Foot Locker (FL) Beats on Q2 Earnings and Sales; Stock Up
After commencing fiscal 2016 on a soft note, Foot Locker, Inc. FL made a sharp comeback with better-than-expected results in second-quarter fiscal 2016. Consequently, shares of this Zacks Rank #3 (Hold) company gained 11% on Aug 19, 2016. The quarterly earnings of 94 cents per share beat the Zacks Consensus Estimate of 91 cents, and jumped 12% year over year. In the trailing four quarters (including the quarter under review) the company outperformed estimates by an average of 3.1%.
On the other hand, total sales of this operator of athletic shoes and apparel retailer came in at $1,780 million, up 5% year over year. Sales also surpassed the Zacks Consensus Estimate of $1,764 million. Excluding the impact of foreign currency fluctuations, total sales increased 5.4%. Comparable-store sales jumped 4.7% during the quarter registering gains across basketball, running, classic footwear and apparel.
The year-over-year growth in both the top and the bottom line was backed by effective implementation of the company’s operational and financial initiatives. Management believes that by continually exploiting opportunities like children’s business, shop-in-shop expansion in collaboration with its vendors, store banner.com business, store refurbishment and enhancement of assortments, Foot Locker is likely to benefit in the long run. International expansion, especially in Europe, is another growth catalyst. The company is also enhancing its e-commerce platform.
Gross margin expanded 40 basis points to 33% of sales due to lower markdowns in stores, partly offset by a contraction in merchandise margin in Direct-to-Customers business. The selling, general and administrative expense (SG&A) rate increased 20 basis points to 19.7% during the quarter.
Direct-to-customer segment witnessed sturdy performance with comparable sales gain of 7.1%. Sales of store banner.com businesses increased in the teens in the U.S.
Management reaffirmed its projection of a mid-single-digit increase in comparable sales in fiscal 2016. Foot Locker continues to expect double-digit growth in earnings per share for the fiscal year. For the third quarter, management expects gross margin to be up marginally and a slight deleverage in SG&A due to the digital business. Earnings per share are projected to increase either in the double digit or close to it.
FOOT LOCKER INC Price, Consensus and EPS Surprise
FOOT LOCKER INC Price, Consensus and EPS Surprise | FOOT LOCKER INC Quote
Store Update
During the quarter under review, Foot Locker opened 23 new outlets, remodeled or relocated 64 outlets, and shuttered 18 outlets. As of Jul 30, 2016, the company operated 3,401 outlets across 23 countries in North America, Australia, New Zealand and Europe. Apart from these, there are 54 franchised Foot Locker stores in South Korea and the Middle East. Germany has 15 franchised Runners Point stores.
Other Financial Details
Foot Locker ended the quarter with cash and cash equivalents of $945 million, long-term debt and obligations under capital leases of $128 million, and shareholders’ equity of $2,578 million.
During the quarter, the company repurchased 3.35 million shares worth $188 million and paid dividends of $37 million.
During the quarter, management incurred capital expenditures of approximately $66 million, and anticipates fiscal 2016 capital expenditures to come $5–$10 million below the original target of $297 million.
Stocks to Consider
Some better-ranked stocks in the retail sector include American Eagle Outfitters, Inc. AEO, Citi Trends, Inc. CTRN and L Brands, Inc. LB, all carrying a Zacks Rank #2 (Buy).
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