Foot Locker Sees Reduced Promos Boost Profits…

Foot Locker Inc. management said they took their foot off the promotional pedal during much of the month of December in the U.S. and for most of the entire fourth quarter in Europe, a move that helped the world’s-largest-athletic-specialty-retailer post significantly improved margins and profits for the fourth quarter. Net income rose 17.7% to $113 million, or 72 cents a share, for the period, compared to $96 million, or 61 cents, in the year-ago quarter. Gross margins were up 80 basis points to 32.3% of sales in Q4, reflecting improved merchandise margins that more than offset higher occupancy costs.

Sales increased 5.6% to $1.65 billion from $1.56 billion, reflecting an additional week in the most recent quarter. On a 13-week comparative basis, total net sales dipped 0.4% and comparable store sales decreased 3.4% for Q4.

The additional week also contributed $18 million, or 11 cents a share, to this year's results, while a reduction of the company's income tax valuation allowance provided a benefit of $6 million, or four cents, to last year's results. The quarter also included income of $3 million, or two cents a share, from discontinued operations. Income from continuing operations was $110 million, or 70 cents a share, compared with $96 million, or 61 cents, a year ago, reflecting an increase of 14.6% for the period.

Foot Locker said income from continuing operations was $95 million, or 59 cents a share, versus $90 million, or 57 cents a share, in the year-ago period excluding these items.

Foot Locker management said that the U.S. Foot Locker business, which includes Foot Locker, Kid’s Foot Locker, and Lady Foot Locker, posted a low-single-digit comp sales decline for the quarter. Footaction had a flat quarter on a comp basis and Champs saw comps down in the low-singles. The International business comped down in the mid-single-digits, but saw a deeper drag from Europe, which posted a high-single-digit comparable store sales decrease. Foot Locker Canada and Asia were again the bright spots, with both regions comping up in the mid-single-digits.

The U.S. business saw basketball flat for the period, while running was up and cross-training and boots were down for the quarter. In running, management called out Nike Air and Shox, Asics, “certain New Balance product” and adidas Bounce product. Fashion athletic was said to be strong and they also called out Heelys and the adidas Superstar. They said that Classics were poised for a comeback. Marquee basketball was good, but mid-range product was weak. Overall comps for the U.S. business were apparently positive for Q4 excluding the boots business. Apparel comps were down in mid-single-digits.

Average selling prices were said to be up in the low-single-digits in the U.S. as the retailer continues to benefit from strong marquee footwear sales. Europe, which has seen even more of a swing to low-profile fashion athletic product, saw ASP’s dip in the low-singles for the period. Still, management said that improved margins in Europe will lead to an improved bottom line there.

Looking ahead, Foot Locker, Inc. expects to see 2007 full year EPS from continuing operations in the range of $1.55 to $1.65 per share on flat to mid-single-digit comp store sales and flat gross margins and SG&A expenses as a percent of sales. First quarter EPS is forecast to be in the 34 cents to 37 cents range, including the impact of the shift in the retail reporting calendar versus 2006 that will see the first quarter lose one week in February and gain one week in May.