Foot Locker, Inc. Feelin’ More Love from Nike as Marquee Product Boosts U.S. Gains…

Foot Locker, Inc. expects to see its future outlook improve as increased access to marquee product continues to fuel growth in the U.S. business, particularly at Champs. The DotCom business is coming back and Footaction sales and profits are exceeding expectations, but Europe continues to be a drag on the International business. Still, the U.S. upside far outweighs the Europe weakness, causing management to suggest that Q2 earnings could surpass 20% growth if the “current sales trend continues” for the retailer.

On a worldwide basis, footwear comps rose about 4% in Q1, while apparel comps dipped 3%, thanks to the slow down in licensed apparel.

First quarter last year did not include the 350 Footaction stores that Foot Locker acquired last summer. The quarter also saw about 1.6% of the gain come from FX rate benefits. FL will start to anniversary the Footaction numbers in Q3.

Higher average selling prices, along with better traffic in the stores, led to double-digit comp sales gains at the company’s Champs division. Profits also increased at the unit that Foot Locker has positioned as a suburban destination. Apparel sales increased low-single-digits at Champs, driven by increased sales of private label and branded apparel, which more than offset the declines in the licensed apparel category.

Foot Locker positions Footaction on the urban side of the equation and is getting strong enough sales and profit growth there to cause management to raise earnings guidance for the unit by two cents for the year to roughly 12 cents per share. Footaction apparel and accessories sales exceeded plan for the quarter.

The U.S. “Locker” business, which includes Foot Locker, Lady Foot, and Kids Foot, was up in low- to mid- singles for the quarter. Foot told SEW that the U.S. Locker business is starting to see a higher percentage of the marquee product making its way into those stores as well, a move that SEW expects will help boost sales there. Management said the strong turnaround at Lady Footlocker continues as that division leads performance in the U.S. “Locker” group with a mid-single-digit increase for the period, led by increased sales of apparel and accessories.

Foot and Kids Foot posted “very solid” low-single-digit growth for the period, and management said they expect Kids Footlocker to post a “strong earnings increase” for the year with high-single-digit profit margins.

Foot Locker said the gains in the U.S. business “subsided somewhat” in March to a mid-single-digit increase, a gain that got a boost from the earlier Easter. Comps for the first two weeks of April declined in low-double-digits, but turned positive in the back half of the month, posting a low- to mid-single-digit gain that has apparently continued into May.

Foot Locker said that the shift from classics to performance is in full swing at both urban and suburban locations, a fact that is driving up average selling prices and unit sales. Chairman and CEO Matt Serra went so far as to declare that “Classics have clearly hit the wall.” He called out Puma as a key performer and also said the boot category and brown shoe category had done “extremely well.”

The DotCom business, which includes the Eastbay catalog and the footlocker.com units, was up in low-single-digits, an improvement from the last few quarters. Licensed Apparel had been a primary reason for the softness here and Foot Locker sees it having less of a negative impact as they anniversary the downturn in sales in the category. They expect apparel to turn positive “later this year.” Footwear and equipment sales were up in mid-singles in the quarter.

Outside the U.S., Europe continues to be a drag, as the U.K and France persist as trouble spots for this and most other retailers and vendors. FL Europe posted a mid-single-digit comp sales decline for the period, but total sales increased in mid-singles thanks to store expansion and FX rate benefits. Canada, which now has 165 stores, and Australia, which is home to almost 100 doors for the retailer, were both said to be “performing well.” Canada and Asia/Pacific are both expected to post a mid-single-digit sales gain for the year.

The company grew International store count 10.3% versus last year for a total of 718 stores in operation at quarter-end, while U.S. store count declined 2.6% versus the same period last year, excluding the inclusion of 350 Footaction stores. Foot Locker sees adding 20 stores in Europe this year, to end the year with about 520 stores.

The sharp increase in inventory was attributed to the FX rate impact in Europe, Canada, and Australia, as well as incremental inventory to support the Footaction business and increased allocations of marquee product. The comp inventory increase in the U.S. was up in the teens, with Foot Locker up in the high-singles. Europe inventories were up in the teens as well.