Foot Locker is taking strong action to resolve the problems that led it to report poor figures earlier this year, especially in the rapidly changing U.S. market. Investors rewarded the retailer by raising its stock market price by more than 28 percent after hearing about its new plans in connection with the release of its results for the quarter ended Oct. 28, although they were not good either.
The stock price had declined by a similar rate after its previously quarterly report on Aug. 18. Foot Locker's new plans gave also a small boost to the depressed stock market valuation of two major suppliers, Nike and Under Armour. Foot Locker's stock price has also been aided by the company's repurchase of $304 million worth of its own shares during the past quarter.
Foot Locker said it will set up pop-up stores highlighting exclusive new products, starting with those of Nike. It also plans to open more flagship stores in international cities like Paris, Rome, Oslo and Los Angeles.
Taking a $13 million restructuring charge for the elimination of various staff positions, Foot Locker has also decided to stop using separate managers in charge of its digital and brick-and-mortar retail operations, and to place its global operations on a single platform for the various sales channels, making it easier to improve data analytics and implement upgrades in e-commerce, mobile apps and new POS technologies.
Coupled with promotions intended to clear excess inventories, which contributed to reduce the gross margin by 2.9 percentage points to 31.0 percent, the restructuring charge led to a 35.0 percent drop in the company's net income to $102 million for the quarter. Excluding the charge, earnings would have still declined by 23 percent.
Discounting on certain products also contributed to lower the group's turnover by 0.8 percent to $1,870 million, with a drop of 2.3 percent in constant currencies, despite the development of e-commerce and a slight increase in the global net floor space to 7,734,000 square feet from 7,634,000 sqft.
The actual number of stores declined by 14 to 3,349 worldwide. In Europe, the number of Foot Locker stores rose by 7 to 629 after 14 new openings, 7 closures and 39 remodels or relocations. Runners Point's network was reduced from 122 to 121 stores, and Sidestep from 86 to 83 stores.
On a comparable store basis, the global turnover fell by 3.7 percent, in line with the management's previous projections, but the digital direct-to-consumer (DTC) business gained 6.1 percent, rising to 13.8 percent of total revenues from 12.8 percent a year earlier. Same-store sales were down at low double-digit rates at Foot Locker Europe and Runners Point.
The drop in Europe was attributed to lower sales of Superstars, Stan Smiths and some other Adidas styles after a big surge in the past year. In the U.S., Foot Locker also sold lower volumes of certain fashion sneakers by Adidas and Puma and of Converse casual men's styles. It continued to have problems in basketball, but it scored a high single-digit gain in men's running shoes, led by some Nike and Adidas models. The hurricanes in the U.S. and Puerto Rico hurt the company, too, shutting down 450 stores for different lengths of time.
In contrast with previous trends, sales of apparel were up by mid-single digits worldwide, with average selling prices rising at high single-digit rates, aided by more premium assortments. Key items were Foot Locker's own T-shirts and branded fleece and outerwear by Nike, Adidas and Champion.
The management expects comparable store sales to decline by between 2 and 4 percent in the fourth quarter, due to ongoing markdowns. The gross margin should fall by 2.2 percentage points.