For once, Foot Locker's quarterly results fell short of financial analysts' estimates, sending down its share price by more than 15 percent. Total sales inched up by 0.7 percent to $2,001 million for the three months to April 29, and they increased by 1.8 percent in local currencies. The gross margin fell by one percentage point to 34.0 percent, partly due to higher price promotions, and the company's net income declined by 5.8 percent to $180 million as compared to the year-ago period.
The management had warned investors that the quarter was going to be soft because the U.S. government delayed income tax refunds to many households, but the sales rebound in March and April was not as strong as expected, leading to an overall 1.2 percent drop on a same-store basis in brick-and-mortar retailing. Direct-to-consumer sales grew by 12.1 percent, with double-digit increases in Europe and Canada, and they came to represent 13.9 percent of total revenues compared with 12.7 percent a year ago.
Customer traffic declined in Europe, where Foot Locker's comparable store sales were down by a low single-digit rate in the physical stores, but the net addition of 26 locations led to a small sales increase overall. Runners Point and Sidestep improved their results, but their sales were still down by mid-single digits.
In addition to a rapidly developing digital retail business in Europe, Foot Locker continues to look for expansion opportunities in the region. Major new store openings are planned in Rome and Turkey later this year.
Global apparel sales and margins improved during the latest quarter. Sales of footwear were nearly flat, as an increase of almost 10 percent in the women's segment, driven by some innovative styles developed by Nike, Adidas and Puma, was offset by a mid-single-digit decline in the kids segment. Sales of casual and basketball shoes were down by a mid-single digit, while running shoes rose in the mid-teens, driven by lifestyle models.
The management said that the kids segment had to endure a decline in the mid-teens because of a soft signature basketball market and the unavailability of some popular adult styles in children's sizes. Kids want the latest sneaker styles and are exposed to them increasingly online, the management explained.
The second quarter will again be tough, but the management hopes that sales will accelerate in the second half, leading to a mid-single-digit increase in profits for the full year. In case current sales trends continue, Foot Locker will try to control expenses and inventories in order to reach its profit forecast.