NEW YORK, NY, August 21, 2008 – Foot Locker, Inc. (NYSE: FL), the New York-based specialty athletic retailer, today reported financial results for its second quarter ended August 2, 2008.
Second Quarter Results
The Company reported net income of $18 million, or $0.11 per share, for the second quarter ended August 2, 2008 compared with a net loss of $18 million, or $0.12 per share, last year. Second quarter sales increased 1.5 percent, to $1,302 million this year compared with sales of $1,283 million for the corresponding prior year period. Second quarter comparable-store sales decreased 0.5 percent.
“Our second quarter earnings were at the high end of our expectations due primarily to lower than anticipated markdowns. As a result, our gross margin rate was 420 basis points favorable to the second quarter of last year and in line with our historic gross margin rates for the second fiscal quarter,” stated Matthew D. Serra, Foot Locker, Inc.’s Chairman and Chief Executive Officer. “Our gross margin rate in the second quarter of last year was affected negatively by a strategic decision to accelerate the clearance of slow-selling merchandise.”
Year-to-Date Results
Net income for the Company’s first six months of the year was $21 million, or $0.13 per share, and includes store closing expenses of $3 million, after-tax, or $0.02 per share, and a non-cash impairment charge of $15 million, after-tax, or $0.10 per share. For comparison purposes, year-to-date net income in 2008, before the store closing expenses and impairment charge, was $39 million, or $0.25 per share. For the first six months of 2007, the Company had a net loss of $1 million, or $0.01 per share.
Year-to-date sales increased 0.5 percent to $2,611 million compared with sales of $2,599 million last year. Comparable-store sales decreased 1.7 percent.
Financial Position
At August 2, 2008, the Company’s cash and short-term investments totaled $431 million while the debt on its balance sheet was $125 million. The Company’s cash position, net of debt, was $173 million higher than the same time last year. During the second quarter the Company repaid the remaining $88 million of its bank term debt in advance of final maturity.
In line with a strategic initiative designed to improve inventory management, the Company’s merchandise inventory at the end of the second quarter was 3.5 percent lower than at the end of the second quarter last year. On a constant currency basis, merchandise inventory was 5.4 percent below last year. At the Company’s combined U.S. store businesses, merchandise inventory has been reduced by approximately 10 percent versus the level two years ago.
Store Base Update
During the first six months of the year, the Company opened 40 new stores, remodeled/relocated 162 stores and closed 97 stores. At August 2, 2008, the Company operated 3,728 stores in 21 countries in North America, Europe and Australia. In addition, 14 franchised stores were operating in the Middle East and South Korea.
Mr. Serra continued, “While we are encouraged with our financial results for the second quarter and first half of this year, we are being cautious in how we manage our business for the balance of the year given the uncertain economic environment in which we operate, particularly as it relates to consumer spending. We currently expect our net income for the full year, excluding the $0.10 per share impairment charge recorded during our first fiscal quarter, to be in a range of $0.70 to $0.85 per share.”
The Company is hosting a live conference call at 9:00 a.m. (ET) on Friday, August 22, 2008 to discuss these results. This conference call may be accessed live from the Investor Relations section of the Foot Locker, Inc. website at http://www.footlocker-inc.com. The conference call will be available for webcast replay until 5:00 p.m. on Friday, August 29, 2008.
This press release contains forward-looking statements within the meaning of the federal securities laws. All statements, other than statements of historical facts, which address activities, events or developments that the Company expects or anticipates will or may occur in the future, including, but not limited to, such things as future capital expenditures, expansion, strategic plans, dividend payments, stock repurchases, growth of the Company’s business and operations, including future cash flows, revenues and earnings, and other such matters are forward-looking statements. These forward-looking statements are based on many assumptions and factors detailed in the Company’s filings with the Securities and Exchange Commission, including the effects of currency fluctuations, customer demand, fashion trends, competitive market forces, uncertainties related to the effect of competitive products and pricing, customer acceptance of the Company’s merchandise mix and retail locations, the Company’s reliance on a few key vendors for a majority of its merchandise purchases (including a significant portion from one key vendor), unseasonable weather, economic conditions worldwide, any changes in business, political and economic conditions due to the threat of future terrorist activities in the United States or in other parts of the world and related U.S. military action overseas, the ability of the Company to execute its business plans effectively with regard to each of its business units, risks associated with foreign global sourcing, including political instability, changes in import regulations, and disruptions to transportation services and distribution. Any changes in such assumptions or factors could produce significantly different results. The Company undertakes no obligation to update forward-looking statements, whether as a result of new information, future events, or otherwise.
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Foot Locker, Inc. 112 West 34th Street, New York, NY 10120
FOOT LOCKER, INC.
Condensed Consolidated Statements of Operations
(unaudited)
Periods ended August 2, 2008 and August 4, 2007
(In millions, except per share amounts)
|
Second Quarter |
|
Second Quarter |
Sales |
$ 1,302 |
|
$ 1,283 |
|
|
||
Cost of sales |
941 | 981 | |
Selling, general and administrative expenses |
299 | 286 | |
Depreciation and amortization |
33 1 |
|
44 --- |
Interest expense, net |
2 (2) |
|
--- 1 |
|
1,274 |
|
1,312 |
Income (loss) before income taxes |
28 |
|
(29) |
Income tax expense (benefit) |
10 |
|
(11) |
Net income (loss) |
$18 |
|
$(18) |
|
|
||
Diluted EPS: |
|
||
Net income (loss) |
$ 0.11 |
|
$ ( 0.12) |
|
|
||
Weighted-average diluted shares outstanding |
155.4 |
|
154.0 |
|
Year-To-Date |
|
Year-To-Date |
Sales |
$ 2,611 |
|
$ 2,599 |
|
|
||
Cost of sales |
1,884 | 1,937 | |
Selling, general and administrative expenses |
598 | 576 | |
Depreciation and amortization |
65 15 5 |
|
87 --- --- |
Interest expense, net |
3 (2) |
|
--- 1 |
|
2,568 |
|
2,601 |
Income (loss) before income taxes |
43 |
|
(2) |
Income tax expense (benefit) |
22 |
|
(1) |
Net income (loss) |
$21 |
|
$(1) |
|
|
||
Diluted EPS: |
|
||
Net income (loss) |
$ 0.13 |
|
$ ( 0.01) |
|
|
||
Weighted-average diluted shares outstanding |
155.2 |
|
154.4 |
Reconciliation of Net Income from a GAAP-reported basis to a non-GAAP basis
(unaudited)
Periods ended August 2, 2008 and August 4, 2007
(In millions, except per share amounts)
|
Second Quarter |
|
Second Quarter |
Net income – GAAP basis |
$ 18 |
|
$ (18) |
Additions: |
|
|
|
Impairment charge |
--- |
|
--- |
Store closing costs |
--- |
|
--- |
|
|
|
|
Net income – non-GAAP basis |
$ 18 |
|
$ (18) |
|
|||
Net income per share – GAAP basis |
$ 0.11 |
|
$ (0.12) |
Additions: |
|
||
Impairment charge |
--- |
|
--- |
Store closing costs |
--- |
|
--- |
|
|
||
Net income per share – non-GAAP basis |
$ 0.11 |
$ (0.12) |
|
Year-To-Date |
|
Year-To-Date |
Net income – GAAP basis |
$ 21 |
|
$ (1) |
Additions: |
|
|
|
Impairment charge |
15 |
|
--- |
Store closing costs |
3 |
|
--- |
|
|
|
|
Net income – non-GAAP basis |
$ 39 |
|
$ (1) |
|
|||
Net income per share – GAAP basis |
$ 0.13 |
|
$ (001) |
Additions: |
|
||
Impairment charge |
0.10 |
|
--- |
Store closing costs |
0.02 |
|
--- |
|
|
||
Net income per share – non-GAAP basis |
$ 0.25 |
$ (0.01) |
Condensed Consolidated Balance Sheets
(unaudited)
(In millions, except per share amounts)
|
August 2, |
|
August 4 , |
Assets |
|
|
|
|
|
|
|
CURRENT ASSETS |
|
|
|
Cash, cash equivalents and short-term investments |
$ 431 |
|
$ 363 |
Merchandise inventories |
1,401 |
|
1,452 |
Other current assets |
250 |
|
290 |
|
2,082 |
|
2,105 |
|
|
|
|
Property and equipment, net |
529 |
|
648 |
Deferred tax assets |
247 |
|
134 |
Other assets |
413 |
|
453 |
|
$ 3,271 |
|
$ 3,340 |
|
|
|
|
Liabilities and Shareholders’ Equity |
|
|
|
|
|
|
|
CURRENT LIABILITIES |
|
|
|
Accounts payable |
$ 363 |
|
$ 368 |
Accrued and other liabilities |
266 |
|
254 |
|
629 |
|
636 |
|
|
|
|
Long-term debt and obligations under capital leases |
125 |
|
216 |
Other liabilities |
257 |
|
245 |
SHAREHOLDERS’ EQUITY |
2,260 |
|
2,243 |
|
$ 3,271 |
|
$ 3,340 |
|
|||
Store and Estimated Square Footage
(unaudited)
(Square footage in thousands)
|
August 2, |
August 4, |
July 29, |
Foot Locker U.S. |
|
|
|
Number of stores |
1,245 |
1,321 |
1,363 |
Gross square footage |
5,074 |
5,344 |
5,501 |
Selling square footage |
3,030 |
3,162 |
3,241 |
|
|
|
|
Footaction |
|
|
|
Number of stores |
343 |
373 |
365 |
Gross square footage |
1,600 |
1,735 |
1,721 |
Selling square footage |
993 |
1,066 |
1,063 |
|
|
|
|
Lady Foot Locker |
|
|
|
Number of stores |
518 |
546 |
550 |
Gross square footage |
1,148 |
1,217 |
1,229 |
Selling square footage |
654 |
689 |
693 |
|
|
|
|
Kids Foot Locker |
|
|
|
Number of stores |
312 |
331 |
325 |
Gross square footage |
756 |
801 |
789 |
Selling square footage |
448 |
476 |
470 |
|
|
|
|
Champs Sports |
|
|
|
Number of stores |
573 |
575 |
559 |
Gross square footage |
3,096 |
3,127 |
3,063 |
Selling square footage |
2,081 |
2,123 |
2,105 |
|
|
|
|
Footquarters |
|
|
|
Number of stores |
--- |
32 |
--- |
Gross square footage |
--- |
188 |
--- |
Selling square footage |
--- |
169 |
--- |
|
|
|
|
Foot Locker International |
|
|
|
Number of stores |
737 |
727 |
732 |
Gross square footage |
2,147 |
2,108 |
2,099 |
Selling square footage |
1,097 |
1,080 |
1,093 |
|
|
|
|
Total Stores Operated |
|
|
|
Number of stores |
3,728 |
3,905 |
3,894 |
Gross square footage |
13,821 |
14,520 |
14,402 |
Selling square footage |
8,303 |
8,765 |
8,665 |
|
|
|
|
Total Franchised Stores |
|
|
|
Number of stores |
14 |
7 |
--- |
Gross square footage |
54 |
20 |
--- |
Selling square footage |
36 |
14 |
--- |