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Foot Locker (FL) Pauses Dividend, Lowers Guidance

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August 23, 2023 6:47 AM EDT

Foot Locker, Inc. (NYSE: FL), the New York-based specialty athletic retailer, today reported financial results for its second quarter ended July 29, 2023.

Mary Dillon, President and Chief Executive Officer, said, "Our second quarter was broadly in line with our expectations, despite the still-tough consumer backdrop. However, we did see a softening in trends in July and are adjusting our 2023 outlook to allow us to best compete for price-sensitive consumers, while still leaning into the strategic investments that drive our Lace Up plan. Importantly, we are continuing to make progress on our inventory levels and look to best position the business for the upcoming holiday season and into 2024."

Ms. Dillon continued, "We remain committed to our Lace Up plan as introduced at our March 2023 Investor Day, and we are encouraged by the progress we are making against our strategic priorities heading towards the holiday season. To ensure that we have the flexibility to continue to fund our strategic investments appropriately, we are pausing our quarterly cash dividend beyond our Board's recently-approved October payout. We intend to update the market on our go-forward capital allocation plans and the timing around our longer-term financial targets when we report fourth quarter results."

Second Quarter Results

  • Total sales decreased by 9.9%, to $1,861 million, as compared with sales of $2,065 million in the second quarter of 2022. Excluding the effect of foreign exchange rate fluctuations, total sales for the second quarter decreased by 10.2%.
  • Comparable-store sales decreased by 9.4%, driven by ongoing consumer softness, changing vendor mix, and the repositioning of Champs Sports.

    Please refer to the Sales by Banner table below for detailed sales performance by banner and region
  • Gross margin declined by 460 basis points as compared with the prior-year period, driven by an increase in promotional activity, which included higher markdowns, as well as occupancy deleverage and higher shrink.
  • SG&A increased by 190 basis points as a percentage of sales compared with the prior-year period, with savings from the cost optimization program more than offset by underlying deleverage on the sales decline, inflation, and investments in front-line wages and technology.
  • The Company had a loss of $5 million in the second quarter, as compared with net income of $94 million in the corresponding prior-year period. On a Non-GAAP basis, net income was $4 million, as compared with $105 million in the corresponding prior-year period.
  • For the quarter, the Company had a net loss of $0.05 per share, as compared with income of $0.99 per share in the second quarter of 2022. Non-GAAP earnings per share decreased to $0.04 per share, as compared with $1.10 per share in the corresponding prior-year period.

Balance Sheet

At quarter-end, the Company's cash and cash equivalents totaled $180 million, while debt on its balance sheet was $450 million.

As of July 29, 2023, the Company's merchandise inventories were $1.8 billion, 11% higher than at the end of the second quarter last year and sequentially improved from the 25% increase at the end of the first quarter of 2023.

Dividend and Share Repurchases

During the second quarter of 2023, the Company paid a quarterly dividend of $0.40 per share for a total of $37 million. The Company did not repurchase any shares during the second quarter.

To increase balance sheet flexibility in support of longer-term strategic priorities, the company is pausing its quarterly cash dividends beyond its recently-approved payout on October 27 to holders of record on October 13.

Store Base Update

During the second quarter, the Company opened 15 new stores, remodeled or relocated 16 stores, and closed 108 stores.

As of July 29, 2023, the Company operated 2,599 stores in 26 countries in North America, Europe, Asia, Australia, and New Zealand. In addition, 184 franchised stores were operating in the Middle East and Asia.

2023 Financial Outlook

Fiscal year 2023 represents the 53 weeks ending February 3, 2024. The Company's full year 2023 outlook, which includes the 53rd week, is summarized in the table below.

Metric

Prior Guidance

Updated

Commentary

Sales Change

Down 6.5% to 8.0%

Down 8.0% to 9.0%

Including ~1% from the extra week

Comparable Sales Change

Down 7.5% to 9.0%

Down 9.0% to 10.0%

Continuation of year-to-date trends at mid-point

Square Footage Change

Down ~4%

Licensing Revenue

~$20 million

~$17 million

Gross Margin

28.6% to 28.8%

27.8% to 28.0%

More aggressive markdowns

SG&A Rate

22.4% to 22.6%

22.7% to 22.9%

D&A

~$205 million

~$203 million

Interest

~$16 million

~$12 million

Non-GAAP Tax Rate

32.9% to 33.1%

~ 33.0%

Non-GAAP EPS

$2.00-$2.25

$1.30-$1.50

Includes $0.15 from the extra week

Adj. Capital Expenditures*

~$305 million

~$290 million

Favorable project pricing and timing

* Adjusted Capex Includes Capitalized Technology Expense

The Company provides earnings guidance only on a non-GAAP basis and does not provide a reconciliation of the Company's forward-looking capital expenditures and diluted earnings per share guidance to the most directly comparable GAAP financial measures because of the inherent difficulty in forecasting and quantifying certain amounts that are necessary for such reconciliations.

Conference Call and Webcast
The Company is hosting a live conference call at 10:00 a.m. ET today, August 23, 2023, to review these results and provide an update on the business. An investor presentation will be available under the Investor Relations section of the Company's corporate website before the start of the conference call. This conference call may be accessed live by calling toll-free 1-844-701-1163 or international toll 1-412-317-5490, or via the Investor Relations section of footlocker-inc.com. Please log on to the website 15 minutes prior to the call to register. An archived replay of the conference call can be accessed approximately one hour following the end of the call at 1-877-344-7529 in the U.S., 1-855-669-9658 in Canada, and 1-412-317-0088 internationally with passcode 7255593 through September 6, 2023. A replay of the call will also be available via webcast from footlocker-inc.com.

Disclosure Regarding Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the federal securities laws. Other than statements of historical facts, all statements which address activities, events, or developments that the Company anticipates will or may occur in the future, including, but not limited to, such things as future capital expenditures, expansion, strategic plans, financial objectives, dividend payments, stock repurchases, financial outlook, and other such matters, are forward-looking statements. These forward-looking statements are based on many assumptions and factors, which are detailed in the Company's filings with the U.S. Securities and Exchange Commission.

These forward-looking statements are based largely on our expectations and judgments and are subject to a number of risks and uncertainties, many of which are unforeseeable and beyond our control. For additional discussion regarding risks and uncertainties that may affect forward-looking statements, see "Risk Factors" disclosed in the Company's Annual Report on Form 10-K for the year ended January 28, 2023, filed on March 27, 2023. Any changes in such assumptions or factors could produce significantly different results. The Company undertakes no obligation to update the forward-looking statements, whether as a result of new information, future events, or otherwise.

FOOT LOCKER, INC.

Condensed Consolidated Statements of Operations

(unaudited)

Periods ended July 29, 2023 and July 30, 2022

(In millions, except per share amounts)

Second Quarter

Year-to-Date

2023

2022

2023

2022

Sales

$

1,861

$

2,065

$

3,788

$

4,240

Licensing revenue

3

3

7

6

Total revenue

1,864

2,068

3,795

4,246

Cost of sales

1,357

1,411

2,706

2,846

Selling, general and administrative expenses

442

452

873

915

Depreciation and amortization

50

51

101

105

Impairment and other

14

12

53

18

Income from operations

1

142

62

362

Interest expense, net

(4)

(5)

(5)

(10)

Other income / (expense), net

—

6

(3)

(19)

Income / (loss) before income taxes

(3)

143

54

333

Income tax expense

2

49

23

107

Net income / (loss)

(5)

94

31

226

Net loss attributable to noncontrolling interests

—

—

—

1

Net income / (loss) attributable to Foot Locker, Inc.

$

(5)

$

94

$

31

$

227

Diluted earnings per share

$

(0.05)

$

0.99

$

0.33

$

2.36

Weighted-average diluted shares outstanding

94.2

95.1

95.0

96.1

Non-GAAP Financial Measures

In addition to reporting the Company's financial results in accordance with generally accepted accounting principles ("GAAP"), the Company reports certain financial results that differ from what is reported under GAAP. Non-GAAP financial measures that will be presented will exclude (i) gains or losses related to our minority investments, (ii) impairments and other, and (iii) certain tax matters that we believe are nonrecurring or unusual in nature.

Certain financial measures are identified as non-GAAP, such as sales changes excluding foreign currency fluctuations, adjusted income before income taxes, adjusted net income, and adjusted diluted earnings per share. We present certain amounts as excluding the effects of foreign currency fluctuations, which are also considered non-GAAP measures. Where amounts are expressed as excluding the effects of foreign currency fluctuations, such changes are determined by translating all amounts in both years using the prior-year average foreign exchange rates. Presenting amounts on a constant currency basis is useful to investors because it enables them to better understand the changes in our business that are not related to currency movements.

These non-GAAP measures are presented because we believe they assist investors in comparing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core business or affect comparability. In addition, these non-GAAP measures are useful in assessing our progress in achieving our long-term financial objectives and are consistent with how executive compensation is determined.

We estimate the tax effect of all non-GAAP adjustments by applying a marginal tax rate to each item. The income tax items represent the discrete amount that affected the period. The non-GAAP financial information is provided in addition, and not as an alternative, to our reported results prepared in accordance with GAAP. The various non-GAAP adjustments are summarized in the tables below.

FOOT LOCKER, INC.

Non-GAAP Reconciliation

(unaudited)

Periods ended July 29, 2023 and July 30, 2022

(In millions, except per share amounts)

Reconciliation of GAAP to non-GAAP results:

Second Quarter

Year-to-Date

2023

2022

2023

2022

Pre-tax income:

Income / (loss) before income taxes

$

(3)

$

143

$

54

$

333

Pre-tax adjustments excluded from GAAP:

Impairment and other (1)

14

12

53

18

Other income / expense (2)

(2)

(6)

(1)

18

Adjusted income before income taxes (non-GAAP)

$

9

$

149

$

106

$

369

After-tax income:

Net income / (loss) attributable to Foot Locker, Inc.

$

(5)

$

94

$

31

$

227

After-tax adjustments excluded from GAAP:

Impairment and other, net of income tax benefit of $3, $3, $9, and $5 million, respectively (1)

11

9

44

13

Other income / expense, net of income tax benefit of $-, $(3), $-, and $3 million, respectively (2)

(2)

(3)

(1)

15

Tax reserves benefit / charge (3)

—

5

(4)

5

Adjusted net income (non-GAAP)

$

4

$

105

$

70

$

260

Second Quarter

Year-to-Date

2023

2022

2023

2022

Earnings per share:

Diluted earnings per share

$

(0.05)

$

0.99

$

0.33

$

2.36

Diluted EPS amounts excluded from GAAP:

Impairment and other (1)

0.12

0.09

0.47

0.14

Other income / expense (2)

(0.03)

(0.03)

(0.02)

0.16

Tax reserves benefit / charge (3)

—

0.05

(0.04)

0.05

Adjusted diluted earnings per share (non-GAAP)

$

0.04

$

1.10

$

0.74

$

2.71

Notes on Non-GAAP Adjustments:

(1)

For the second quarter of 2023, impairment and other included transformation consulting expense of $7 million, impairment charges of $3 million, primarily accelerated tenancy charges on right-of-use assets for the closures of the Sidestep banner and certain Foot Locker Asia stores, and $3 million of reorganization costs, primarily related to the closures of the Sidestep banner and certain Foot Locker Asia stores. For year-to-date 2023, impairment and other included transformation consulting expense of $26 million, impairment charges of $21 million, primarily accelerated tenancy charges on right-of-use assets for the closures of the Sidestep banner and certain Foot Locker Asia stores, and $5 million of reorganizations costs, primarily related to the announced closure of a North American distribution center and the closures of the Sidestep banner and certain Foot Locker Asia stores.

For the second quarter of 2022, impairment and other charges included $9 million of transformation consulting, $1 million of acquisition integration costs, and $2 million of impairment of long-lived assets and right-of-use assets and accelerated tenancy charges. For year-to-date 2022, impairment and other charges included $10 million of transformation consulting, $3 million of acquisition integration costs, and $5 million of impairment of long-lived assets and right-of-use assets and accelerated tenancy charges.

(2)

For the second quarter of 2023, other income / expense consisted of a $2 million gain from the sale of our Singapore and Malaysian Foot Locker businesses to our license partner, which was partially offset by our share of losses related to equity method investments of $1 million for year-to-date 2023.

Other income / expense for the second quarter of 2022 primarily consisted of an $18 million gain on the divestiture of the Team Sales business, partially offset by a $12 million loss on minority investments, primarily due to a change in fair value of the investment in Retailors, Ltd., a publicly listed entity. The year-to-date 2022 amount also included $24 million of additional losses on minority investments, primarily from the investment in Retailors, Ltd.

(3)

In the first quarter of 2023, the Company recorded a $4 million benefit related to income tax reserves due to a statute of limitations release. In the second quarter of 2022, we recorded a $5 million charge related to our income tax reserves due to the resolution of a foreign tax settlement. In the second quarter of 2022, the Company recorded a $5 million charge related to the Company's income tax reserves due to the resolution of a foreign tax settlement.

FOOT LOCKER, INC.

Sales by Banner

(unaudited)

Periods ended July 29, 2023 and July 30, 2022

(In millions)

Second Quarter

Year-to-Date

2023

2022

Constant
Currencies

Comparable
Sales

2023

2022

Constant
Currencies

Comparable
Sales

Foot Locker

$

704

$

752

(5.9)

%

(4.6)

%

1,448

1,559

(6.5)

%

(5.0)

%

Champs Sports

293

406

(27.6)

(25.3)

621

860

(27.4)

(24.9)

Kids Foot Locker

146

155

(5.8)

(4.7)

313

335

(6.6)

(6.3)

WSS

145

138

5.1

(7.9)

295

276

6.9

(6.2)

Other

—

37

(100.0)

n.m.

—

90

(100.0)

n.m.

North America

1,288

1,488

(13.1)

(12.4)

2,677

3,120

(13.8)

(12.6)

Foot Locker

416

404

0.2

(1.1)

795

781

1.9

0.5

Sidestep

12

25

(56.0)

(34.7)

26

49

(49.0)

(36.6)

EMEA

428

429

(3.0)

(2.3)

821

830

(1.1)

(1.2)

Foot Locker

102

100

4.0

5.7

200

193

8.3

(20.4)

atmos

43

48

(12.5)

(10.0)

90

97

(3.1)

12.7

Asia Pacific

145

148

(1.4)

0.4

290

290

4.5

8.9

Total

$

1,861

$

2,065

(10.2)

%

(9.4)

%

3,788

4,240

(10.0)

%

(9.2)

%

FOOT LOCKER, INC.

Condensed Consolidated Balance Sheets

(unaudited)

(In millions)

July 29,

July 30,

2023

2022

ASSETS

Current assets:

Cash and cash equivalents

$

180

$

386

Merchandise inventories

1,831

1,644

Other current assets

360

285

2,371

2,315

Property and equipment, net

898

899

Operating lease right-of-use assets

2,266

2,526

Deferred taxes

94

74

Goodwill

774

773

Other intangible assets, net

415

432

Minority investments

629

736

Other assets

89

113

$

7,536

$

7,868

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

Accounts payable

$

514

$

596

Accrued and other liabilities

419

435

Current portion of long-term debt and obligations under finance leases

6

6

Current portion of lease obligations

513

548

1,452

1,585

Long-term debt and obligations under finance leases

444

449

Long-term lease obligations

2,071

2,287

Other liabilities

322

330

Total liabilities

4,289

4,651

Total shareholders' equity

3,247

3,217

$

7,536

$

7,868

FOOT LOCKER, INC.

Condensed Consolidated Statement of Cash Flows

(unaudited)

(In millions)

Twenty-six weeks ended

July 29,

July 30,

($ in millions)

2023

2022

From operating activities:

Net income

$

31

$

226

Adjustments to reconcile net income to net cash from operating activities:

Non-cash impairment and other

21

5

Fair value adjustments to minority investments

—

38

Depreciation and amortization

101

105

Deferred income taxes

(3)

8

Share-based compensation expense

4

16

Gain on sales of businesses

(2)

(18)

Change in assets and liabilities:

Merchandise inventories

(194)

(413)

Accounts payable

23

10

Accrued and other liabilities

(97)

(69)

Other, net

(68)

(10)

Net cash used in operating activities

(184)

(102)

From investing activities:

Capital expenditures

(105)

(156)

Purchase of business, net of cash acquired

—

(12)

Minority investments

(1)

(4)

Proceeds from sales of businesses

10

47

Proceeds from minority investments

—

12

Net cash used in investing activities

(96)

(113)

From financing activities:

Dividends paid on common stock

(75)

(76)

Purchase of treasury shares

—

(129)

Payment of obligations under finance leases

(3)

(3)

Shares of common stock repurchased to satisfy tax withholding obligations

(10)

(1)

Treasury stock reissued under employee stock plan

3

3

Proceeds from exercise of stock options

5

3

Contribution from non-controlling interest

—

4

Net cash used in financing activities

(80)

(199)

Effect of exchange rate fluctuations on cash, cash equivalents, and restricted cash

3

(5)

Net change in cash, cash equivalents, and restricted cash

(357)

(419)

Cash, cash equivalents, and restricted cash at beginning of year

582

850

Cash, cash equivalents, and restricted cash at end of period

$

225

$

431

FOOT LOCKER, INC.

Store Count and Square Footage

(unaudited)

Store activity is as follows:

January 28,

July 29,

Relocations/

2023

Opened

Closed

2023

Remodels

Foot Locker U.S.

747

-

8

739

10

Foot Locker Canada

86

-

2

84

4

Champs Sports

486

-

9

477

-

Kids Foot Locker

394

-

4

390

5

WSS

115

12

1

126

-

Footaction

2

-

1

1

-

North America

1,830

12

25

1,817

19

Foot Locker Europe (1)

644

14

18

640

11

Sidestep

78

-

77

1

-

EMEA

722

14

95

641

11

Foot Locker Pacific

94

1

1

94

4

Foot Locker Asia

33

-

20

13

-

atmos

35

1

2

141

-

Asia Pacific

162

2

23

141

4

Total

2,714

28

143

2,599

34

Selling and gross square footage are as follows:

July 30, 2022

July 29, 2023

(in thousands)

Selling

Gross

Selling

Gross

Foot Locker U.S.

2,382

4,110

2,354

4,028

Foot Locker Canada

250

411

250

412

Champs Sports

1,890

2,958

1,760

2,761

Kids Foot Locker

744

1,256

750

1,259

WSS

1,035

1,301

1,301

1,562

Footaction

38

67

3

6

North America

6,339

10,103

6,418

10,028

Foot Locker Europe (1)

1,121

2,322

1,172

2,399

Sidestep

101

191

10

20

EMEA

1,222

2,513

1,182

2,419

Foot Locker Pacific

196

303

219

334

Foot Locker Asia

126

233

52

98

atmos

38

64

35

61

Asia Pacific

360

600

306

493

Total

7,921

13,216

7,906

12,940

(1) Includes 16 and 14 Kids Foot Locker stores operating in Europe for January 28, 2023 and July 29, 2023, respectively, and the related square footage.

Contacts:

Kate Fitzsimons
Investor Relations
[email protected]
(212) 720-4600

Olivia Mata
Corporate Communications
[email protected]
(815) 763-3159

Cision View original content:https://www.prnewswire.com/news-releases/foot-locker-inc-reports-2023-second-quarter-results-301907371.html

SOURCE Foot Locker IR


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