FOOT LOCKER, INC. REPORTS 2023 FIRST QUARTER RESULTS

News provided by

Foot Locker IR

May 19, 2023, 06:45 ET

  • Total Sales Decreased 11.4%; Comparable-Store Sales Decreased 9.1%
  • EPS of $0.38 and Non-GAAP EPS $0.70
  • Lowering 2023 Sales and Earnings Guidance
  • Announces Retail Industry Veteran Mike Baughn as Chief Financial Officer

NEW YORK, May 19, 2023 /PRNewswire/ -- Foot Locker, Inc. (NYSE: FL), the New York-based specialty athletic retailer, today reported financial results for its first quarter ended April 29, 2023.

"Coming off the recent launch of our Lace Up Strategy at our Investor Day in March, we are making early progress in building a strong foundation to return to sustainable growth beyond this year," said Mary Dillon, President and Chief Executive Officer.  "However, our sales have since softened meaningfully given the tough macroeconomic backdrop, causing us to reduce our guidance for the year as we take more aggressive markdowns to both drive demand and manage inventory."

Ms. Dillon continued, "Despite the challenging near-term trends, we remain committed to our long-term strategy, including making the necessary investments to drive our Lace Up plan, and maintain conviction in our ability to execute against our new strategic imperatives."

First Quarter Results

  • Comparable-store sales decreased by 9.1%, driven by macroeconomic headwinds, including lower income tax refunds in the United States, as well as the changing vendor mix and our repositioning of Champs Sports.

  • Total sales decreased by 11.4%, to $1,927 million, compared with sales of $2,175 million in the first quarter of 2022. Excluding the effect of foreign exchange rate fluctuations, total sales for the first quarter decreased by 10%.

    Please refer to the Sales by Banner table below for detailed sales performance by banner and region.

  • Gross margin declined by 400 basis points compared with the prior-year period, driven by a combination of higher markdowns compared to historically low levels in the prior year, and occupancy deleverage, as well as an increase in theft-related shrink.

  • SG&A increased by 110 basis points as a percentage of sales compared with the prior year, 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.

  • Net income decreased to $36 million as compared with $133 million in the first quarter of fiscal 2022. Non-GAAP net income decreased to $66 million from $155 million in the prior-year period.

  • EPS decreased to $0.38 per share, versus $1.37 in the first quarter of fiscal 2022. Non-GAAP EPS decreased to $0.70 per share compared with non-GAAP EPS of $1.60 in the prior-year period.

Balance Sheet

At quarter-end, the Company's cash and cash equivalents totaled $313 million, while debt on its balance sheet was $451 million.

As of April 29, 2023, the Company's merchandise inventories totaled $1,758 million, 25% higher than at the end of the first quarter last year.

Dividend and Share Repurchases

During the first quarter of 2023, the Company paid a quarterly dividend of $0.40 per share for a total of $38 million.

The Board of Directors declared a quarterly cash dividend on the Company's common stock of $0.40 per share, which will be payable on July 28, 2023, to shareholders of record on July 14, 2023.

Store Base Update
During the first quarter, the Company opened 13 new stores, remodeled, or relocated 18 stores, and closed 35 stores. 

As of April 29, 2023, the Company operated 2,692 stores in 29 countries in North America, Europe, Asia, Australia, and New Zealand. In addition, 163 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 Guidance

Commentary

Sales Change

Down 3.5% to 5.5%

 Down 6.5% to 8.0%

Including ~1% from the extra
week

Comparable Sales
Change

Down 3.5% to 5.5%

 Down 7.5% to 9.0%

 Softer sales through balance
of year

Square Footage Change

Down ~4%



Licensing Revenue

~$20 million

 ~$20 million


Gross Margin

30.8% to 31.0%

 28.6% to 28.8%

 More aggressive markdowns
and higher shrink

SG&A Rate

22.6% to 22.8%

 22.4% to 22.6%

 Solid expense management

D&A

~$205 million

 ~$205 million


Interest

~$12 million

~$16 million

 Less interest income on lower
cash balance

Non-GAAP Tax Rate

31.5% to 31.7%

 32.9% to 33.1%

 Higher on geographic mix of
income

Non-GAAP EPS

$3.35-$3.65 including
$0.15 from the extra week

 $2.00-$2.25


Adj. Capital
Expenditures*

~$305 million

~$305 million 



* 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 tax rate, 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.

Chief Financial Officer Appointment

Today, Foot Locker, Inc., announces the appointment of Mike Baughn as Executive Vice President and Chief Financial Officer, effective June 12, 2023.   

Mike joins us from Kohl's Corporation where he most recently served as Executive Vice President of Finance and Treasurer. He brings to Foot Locker more than 15 years of experience in various financial leadership roles across Kohl's.    

Mike will report directly to Mary Dillon, President, and Chief Executive Officer, and oversee Foot Locker, Inc.'s financial initiatives and position the company for long-term growth.   

With Mike's start, Robert Higginbotham, Interim Chief Financial Officer, will resume his role as Senior Vice President, Investor Relations, and Financial Planning & Analysis, reporting to Mike.    

"Following a rigorous search process, we are thrilled to welcome to our leadership team, Mike Baughn, whose role will be instrumental in delivering our Lace Up plan," said Mary Dillon. "I am confident Mike will further accelerate our new set of strategic imperatives and financial objectives designed to set us up for the next 50 years of growth. Let me also thank Rob for his leadership of the finance organization while we conducted the search, ongoing contributions, and critical role in launching our strategy at our Investor Day." 

"Foot Locker is a cultural staple that has led the footwear category for nearly 50 years. I am honored to join this incredible team as CFO at such a pivotal time for the company as they deliver the Lace Up plan," said Mike Baughn. "Foot Locker has a rich heritage to build upon and I am looking forward to working closely with Mary Dillon and the leadership team to ensure great customer experiences, as well as value for our stakeholders."  

Conference Call and Webcast
The Company is hosting a live conference call at 9:00 a.m. ET today, May 19, 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. or 1-855-669-9658 in Canada or 1-412-317-0088 internationally with passcode 6393779 through June 2, 2023. A replay of the call will also be available via webcast from footlocker-inc.com. 

Disclosure Regarding Forward-Looking Statements

This report 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, 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, 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 April 29, 2023, and April 30, 2022
(In millions, except per share amounts)




First Quarter




2023



2022


Sales


$

1,927



$

2,175


Licensing revenue



4




3


Total revenue



1,931




2,178









Cost of sales



1,349




1,435


Selling, general and administrative expenses



431




463


Depreciation and amortization



51




54


Impairment and other



39




6


Income from operations



61




220









Interest expense, net



(1)




(5)


Other income / (expense), net



(3)




(25)


Income before income taxes



57




190


Income tax expense



21




58


Net income



36




132


Net loss attributable to noncontrolling interests



—




1


Net income attributable to Foot Locker, Inc.


$

36



$

133









Diluted earnings per share


$

0.38



$

1.37


Weighted-average diluted shares outstanding



95.1




97.2


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 April 29, 2023, and April 30, 2022
(In millions, except per share amounts) 


Reconciliation of GAAP to non-GAAP results:




First Quarter




2023



2022


Pre-tax income:









Income before income taxes


$

57



$

190


Pre-tax adjustments excluded from GAAP:








Impairment and other (1)



39




6


Other income / expense (2)



1




24


Adjusted income before income taxes (non-GAAP)


$

97



$

220











After-tax income:









Net income attributable to Foot Locker, Inc.


$

36



$

133


After-tax adjustments excluded from GAAP:








Impairment and other, net of income tax benefit of $6 and $2 million, respectively (1)



33




4


Other income / expense, net of income tax benefit of $- and $6 million, respectively (2)



1




18


Tax reserves benefit (3)



(4)




—


Adjusted net income (non-GAAP)


$

66



$

155





First Quarter




2023




2022


Earnings per share:









Diluted earnings per share


$

0.38



$

1.37


Diluted EPS amounts excluded from GAAP:









Impairment and other (1)



0.36




0.05


Other income / expense (2)



—




0.18


Tax reserves benefit (3)



(0.04)




—


Adjusted diluted earnings per share (non-GAAP)


$

0.70



$

1.60


Notes on Non-GAAP Adjustments:


(1)

For the first quarter of 2023, impairment and other included transformation consulting expense of $19 million, impairment charges of $18 million, primarily accelerated tenancy charges on right-of-use assets for the closures of the Sidestep banner and certain Foot Locker Asia stores, and $2 million of reorganizations costs, primarily related to the announced closure of a North American distribution center, and other costs associated with the closures of the Sidestep banner and certain Foot Locker Asia stores.

For the first quarter of 2022, impairment and other included $3 million of impairment of long-lived assets and right-of-use assets and accelerated tenancy charges, $2 million of acquisition and integration costs related to WSS and atmos, and $1 million of other expenses.



(2)

For the first quarter of 2023, other expense represented of our share of losses related to equity method investments of $1 million.

For the first quarter of 2022, other expense primarily consisted of a $25 million loss on the change in fair value of our previous investment in Retailors, Ltd., a publicly-listed entity, which was partially offset by $1 million of dividend income and income from other various equity method investments.



(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.

FOOT LOCKER, INC.

Sales by Banner
(unaudited)


Periods ended April 29, 2023, and April 30, 2022
(In millions)




First Quarter




2023



2022



Constant
Currencies



Comparable
Sales


Foot Locker


$

744



$

807




(7.2)

%



(5.5)

%

Champs Sports



328




454




(27.3)




(24.6)


Kids Foot Locker



167




180




(7.2)




(7.7)


WSS



150




138




8.7




(3.4)


Other



—




53




(100.0)




n.m.


North America



1,389




1,632




(14.5)




(12.8)


Foot Locker



379




377




3.7




2.1


Sidestep



14




24




(41.7)




(37.8)


EMEA



393




401




1.0




(0.1)


Foot Locker



98




93




12.9




11.2


atmos



47




49




6.1




2.7


Asia Pacific



145




142




10.6




8.9


Total


$

1,927



$

2,175




(10.0)

%



(9.1)

%

FOOT LOCKER, INC.

Condensed Consolidated Balance Sheets
(unaudited)
(In millions)




April 29,



April 30,




2023



2022


ASSETS


















Current assets:









Cash and cash equivalents


$

313



$

551


Merchandise inventories



1,758




1,401


Other current assets



384




281





2,455




2,233


Property and equipment, net



901




899


Operating lease right-of-use assets



2,331




2,566


Deferred taxes



94




79


Goodwill



781




783


Other intangible assets, net



421




441


Minority investments



629




759


Other assets



89




118




$

7,701



$

7,878











LIABILITIES AND SHAREHOLDERS' EQUITY


















Current liabilities:









Accounts payable


$

474



$

565


Accrued and other liabilities



505




428


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



6




6


Current portion of lease obligations



533




557





1,518




1,556


Long-term debt and obligations under finance leases



445




450


Long-term lease obligations



2,132




2,323


Other liabilities



323




334


Total liabilities



4,418




4,663


Total shareholders' equity



3,283




3,215




$

7,701



$

7,878


FOOT LOCKER, INC.

Condensed Consolidated Statement of Cash Flows
(unaudited)
(In millions)




Thirteen weeks ended




April 29,



April 30,


($ in millions)


2023



2022


From operating activities:









Net income


$

36



$

132


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









Non-cash impairment and other



18




3


Fair value adjustments to minority investments



—




25


Depreciation and amortization



51




54


Deferred income taxes



(4)




3


Share-based compensation expense



2




7


Change in assets and liabilities:









Merchandise inventories



(117)




(150)


Accounts payable



(16)




(25)


Accrued and other liabilities



(30)




(80)


Other, net



(58)




10


Net cash used in operating activities



(118)




(21)


From investing activities:









Capital expenditures



(59)




(95)


Purchase of business, net of cash acquired



—




(7)


Minority investments



—




(3)


Net cash used in investing activities



(59)




(105)


From financing activities:









Dividends paid on common stock



(38)




(38)


Purchase of treasury shares



—




(89)


Payment of obligations under finance leases



(2)




(2)


Shares of common stock repurchased to satisfy tax withholding obligations



(10)




(1)


Proceeds from exercise of stock options



4




2


Net cash used in financing activities



(46)




(128)


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



—




(1)


Net change in cash, cash equivalents, and restricted cash



(223)




(255)


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



582




850


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


$

359



$

595


FOOT LOCKER, INC.

Store Count and Square Footage
(unaudited)


Store activity is as follows:




January 28,











April 29,



Relocations/




2023



Opened



Closed



2023



Remodels


Foot Locker U.S.



747




-




6




741




3


Foot Locker Canada



86




-




1




85




4


Champs Sports



486




-




5




481




-


Kids Foot Locker



410




-




5




405




3


WSS



115




6




1




120




-


Footaction



2




-




-




2




-


North America



1,846




6




18




1,834




10


Foot Locker Europe



628




5




11




622




7


Sidestep



78




-




5




73




-


EMEA



706




5




16




695




7


Foot Locker Pacific



94




1




-




95




1


Foot Locker Asia



33




-




-




33




-


atmos



35




1




1




35




-


Asia Pacific



162




2




1




163




1


Total



2,714




13




35




2,692




18


Selling and gross square footage are as follows:




April 30, 2022



April 29, 2023


(in thousands)


Selling



Gross



Selling



Gross


Foot Locker U.S.



2,393




4,134




2,351




4,025


Foot Locker Canada



253




417




251




413


Champs Sports



1,903




2,980




1,775




2,784


Kids Foot Locker



760




1,292




767




1,295


WSS



972




1,223




1,235




1,479


Footaction



59




104




6




11


North America



6,340




10,150




6,385




10,007


Foot Locker Europe



1,085




2,256




1,140




2,339


Sidestep



101




191




93




179


EMEA



1,186




2,447




1,233




2,518


Foot Locker Pacific



192




299




216




331


Foot Locker Asia



114




199




126




233


atmos



38




65




36




62


Asia Pacific



344




563




378




626


Total



7,870




13,160




7,996




13,151


Contact:
Robert Higginbotham
Interim Chief Financial Officer
[email protected]
(212) 720-4600

SOURCE Foot Locker IR