Foot Locker Inc. is striking a positive tone for the future of the mall business as the worlds-largest-athletic-footwear-retailer gets a better handle on its U.S. business and provides a rosier outlook for the year ahead.
The gross margin improvement for the quarter was driven by a 130 basis point improvement in merchandise margin rate partially offset by a 70 basis point de-leveraging of the buying and occupancy rate. The merchandise margin improvement was attributed to lower and improved inventories and a “more conservative posture in planning and purchasing new merchandise receipts than in the recent past.”
Net income plummeted for the period, but much of the decline was attributed to store closing expenses of $3 million, or two cents a share, and a non-cash impairment charge of $15 million, or 10 cents a share.
Looking at the monthly trend, overall comp store sales increased in very-low-single-digits in February, declined mid-single-digits in March, and decreased very-low-single-digits in April.
FL reported that the combined U.S. store operations, which includes Foot Locker, Lady Foot locker, Kids Foot Locker, Champs, and Footaction, saw comps decrease in the low-single-digits, with each business unit in roughly the same range.
The U.S. stores business generated a very-low-single-digit increase in the footwear business, while apparel sales decreased double-digits. The men's footwear business increased in low-single-digits and kids footwear increased in mid-single-digits, while women's footwear sales decreased in mid-single-digits.
Sales of men's basketball and running shoes were said to be “very solid, particularly in the higher priced marquee styles” and were also reportedly “very strong” in the lower-priced canvas category, led by Chucks. Except for some assortments from Nike, sales in the men's classic, low-profile and boot categories were said to be “very weak.”
Average footwear selling prices in the U.S. increased in mid-single-digits, “enhanced by a lower markdown rate and mix shift toward selling a greater percentage of high-priced footwear.”
To offset the continued weakness in the U.S. apparel business, Foot Locker has embarked in an initiative to rebuild the branded apparel business with most of their “important suppliers,” principally Nike and adidas, while also adding Under Armour.
On the direct front, Footlocker.com sales, which includes the Eastbay business, were reportedly up in low-single-digits and produced division profit at a double-digit margin rate.
International comp store sales declined in mid-single-digits, with Europe down in high-single-digits, while the 130-store Foot Locker Canada division grew in low-single-digits and Foot Locker Asia/Pacific, which is comprised of 92 stores in Australia and New Zealand, posted a high-single-digit increase and a strong division profit improvement.
The 514-store Europe business saw both footwear and apparel contribute to the comp store sales decline, with both decreasing in the mid- to high-single-digit range.
Mr. Serra went on to say that Europe generated a positive comp store sales gain in a more “stabilized” U.K. region, offset by comp declines in each of the other large European markets. He said they “continue to refrain” from trying to drive sales through a higher promotional cadence in the market. The markdown rate in Europe continues to be one of the lowest versus the other store divisions.
The retailer said that the new proliferation of malls in Europe could be very helpful for their business there.
On the franchise front, Foot Locker, Inc. ended the quarter with a total of 13 stores, including eleven in the Middle East and two in South Korea. Two additional franchise stores were opened in the Middle East during the quarter, one in Saudi Arabia, and another in Qatar.
During the first quarter FL opened 33 new stores, remodeled or relocated 73 stores, and closed 60 stores. Store plans for the full year remain essentially unchanged, with approximately 60 store openings, 200 store remodels or relocations, and 140 closures.
The news on the inventory front was even better on a constant currency basis, declining 9% from the same time lat year. For the full year, FL continues to expect that year-over-year inventories will decrease by approximately 7% to 10% on a constant-currency basis.
For the first three weeks of May Foot Lockers U.S. operations were producing a low-single-digit increase, while the international business was seen decreasing in the low- to mid-single-digits, but was not the same decline seen in the first quarter. The DotCom business was said to be “extremely strong,” up at a double-digit rate for the month of May.
The retailer is forecasting that 2008 earnings, excluding the impairment charge that was recorded during the first quarter, will be in a range of 65 cents to 85 cents per share. Comp store sales are expected to be “relatively flat to down low-single-digits” and gross margins are expected to improve 200 to 300 basis points for the year.
>>> Interesting that while everyone is wringing their hands in anticipation of a long, drawn-out recessionary period, Foot Locker starts to see a mall resurgence
>>> Health here would do a lot for the health of the overall athletic footwear and sporting goods business…
>>> The trends here speak load and clear for the performance side, but what of the brands that made their mark in Classics and Low Profile???