Foot Locker, Inc. saw improving results in some of its U.S. businesses in the third quarter, thanks primarily to Nike, while the company starts to see some improvement in its Europe business. Total sales increased due primarily to the addition of roughly 350 Footaction stores to the mix, new stores in Europe, and FX rate benefits in the quarter. Excluding the effect of FX rate benefits, total sales increased 12.3%.
The retailer said that the September hurricanes negatively impacted Q3 comps by roughly 0.6%, due primarily to disruptions at stores in Florida and Puerto Rico. Comps in the U.S. declined low- to mid-single-digits in August, but increased in mid-singles in September and rose low-single-digits in October.
Foot Locker certainly benefited by the increased allocations from Nike, especially at Lady Foot, where Shox helped push comps up in the mid-singles range. Champs also posted a mid-single digit gain, while U.S. Foot Locker stores were flat for the period and earnings there were described as “not a disaster, basically even with last year”, due mostly to the integration of the Footaction stores into that business.
The Foot Locker International business was again a drag in Q3, with Europe same-store sales declining in the mid-singles. The promotional environment in the U.K. was said to be “intense” and the overall retailer environment was described as soft. France was also problematic. Italy was called out as doing “extremely well” this year. Marquee product was said to make up about 60% of the business in Europe. Management called out Canada and Australia as positive markets in the International business.
The DotCom business, which includes Eastbay and footlocker.com, saw sales increase in the low-singles.
Consolidated November to-date comps are running at a positive low-single-digit rate with Europe experiencing a “slightly positive” gain in November MTD. Europe also saw a “solid improvement” in division profit in Q3 versus the year-ago period.
The company said that part of the 150 basis point decline in gross margin was due to difficult comparisons to a high margin Q3 last year, but also pointed to a Footaction business that hurt margins by 60 basis points. Management expects the FA margins to continue to improve and come in line with the overall Foot Locker division. They said they intend to maintain a “more tempered promotional posture” in Q4 that should lessen the markdown rate or bring it in line with last years fourth quarter.
Chairman and CEO Matt Serra, just back from back surgery last month, said that the re-engagement with Nike is contributing to higher average selling prices. He called out the Nike Impax product as a key contributor.
Serra also said they continued to sell large quantities of classic footwear from several vendors. In addition to the K-Swiss and Reebok classic product, Serra also highlighted New Balance 574s, Chuck Taylors, AF1s, adi Super Stars, and some of the Nike 20-Pack program as key contributors.
In Apparel, private label looks to be the big focus now, but Foot is also pushing their branded vendors to improve their offerings. Licensed declined “as expected”.
Serra sees about 40% to 60% of the Footwear product over-lapping between the Footaction and Foot Locker merchandising assortments, but also said they will attempt to differentiate the store as much as possible. Serra said they are moving to improve the Apparel offering in the Footaction stores, pointing to a new Champion Fleece program they put in place.
>>> Anyone tell Foot Locker they will now need to compete with Target with the Champion brand?
>>> There was some hint that an improving Footaction business could impact Foot Locker sales. Has the company figured in the cannibalization effect? Will they be trading dollars once they start to anniversary?
