Foot Locker Q3 Earnings, Revenues Top Estimates; Up Y/Y

Zacks Equity Research

Impressive top-line performance and solid comparable-store sales growth helped Foot Locker, Inc. (FL) to deliver third-quarter fiscal 2014 quarterly earnings of 83 cents a share that surpassed the Zacks Consensus Estimate of 78 cents and surged 22.1% from the prior-year quarter figure of 68 cents.

Our quantitative model had rightly predicted that Foot Locker would beat the Zacks Consensus Estimate, as it had the right combination of two key ingredients – a positive Earnings ESP and a Zacks Rank #2 (Buy). This is the fifth quarter in a row that this New York-based specialty athletic retailer has outperformed the Zacks Consensus Estimate. In the trailing five quarters, Foot Locker has beaten the Zacks Consensus Estimate by an average of 8.1%.

Foot Locker, Inc - Earnings Surprise | FindTheBest


Including one-time items, quarterly earnings came in at 82 cents a share, up from 70 cents in the year-ago period.

Driven by a 6.9% rise in comparable-store sales, Foot Locker’s sales for the quarter increased 6.7% year over year to $1,731 million and easily surpassed the Zacks Consensus Estimate of $1,718 million. Effective inventory management and store productivity supported the top-line growth.

The company’s stellar performance has been the result of effective implementation of its operational and financial initiatives. Management believes that by continually exploiting opportunities like children’s business, shop-in-shop expansion in collaboration with its vendors, store business, store refurbishment and enhancement of assortments, Foot Locker is likely to benefit in the long run. International expansion, especially in Europe, is another growth catalyst.

Management still expects to attain mid-single digit comparable-store sales growth and a double-digit increase in earnings per share for the back half of fiscal 2014. However, management also pointed out that the currency headwinds could hurt the bottom line by one or two cents a share in the final quarter. They also mentioned that the total percentage increase in sales during the final quarter is anticipated to be lower than comparable-store sales.

Gross margin expanded 10 basis points to 33.2% of sales, whereas the selling, general, and administrative expense rate contracted 60 basis points to 20.4% of sales during the quarter.

Store Update

During the reported quarter, Foot Locker opened 35 outlets, shuttered 21 outlets and relocated/renovated 67 outlets. At the end of the quarter, the company operated 3,474 outlets across 23 countries in North America, Australia, New Zealand and Europe. Apart from these, there are 46 franchised Foot Locker stores in South Korea and the Middle East. Moreover, in Germany and Switzerland, there are 27 franchised Runners Point and Sidestep stores.

Other Financial Details

Foot Locker ended the quarter with cash, cash equivalents and short-term investments of $916 million, long-term debt and obligations under capital leases of $132 million and shareholders’ equity of $2,602 million.

During the quarter, the company bought back nearly 683,000 shares worth $38 million. So far in the fiscal year, the company has repurchased 3.55 million shares aggregating $174 million. Management expects capital expenditures of $210 million for the current fiscal.

Other Stocks to Consider

Other well-ranked stocks in the retail sector include Skechers USA Inc. (SKX), Nike, Inc. (NKE) and Deckers Outdoor Corp. (DECK). Both Skechers and Nike sport a Zacks Rank #1 (Strong Buy), while Deckers holds a Zacks Rank #2.

Read the Full Research Report on NKE
Read the Full Research Report on SKX
Read the Full Research Report on DECK
Read the Full Research Report on FL

Zacks Investment Research