With the current market conditions in the USA, Foot Locker had trouble breaking even in its back-to-school third quarter, ended Nov. 3. Although operating margins inched up by 0.4 percent for the group’s business outside the USA, they sank by 0.3 percent on domestic sales during the quarter.
Unit sales declined in Europe, where the “fusion” category between sports and fashion is down sharply, but the company continued to focus there on sales of high-priced items at full price, and a big jump in European demand for technical running shoes is making up for the decline in the fusion segment. In the USA, instead, consumers seem to have become more reluctant to fork out on high-priced branded merchandise.
Foot Locker’s sales outside the USA were down by 4-6 percent as compared to the year-ago period, with Europe representing the weakest region, Canada remaining stable and Asia and the Pacific up by 2-3 percent. Sales for the quarter were disappointing overall, as they fell by 5.2 percent to $1,356 million in absolute terms and by 5 percent on a same-store basis. For the first nine months of the financial year, they were off by 3.5 percent to $3,955, with a drop of 5.8 percent on a comparable store basis.
The total number of stores in operation declined to 3,896 from 3,942 over the 9-month period, but those located outside the USA remained constant at 733 units. Foot Locker has closed many under-performing units in its domestic market, and it now wants to start increasing its real estate network in Europe, where it sees more potential, particularly in emerging markets. It envisions going from 500 to 750 units in the European countries where it already has a presence and adding some 250 stores in other markets in Eastern Europe.
The store closures on the domestic market have reached 158 so far this year and they will continue, totaling 300 for the full year and 120-140 more will follow next year. These closures involved costs of up to $66 million after tax during the latest quarter. Non-cash asset impairment charges also weighed down on the company’s results, pushing its third quarter results to a $33 million loss for the period, against a $65 million profit in the same quarter the previous year. Without these charges, net income was still off by 49 percent to $33 million.
In a conference call the company showed continued caution for the final quarter, but offered no financial forecast. The management only indicated that prospects are improving for technical running footwear in general. There is still no visibility about Foot Locker’s future ownership. The board hired Lehman Brothers last July to help evaluate strategic options.
