Benefiting from the effective implementation of its strategic plans, Foot Locker, Inc.’s (FL) adjusted earnings for the quarter ended Aug 2, 2014 surged 39.1% year over year to 64 cents a share and comfortably beat the Zacks Consensus Estimate of 54 cents.
On a GAAP basis, the company’s earnings came in at 63 a share, compared with 44 cents in the comparable period last year.
Further Insight
Driven by a 7% rise in comparable-store sales (comps), Foot Locker’s sales for the second quarter improved 12.9% year over year to $1,641.0 million and easily surpassed the Zacks Consensus Estimate of $1,568.0 million. The improvement in comps was mainly buoyed by the company’s sustained focus on all its distribution networks.
Driven by robust sales, gross profit for the quarter advanced 15.9% to $525.0 million with gross margin expanding 80 basis points (bps) to approximately 32%. The gross margin expansion was also facilitated by enhanced markdowns and leverage on fixed occupancy and volume expenses.
Further, tough cost management led the company to achieve a 70 bps reduction in selling, general and administrative (SG&A) rate, which came in at 20.9% of sales during the quarter.
A Glance at Year-to-Date Numbers
For the six months ended Aug 2, 2014, Foot Locker posted adjusted earnings of $1.75 per share, up 27.7% from last year. On a GAAP basis, earnings came in at $1.73 per share, compared to $1.34 per share recorded in the same period last year. Additionally, net sales soared 13.5% to $3,509.0 million, driven by a 7.3% improvement in year-to-date comps.
Store Update
During the quarter, Foot Locker opened 14 outlets, shut down 18 outlets and relocated/renovated 112 outlets. As of Aug 2, 2014, the retailer operated 3,460 outlets across 23 countries in North America, Australia, New Zealand and Europe. Apart from these, the company has 47 franchised Foot Locker stores in South Korea and the Middle East. Moreover, in Germany and Switzerland, the retailer owns 27 franchised Runners Point and Sidestep stores.
Financial Details
Foot Locker ended the quarter with cash, cash equivalents and short-term investments of $957.0 million, total debt of $137.0 million and total shareholders’ equity of $2,582.0 million.
During the quarter, the company bought back nearly 1.3 million shares worth $66 million and paid a quarterly dividend of 22 cents a share, which together translates to $98 million in cash returned to stockholders during the quarter and $200 million returned year to date. Moreover, Foot Locker remains on track to achieve a capital expenditure target of $220 million for the current fiscal.
Outlook
This Zacks Rank #2 (Buy) company remains highly impressed with its performance so far this year. The stellar performance was a result of the effective implementation of the operational and financial plans, which in turn was possible because of the company’s solid financial position. The improved top line consequently pulled up the bottom line, leading to better-than-expected results.
Management believes that by continuing to exploit opportunities like children’s business, shop-in-shop expansion in collaboration with its vendors, development of banner.com and enhancement of assortments, it is likely to benefit in the long run.
Other Stocks to Consider
Other stocks looking attractive at current levels include Citi Trends, Inc. (CTRN), The Men's Wearhouse, Inc. (MW), each carrying a Zacks Rank #1 (Strong Buy) and Abercrombie & Fitch Co. (ANF), with a Zacks Rank #2 (Buy).
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