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Foot Locker Q3 Tops Wall Street Estimates Nov 29, 2016

Foot Locker Inc. reported earnings climbed 96.3 percent in the third quarter ended October 29 to $157 million, or $1.17a share, from $80 million, or 57 cents, a year ago.

Third quarter comparable-store sales increased 4.7 percent.  Total sales increased 5.1 percent, to $1,886 million this year, compared with sales of $1,794 million for the corresponding prior-year period.  Excluding the effect of foreign currency fluctuations, total sales for the third quarter increased 5.5 percent.  The company’s gross margin rate improved to 33.9 percent of sales from 33.8 percent a year ago, and the selling, general, and administrative expense rate improved 20 basis points to 19.4 percent of sales.

Non-GAAP Adjustments


During the third quarter, the company performed a scheduled reassessment of the value of intellectual property provided to its European business by Foot Locker in the U.S.  Driven by the recent success of the Foot Locker business in Europe, the new, higher valuation resulted in increased deductions that reduced tax expense by $10 million, adding 7 cents per share to third quarter earnings.  In addition, the company recorded a pre-tax impairment charge of $6 million related to certain store assets of Runners Point and Sidestep, reducing earnings per share by three cents.  Excluding these events, as well as the $100 million pension litigation charge the company recorded in the third quarter of 2015, the company earned $1.13 per share this year on a non-GAAP basis, a 13 percent increase over the non-GAAP earnings of $1.00 per share in the comparable 13-week period in 2015.  Wall Street’s consensus estimate had been $1.11.

“Our outstanding track record of meaningful sales and profit growth over several years is a strong testament to Foot Locker, Inc.’s solid position at the center of sneaker culture,” said Richard Johnson, chairman of the board and chief executive officer.  “Our associates work hard every day to make our company the sneaker lover’s preferred destination for the best footwear and apparel assortments across our array of outstanding athletic vendors.  That work translated once again into an exceptional quarterly sales and profit performance.”

Lauren Peters, executive vice president and chief financial 0fficer, added, “The company continued to execute its strategic initiatives and produce excellent financial results in the quarter, with solid, consistent top-line growth, as well as incremental improvements in both gross margin and SG&A rates.  Our inventory is fresh and well-positioned as we prepare for the important holiday selling season, and we remain well on track to achieve our annual guidance of a mid-single digit comparable-store sales gain and double-digit earnings per share growth.”

Year-To-Date Results


Net income for the company’s first nine months of the year increased to $475 million, or $3.50 per share, compared to net income of $383 million, or $2.71 per share, for the corresponding period in 2015.  Excluding the tax effect of the intellectual property reassessment and the impairment charge noted above, earnings per share for the first nine months totaled $3.46, a 10 percent increase over the same period last year excluding the pension litigation expense.

Year-to-date sales were $5,653 million, an increase of 4.6 percent compared to sales of $5,405 million in the corresponding nine-month period of 2015. Year-to-date comparable store sales have increased 4.0 percent. Excluding the effect of foreign currency fluctuations, total sales year-to-date have increased 4.9 percent.

Financial Position


At October 29, 2016, the company’s merchandise inventories were $1,361 million, 1.9 percent higher than at the end of the third quarter last year.  Using constant currencies, inventory increased 2.2 percent.

The company’s cash totaled $865 million, while the debt on its balance sheet was $128 million.  The company spent $76.3 million to repurchase 1.15 million shares during the quarter and paid a quarterly dividend of $0.275.  Year-to-date, the company has invested $193 million in its store fleet, its websites, and infrastructure, tracking to approximately $290 million for the full year.  The company has also returned $463 million to shareholders between its stock repurchase program and dividends, spending $352 million to repurchase 5.9 million shares, and paying $111 million in dividends.

Store Base Update


During the third quarter, the company opened 21 new stores, remodeled or relocated 40 stores, and closed 28 stores.  As of October 29, 2016, the company operated 3,394 stores in 23 countries in North America, Europe, Australia, and New Zealand.  In addition, 56 franchised Foot Locker stores were operating in the Middle East and South Korea, as well as 15 franchised Runners Point stores in Germany.


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