Foot Locker, Inc. reported third-quarter earnings were sharply above year-ago levels and Wall Street targets due to strong gross margin improvement and a 2.2 percent gain in same-store sales. The sneaker juggernaut cautioned that supply chain disruptions would likely persist throughout the fourth quarter.
Third Quarter Results
The company reported net income of $158 million, or $1.52 per share, for the 13 weeks ended October 30, 2021, compared with net income of $265 million, or $2.52 per share, for the corresponding prior-year period, and $125 million, or $1.16 per share, for the third quarter of 2019.
On a non-GAAP basis, the company earned $1.93 per share for the period compared to the $1.21 per share in the third quarter of 2020, and $1.13 per share in the third quarter of 2019. Excluded from these numbers are certain impairment charges, as well as acquisition and integration costs.
Third quarter comparable-store sales increased 2.2 percent. Total sales increased 3.9 percent, to $2,189 million in the third quarter of 2021, compared with sales of $2,106 million for the corresponding prior-year period, and up 13.3 percent from $1,932 million in the third quarter of 2019. Excluding the effect of foreign exchange rate fluctuations, total sales for the third quarter increased by 3.6 percent.
Adjusted earnings of $1.93 per share came in firmly ahead of Wall Street’s consensus forecast of $1.21 per share. Group revenues of $2.189 billion was just ahead of analysts’ estimates of a $2.14 billion tally.
“The third quarter was another period of strong performance for our company that reflects the powerful connectivity we have built with our customers,” said Richard Johnson, Chairman and Chief Executive Officer. “These impressive top and bottom-line results were against a robust back-to-school season from last year and in spite of the ongoing supply chain challenges. On top of that, we succesfully completed the acquisition of WSS in the third quarter, and subsequently closed the atmos transaction as well, welcoming both of these great teams to the Foot Locker, Inc. family.”
“The combination of robust demand and fresh inventory, coupled with more full-priced selling, led to gross margin expansion of 380 basis points to 34.7 percent, from the 30.9 percent in the prior year period,” added Andrew Page, Executive Vice President and Chief Financial Officer. “In addition, we bolstered our already strong balance sheet with the issuance of $400 million of Senior Notes due in 2029, the company’s new credit benchmark and its first offering in over 20 years.”
Year-To-Date Results
For the first nine months of the year, the company posted net income of $790 million, or $7.54 per share on a GAAP basis, compared with net income of $200 million, or $1.91 per share, for the corresponding prior-year period, and $357 million, or $3.23 per share, for the first nine-months of 2019. On a non-GAAP basis, earnings per share for the nine-month period totaled $6.10, compared with $1.26 per share in the prior year period, and $3.32 per share for the corresponding period in 2019. Year-to-date sales were $6,617 million, an increase of 23.5 percent from the $5,359 million in the first nine-months of 2020, and an increase of 14.4 percent from $5,784 million for the corresponding period in 2019. Year-to-date, comparable store sales increased 21.3 percent, while total year-to-date sales, excluding the effect of foreign currency fluctuations, increased 21.7 percent.
Non-GAAP Adjustments
During the third quarter of 2021, the company recorded adjustments to earnings. The items included: 1) $13 million charge due to the wind-down of Footaction, 2) $30 million charge related to the impairment of one of the company’s minority investments, and 3) $14 million of acquisition and integration costs, primarily representing investment banking fees.
Financial Position
As of October 30, 2021, the company’s merchandise inventories, which included the addition of WSS, were $1,301 million, 9.1 percent higher than at the end of the third quarter last year. Using constant currencies, inventory increased by 8.5 percent. At quarter-end, the company’s cash and cash equivalents totaled $1,339 million, while debt on its balance sheet was $560 million. The increase in debt primarily reflects the company’s issuance of $400 million of senior notes due in 2029.
The company’s total cash position, net of debt, was $779 million, lower than the same period last year by $483 million. During the third quarter of 2021, the company repurchased 2.75 million shares for $129 million, paid a quarterly dividend of $0.30 per share, for a total of $30 million, and invested $737 million to complete the acquisition of WSS.
Shortly after the end of the third quarter, the company completed its acquisition of atmos for $360 million, subject to customary adjustments.
Financial Outlook
Andrew Page added, “We expect global supply chain constraints to persist throughout the fourth quarter; that said, we believe we are positioned for the holiday season, with positive momentum and inventory levels ready to meet customer demand.”
Store Base Update
During the third quarter, the company opened 32 new stores, remodeled or relocated 29 stores, closed 80 stores, including 32 Footaction closures and 18 conversions, and acquired 93 WSS stores. As of October 30, 2021, the company operated 2,956 stores in 27 countries in North America, Europe, Asia, Australia, and New Zealand. In addition, 136 franchised Foot Locker stores were operating in the Middle East.
>>$1.93 per share, up 59.5% from the same period last year and firmly ahead of the Street consensus forecast of $1.21 per share. Group revenues, Footlocker said, rose 3.75% to $2.189 billion, just ahead of analysts’ estimates of a $2.14 billion tally,
