Foot Locker, Inc. (NYSE: FL), the New York-based specialty athletic retailer, today reported financial results for its second quarter ended July 29, 2023.
Mary Dillon, President and Chief Executive Officer, said, “Our second quarter was broadly in line with our expectations, despite the still-tough consumer backdrop. However, we did see a softening in trends in July and are adjusting our 2023 outlook to allow us to best compete for price-sensitive consumers, while still leaning into the strategic investments that drive our Lace Up plan. Importantly, we are continuing to make progress on our inventory levels and look to best position the business for the upcoming holiday season and into 2024.”
Ms. Dillon continued, “We remain committed to our Lace Up plan as introduced at our March 2023 Investor Day, and we are encouraged by the progress we are making against our strategic priorities heading towards the holiday season. To ensure that we have the flexibility to continue to fund our strategic investments appropriately, we are pausing our quarterly cash dividend beyond our Board’s recently-approved October payout. We intend to update the market on our go-forward capital allocation plans and the timing around our longer-term financial targets when we report fourth quarter results.”
Second Quarter Results
- Total sales decreased by 9.9%, to $1,861 million, as compared with sales of $2,065 million in the second quarter of 2022. Excluding the effect of foreign exchange rate fluctuations, total sales for the second quarter decreased by 10.2%.
- Comparable-store sales decreased by 9.4%, driven by ongoing consumer softness, changing vendor mix, and the repositioning of Champs Sports.
Please refer to the Sales by Banner table below for detailed sales performance by banner and region - Gross margin declined by 460 basis points as compared with the prior-year period, driven by an increase in promotional activity, which included higher markdowns, as well as occupancy deleverage and higher shrink.
- SG&A increased by 190 basis points as a percentage of sales compared with the prior-year period, with savings from the cost optimization program more than offset by underlying deleverage on the sales decline, inflation, and investments in front-line wages and technology.
- The Company had a loss of $5 million in the second quarter, as compared with net income of $94 million in the corresponding prior-year period. On a Non-GAAP basis, net income was $4 million, as compared with $105 million in the corresponding prior-year period.
- For the quarter, the Company had a net loss of $0.05 per share, as compared with income of $0.99 per share in the second quarter of 2022. Non-GAAP earnings per share decreased to $0.04 per share, as compared with $1.10 per share in the corresponding prior-year period.
Balance Sheet
At quarter-end, the Company’s cash and cash equivalents totaled $180 million, while debt on its balance sheet was $450 million.
As of July 29, 2023, the Company’s merchandise inventories were $1.8 billion, 11% higher than at the end of the second quarter last year and sequentially improved from the 25% increase at the end of the first quarter of 2023.
Dividend and Share Repurchases
During the second quarter of 2023, the Company paid a quarterly dividend of $0.40 per share for a total of $37 million. The Company did not repurchase any shares during the second quarter.
To increase balance sheet flexibility in support of longer-term strategic priorities, the company is pausing its quarterly cash dividends beyond its recently-approved payout on October 27 to holders of record on October 13.
Store Base Update
During the second quarter, the Company opened 15 new stores, remodeled or relocated 16 stores, and closed 108 stores.
As of July 29, 2023, the Company operated 2,599 stores in 26 countries in North America, Europe, Asia, Australia, and New Zealand. In addition, 184 franchised stores were operating in the Middle East and Asia.
2023 Financial Outlook
Fiscal year 2023 represents the 53 weeks ending February 3, 2024. The Company’s full year 2023 outlook, which includes the 53rd week, is summarized in the table below.
|
Metric |
Prior Guidance |
Updated |
Commentary |
|
Sales Change |
Down 6.5% to 8.0% |
Down 8.0% to 9.0% |
Including ~1% from the extra week |
|
Comparable Sales Change |
Down 7.5% to 9.0% |
Down 9.0% to 10.0% |
Continuation of year-to-date trends at mid-point |
|
Square Footage Change |
Down ~4% |
||
|
Licensing Revenue |
~$20 million |
~$17 million |
|
|
Gross Margin |
28.6% to 28.8% |
27.8% to 28.0% |
More aggressive markdowns |
|
SG&A Rate |
22.4% to 22.6% |
22.7% to 22.9% |
|
|
D&A |
~$205 million |
~$203 million |
|
|
Interest |
~$16 million |
~$12 million |
|
|
Non-GAAP Tax Rate |
32.9% to 33.1% |
~ 33.0% |
|
|
Non-GAAP EPS |
$2.00-$2.25 |
$1.30-$1.50 |
Includes $0.15 from the extra week |
|
Adj. Capital Expenditures* |
~$305 million |
~$290 million |
Favorable project pricing and timing |
|
* Adjusted Capex Includes Capitalized Technology Expense |
The Company provides earnings guidance only on a non-GAAP basis and does not provide a reconciliation of the Company’s forward-looking capital expenditures and diluted earnings per share guidance to the most directly comparable GAAP financial measures because of the inherent difficulty in forecasting and quantifying certain amounts that are necessary for such reconciliations.
