Foot Locker, Inc. reported second quarter sales increased 1.5% to $1.30 billion from $1.28 billion for the year-ago quarter. Second quarter comparable-store sales, however, decreased 0.5%. The company reported net income of $18 million, or 11 cents per share, for the second quarter ended August 2, 2008 compared with a net loss of $18 million, or 12 cents per share, last year.
“Our second quarter earnings were at the high end of our expectations due primarily to lower than anticipated markdowns. As a result, our gross margin rate was 420 basis points favorable to the second quarter of last year and in line with our historic gross margin rates for the second fiscal quarter,” stated Matthew D. Serra, Foot Locker, Inc.’s chairman and CEO. “Our gross margin rate in the second quarter of last year was affected negatively by a strategic decision to accelerate the clearance of slow-selling merchandise.”
Year-to-Date Results
Net income for the company’s first six months of the year was $21 million, or 13 cents per share, and includes store closing expenses of $3 million, after-tax, or 2 cents per share, and a non-cash impairment charge of $15 million, after-tax, or 10 cents per share. For comparison purposes, year-to-date net income in 2008, before the store closing expenses and impairment charge, was $39 million, or 25 cents per share. For the first six months of 2007, the company had a net loss of $1 million, or a penny per share.
Year-to-date sales increased 0.5% to $2.61 billion compared with sales of $2.60 billion last year. Comparable-store sales decreased 1.7%.
Financial Position
At August 2, 2008, the company’s cash and short-term investments totaled $431 million while the debt on its balance sheet was $125 million. The company’s cash position, net of debt, was $173 million higher than the same time last year. During the second quarter the company repaid the remaining $88 million of its bank term debt in advance of final maturity.
In line with a strategic initiative designed to improve inventory management, the company’s merchandise inventory at the end of the second quarter was 3.5% lower than at the end of the second quarter last year. On a constant currency basis, merchandise inventory was 5.4% below last year. At the company’s combined U.S. store businesses, merchandise inventory has been reduced by approximately 10% versus the level two years ago.
Store Base Update
During the first six months of the year, the company opened 40 new stores, remodeled/relocated 162 stores and closed 97 stores. At August 2, 2008, the company operated 3,728 stores in 21 countries in North America, Europe and Australia. In addition, 14 franchised stores were operating in the Middle East and South Korea.
Mr. Serra continued, “While we are encouraged with our financial results for the second quarter and first half of this year, we are being cautious in how we manage our business for the balance of the year given the uncertain economic environment in which we operate, particularly as it relates to consumer spending. We currently expect our net income for the full year, excluding the $0.10 per share impairment charge recorded during our first fiscal quarter, to be in a range of $0.70 to $0.85 per share.”
FOOT LOCKER, INC.
Condensed Consolidated Statements of Operations
(unaudited)
Periods ended August 2, 2008 and August 4, 2007
(In millions, except per share amounts)Second Second
Quarter Quarter
2008 2007Sales $1,302 $1,283
Cost of sales 941 981
Selling, general and administrative expenses 299 286
Depreciation and amortization 33 44
Store closing costs 1 —
Interest expense, net 2 —
Other (income) expense (2) 1
1,274 1,312
Income (loss) before income taxes 28 (29)
Income tax expense (benefit) 10 (11)
Net income (loss) $18 $(18)Diluted EPS:
Net income (loss) $0.11 $(0.12)Weighted-average diluted shares outstanding 155.4 154.0
