Foot Locker (FL) Q1 earnings top mark, revenue up year-over-year

Foot Locker, Inc. FL released mixed results in the first quarter of fiscal 2022, in which the top line missed the Zacks consensus estimate while the bottom line exceeded the same. FL recorded the eighth straight beat in profits in the reported quarter. In addition, turnover increased year on year.

Foot Locker’s FLX membership program and omnichannel capabilities look encouraging. We note that FL is on track to achieve sales of $1 billion by 2024 or see a CAGR of 20% from projected sales of $650 million this year. Higher same-store sales and new units with the potential to more than double the current base of approximately 100 stores will drive sales.

Over the past six months, Foot Locker shares are down 22% compared to the industry’s 15.9% decline.

Q1 Metrics

The athletic footwear and apparel retailer posted adjusted earnings of $1.60 per share, beating Zacks’ consensus estimate of $1.47. Net income decreased 18.4% from adjusted earnings of $1.96 per share in the prior year quarter.

Total sales of $2,175 million were up 1% year over year, but were below the consensus estimate of $2,203 million. Excluding the impact of foreign currency fluctuations, total sales increased by 3%. Digital penetration was 18.3% compared to 24.8% in fiscal year 2021.

Comparable store sales (coms) fell 1.9% in the quarter, with clothing significantly outpacing footwear. Comps at Foot Locker stores increased by 7.9%, with in-store traffic up around 25%, while conversion was down 10% from the prior year figure.

An overview of margins

Foot Locker’s gross margin rate in the reported quarter fell 80 basis points (bps) from the prior year quarter count. High supply chain costs and slightly higher markdowns from historically low levels led to lower margins.

The SG&A rate was 21.3%, a deleveraging of almost 140 basis points due to increased spending on labor and technology.

Store update

During the first fiscal quarter, Foot Locker opened 24 stores and renovated or relocated 23 outlets. FL closed 67 stores during the aforementioned period.

As of April 30, 2022, Foot Locker operated 2,815 stores in 28 countries across North America, Europe, Asia, Australia and New Zealand. Additionally, FL had 148 franchise stores operating in the Middle East and Asia.

For fiscal 2022, management expects to open approximately 100 stores, including 40 community and electric outlets, 27 WSS stores and nine atmos stores, while closing nearly 190 stores.

Other financial details

Foot Locker ended the fiscal first quarter with cash and cash equivalents of $551 million. Long-term debt and obligations under finance leases were $450 million and shareholders’ equity was $3,215 million. As of April 30, 2022, merchandise inventories were $1,401 million, up 37.2% from the year-ago quarter end level.

In the first quarter of fiscal 2022, Foot Locker repurchased 2.7 million shares for $89 million and paid quarterly dividends of $38 million.

Outlook

For fiscal 2022, management expects the top end of sales to decline 4-6% and the top end of sales to decline 8-10%. The gross margin should be between 30.6 and 30.8% and the SG&A rate should be between 20.7 and 20.9%. Management expects supply chain costs to continue to weigh on margins.

Foot Locker expects adjusted earnings per share of $4.25 to $4.60 for the full year. Management expects capital expenditures of $275 million for fiscal 2022 due to store openings as well as technology and omnichannel investments.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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