Despite turning a profit of $24 million for the third quarter ended Nov. 1, compared with a loss of $33 million the year before, Foot Locker downgraded its expectations for the fourth quarter because of the current retail environment. It struggled in its domestic market, but was stronger outside the USA for the period.
Excluding impairment charges and store closing costs last year of $66 million and a $3 million impairment charge this year, the quarterly net income was actually down by 18 percent to $27 million versus $33 million. Total sales in the period were down by 3.5 percent (by 3 percent in constant currencies) to $1,309 million as comparable store sales fell by 1.7 percent and the chain had a net decline of 71 stores on a global basis as part of its plan to increase productivity.
European sales ended the quarter down by the low single digits but were seen improving after a weak August, led by strong apparel sales with growth of more than 20 percent, climbing still in November. They were boosted by strong sales and higher prices for marquee running footwear. Canadian sales were up in the low single digits and the growth in Asia-Pacific neared double digits. Revenues in the USA were strong in August but fell in September and October, leading to a low-single-digit comparable-store decline for the period at the Foot Locker unit and a low-single-digit increase at FootLocker.com. Australia was described as turning in a “very strong performance” for the year.
The growing marquee footwear business, which represented over 33 percent of footwear sales, continued to perform well, led by men’s basketball and especially Jordan products.
As of Nov. 1, Foot Locker had 3,714 stores worldwide after opening 58 and closing 129. It also had 16 franchises in the Middle East and South Korea.
Foot Locker reduced its guidance for the fourth quarter, lowering its estimate for the fiscal year to earnings of $77.8 million to $98.0 million from prior guidance of $32.8-$53.0 million. The company projects negative low- to mid-single digit comps and a gross margin improvement of 1.75-2.0 percentage points. While it is encouraged by the trend in Europe, it believes the biggest risk to the forecast is in the performance of U.S. sales, as some estimates indicate that mall traffic in the USA will drop by 10 percent or more.
It’s also looking to CCS, recently acquired by FootLocker.com/Eastbay, to contribute to its figures in the next year. CCS sells skateboard footwear, apparel and accessories through catalogs and online.