Foot Locker Inc.’s fourth-quarter earnings came in well above Wall Street’s consensus estimate as same-store sales surged 9.7 percent.
Fourth Quarter Results
The company reported net income of $158 million, or $1.39 per share, for the 13 weeks ended February 2, 2019, compared to a net loss of $49 million, or $0.40 per share, for the 14 weeks of fiscal 2017. On a non-GAAP basis, the company earned $1.56 cents per share, a 37 percent increase over the comparable 13-week non-GAAP earnings per share of $1.14 in 2017. Wall Street’s consensus estimate had been $1.40.
The fourth quarter comparable-store sales increase of 9.7 percent came in ahead of analyst’s average expectations of 4.6 percent growth.
Total sales increased 2.8 percent, to $2,272 million this year, compared with sales of $2,210 million in 2017, which included $95 million of sales in the 53rd week last year. Wall Streets’s consensus target had been $2.19 billion. Excluding the effect of foreign exchange rate fluctuations, total sales for the fourth quarter increased 4.2 percent.
“The fundamentals of our core business remain strong and led to meaningful improvement in our financial results, not only during the fourth quarter but throughout 2018,” said Richard Johnson, chairman and chief executive officer. “This positive performance was made possible by our team’s unrelenting focus on providing compelling assortments to our customers, launching exciting collaborations with our strategic partners, both long-standing and new, and making our stores and digital channels unique and exciting destinations.”
“Looking at 2019,” Johnson continued, “we believe that by maintaining our focus on bringing differentiated experiences to youth culture, we can continue to elevate our financial performance by generating a mid-single digit comparable sales gain and another double-digit percentage increase in earnings per share.”
During the fourth quarter of 2018, the company recorded several items, all of which are detailed below in the accompanying reconciliation of GAAP to non-GAAP results. The items included: 1) a pre-tax charge of $19 million primarily related to the impairment of certain Runners Point Group assets; 2) a $1 million charge related to the company’s previously-disclosed pension matter; 3) a $4 million write-down in our deferred tax assets due to a change in Dutch tax rates; and 4) a $4 million tax benefit related to the U.S. tax reform legislation enacted in late 2017. In the prior-year fourth quarter, the company’s results included the following items: 1) $128 million pre-tax charge related to the pension matter; 2) pre-tax charges of $20 million which reflected write-downs of certain SIX:02 and Runners Point Group assets; and 3) tax items that totaled $109 million of expenses largely related to tax reform.
Fiscal Year Results
Sales for 2018 were $7,939 million, an increase of 2.0 percent compared to sales of $7,782 million in fiscal 2017 and the highest in the company’s history as an athletic business. Full-year comparable-store sales increased 2.7 percent. Excluding the effect of foreign currency fluctuations, total sales increased 1.7 percent.
The company’s net income increased to $541 million in 2018, or $4.66 per share. In the 53-week fiscal 2017, the company reported net income of $284 million, or $2.22 per share. On a non-GAAP basis, earnings per share totaled $4.71 in 2018, an 18 percent increase over last year’s 52-week, non-GAAP earnings of $3.99.
“Impressive teamwork delivered impressive financial results in 2018,” said Lauren Peters, executive vice president and chief financial officer. “We delivered a gain in our gross margin rate above the guidance we provided at the beginning of the year, achieved an inventory turn above our long-term target, and made important investments, both directly in our business and by taking strategic stakes in other companies, which we believe will drive long-term growth.”
At February 2, 2019, the company’s merchandise inventories were $1,269 million, 0.7 percent lower than at the end of the fourth quarter last year. Using constant currencies, inventory increased 1.3 percent.
At year-end, the company’s cash and cash equivalents totaled $891 million, while the debt on its balance sheet was $124 million. The company’s total cash position, net of debt, was $43 million higher than at the same time last year. During the fourth quarter of 2018, the company spent $62 million to repurchase 1.2 million shares. For the full year, the company repurchased 7.89 million shares for $375 million, returning a total of $533 million to shareholders through its share repurchase program and dividends. In addition, the company invested $187 million of cash in its store fleet, digital platforms, logistics capabilities, and other infrastructure.
“As previously announced in February, our Board of Directors approved, for the ninth consecutive year, a double-digit percentage increase in our quarterly dividend to $0.38 per share and a new $1.2 billion share repurchase program,” continued Ms. Peters. “These actions combined with the Board’s approval of a $275 million capital investment program for 2019, reflect our Board’s confidence in the company’s strong financial position and our ability to execute our strategic objectives while continuing to return cash to our shareholders.”
Store Base Update
During the fourth quarter, the company opened 11 new stores, remodeled or relocated 33 stores, and closed 56 stores. As of February 2, 2019, the company operated 3,221 stores in 27 countries in North America, Europe, Asia, Australia, and New Zealand. In addition, 112 franchised Foot Locker stores were operating in the Middle East, as well as 10 franchised Runners Point stores in Germany.
Image courtesy Foot Locker