Foot Locker Inc. reported earnings before charges slid 3.3 percent in the first quarter, but came in well ahead of Wall Street’s targets.
Excluding non-recurring items, such as a $12 million charge related to pension litigation, adjusted earnings slid to $174 million, or $1.45 a share, against $180 million, $1.36, a year ago. Wall Street’s consensus estimate had been $1.25.
The lower EPS reflects a significant reduction in average shares outstanding during the period to 119.1 million from 132.6 million a year ago.
Net income for the company’s first quarter ended May 5, 2018 was $165 million, or $1.38 per share, compared to net income of $180 million, or $1.36 per share in the same period of fiscal 2017. The latest period included a $12 million charge related to the company’s pension litigation.
First quarter comparable-store sales decreased 2.8 percent, but ahead of Wall Street’s consensus expectation calling for a 3.9 percent drop.
Total first quarter sales increased 1.2 percent, to $2.03 billion this year, compared to sales of $2.0 billion for the corresponding prior-year period. Wall Street’s average target was $1.96 billion. Excluding the effect of foreign exchange rate fluctuations, total sales for the first quarter decreased 1.5 percent.
The company’s gross margin rate decreased to 32.9 percent from 34 percent a year ago, while the SG&A expense rate increased to 19 percent from 18.5 percent in the first quarter of 2017, primarily reflecting the significant investments the company is making in its digital operations.
“The flow of premium product continues to improve, with increasing breadth and depth in the most sought-after styles from our key vendors,” said Richard Johnson, chairman and chief executive officer. “This led to first quarter results which were above our expectations. With the strength of our strategic vendor partnerships and our central position in youth culture, we continue to believe that we are poised to inflect to positive comparable-store sales growth as we progress through the year.”
As of May 5, 2018, the company’s merchandise inventories were $1,210 million, 5.4 percent lower than at the end of the first quarter last year. Using constant currencies, inventory decreased 7.1 percent.
“The team did an excellent job in managing our inventories and helping to clear slow-moving product in a promotional environment, giving us the flexibility to flow in fresh and exciting product,” said Lauren Peters, executive vice president and chief financial officer. “This disciplined approach positions our inventory to drive improved top and bottom line results over the balance of the year.”
The company’s cash totaled $1,029 million, while the debt on its balance sheet was $125 million. The company spent $112 million to repurchase 2.6 million shares during the quarter and paid a quarterly dividend of $0.345 per share, spending $41 million.
Store Base Update
During the first quarter, the company opened 11 new stores, remodeled or relocated 43 stores, and closed 37 stores. As of May 5, 2018, the company operated 3,284 stores in 24 countries in North America, Europe, Australia and New Zealand. In addition, 105 franchised Foot Locker stores were operating in the Middle East, as well as 11 franchised Runners Point stores in Germany.
Photo courtesy Foot Locker