Comparable store sales rose by a low single-digit rate at Foot Locker Europe in the fourth quarter ended Jan. 28, in spite of challenging customer traffic in many parts of the continent. These conditions were particularly serious at the Runners Point and Sidestep stores in Germany, which continued to suffer double-digit declines on a same-store basis.
Foot Locker hopes that RPG will return to growth under its recently appointed new management, which is trying to develop the right product mix for the two European formats. Since March 1, RPG is run by Kick van der Staak, a 23-year veteran of Foot Locker who played an instrumental role in the integration of RPG with Foot Locker in 2013 and 2014. Reporting in the position of vice president and general manager to Lew Kimble, executive vice president and chief executive of Foot Locker International, he replaces Bart de Wilde, who has left the business to pursue other interests.
European sales didn't go up as much as in previous years, but profitability remained high. Foot Locker continued to invest in Europe, opening 22 Foot Locker stores plus a Jordan store in Paris last year, and the investment pace will continue in the region.
Globally, Foot Locker's strong momentum continued in the fourth quarter. The company's sales increased by 5.3 percent to $2,113 million in the quarter, with increases of 6.1 percent in local currencies and 5.0 percent on a same-store store basis from the corresponding quarter of the previous year, which had seen same-store growth of 7.9 percent. The gross margin improved by 0.1 percentage points to 33.7 percent.
Outperforming analysts' estimates, the company's net income jumped by 20 percent to $189 million for the period, aided by a net tax benefit of $7 million against a $5 million charge last year for the German-based Runners Point Group (RPG). On the other hand, a fiscal change in France caused Foot Locker to reduce the value of deferred tax assets by $2 million, but this was compensated by a non-cash reduction of $9 million in U.S. taxes related to currency translations for its foreign businesses.
In terms of products, lifestyle running scored particularly well in the latest quarter, driving a double-digit increase for the overall running category. The basketball category posted a small gain. Nike remained the main brand for the group. Classic sneakers were still strong, driven by Adidas and Puma. Adidas led in apparel in the U.S., but Nike's apparel made strides in Europe. Adidas and Puma contributed to Foot Locker's expansion in the women's segment.
Excluding a decline recorded at Eastbay, the company's overall sales over the internet grew by 20 percent in the U.S.. The growth in e-commerce was even higher in Europe and Canada.
In contrast with other U.S. retailers, which operate only domestically, Foot Locker generated meaningful growth in sales and profits for the seventh consecutive year and noted that customer traffic continued to grow in its U.S. stores through the recent holiday season.
For the full financial year, Foot Locker's net income went up by 22.7 percent to $664 million as sales rose by 4.8 percent to $7,766 million, with increases of 4.3 percent on a same-store basis and 5.2 percent in constant currencies. The operating profit topped $1 billion for the first time in the company's history, giving the company an Ebit margin of 13 percent. Sales per gross square foot reached $515 for the year.
The total selling space across the group was reduced by one percent to 7,580,000 square feet in the course of last year. While 218 stores were remodeled or relocated, 96 were opened and 116 were closed. The total number of stores decreased by 20 units to 3,363 operating in 23 countries, plus 59 franchised Foot Locker stores in the Middle East and South Korea and 15 Runners Point franchises in Germany. The directly managed stores included 622 Foot Locker stores in Europe, 122 Runners Point stores and 86 Sidestep stores.
The board of directors has approved a capital spending program of $277 million for 2017, close to the $284 million spent in 2016. It has also recommended a 13 percent increase in dividends and approved a new three-year program to repurchase its own shares for a total value of up to $1.2 billion. This replaces a previous authorization for $1 billion, under which Foot Locker has spent $795 million in the last two years.
For this year, the management is predicting flat or slightly higher gross margins and a double-digit rise in net earnings on a mid-single-dgit increase in comparable store sales.
