Foot Locker Earnings, Margins Up

Foot Locker Earnings, Margins Up
A Foot Locker store location.

Higher gross margins and improved inventory lifted Foot Locker Inc. to a profit in the second quarter, the company said Thursday.

 

For the period ended July 31, the New York-based specialty athletic retailer earned $6 million, or 4 cents a share, compared with break-even performance in the same quarter last year.

 

This narrowly beat analysts’ average estimate for earnings of 3 cents on revenue of $1.13 billion, as polled by Yahoo Finance.

 

Foot Locker’s Chairman and CEO, Ken Hicks, attributed much of the company’s positive performance to a “significantly improved inventory position,” which stood at $1.22 billion at the end of the quarter, down 5 percent from the end of the same period last year.

 

“[This] facilitated our ability to drive higher margin sales by being more selective with our promotional activity while at the same time being more responsive to changes in consumer fashion trends,” added Hicks in a company statement.

 

Gross margin for the quarter improved by 230 basis points. “The most interesting, or good, news is that inventory continues to be well controlled,” said Morningstar analyst Paul Swinand.

 

“They’re not going gangbusters [because] their core consumer is still a little bit challenged, and that’s what we’re seeing across the board. The middle- to lower-class working American is shopping very close to need. They are buying, but they are being very specific, going after promotions, or only buying with extra discounts,” he added.

 

Looking ahead, UBS Investment Bank analyst Michael Binetti said in a research note that footwear trends at “big box” sporting goods chains have been accelerating lately, and this could translate to losses in market share for mall-based athletic chains like Foot Locker, as well as Finish Line.

 

Foot Locker’s second-quarter sales decreased a slight 0.3 percent to $1.1 billion (after consideration of foreign currency fluctuations), while comparable-store sales increased 2.5 percent.

 

The company managed to keep its debt roughly level at $137 million, but increased its cash position to $519 million as at July 31, from $415 million a year ago.

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