Foot Locker Inc. issued a surprise profit warning on Thursday, after first-quarter sales were “significantly” impacted by delays its shoppers are seeing in getting back their income tax refund this year.
Shares fell by as much as 4 percent in pre-market trading but wound up climbing $3.93, or 5.4 percent, to $76.58 after the company said sales picked up in March and so far in April.
Earnings for the first quarter ending April 29 are expected to be equal to or slightly below last year’s record earnings, or $1.36 to $1.39 per share. Foot Locker doesn’t provide quarterly guidance, but Wall Street’s consensus estimate had been $1.47.
Comparable-store sales in the first quarter are expected to increase at a low-single-digit percentage rate. Wall Street on average was expecting a 2.7 percent same-store increase.
For the remaining three quarters of the year, the company said it continues to believe it will achieve a double-digit earnings per share percentage increase and a mid-single-digit comparable-store sales percentage increase. However, due to the sluggish first quarter, full-year earnings per share percentage are now expected to increase in the mid single digits, excluding the 53rd week. That compares to its previous guidance calling for a double-digit percentage EPS increase.
Foot Locker’s shares had traded lower earlier in the season after the retailer cautioned investors its fiscal first-quarter results may be less than stellar, in part because of a delay in IRS tax refunds.
“We mentioned on our 2016 earnings conference call on February 24 that the first quarter of 2017 would be challenging, based on the slower than usual start in the United States,” said Richard Johnson, chairman and CEO. “We believe the delay in the issuance of the vast majority of income tax refund checks until after the NBA All-Star Game significantly affected our February comparable-store sales, which were down low double digits.”
The tax filing season started January 23. Because of a new law called the PATH Act as part of the agency’s efforts to fight identity theft, refunds to filers claiming the Earned Income Tax Credit and Additional Child Tax Credit were delayed until February 15, and direct deposits did not begin appearing in taxpayers’ accounts until the end of that month. The delays impacted more than 40 million low-income families.
Said Johnson, “March sales rebounded well, up high single digits; however, the strength we experienced once income tax refund checks started flowing into our customers’ hands did not fully offset the slow start to the quarter. Encouragingly, we are now having a strong Easter selling period, with April comparable sales likely up low double digits, which we see as confirmation that the customer’s appetite for our exciting product assortments has not changed.”
The full-year guidance had also called for a mid-single-digit percentage comparable-store sales increase along with the double-digit percentage earnings per share increase. The guidance included little operating leverage this year. With comparable sales that fall short of a mid-single-digit percentage increase, some operating deleverage is now expected in the first quarter.
Concluded Johnson, “Despite our disappointment in the overall sales performance in the first quarter, we are confident our banners remain at the center of sneaker culture and we believe in our ability to produce the strong performance over the remainder of 2017 that we previously outlined.”
Photo courtesy Foot Locker