Foot Locker Posts Strong Q1, Cautious on Consumer Demand

Foot Locker Inc. remained conservative in its outlook even as investors and analysts cheered the firm’s first-quarter results.

“By planning cautiously on the top line, we also control our expense structure to ensure that our results do not suffer substantially from any slight shortfall in demand from the current pace,” said Lauren Peters, CFO, on a conference call with analysts Friday. “We continue to plan the rest of the year in the range of a mid-single-digit comp increase. We have consistently shown the ability to chase product to deliver higher sales gains if customer demand is there.”

Analysts believe Europe will remain a concern in the coming months as the region continues to grapple with sovereign debt issues.

Christopher Svezia, analyst at Susquehanna Financial, said, “Management’s guidance is for the region to comp down [in the] low single-digits for the year and this is achievable assuming comps remain positive through the Olympics and European Football Championships later this year.”

Foot Locker CEO Ken Hicks said on the call, “I’m not saying things are great in Europe, because it is challenging [and] it’s in a low-single-digit loss for the quarter. We’re forecasting it will probably be down in the low single-digits for the year. [But] in shoes, we’ve got some strong performers. [Nike] Free is a plus for us. Some of the Adidas classics are doing well; Converse is doing well.”

Looking ahead, Foot Locker’s near-term focus is on growing its women’s business, especially in apparel.

“This [will be] apparel driven, not shoe driven,” explained Hicks. “You saw the bras and bottoms that we placed in the stores as well as increased other apparel such as shorts, T-shirts, tracksuits from Adidas and Nike, so there is a heavier sense of apparel. There is also more performance in the stores.”

He added that by early fall, the firm hopes to have a new design for the Lady Foot Locker stores. “We will test that [to] allow us to show the apparel even better, but at the same time not lose the strength we have in shoes,” Hicks said.

Michael Binetti, analyst at UBS Investment Research, said, “The Lady Foot Locker business has been a significant, multi-year source of deleverage for the company, and we will be monitoring it closely for improving trends in coming quarters.”

For the period ended April 28, Foot Locker earned a net income of $128 million, or 83 cents a share, up 36.2 percent from $94 million, or 60 cents.

Revenue advanced 8.7 percent to $1.58 billion, from $1.45 billion a year ago, on the back of a comparable-store sales increase of 9.7 percent.

Foot Locker’s cash balance now stands at $909 million, with debt at $135 million. The firm’s stock ended the trading day on Friday up 8.3 percent at $30.33.

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