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Foot Locker (FL) Q1 Loss Wider Than Expected, Sales Tank Y/Y

Zacks

Foot Locker, Inc. FL came up with first-quarter fiscal 2020 results, wherein it reported wider-than-expected loss per share. Also, sales missed the Zacks Consensus Estimate, marking the fifth consecutive quarterly miss. Both top and bottom lines also fell year over year. Additionally, comparable-store sales declined year on year.

Nevertheless, management noted that the company is on track with the reopening of stores in phased approach. As of now, it has reopened more than 1,400 stores. Also, the company has taken measures to strengthen its financial position in the wake of coronavirus crisis. The measures include borrowing $330 million under its $400-million credit facility, curbing non-essential spending, extending payment terms, limiting merchandise purchases and reducing salaries. Moreover, it cut the capital expenditure forecast by 50% to $138 million for fiscal 2020.

Q1 Details

This operator of athletic shoes and apparel retailer posted adjusted loss of 67 cents per share, wider than the Zacks Consensus Estimate of a loss of 17 cents. The company had reported adjusted earnings of $1.53 recorded in the prior-year quarter.

On a GAAP basis, the company reported a loss of 93 cents a share compared with the $1.52 recorded in the prior-year period.

Total sales of $1,176 million plummeted 43.4% year over year and also fell short of the consensus estimate of $1,315 million. Excluding the effect of foreign-currency fluctuations, total sales plunged 42.9%. Moreover, comparable-store sales declined 42.8% during the quarter, significantly wider than the 1.6% fall witnessed in the previous quarter.

Foot Locker's gross margin rate contracted significantly from 33.2% to 23% during the quarter. Further, SG&A expense rate expanded 690 basis points to 26.9%.

Store Update

During the reported quarter, Foot Locker opened five outlets, remodeled or relocated nine stores, and shuttered 21. As of May 2, 2020, the company operated 3,113 stores across 27 countries in North America, Europe, Asia, Australia and New Zealand. Apart from these, there are 54 franchised Foot Locker stores in the Middle East and four franchised Runners Point stores in Germany.

Other Financial Details

Foot Locker ended the fiscal first quarter with cash and cash equivalents of $1,012 million, long-term debt of $121 million, and shareholders’ equity of $2,326 million. It had a debt of $451 million, including $330 million under the company's credit facility.

As of May 2, 2020, merchandise inventories were $1,458 million, up 20.4% from the prior-year period. On a constant-currency basis, inventory rose 21.3%.

During the fiscal first quarter, management paid a quarterly dividend of 40 cents per share. However, the company’s board has decided to temporarily put cash dividend on hold starting the fiscal second quarter. Also, it has suspended its share-repurchase program for the time being.



Shares of this Zacks Rank #5 (Strong Sell) company have depreciated 21.2% compared with the industry’s decline of 39% in the past three months.

3 Better-Ranked Retail Stocks

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SpartanNash SPTN, also a Zacks Rank #1 stock, delivered a positive earnings surprise of 15% in the last reported quarter.

Office Depot ODP has a long-term earnings growth rate of 6.8%. Currently, it carries a Zacks Rank #2 (Buy).

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