Foot Locker Europe's sales went up by a low single-digit rate in the second quarter ended on Aug. 3, and the German-based Runners Point and Sidestep chains were flat. However, the entire Foot Locker group suffered a sales decline of 0.4 percent to $1,774 million, although comparable store sales and currency-neutral sales were both up by 0.8 percent.
The gross margin contracted by 0.1 percent to 30.1 percent. Combined with higher expenses on digital capabilities and infrastructure, this led to a 25 percent drop in net income to $60 million for the quarter. The decline was partly due to a charge of $13 million related to the closure of some Six:02 stores in the U.S.
Despite the unexpected slowdown, which sent the company's stock market price down by more than 10 percent, the management maintained its forecast for the full financial year, which calls for a gain in the mid-single-digit range for same-store sales and an improvement in the high single digits for earnings per share. It noted a sequential improvement in comparable store sales and a very strong crop of new product releases.
For the full first half of the year, sales were up by 2.9 percent in constant currencies and up by 2.8 percent on a comparable store basis.
The company is not seeing any resistance to rising price points for products that carry some value and excitement. It is obtaining good results from a test conducted in the Netherlands on a new FLX loyalty app that it plans to take to the U.S. after the holiday season. It's a free membership program through which consumers can earn “XPoints” that they can later redeem for special offers, services and events. The points can be earned by purchasing products from Foot Locker, completing surveys, or participating in activities on social media, blogs and other online activities.
In other new initiatives, Foot Locker is testing a system at its new Washington Heights store in New York where its inventory of Nike products is integrated with the brand's own inventory. Foot Locker will also be launching a Greenhouse program of exclusive collaborations with new and major brands.
The group closed a total of 71 stores during the quarter, including 27 Six:02 sites, and opened 24 new ones, ending up with a global fleet of 3,221 stores. In Europe, the number of Foot Locker stores declined by eight to 634. Runners Point and Sidestep had 98 and 78 stores at the end of the period, respectively, after 12 closures and one new opening.