FL
$33.60
Footlocker
($.10)
(.30%)
Earnings Details
2nd Quarter July 2017
Friday, August 18, 2017 6:45:00 AM
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Summary

Footlocker Misses

Footlocker (FL) reported 2nd Quarter July 2017 earnings of $0.62 per share on revenue of $1.7 billion. The consensus earnings estimate was $0.90 per share on revenue of $1.8 billion. The Earnings Whisper number was $0.93 per share. Revenue fell 4.4% compared to the same quarter a year ago.

The company said during its conference call it expects second-half earnings to be down 20% to 30%, or fiscal year earnings of approximately $3.72 to $3.97 per share. The current consensus earnings estimate is $5.04 per share for the year ending January 31, 2018.

Foot Locker Inc is a retailer of athletically inspired shoes and apparel, operating primarily mall-based stores in the United States, Canada, Europe, Australia, and New Zealand.

Results
Reported Earnings
$0.62
Earnings Whisper
$0.93
Consensus Estimate
$0.90
Reported Revenue
$1.70 Bil
Revenue Estimate
$1.82 Bil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Foot Locker, Inc. Reports 2017 Second Quarter Results

Foot Locker, Inc. (FL), the New York-based specialty athletic retailer, reported today financial results for its second quarter ended July 29, 2017.

Second Quarter Results Net income for the Company’s second quarter ended July 29, 2017 was $51 million, or $0.39 per share, compared with net income of $127 million, or $0.94 per share in the same period of 2016. This result included a $50 million pre-tax litigation charge related to a recent appeals court decision in a lawsuit against the Company involving the conversion of its pension plan in 1996. The Company previously recorded a $100 million pre-tax charge in the third quarter of 2015 related to the same litigation. Excluding this charge, which reduced after-tax earnings by 23 cents per share, non-GAAP earnings were $0.62 per share.

Second quarter comparable-store sales decreased 6.0 percent. Total sales decreased 4.4 percent, to $1,701 million this quarter, compared with sales of $1,780 million for the corresponding prior-year period. Excluding the effect of foreign currency fluctuations, total sales for the second quarter decreased 4.3 percent. The Company’s gross margin rate decreased to 29.6 percent of sales from 33.0 percent a year ago, and the selling, general, and administrative expense rate increased 20 basis points to 19.9 percent of sales.

"While we believe our position in the market for premium sneakers remains very strong and our customers continue to look to us for compelling new athletic footwear and apparel styles," said Richard Johnson, Chairman and Chief Executive Officer, "sales of some recent top styles fell well short of our expectations and impacted this quarter’s results. At the same time, we were affected by the limited availability of innovative new products in the market. We believe these industry dynamics will persist through 2017, and we expect comparable sales to be down three to four percent over the remainder of the year."

Mr. Johnson continued, "We are obviously disappointed in the results for the quarter, and our team is working quickly to adjust our operations to a changed retail landscape in which we are seeing our consumers move faster than ever from one source of inspiration or influence to another. In addition to working with our vendor partners to identify and capture new trends faster, we are also evaluating a realignment of our capital expenditure priorities and additional expense reductions so we can regain our momentum on both the top and bottom lines and deliver long-term value for our shareholders."

Year-To-Date Results Net income for the Company’s first six months of the year decreased to $231 million, or $1.74 per share on a GAAP basis, compared to net income of $318 million, or $2.33 per share, for the corresponding period in 2016. On a non-GAAP basis, earnings per share for the six-month period totaled $1.97, a 15 percent decrease compared to the same period in 2016. Year-to-date sales were $3,702 million, a decrease of 1.7 percent compared to sales of $3,767 million in the corresponding six-month period of 2016. Year-to-date, comparable store sales decreased 2.6 percent, while total year-to-date sales, excluding the effect of foreign currency fluctuations, decreased by 1.1 percent.

Financial Position At July 29, 2017, the Company’s merchandise inventories were $1,290 million, 3.7 percent lower than at the end of the second quarter last year. Using constant currencies, inventory decreased 4.9 percent. The Company’s cash totaled $1,043 million, while the debt on its balance sheet was $126 million. The Company spent $21 million to repurchase 350 thousand shares during the quarter and paid a quarterly dividend of $0.31 per share for $41 million.

"In addition to retaining our very strong overall financial position, we took aggressive action in the second quarter to ensure that our inventory levels remained in line with sales," said Lauren Peters, Executive Vice President and Chief Financial Officer. "In light of the current sales challenges in this unprecedented retail environment, we are considering a range of expense alternatives, including adjustments to our largely productive store base; reductions in overall capital spending, as well as shifting of emphasis from real estate to digital and supply chain; and various additional expense initiatives to create a more flexible, efficient organization."

Store Base Update During the second quarter, the Company opened 24 new stores, remodeled or relocated 38 stores, and closed 19 stores. As of July 29, 2017, the Company operated 3,359 stores in 23 countries in North America, Europe, Australia, and New Zealand. In addition, 68 franchised Foot Locker stores were operating in the Middle East, as well as 14 franchised Runners Point stores in Germany.

The Company is hosting a live conference call at 9:00 a.m. (EDT) today, August 18, 2017, to review these results and discuss the outlook for the remainder of 2017. This conference call may be accessed live by dialing 1-800-897-4057 (U.S. and Canada) or +44 207-855-8974 (International), or via the Investor Relations section of the Foot Locker, Inc. website at http://www.footlocker-inc.com. Please log on to the website 15 minutes prior to the call in order to register. A replay of the call will be available via webcast from the same Investor Relations section of the Foot Locker, Inc. website at http://www.footlocker-inc.com through September 1, 2017.

Disclosure Regarding Forward-Looking Statements

This report contains forward-looking statements within the meaning of the federal securities laws. Other than statements of historical facts, all statements which address activities, events, or developments that the Company anticipates will or may occur in the future, including, but not limited to, such things as future capital expenditures, expansion, strategic plans, financial objectives, dividend payments, stock repurchases, growth of the Company’s business and operations, including future cash flows, revenues, and earnings, and other such matters, are forward-looking statements. These forward-looking statements are based on many assumptions and factors which are detailed in the Company’s filings with the Securities and Exchange Commission, including the effects of currency fluctuations, customer demand, fashion trends, competitive market forces, uncertainties related to the effect of competitive products and pricing, customer acceptance of the Company’s merchandise mix and retail locations, the Company’s reliance on a few key vendors for a majority of its merchandise purchases (including a significant portion from one key vendor), cybersecurity breaches, pandemics and similar major health concerns, unseasonable weather, deterioration of global financial markets, economic conditions worldwide, deterioration of business and economic conditions, any changes in business, political and economic conditions due to the threat of future terrorist activities in the United States or in other parts of the world and related U.S. military action overseas, the ability of the Company to execute its business and strategic plans effectively with regard to each of its business units, and risks associated with global product sourcing, including political instability, changes in import regulations, and disruptions to transportation services and distribution.

For additional discussion on risks and uncertainties that may affect forward-looking statements, see "Risk Factors" disclosed in the 2016 Annual Report on Form 10-K. Any changes in such assumptions or factors could produce significantly different results. The Company undertakes no obligation to update forward-looking statements, whether as a result of new information, future events, or otherwise.

FOOT LOCKER, INC.
Condensed Consolidated Statements of Operations
(unaudited)
Periods ended July 29, 2017 and July 30, 2016
(In millions, except per share amounts)
Second Quarter
Year-to-Date
2017
2016
2017
2016
Sales
$
1,701
$
1,780
$
3,702
$
3,767
Cost of sales (1)
1,198
1,193
2,519
2,484
Gross margin
503
587
1,183
1,283
SG&A
339
350
710
711
Depreciation and amortization
42
39
83
78
Income from operations
122
198
390
494
Litigation charge
50
--
50
--
Interest (income)/expense, net
(1)
1
(1)
1
Other income
--
(1)
(1)
(3)
Income before income taxes
73
198
342
496
Income tax expense
22
71
111
178
Net income
$
51
$
127
$
231
$
318
Diluted EPS
$
0.39
$
0.94
$
1.74
$
2.33
Weighted-average diluted shares
132.0
135.5
132.3
136.6
outstanding
Reconciliation of GAAP to Non-GAAP Results:
Second Quarter
Year-to-Date
2017
2016
2017
2016
After
After
After
After
Tax
EPS
Tax
EPS
Tax
EPS
Tax
EPS
GAAP net income
$
51
$ 0.39
$
127
$ 0.94
$
231
$ 1.74
$
318
$ 2.33
After-tax adjustments:
Litigation charge (2)
30
0.23
--
--
30
0.23
--
--
Non-GAAP results
$
81
$ 0.62
$
127
$ 0.94
$
261
$ 1.97
$
318
$ 2.33
Footnotes:
(1)
Cost of sales includes: the cost of merchandise, freight, distribution, shipping and handling, occupancy and buyers’ compensation. Occupancy costs include rent, common area maintenance charges, real estate taxes, general maintenance, and utilities. Cost of sales is exclusive of depreciation and amortization, which is shown separately.
(2)
During the second quarter of 2017, the Company recorded a pre-tax charge of $50 million ($30 million after-tax, applying a marginal tax rate, or $0.23 per diluted share) in connection with its U.S. retirement plan litigation. The Company had previously recorded a pre-tax charge for $100 million during 2015. This charge reflects the Company’s revised estimate of its exposure for this matter, bringing the total pre-tax amount accrued to $150 million. The Company will continue to vigorously defend itself in this case. In light of the uncertainties involved in this matter, there is no assurance that the ultimate resolution will not differ from the amount currently accrued by the Company.
FOOT LOCKER, INC.
Condensed Consolidated Balance Sheets
(unaudited)
(In millions)
July 29,
July 30,
2017
2016
ASSETS
Current assets:
Cash and cash equivalents
$
1,043
$
945
Merchandise inventories
1,290
1,339
Other current assets
311
301
2,644
2,585
Property and equipment, net
821
726
Deferred taxes
167
174
Other assets
314
277
$
3,946
$
3,762
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable
$
162
$
348
Accrued and other liabilities
308
326
Current portion of capital lease obligations
--
1
470
675
Long-term debt and obligations under capital leases
126
128
Other liabilities
456
381
Total liabilities
1,052
1,184
Total shareholders’ equity
2,894
2,578
$
3,946
$
3,762
FOOT LOCKER, INC.
Store and Square Footage
(unaudited)
Store activity is as follows:
January 28,
July 29, Relocations/
2017
Opened Closed 2017
Remodels
Foot Locker US
948
3
19
932
25
Foot Locker Europe
622
9
7
624
22
Foot Locker Canada
119
1
3
117
3
Foot Locker Asia Pacific
95
3
1
97
7
Kids Foot Locker
411
24
3
432
19
Lady Foot Locker
124
--
12
112
--
Champs Sports
545
3
2
546
10
Footaction
261
8
7
262
13
Runners Point
122
1
1
122
--
Sidestep
86
--
2
84
--
SIX:02
30
2
1
31
--
Total
3,363
54
58
3,359
99
Selling and gross square footage are as follows:
January 28, 2017
July 29, 2017
(in thousands)
Selling
Gross
Selling Gross
Foot Locker US
2,453
4,250
2,452
4,261
Foot Locker Europe
907
1,971
922
1,999
Foot Locker Canada
265
432
273
443
Foot Locker Asia Pacific
134
220
138
230
Kids Foot Locker
688
1,175
736
1,257
Lady Foot Locker
167
280
152
256
Champs Sports
1,930
2,978
1,949
3,013
Footaction
786
1,309
815
1,361
Runners Point
162
267
156
267
Sidestep
81
135
77
132
SIX:02
61
101
63
106
Total
7,634
13,118
7,733
13,325
Contact: John A. Maurer
Vice President,
Treasurer and Investor Relations
Foot Locker, Inc.
(212) 720-4092

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SOURCE Foot Locker, Inc.

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