Riding particularly strength in basketball footwear, apparel and kids overall in the U.S., Foot Locker Inc. reported second-quarter earnings jumped 59.5 percent.

Thanks to a 9.8 percent comp gain and a 90-basis point improvement in gross margins, the quarter marked FL's 10th consecutive quarter of sales and profit growth and the highest level of earnings from continuing operations of any second quarter in its history as an athletic company.

“I believe this track record of steady improvement is a consequence of carefully executing the initiatives of the strategic plan that we first laid out more than two years ago, and which we continue to refine,” said Ken Hicks, the company's chairman and CEO, on a conference call with analysts.

Still, he added that the pace of product innovation coming from its key vendors, mentioning Nike, Adidas, Converse, Jordan, Asics, New Balance, Mizuno and Under Armour, “is as fast as ever and our customers are continuing to vote enthusiastically in favor of our assortments.”

He added that the Olympics have helped to expand awareness of a number of its high-profile athletes and new technologies, and a benefit is expected to come this year from the pending opening of the NFL season as well as eventually the NBA's without threatened strikes. He cautioned that the election and “fiscal cliff” may derail the U.S. economy's progress and Europe's economies and the direction of European economies remain uncertain.

“But our Business remains solid in the US, Canada and Australia and it seems to be picking up in Europe, with positive comps there in July and so far in August,” said Hicks. “We will continue to plan cautiously but we believe we have the right product in the stores now for back-to-school and the right product coming up–in for the holiday selling season.”

Earnings in the second quarter reached $59.0 million, or 39 cents a share, besting Wall Street's consensus estimate of 33 cents. Sales increased 7.2 percent, to $1.37 billion. The 9.8 percent comp gain came on top of last year's Q2 comp gain of 11.8 percent and represented its second consecutive quarter in which the company had posted a two-year stacked comp gain in excess of 20 percent.

Domestic stores comped up in the low teens in the quarter with gains in every division except for Lady Foot Locker, which was essentially flat. Foot Locker Europe's comps were also essentially flat, down less than 0.5 percent. But total sales in Europe were up mid-single digits due to the addition of 30 stores year-over-year. FL's other international divisions posted mid single-digit comp gains and its direct-to-customer segment posted an 18.1 percent gain, including a gain of almost 50 percent in its store banner dot-com sales.

By month, comps grew high single-digit comp gains in May and June, while July was up double digits.

By division, Kids Foot Locker led the pack with a comp gain in excess of 20 percent. Champs Sports' comps increased in the teens on top of last year's similar result, for a two-year stacked result of more than 30 percent. Foot Locker in the US and Footaction also posted double-digit gains, on top of similar results a year ago.

CCS.com sales fell below last year by a low single-digit percentage as it ran far fewer promotions this year, resulting in improved profit margins. Excluding CCS, the other parts of its direct-to-customer segment posted a gain in excess of 20 percent, for a two-year stacked gain of well over 40 percent for the second quarter in a row.

By category, footwear and accessories both had high single-digit comp gains, while apparel led the way with a low double-digit increase. Within Footwear, kids was strongest across chains. Jordan product, Adidas classics such as the Samoa, padded collar Chucks from Converse and slides all had “very strong” gains in kids, said Lauren Peters, the company's EVP and CFO, on the call.

In men's footwear, basketball was again the primary driver, boosted by several Jordan retro launches. “Tremendous results” were also seen in marquee player shoes, led by LeBron, as well as Kobe, Rose and Durant. Said Peters, “The broader basketball business was very strong, as well as we continued to build on our leadership position in our biggest category with Nike, Jordan and Adidas.”

Running was relatively flat overall. At Lady Foot Locker, sales of footwear were down slightly but the company overall posted a positive comp in women's footwear as gains in several other divisions were “solid.” Positive results in women's were driven by Nike lightweight; tech running, including the Colors That Run program from Asics; Adidas classics; and Nike Prestige.

Apparel sales in the US once again achieved a 20 percent comp gain. The total company apparel gain was low-double digits, due to comp apparel declines in Europe and Canada. Graphic tees continue to a major growth driver, and its Team Edition facility also supported the gains. Among brands, particular success was seen in with Jordan apparel that hooked up with the major shoe launches with significant gains in LeBron apparel. The biggest gains came in kids in apparel. Apparel comped up double digits at Lady Foot Locker, benefiting from some early success with the improved apparel assortments.

In accessories, both socks and hats were up double digits again, with socks led by Nike Elite, Nike multi pack and Adidas. Snapback and NBA hats also saw big gains.

Gross margins improved 90 basis points to 31.3 percent. A 130 basis points pickup from leveraging occupancy and buying costs offset the loss of 30 basis points in merchandise margin, and another 10 basis points due to lower shipping revenue from our online sales. The merchandising margin rate erosion was due to higher markdowns in Europe as well as lower-margins in general from the faster-growing in-store and online operations in the U.S. versus its international business. Also, price increases from vendors was not all matched by higher retail prices. In the U.S., merchandise margin held stayed steady, even though its initial markup rate declined.

SG&A improved 120 basis points to 22.4 percent as a percent of sales, largely due to a better job managing store wages.

Inventory was down about 3 percent from last year. On a constant currency basis, inventory was flat, and it was up about 1 percent on a per store basis.

On the call, Hicks highlighted many ongoing projects among its banners. A Champs prototype initially opened in Florida has been expanded to 11 test stores to determine if the “excellent results we got out of the prototype happen when the stores are spread around the country,” he said.

A new Foot Locker prototype in Smith Haven Mall on Long Island has likewise shown promising results and some variations will be tested at a number of stores later this year and early 2013.

At Lady Foot Locker, its upgraded apparel assortments already supported the double-digit apparel gain in the quarter. Fourteen Lady Foot Locker stores are being remodeled to better highlight apparel offerings. Also, three new concept stores for women that will open late this year will feature a stronger coordination between shoes and apparel and more emphasis on performance than Lady Foot Locker. At Kids Foot Locker, several tests showcase an updated format that will soon be rolled out across the chain.

In Europe, its performance-oriented Locker Room test has been expanded to two additional locations in the UK with two more on the continent slated for later this year. Its Foot Locker count is being expanded in Europe as planned despite ongoing economic difficulties. Hicks said, “The business there remains profitable and we are investing for the long run in Europe, which we believe will stabilize over time.”

On the digital side, Foot Locker is expanding its e-commerce business in Europe, and also improving the functionality, imagery and features at Eastbay.com. Newer omni-channel services include enabling online purchases to be returned to stores and buy online, pick up in store. Hand -helds and iPads are being tested for both associates and customers in its US stores.

Looking ahead, given trends over the first half and comps running up double-digits so far in August, comps are expected to increase at the high end of mid-single digits in the second half, including a mid single-digit gain in Europe. Gross margins are expected to improve 30 to 40 basis points as sales leverage offsets higher product costs. Double-digit percentage profit increases are projected for both the third and fourth quarter. Said Peters, “The momentum of our business is clearly intact globally.”