Foot Locker's (FL) Q3 Earnings Beat, Sales Decrease Y/Y
Foot Locker, Inc. FL posted third-quarter fiscal 2023 results, wherein the top and the bottom line surpassed the Zacks Consensus Estimate, however, both metrics fell year on year.
The athletic shoes and apparel retailer posted adjusted earnings of 30 cents per share, which surpassed the consensus estimate of earnings of 23 cents per share. The bottom line decreased from adjusted earnings per share of $1.27 in the prior-year quarter.
Total sales of $1,986 million beat the Zacks Consensus Estimate of $1,965 million. Also, the metric declined 8.6% from the year-ago reported period. Excluding the foreign-currency fluctuation impact, total sales fell by 10%.
Foot Locker, Inc. Price, Consensus and EPS Surprise
Foot Locker, Inc. price-consensus-eps-surprise-chart | Foot Locker, Inc. Quote
Comparable-store sales (comps) fell 8% due to persistent consumer softness, changing vendor mix and the adverse impact of the repositioning of Champs Sports.
An Insight into Margins
Foot Locker's gross margin rate in the reported quarter dropped 470 basis points (bps) from the prior-year quarter’s figure. Higher markdowns, occupancy deleverage and increased shrink caused a margin decline. We had expected a gross margin decline of 430 bps in the quarter.
The selling, general and administrative (SG&A) expenses increased 100 bps as a percentage of sales from the prior year, with savings from the cost optimization more than offset by underlying deleveraged sales, inflation, and investments in front-line wages and technology. We had anticipated SG&A expenses to expand 150 bps.
Store Update
During the fiscal third quarter, Foot Locker opened 22 stores and remodeled or relocated 36 outlets while closing 14 stores.
As of Oct 28, 2023, Foot Locker operated 2,607 stores across 26 countries in North America, Europe, Asia, Australia and New Zealand. Also, FL had 190 franchised stores operating in the Middle East and Asia.
Other Financial Details
Foot Locker ended the fiscal third quarter with cash and cash equivalents of $187 million. Long-term debt and obligations under finance leases amounted to $443 million and shareholders’ equity summed at $3,205 million. As of Oct 28, 2023, merchandise inventories were $249 million, down 46.6% from the year-earlier quarter’s end level.
During the reported quarter, management paid a quarterly dividend of 40 cents per share, valuing $38 million. We note that the company has paused the quarterly cash dividends to boost the balance sheet flexibility to drive long-term growth. It did not repurchase shares in the quarter.
Outlook
For fiscal 2023, management expects the sales to decline 8-8.5%, including 1% from the extra week and the comps to fall 8.5-9% year over year. This is comparable with the earlier view of sales and comps declining 8-9% and 9-10%, respectively. Licensing revenues are likely to be $15 million for the current fiscal year.
The gross margin is anticipated to be in the range of 27.8-27.9% compared with the prior view of 27.8-28%. The SG&A rate is forecast to be 22.8-22.9%, up from the earlier view of 22.7-22.9%.
The company envisions fiscal 2023 adjusted earnings per share of $1.30-$1.40, versus $1.30-$1.50 predicted earlier. The earnings guidance includes 11 cents a share from the extra week. Management predicts adjusted CapEx at $275 million for fiscal 2023 compared with the earlier estimate of $290 million.
Price Performance
Over the past three months, shares of this Zacks Rank #3 (Hold) company have increased 28.5% compared with the industry’s 7.6% rise.
Key Picks
We have highlighted three better-ranked stocks, namely Abercrombie & Fitch ANF, The Gap GPS and American Eagle Outfitters AEO.
Abercrombie & Fitch, a leading casual apparel retailer, currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Abercrombie & Fitch’s current financial-year sales suggests growth of 10.4% from the year-ago reported figure. ANF has delivered an earnings surprise of 724.8% in the last four quarters.
The Gap currently sports a Zacks Rank of 1. The company has a trailing four-quarter earnings surprise of 137.9%, on average.
The Zacks Consensus Estimate for The Gap’s current financial-year earnings per share suggests growth of 280% from the year-ago reported figure.
American Eagle Outfitters, a retailer of casual apparel, accessories and footwear, currently carries a Zacks Rank #2 (Buy). AEO has delivered an average earnings surprise of 43.2% in the last four quarters.
The Zacks Consensus Estimate for American Eagle Outfitters’ current financial-year earnings per share suggests growth of 37.1% from the year-ago reported figure.
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Abercrombie & Fitch Company (ANF) : Free Stock Analysis Report
American Eagle Outfitters, Inc. (AEO) : Free Stock Analysis Report
The Gap, Inc. (GPS) : Free Stock Analysis Report
Foot Locker, Inc. (FL) : Free Stock Analysis Report
