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Foot Locker Shares Gain on Earnings Beat

Zacks Equity Research

Shares of Foot Locker, Inc. (FL) rose 4.1% on Friday, Nov 22 and closed at $38.27 after it posted better-than-expected results for the third quarter of fiscal 2013. The company’s adjusted earnings of 68 cents per share beat the Zacks Consensus Estimate by a penny and rose 7.9% from the year-ago comparable quarter’s adjusted earnings of 63 cents.

The year-over-year growth in bottom line was primarily driven by strong top-line performance, effective cost management and lower share count.

Third-quarter adjusted earnings do not include a benefit of 3 cents per share related to reduction in tax reserves established in the prior periods. In the year-ago period, Foot Locker benefited 6 cents per share owing to the same reason. Including the impact of one-time items for both the periods, the company’s earnings came in at 70 cents per share, a penny higher than the comparable year-ago quarter earnings.

Driven by solid comparable-store sales (comps) performance, Foot Locker’s sales for the quarter surged 6.4% year over year to $1,622 million and handily surpassed the Zacks Consensus Estimate of $1,586 million.

The company’s comps improved 4.1% during the quarter on top of a 10.2% gain recorded in the year-ago comparable quarter. The improved comps performance primarily benefited from increased average selling prices, partially offset by weak traffic.

Gross profit for the quarter increased 6.3% year over year to $537 million, but as a percentage of sales it remained flat at 33.1%. Benefit from improved fixed occupancy and buying costs were fully offset by a fall in merchandise margin.

The company’s operating income came at $162 million, up 3.8% from the year-ago comparable quarter. However, operating margin for the quarter contracted 20 basis points to 10% primarily due to increased selling, general and administrative expenses as a percentage of sales.

Balance Sheet

Foot Locker ended the quarter with cash, cash equivalents and short-term investments of $796 million compared with $853 million in the year-ago comparable period. Long-term debt and obligations under capital leases was $137 million in comparison with $133 million in the prior-year period. Shareholder equity was $2,466 million.

Foot Locker repurchased approximately 2 million shares of its common stock for a sum of $67 million during the quarter. This brings the total share repurchase during the first three quarters of fiscal 2013 to 4.85 million for a sum of $167 million.

At the end of the third quarter, merchandise inventory stood at $1,316 million, up 6.1% from the year-ago comparable period. During the first nine months of fiscal 2013, Foot Locker made capital expenditure of nearly $157 million towards opening and remodeling of stores, upgrade of online, mobile and systems capabilities.

Store Update

The company opened 28 new stores and remodeled or relocated 118 stores, while it shut 13 stores during the third quarter. As of Nov 2, Foot Locker operated 3,510 stores across 23 countries in North America, Europe, Australia, and New Zealand. Apart from this, the company has 45 franchised Foot Locker stores in the Middle East and South Africa. Moreover, in Germany and Switzerland, Foot Locker has 27 franchised Runners Point and Sidestep stores.

Other Stocks Worth Considering

Foot Locker currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the same sector include Fossil Group, Inc. (FOSL), Finish Line Inc. (FINL) and DSW Inc. (DSW). All these stocks hold a Zacks Rank #2 (Buy).

Read the Full Research Report on FL
Read the Full Research Report on DSW
Read the Full Research Report on FOSL
Read the Full Research Report on FINL

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