just never seem to learn from their own past actions (or words).
Foot Locker, Inc. arguably gave up a year of potentially strong growth when it decided to “punish” Nike a year and a half ago, handing the urban fashion mall business to a then number three mall rival. Just a few months ago, the worlds-largest-athletic-footwear-retailer decided it was time for K-Swiss to take a few steps back and started cutting orders there, albeit in a far less public forum than they did with Nike.
It is those most recent actions by Foot Locker, Inc. that are now all the more interesting as the company continues to lag the market in sales gains. It is ironic that in a discussion of the companys fiscal first quarter sales we found Foot Locker CEO Matt Serra pointing to the Classics category as the “key driver” in sales, even calling out “White Classics” from K-Swiss as a specific style that performed well in the first quarter, along with Reebok White Classics and Nike Air Force Ones. Even more ironic is that Foot Locker continues to count on a stronger back half with heavier allocations of key marquee product from Nike to help turn the tide in the U.S.
SEW found it interesting that Foot Locker was referencing marquee product “as high as $165” in the Jordan category thats “very healthy for the business” during a conference call with analysts to discuss Q1 results. A sharp contrast to comments they made after the spat between the two giants commenced in 2002.
Foot Locker did post a solid gain in earnings for the quarter, with net income climbing more than 26% and diluted EPS gaining more than 19% (see chart page 3), but that performance was quickly overshadowed by comments Mr. Serra made to analysts about a competitors financial health. The comments, made during Thursdays conference call following Foot Lockers Q1 earnings release, appeared to be a direct shot at The Finish Line.
In response to an analyst's question about the current level of promotions in the marketplace, Mr. Serra responded that he had seen a “somewhat more aggressive posture, particularly from our competitor in Indianapolis”, apparently referring to current clearance sales there. He went on to say that, “Obviously they must have some inventory problems.”
While Serra did not name The Finish Line directly, most industry watchers doubted he was referring to Galyan's or Hat World/Lids.
FINL saw shares tumble a bit by midday Thursday, but bounced back to close up 3.8% for the week, closing at $31.22 on Friday. Foot Locker shares were up 0.9% for the week to close at $21.87 on Friday.
The Finish Line issued a statement on Thursday disputing the allegations, responding to what they said was “misinformation that was disseminated” on Thursday by “one of its competitors”. The competitor in Indianapolis said they were running a “previously planned, yearly liquidation sale on aged inventory in all of the Company's 551 stores” on footwear product that was “approaching one year in age”. FINL said the “sale is part of the Company's normal course of business to keep inventory fresh rather than a reaction to current inventory levels”, going on to say that, “All strategic indicators reflect a positive inventory position as the Company completes its first quarter ending May 29, 2004.”
The Finish Line also indicated that their increase in sales is outpacing its increase in inventory and that product margins improved versus the year-ago quarter.
FINL also said that the average selling price of footwear has continued to climb versus a year ago, “increasing more than $2.50 per pair”.
FINL finished its fiscal year-end with inventories that were 21.3% higher than the previous year-end. Inventory on a per-square-foot basis was up 12%. They said at the time that aged inventory, or that inventory that is more than a year old, was at a “historically low level of less than 1.0%”. First quarter sales were estimated to increase 17.9% to $245 million from $207.8 million in Q1 last year, or an 8.0% comp sales gain. FINL will release its fiscal Q1 sales results on June 3, 2004 for the three-month period ending May 29.
Foot Locker reported that their inventories increased 11.7% at the end of first quarter, a position that they said will enable them to “flow fresh goods into the Footaction business” while continuing to service their existing stores. Serra said they expect to see a “low single-digit comp store sales increase” for the second quarter.
As SEW reported in SEW_0419, Foot Locker consolidated comparable store sales inched up just 0.3% in a quarter that produced high-single- to double-digit gains for most peer mall retailers. Comps in the International business were down “low-single digits” and senior company officials told SEW that that business was down in low- to mid-single digits “throughout the quarter”. Conversely, FL said the U.S. business picked up later in Q1, with February up “low singles”, March down in “low singles”, and April posting a low- to mid-single-digit comp sales gain in the U.S.
The “Foot” group, which includes the Foot Locker, Lady Footlocker, and Kids Footlocker chains, was up in “low singles” for the quarter. Champs and the DotCom business, which includes Internet and Eastbay, were “flat” in Q1.
The business weighted heavier toward the Classics end of the spectrum in Q1, which FL said pushed average retail selling prices lower. Foot Locker treasurer and spokesperson Peter Brown told SEW that the ASP decline is expected to “stabilize toward the end of Q2 and should improve in third quarter as the company receives more Nike marquee product.
Excluding the benefits of the weaker U.S. dollar, sales for Q1 rose 2.0%.
>>> The problem with bringing your competition into the conversation is that people then focus on comparisons in performance
>>> What would inventory be like here if Footaction didn't need it…
