Foot Locker Inc. reported earnings on an adjusted basis eased slightly in the first quarter as increased operating costs to fund strategic initiatives offset improving gross margins and a 4.6 percent comp gain. Earnings came in below Wall Street’s consensus target.

First Quarter Results

Net income for the company’s first quarter of 2019 was $172 million, or $1.52 per share, compared to net income of $165 million, or $1.38 per share in the corresponding prior-year period. Excluding charges recorded in connection with the company’s pension matter, non-GAAP earnings were $173 million, or $1.53 per share, against $174 million, or $1.45, for the first quarter of 2019 and 2018, respectively. Wall Street’s consensus estimate had been $1.61.

First quarter comparable-store sales increased 4.6 percent. Wall Street’s consensus estimate had been 5.5 percent.

Total first quarter sales increased 2.6 percent, to $2,078 million, compared to sales of $2,025 million for the corresponding prior-year period. Wall Street’s consensus estimate had been $2.11 billion. Excluding the effect of foreign exchange rate fluctuations, total sales for the first quarter of 2019 increased 4.7 percent.

The company’s gross margin rate increased to 33.2 percent from 32.9 percent a year ago, while the SG&A expense rate increased to 20.0 percent from 19.0 percent in the first quarter of 2018, largely reflecting the strategic investments the company is making in its digital capabilities and infrastructure.

“We started the year with great energy, innovative products, and exciting customer events, leading to solid top-line growth in the first quarter with strong performance across our regions, banners, channels, and categories,” said Richard Johnson, president and chief Executive officer. “Based on the momentum we have underway, we feel confident that the updated strategic imperatives we introduced at our Investor Day in March position us to deliver on our long-term goals.”

“The team did an excellent job positioning the company to leverage its mostly fixed occupancy and buyers compensation expenses during the first quarter,” said Lauren Peters, executive vice president and chief financial officer. “To build on this momentum and create even deeper connections with our customers, we continue investing in our digital capabilities, store fleet, and infrastructure, which we believe will deliver returns on both the top-line and bottom-line, creating shareholder value in the short and long term.”

Financial Outlook

The company is on track with its previously stated full-year outlook, including sales, gross margin, and SG&A; however, earnings per share are now expected to be up high-single digits based on the share repurchase activity to date. The retailer had previously predicted a double-digit advance in EPS in February.

Financial Position

As of May 4, 2019, the company’s merchandise inventories were $1,211 million, 0.1 percent higher than at the end of the first quarter last year. Using constant currencies, inventory increased 1.7 percent.

The company’s cash totaled $1,126 million, while the debt on its balance sheet was $123 million. During the first quarter of 2019, the company adopted the new lease accounting rules. In connection with that adoption, the company recognized $3,273 million of lease obligations and right-of-use assets of $3,004 million, the difference is due primarily to previously recognized amounts. The company spent $1.8 million to repurchase 32,100 shares during the quarter and paid a quarterly dividend of $0.38 per share, spending $43 million.

Store Base Update

During the first quarter, the company opened 14 new stores, remodeled or relocated 13 stores, and closed 34 stores. As of May 4, 2019, the company operated 3,201 stores in 27 countries in North America, Europe, Asia, Australia, and New Zealand. In addition, 119 franchised Foot Locker stores were operating in the Middle East, as well as 10 franchised Runners Point stores in Germany.