Foot Locker Beats, Rises Y/Y
Foot Locker Inc. (FL) recently reported better-than-expected third quarter 2012 financial results with quarterly earnings of 63 cents a share coming way ahead of the Zacks Consensus Estimate of 54 cents. Moreover, earnings per share surged 46.5% from 43 cents reported in the comparable quarter prior-year.
Quarterly Details
Net sales for the quarter registered a growth of 9.3% to $1,524.0 million compared with $1,394.0 million in the last year quarter, driven by a 10.2% rise in comparable store sales. The improvement in comparable store sales was contributed by a 9.4% rise in store sales and an 18.3% increase in direct-to-consumer sales. Further, revenue came in way ahead of the Zacks Consensus Estimate of $1,466.0 million.
Gross profit augmented 11.5% to $505.0 million from $453.0 million in the third quarter of 2011, whereas gross margin for the quarter expanded 60 basis points to 33.1% year over year. The increase in gross margin was benefitted by operating leverage, partially offset by a contraction of 30 basis points in merchandise margins.
Increase in sales along with continuous growth in comparable store sales and improved margins led to a 47.2% hike in operating income to $156.0 million from the prior-year level of $106.0 million. Consequently, operating margin for the quarter expanded 270 basis points to 10.2%.
Other Financial Aspects
Foot Locker ended the third quarter with cash and cash equivalents (including short-term investments) of $853.0 million, up from $698.0 million at the end of the prior-year quarter. Inventory at the end of the quarter increased 3.0% to $1,240.0 million from $1,204.0 million at the end of the last year period.
At the end of the quarter, long-term debt came in at $133.0 million, down from $136.0 million at the end of the year-ago period. Shareholder’s equity came in at $2,289.0 million versus $2,093.0 million.
Share Repurchases Activity
Foot Locker bought back about 841 thousand of its common stock for a value of $29.7 million in the third quarter of 2012. However, year-to-date, the company had deployed $94.3 million for buying back only 3 million shares of its common stock. The company is sanctioned to repurchase an additional of 397.0 million shares under its share repurchase program.
Store Update
Year-to-date, Foot Locker has launched 70 new stores while shuttering 72 stores. Additionally, the company has renovated and relocated around 159 stores in the first nine months of 2012. At the end of the third quarter, Foot Locker operated 3,367 stores in 23 countries in North America, Europe, Australia and New Zealand. Further, the company was running 40 franchised stores in Middle East and South Korea.
Guidance
In the company’s conference call, management said that it anticipates the company’s comparable store sales to grow in the upper limit of mid-single digits. Further, gross margin is expected to expand about 50 basis points in the next quarter. Management noted that the fourth quarter consists an extra week, which will contribute approximately 10 cents to earnings per share in the quarter.
Conclusion
New York-based Foot Locker is a leading athletic retailer and operates under two segments – Athletic Stores and Direct-To-Consumers. The company offers athletic footwear, apparel, accessories, and equipment under various formats, including Foot Locker, Lady Foot Locker, Kids Foot Locker, Champs Sports, Footaction, and CCS.
Foot Locker, which competes with The Finish Line Inc. (FINL), carries a Zacks #2 Rank, implying short-term Buy rating on the stock for the next 1-3 months based on positive earnings surprise history averaging about 13.7% for the last four quarters, including the current reported quarter.
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