Foot Locker Nabs Another Street Beat In Q3

Foot Locker Inc.’s share price continues to climb — up more than 7 percent at press time — after the retail giant posted yet another robust quarter.

The New York-based specialty-athletic retailer surpassed forecasts in the third quarter, with adjusted diluted earnings per share of $1.00, analysts predicted EPS of 95 cents, and revenue totaling $1.8 billion.

Its gains in comparable store sales, up 8.7 percent, also beat consensus estimates for 7 percent comp growth.

As the broader industry struggles with elevated inventory levels into Q4 and the holidays, Foot Locker ended the quarter with a year-over-year inventory increase of just 0.9 percent compared to a 3.6 percent reported sales increase. (On a constant currency basis, inventory was up 4.5 percent compared to a 8.9 percent sales increase.)

It’s a tough retail environment out there — we hear that all the time. But in my experience, retail is a challenging game even the best of times,” Foot Locker CEO Dick Johnson said during the firm’s Q3 conference call. “But by focusing on the customer, creating exciting places to shop and buy, investing in our people and processes, living by our core values, and partnering with the best in the world, we have a very real chance of continuing to have a lot of happy customers and to win every day.”

CFO Lauren Peters noted that comps and traffic at its Footaction banner were negatively impacted by temporary store closures at several locations due to its remodeling initiatives while sales in the U.S. markets were stifled by declining tourism.

“The story with traffic this quarter was the same as last quarter, with a modest decline in U.S. traffic offsetting strong traffic trends internationally, producing the small overall increase in traffic,” Peters said during the conference call. “As mentioned in Q2, we believe that the different traffic patterns here and abroad relate to the significantly stronger dollar this year, which has led, in particular, to less tourist traffic in the U.S.”

Net Income: Reported net income for the company’s third quarter, ended Oct. 31, 2015, was $80 million, a 33 percent decline from the comparable quarter’s reported income of $120 million.

EPS: Reported diluted EPS were 57 cents, compared with diluted EPS of 82 cents in the comparable quarter.

Net Revenue: Revenue advanced 3.6 percent year-over-year to $1.79 billion, from the year-ago quarter when revenue totaled $1.73 billion.

Adjustments: Excluding a $100 million pre-tax litigation charge, which reduced after-tax earnings by 43 cents per share, non-GAAP earnings were $1.00 per share, a 20 percent increase over the 83 cents per share earned in the comparable quarter. Non-GAAP net income increased 17 percent to $141 million.

Hit, Miss or Beat: Foot Locker surpassed (adjusted) earnings estimates for Q3. Analysts polled by Yahoo Finance had predicted EPS of 95 cents and revenues of $1.78 billion.

Analyst Insights: “Foot Locker is clearly taking share from Finish Line, Hibbett and likely many others and continues to prove that it is the best-in-class athletic-specialty retailer.” — Sterne Agee CRT analyst Sam Poser

“Foot Locker remains Citi’s top pick for the holidays … While Q4 represents Foot Locker’s toughest comparison of the year, with retail comps up 10.2 percent last year, we continue to believe the company is well positioned going into holiday on a fresh, exciting product assortment and cleaner inventories versus the broader industry.” — Citi Research analyst Kate McShane

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