Foot Locker is investing again in its profitable and growing European business. It plans to add 10 to 15 more stores to its European network of 512 doors this year, and most of the increase in total square meters will come from outside its domestic U.S. market. The American said that business conditions remained choppy through the first quarter and will probably continue to be that way in the second quarter, but expects growth in the U.S. as well in the second half of the year.
In the first quarter ended May 2, Foot Locker’s global sales decreased by 7.1 percent to $1.22 billion, with a comparable store decrease of 2.4 percent. Revenues fell by 2.2 percent in constant currencies. Net income jumped by 933 percent to $31 million, but without store closing costs of $3 million and a non-cash impairment charge of $15 million in 2008, the increase would have been 47.6 percent. Profits were helped by the company’s emphasis on managing expenses and improving margins, and this process should continue in the near term.
A solid low-single-digit gain in comparable store sales in February was followed by an expected mid-single-digit comp decline in March due to a later Easter, and a disappointing low-single-digit comparable decline in April. The quarterly gross margin expanded by 1.3 percentage points to 29.3 percent.
Foot Locker’s business outside the U.S. was a major contributor in the quarter. European and Canadian sales saw comparable store increase in the low single digits, while in Asia-Pacific this was in the double digits. Foot Locker U.S. had a low- to mid-single-digit decline, primarily on weakness in its women’s business as well as in the private label and licensed apparel businesses, but the kids’ segment helped offset these affects. Footlocker.com also had a low-single-digit decline.
Foot Locker Europe’s small comparable sales growth was met with a double-digit increase in profits at constant currencies. The European business was driven by a strong trend toward high-end technical running as well as strength in track suits and apparel. Foot Locker also said Nike Air had also experienced resurgence in the region. France and Italy were especially strong, and the Netherlands and Germany also saw positive results, while the U.K. and Spain remained difficult. Profit gains in the international divisions exceeded the sales gains.
Foot Locker’s U.S. business was driven by continued strength in its marquee basketball business. Technical men’s running was also a strong category, with the company citing Asics, New Balance, Puma, Nike and Under Armour. Foot Locker also said vulcanized product from Nike, Adidas, Puma and Converse had strengthened, taking up slack from the declining low-profile look. The Reebok EZ Tone was strong in an otherwise weak women’s category.
During the quarter, Foot Locker opened 16 new stores and closed 24 for a total of 3,633 stores in 21 countries, not including 19 franchises in the Middle East and South Korea.
While the market outside the U.S. may get more investment, Foot Locker continues to close stores at home and may shut down another 80-100 doors by year end. Meanwhile, pleased with the progress of the House of Hoops concept trialed in the U.S., the group planning to open three or four more this year and two in the U.K. More are planned for next year as the concept is doing “extremely well,” Foot Locker says. It is also putting House of Hoops departments into Foot Locker stores. Another possible expansion vehicle is opening brick & mortar CCS stores. One is already being testing in California and an East Coast test site will open in June.
