NEW YORK, May 22, 2020 /PRNewswire/ -- Foot Locker,
Inc. (NYSE: FL), the New
York-based specialty athletic retailer, today reported
financial results for its first quarter ended May 2, 2020.
"Against the backdrop of the pandemic and our global store
closures, our team has focused intently on controlling what we can
in order to protect our business. We have taken full advantage of
the investments we have made in technology in recent years in order
to stay connected with our customers and serve them online, worked
aggressively to protect our financial position and flexibility, and
taken actions to ensure we are well positioned to drive our
business forward," said Richard
Johnson, Chairman and Chief Executive Officer. "Today,
thanks to the unwavering efforts of our team, we are in the early
stages on our road to recovery. Our phased reopening of stores is
underway, and our plan is to build, be back, and be better than
before."
Lauren Peters, Executive Vice
President and Chief Financial Officer, added, "As the severity of
COVID-19's impact on the global retail industry became more
evident, we took actions across our organization to control costs,
bolster our financial position and increase our liquidity. We
believe the operational and financial actions we have taken will
enable us to create a safe environment in our stores and protect
the health of our business to ensure that we emerge even
stronger."
Actions taken by the Company to preserve cash and increase
liquidity included: borrowing $330
million under the Company's $400
million credit facility; limiting capital expenditures to
essential projects and reducing the full year capital expenditure
forecast by 50% to $138 million;
minimizing non-essential spending, including reductions in
marketing, extending payment terms, limiting rent payments, and
reducing merchandise purchases; and reducing salaries and deferring
incentive compensation for the CEO and senior executives.
Additionally, while Foot Locker remains committed to returning
capital to shareholders, the Company's Board of Directors has
decided to temporarily suspend the cash dividend beginning with the
second quarter payment. The Board will continue to evaluate the
dividend policy on a quarterly basis. As previously disclosed on
April 22, the Company also
temporarily suspended its share repurchase program.
First Quarter Results
The Company reported a net loss
of $98 million, or $0.93 per share, for the first quarter of 2020,
compared to net income of $172
million, or $1.52 per share in
the corresponding prior-year period.
Total first quarter sales decreased 43.4 percent, to
$1,176 million, compared to sales of
$2,078 million for the corresponding
prior-year period. Excluding the effect of foreign exchange rate
fluctuations, total sales for the first quarter of 2020 decreased
42.9 percent. First quarter comparable-store sales decreased 42.8
percent.
The Company's gross margin rate decreased to 23.0 percent from
33.2 percent a year ago and the SG&A expense rate increased to
26.9 percent from 20.0 percent in the first quarter of 2019. The
deleverage for both gross margin and SG&A reflects the
significant decline in sales due to the COVID-19 related store
closures.
Non-GAAP Adjustments
During the first quarter, the
Company recorded a pre-tax charge of $1
million related to administrative costs for its
previously-disclosed pension matter. In addition, the Company
recorded a tax charge of $27 million
arising from a periodic revaluation of certain intellectual
property rights pursuant to a non-US advance pricing
agreement. Excluding these items, the Company's non-GAAP loss
was $0.67 per share during the first
quarter, compared to non-GAAP earnings of $1.53 per share for the comparable period in
2019. A reconciliation of GAAP to non-GAAP results is
included in the tables below.
Financial Position
As of May 2,
2020, the Company's merchandise inventories were
$1,458 million, 20.4 percent higher
than at the end of the first quarter last year. Using constant
currencies, inventory increased 21.3 percent. The Company's cash
and cash equivalents totaled $1,012
million, while the debt on its balance sheet was
$451 million, which includes
$330 million borrowed from the
Company's credit facility.
During the quarter, the Company paid a quarterly dividend of
$0.40 per share.
Store Base Update
During the first quarter, the
Company opened 5 new stores, remodeled or relocated 9 stores, and
permanently closed 21 stores. As of May 2,
2020, the Company operated 3,113 stores in 27 countries in
North America, Europe, Asia,
Australia, and New Zealand. In addition, 54 franchised Foot
Locker stores were operating in the Middle East, as well as 4 franchised Runners
Point stores in Germany.
The Company is hosting a live conference call at 9:00 a.m. (ET) today, May
22, 2020, to review these results and provide an update on
the business. This conference call may be accessed live by
dialing 1-844-701-1163 in the U.S. or 1-412-317-5490
internationally, with the passcode 10141975, or via the Investor
Relations section of the Foot Locker, Inc. website at
https://www.footlocker-inc.com. Please log on to the website
15 minutes prior to the call in order 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 10141975 through
June 5, 2020. A replay of the call
will be also be available via webcast from the same Investor
Relations section of the Foot Locker, Inc. website at
https://www.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, the continued effect of the global pandemic, 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 on risks and uncertainties that
may affect forward-looking statements, see "Risk Factors"
disclosed in the 2019 Annual Report on Form 10-K. 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.
Non-GAAP
Reconciliation
(unaudited)
Periods ended May 2, 2020 and May 4, 2019 (In millions,
except per share amounts)
|
|
|
|
First
Quarter
|
|
|
2020
|
|
2019
|
Sales
|
|
$
|
1,176
|
|
$
|
2,078
|
Cost of
sales
|
|
|
905
|
|
|
1,389
|
SG&A
|
|
|
316
|
|
|
416
|
Depreciation and
amortization
|
|
|
44
|
|
|
44
|
Impairment and other
charges
|
|
|
1
|
|
|
1
|
(Loss) income from
operations
|
|
|
(90)
|
|
|
228
|
|
|
|
|
|
|
|
Interest (expense)
income, net
|
|
|
(1)
|
|
|
4
|
Other income,
net
|
|
|
1
|
|
|
2
|
(Loss) income before
income taxes
|
|
|
(90)
|
|
|
234
|
Income tax
expense
|
|
|
8
|
|
|
62
|
Net (loss)
income
|
|
$
|
(98)
|
|
$
|
172
|
|
|
|
|
|
|
|
Diluted (loss)
earnings per share
|
|
$
|
(0.93)
|
|
$
|
1.52
|
Weighted-average
diluted shares outstanding
|
|
|
104.3
|
|
|
113.1
|
Impairment Considerations
These results do not include impairment considerations. The
Company is evaluating approximately 70 stores with long-lived
tangible assets of $50 million for
potential impairment. Any impairment charges recorded will be
excluded from our non-GAAP results consistent with our past
practice.
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. We have presented certain financial
measures 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.
We estimate the tax effect of all non-GAAP adjustments by
applying a marginal tax rate to each of the respective items. The
income tax items represent the discrete amount that affected the
period.
Non-GAAP
Reconciliation
(unaudited)
Periods ended May 2, 2020 and May 4, 2019
(In millions, except per share amounts)
|
|
The non-GAAP
financial information is provided in addition to, and not as an
alternative to, our reported results prepared in accordance with
GAAP. Reconciliation of GAAP to non-GAAP results:
|
|
|
|
First
Quarter
|
|
|
2020
|
|
2019
|
Pre-tax
income:
|
|
|
|
|
|
|
(Loss) income before
income taxes
|
|
$
|
(90)
|
|
$
|
234
|
Pre-tax adjustments
excluded from GAAP:
|
|
|
|
|
|
|
Impairment and other
charges (1)
|
|
|
1
|
|
|
1
|
Adjusted (loss)
income before income taxes (non-GAAP)
|
|
$
|
(89)
|
|
$
|
235
|
|
|
|
|
|
|
|
After-tax
income:
|
|
|
|
|
|
|
Net (loss)
income
|
|
$
|
(98)
|
|
$
|
172
|
After-tax adjustments
excluded from GAAP:
|
|
|
|
|
|
|
Impairment and other
charges, net of income tax benefit of $- and $- million,
respectively (1)
|
|
|
1
|
|
|
1
|
Tax charge related to
revaluation of certain intellectual property rights
(2)
|
|
|
27
|
|
|
—
|
Adjusted net (loss)
income (non-GAAP)
|
|
$
|
(70)
|
|
$
|
173
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
|
2020
|
|
2019
|
Earnings per
share:
|
|
|
|
|
|
|
Diluted (loss)
earnings per share
|
|
$
|
(0.93)
|
|
$
|
1.52
|
Diluted EPS amounts
excluded from GAAP:
|
|
|
|
|
|
|
Impairment and other
charges (1)
|
|
|
—
|
|
|
0.01
|
Tax charge related to
revaluation of certain intellectual property rights
(2)
|
|
|
0.26
|
|
|
—
|
Adjusted diluted
(loss) earnings per share (non-GAAP)
|
|
$
|
(0.67)
|
|
$
|
1.53
|
|
Notes on Non-GAAP
Adjustments:
|
(1) The Company
recorded $1 million for both the thirteen weeks ended May 2, 2020
and May 4, 2019 related to
ongoing administrative costs for the
pension plan reformation.
|
(2) The Company
recorded a $27 million tax charge related to the revaluation of
certain intellectual property rights,
pursuant to a non-U.S. advance
pricing agreement.
|
Condensed
Consolidated Balance Sheets
(unaudited) (In millions)
|
|
|
|
May 2,
|
|
May 4,
|
|
|
2020
|
|
2019
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
1,012
|
|
$
|
1,126
|
Merchandise
inventories
|
|
|
1,458
|
|
|
1,211
|
Other current
assets
|
|
|
268
|
|
|
255
|
|
|
|
2,738
|
|
|
2,592
|
Property and
equipment, net
|
|
|
793
|
|
|
810
|
Operating lease
right-of-use assets
|
|
|
2,816
|
|
|
3,025
|
Deferred
taxes
|
|
|
61
|
|
|
89
|
Other
assets
|
|
|
401
|
|
|
412
|
|
|
$
|
6,809
|
|
$
|
6,928
|
|
|
|
|
|
|
|
LIABILITIES AND
SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
Revolving credit
facility
|
|
$
|
330
|
|
$
|
-
|
Accounts
payable
|
|
|
468
|
|
|
451
|
Accrued and other
liabilities
|
|
|
264
|
|
|
340
|
Current portion of
lease obligations
|
|
|
581
|
|
|
499
|
|
|
|
1,643
|
|
|
1,290
|
Long-term
debt
|
|
|
121
|
|
|
123
|
Long-term lease
obligations
|
|
|
2,591
|
|
|
2,804
|
Other
liabilities
|
|
|
128
|
|
|
109
|
Total
liabilities
|
|
|
4,483
|
|
|
4,326
|
Total shareholders'
equity
|
|
|
2,326
|
|
|
2,602
|
|
|
$
|
6,809
|
|
$
|
6,928
|
Store Count
and Square Footage
(unaudited)
|
|
Store activity is
as follows:
|
|
|
|
February 1,
|
|
|
|
|
|
May 2,
|
|
Relocations/
|
|
|
2020
|
|
Opened
|
|
Closed
|
|
2020
|
|
Remodels
|
Foot Locker
U.S.
|
|
867
|
|
2
|
|
2
|
|
867
|
|
4
|
Foot Locker
Europe
|
|
636
|
|
1
|
|
4
|
|
633
|
|
2
|
Foot Locker
Canada
|
|
105
|
|
—
|
|
1
|
|
104
|
|
—
|
Foot Locker
Pacific
|
|
91
|
|
—
|
|
—
|
|
91
|
|
—
|
Foot Locker
Asia
|
|
14
|
|
—
|
|
—
|
|
14
|
|
—
|
Kids Foot
Locker
|
|
431
|
|
—
|
|
1
|
|
430
|
|
—
|
Lady Foot
Locker
|
|
46
|
|
—
|
|
2
|
|
44
|
|
—
|
Champs
Sports
|
|
536
|
|
2
|
|
1
|
|
537
|
|
—
|
Footaction
|
|
245
|
|
—
|
|
3
|
|
242
|
|
2
|
Runners
Point
|
|
81
|
|
—
|
|
5
|
|
76
|
|
—
|
Sidestep
|
|
77
|
|
—
|
|
2
|
|
75
|
|
1
|
Total
|
|
3,129
|
|
5
|
|
21
|
|
3,113
|
|
9
|
|
Selling and gross
square footage are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 4, 2019
|
May 2, 2020
|
(in
thousands)
|
|
|
|
Selling
|
|
Gross
|
|
Selling
|
|
Gross
|
Foot Locker
U.S.
|
|
|
|
2,392
|
|
4,166
|
|
2,411
|
|
4,225
|
Foot Locker
Europe
|
|
|
|
998
|
|
2,150
|
|
1,013
|
|
2,178
|
Foot Locker
Canada
|
|
|
|
261
|
|
427
|
|
261
|
|
428
|
Foot Locker
Pacific
|
|
|
|
138
|
|
228
|
|
148
|
|
240
|
Foot Locker
Asia
|
|
|
|
23
|
|
43
|
|
42
|
|
76
|
Kids Foot
Locker
|
|
|
|
741
|
|
1,272
|
|
739
|
|
1,277
|
Lady Foot
Locker
|
|
|
|
75
|
|
126
|
|
65
|
|
108
|
Champs
Sports
|
|
|
|
1,910
|
|
2,971
|
|
1,934
|
|
3,006
|
Footaction
|
|
|
|
806
|
|
1,371
|
|
763
|
|
1,252
|
Runners
Point
|
|
|
|
128
|
|
224
|
|
99
|
|
177
|
Sidestep
|
|
|
|
73
|
|
131
|
|
73
|
|
134
|
SIX:02
|
|
|
|
60
|
|
102
|
|
—
|
|
—
|
Total
|
|
|
|
7,605
|
|
13,211
|
|
7,548
|
|
13,101
|
Contact:
James R. Lance
Vice President,
Corporate Finance and Investor Relations
Foot Locker, Inc.
(212) 720-4600
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SOURCE Foot Locker, Inc.