Foot Locker FL posted stronger than expected third quarter earnings as impressive same stores sales exceeded analysts' forecasts. Analysts feared potentially bad news as the New York-based specialty athletic retailer announced surprisingly weak demand three months ago, along with the impact of tariffs.
In both of the previous two quarters, the company missed profit, sales and same-store sales expectations, causing its stock to plummet about 22% in the last 12 months. But fortunately, thanks to a sales boost, this was not the case with the third quarter! The market rewarded its shares with a 3.2% rise in pre-market trading immediately following the release.
Third Quarter Results
Net Income for the quarter amounted to $125 million or $1.16 per share. It dropped comparing to the corresponding quarter last year when it was $130 million, or $1.14 per share. When adjusted for non-recurring gains, earnings came to $1.13 per share, exceeding Wall Street estimate of $1.07 per share.
But moving to the good stuff, third quarter comparable-store sales increased 5.7 percent. Total sales increased 3.9 percent and reached $1,93 billion rising from $1,86 billion in the prior year quarter. It is due to a solid August for Nike Inc. NKE which makes around 70% of Foot Locker revenues. Its sales in the three months ending that ended in August rose 7% to $10.7 billion on a currency-neutral basis.
As of November 2, 2019, inventories were $1,304 million, 0.1 percent lower than at the end of the same quarter last year so at least there's no further build-up.
Competitors
Finish Line is an American retail chain that sells athletic shoes and accessories. It has 660 stores in 47 states, as well as Finish Line-branded athletic shoe departments in more than 450 Macy's Inc M stores. Macy's is also facing the harsh reality that is upon the sector of department stores but hopefully not as bad as the one who hit Barneys New York.
Zappos.com is an online shoe and clothing retailer based in Las Vegas, Nevada that was acquired by Amazon.com, Inc. AMNZ in 2009. Zappos just introduced a "Goods for Good" platform that filters eco conscious brands. The platform will allow consumers to shop over 150 eco and socially-responsible brands while supporting their favourite cause. So, everyone in retail is turning towards creating or better said, curating, new ways to enhance the buying experience for consumers.
There's also Road Runner Sports, America's largest specialized fitness shoe retailer, who launched Revolutionary 3D Fit Drone technology for the perfect shoe fit back in February. Surely, it is one of the biggest breakthroughs in the shoe fitting industry in the recent years.
And this innovation will surely enhance customers' running experience as the company has already fitted more than 2.8 million runners and walkers over the past decade. Therefore, the race for ‘the most innovative and enriching buying experience' has begun!
Outlook
Consumers are shifting towards buying directly from manufacturers such as Nike who for this reason decided to abandon Amazon, which is actually good news for Foot Locker. Company's management is pleased with the company's performance in the quarter, as results reflect the success of the strategic focus on deepening connections with customers and strengthening relationships with vendors so they don't have any reason to go to the customers directly. Improved results definitely reflect efforts to drive the top line, strengthen operational execution which is reflected in the improved gross margin, SG&A, and inventory productivity.
So, besides kicking off its 8th Annual Week of Greatness Campaign, Foot Locker also managed to kick off some of those headwinds that caused its stock to tumble more than 20% this year.
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