Foot Locker is benefitting from the growing importance of the lifestyle segment of the athletic footwear market, for example with the success of Adidas Originals in its U.S. stores during the third quarter of its financial year, ended on Oct. 29. It is re-introducing casual lifestyle items in the stores of the German-based Runners Point Group, which have been suffering from their excessive emphasis on performance products. Sales declined at a high single-digit rate during the quarter at Eastbay, which has also struggled with the fashion shift away from performance.
Lifestyle items such as Puma's collection for Rihanna turned Foot Locker's small new Six:02 chain in the U.S. into the group's star during the quarter. Across the group, less reliance on the performance side of the sector helped offset weakness in basketball in the U.S. and led to an apparent reduction in Nike's still dominant share in the group's turnover. Besides Adidas, which is improving also on the performance side of the business, other brands like Under Armour, Vans, Reebok, Asics and New Balance have been gaining ground at Foot Locker stores.
In Germany, RPG's sales fell at a double-digit rate in the latest quarter, but Foot Locker officials blamed in part the general weakness of the local market. While fine-tuning the Runners Point concept before launching it in other countries, the group has just opened its first German Kids Foot Locker store, located in the Milaneo shopping center of Stuttgart.
Overall, Foot Locker's sales in Europe were down by a low single-digit rate in the quarter, due in part to declining traffic at its stores in Italy, France and Spain. Globally, the company's sales went up by 5.1 percent to $1,886 million, with increases of 5.5 percent in local currencies and 4.7 percent on a comparable store basis. E-commerce went up strongly.
Sales of women's products jumped at a double-digit rate on a same-store basis. Basketball products were down slightly. Running was up, driven by the lifestyle running products of Nike and Adidas.
The gross margin gained 10 basis points and reached 33.9 percent, thanks in part to fewer markdowns. Net earnings climbed by 96.3 percent to $157 million, scoring better than expected. Adjusted to eliminate extraordinary items in both years, including a higher goodwill assessment for its successful European business and a $6 million pre-tax impairment charge for Runners Point and Sidestep, net income rose by 8 percent to $152 million.