Foot Locker booked a 9.7 percent sales increase on a same-store basis in the fourth quarter ended on Feb. 2, well ahead of the financial analysts' consensus estimate of 4.6 percent. Digital sales rose by 29.7 percent, representing 19.1 percent of the retailer's total turnover. Sales increased at a double-digit rate at Eastbay and Foot Locker stores in the U.S. and Canada. They went up at a high single-digit pace in Europe and by double digits in the Asia-Pacific region.
The total turnover increased by 2.8 percent to $2,272 million during the 13-week period as compared to the same 14-week quarter a year ago, which included revenues of $95 million for the extra week. In terms of local currencies, sales were up by 4.2 percent.
Exceeding its previous guidance, Foot Locker reported a net profit of $158 million for the quarter against a loss of $49 million in the year-ago period, which included extraordinary charges of $168 million including write-offs of $20 million on Runners Point in Germany and Six:02 in the U.S.
The net income for the latest quarter came after further impairment charges of $19 million, primarily related to Runners Point, and other items including a $4 million write-down on deferred tax due to a change in Dutch tax regulations. Adjusted for these items and the effect of a 53rd week, the quarterly net income was up to $177 million from $139 million.
The management said the fundamentals of the group's core business remain strong, with more than three inventory turns per year, leading to a meaningful improvement in financial results, thanks to “compelling assortments” and exclusive collaborations with strategic partners like Nike and Adidas and the ongoing strong performance of smaller brands like Fila, Champion, Puma, Timberland and Vans. Apparel sales and margins outperformed, while sales of women's products were down at a low single-digit rate.
In announcing the results, the company said it will close down all its Six:02 stores for women in the U.S. to concentrate on the smaller Lady Foot Locker format. Foot Locker had launched the Six:02 banner several years ago to give more space to clothing.
The group's overall performance improved strongly in the latest quarter. The results for the full financial year show a sales increase of only 2.7 percent on a same-store basis. In absolute terms, revenues went up by 2.7 percent to $7,782 million, with a tiny 1.7 percent increase in constant currencies. The gross margin improved and net earnings rose to $541 million from $284 million in the prior year, rising by 7 percent on an adjusted basis.
For this year, Foot Locker is forecasting a mid-single-digit increase on a comparable store basis. As markdowns are already at historically low levels, the gross margin may go up by between 0.2 and 0.4 percentage points from last year's margin of 31.8 percent, but higher expenses will weigh down on the final results.
The company has earmarked capital expenditures of $275 million for this year, up strongly from a level of around $200 million in the previous year, and $175 million of that will be used to modernize its global store fleet. Foot Locker will also invest in its digital initiatives and in the supply chain. It plans to open 80 new stores, including more than a dozen super stores, and to remodel or relocate 190 existing units. It wants to expand in Asia, where it only has five Foot Locker stores. It will close 165 doors including all the 30 Six:02 units still in operation, some Runners Point stores in Germany and some Foot Locker stores in the U.S. and Europe.
At the end of the last fiscal year, Foot Locker was operating a total of 3,221 stores under several banners in 27 countries, down from 3,221 at the end of the previous financial year. In addition, franchisees were running 112 Foot Locker stores in the Middle East and 10 Runners Point stores in Germany.
During the past year, the number of Foot Locker stores grew in Europe to 642 from 636, following 18 new openings, 12 shutdowns and 37 relocations or remodels. The number of Runners Point stores declined from 118 to 107, while Sidestep was down to 80 units from 83.
Confident in its ongoing performance, Foot Locker's board has decided to raise its quarterly cash dividend by 10 percent. It has also approved a new three-year share repurchase program worth $1.2 billion, replacing a previous program launched two years ago under which it has already spent $817 million on share repurchases.