Foot Locker Sees Strength in Q3

Basketball product powered Foot Locker Inc. to sales and earnings increases in the third quarter, and that strength should continue through the holiday season.

“The athletic footwear business is really good, and the marquee basketball shoe business is exceptional,” said Sam Poser, an analyst with Sterne Agee.

Dick Johnson, COO and EVP of Foot Locker, highlighted the category in a call with analysts on Friday.

“Basketball footwear was up double digits, and the single biggest driver was brand Jordan,” he said. “When you have as many different banners and geographies as we do, there can be some exceptions to such statements, but [that] one thing was consistent for all of our male banners across the globe.”

Johnson also noted that signature product from Nike athletes LeBron James, Kevin Durant and Kobe Bryant, and from Adidas’ Derrick Rose have been particularly strong performers.

Lauren Peters, CFO and EVP, said the company is prepared for the holiday season. Foot Locker is expecting a good response to the high-profile holiday releases set to kick off on Saturday, Nov. 23, for the company’s “Week of Greatness.”

“We believe that our inventory position going into the holiday season is in good shape to facilitate full-price selling, similar to what we executed in the third quarter,” she said.

Foot Locker beat analyst estimates for earnings per share and sales for the third quarter, even as net income fell slightly.

Net earnings for the quarter were $104 million, or 70 cents a share, compared with $106 million, or 69 cents, in the comparable period last year. Overall sales for the New York-based retailer rose 6.4 percent to $1.62 billion, compared with $1.52 billion in the year-ago period. Comparable-store sales were up 4.1 percent.

Analyst Camilo Lyon of Canaccord Genuity said the company’s extensive store remodel agenda for its Champs, Foot Locker, Kids Foot Locker and Lady Foot Locker/Six:02 banners made less of a dent on the bottom line than many analysts had feared.

“This was a much stronger result than we were expecting as the remodels during the quarter did not appear to have had as significant an impact as we anticipated,” Lyon wrote in a note to investors. “As such, we believe the stock should be up on this report as many of the headwinds that [Foot Locker] faced in [the first half] appear to have softened.”

Poser added that the overhauled stores should bear fruit going forward.

“The remodels are really proving to be quite good — well above what was expected, the company said — so we think it will be material,” he said. And while the redos planned for the year have wrapped up for holiday, “my guess is we’ll see store remodels increase [in pace] a bit next year.”

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