US' Foot Locker's Q3 sales drop 1.4%, comparable sales rise 2.4%

The gross margin increased by 230 basis points (bps), compared to the prior-year period. Selling, general, and administrative (SG&A) as a percentage of sales increased by 210 basis points as compared with the prior-year period, driven by technology and brand-building investments, partially offset by savings from the cost optimisation programme and ongoing expense discipline, Foot locker said in a press release.

Q3 2024 net loss was $33 million, as compared with net income of $28 million in the corresponding prior-year period. On a non-GAAP basis, net income was $31 million for the third quarter (Q3), as compared with net income of $28 million in the corresponding prior-year period.

Third quarter loss per share was $0.34, as compared with earnings of $0.30 per share in Q3 2023. Non-GAAP earnings were $0.33 per share, compared with non-GAAP earnings per share of $0.30 in the corresponding prior-year period.

At Q3-end, the company's cash and cash equivalents totalled $211 million, while total debt was $445 million. The company's merchandise inventories were $1.7 billion, 6.3 per cent lower vs Q3 2023. The company in Q3 opened 10 new stores and closed 24 stores. Also, during the quarter, the company remodelled or relocated 20 stores and refreshed 167 stores to its updated design standards, which incorporate key elements of the company’s current brand design specifications.

“Our team's continued focus on execution drove positive comparable sales trends and meaningful gross margin expansion in the quarter. However, our third quarter top- and bottom-line performance fell short of our expectations. Consumer spending trends softened following the peak Back-to-School period in August, and the promotional environment was more elevated than anticipated. At the same time, we continued to demonstrate progress with our Lace Up Plan, including further cementing our leadership position at the heart of basketball and sneaker culture. In the quarter, we continued the rollout of our Foot Locker 'Home Court' experience in collaboration with Nike and Jordan Brand, and we also announced a multi-year partnership with the legendary Chicago Bulls franchise,” said Mary Dillon, president and chief executive officer (CEO) of Foot locker.

Nine-month (9M) financials

For the year-to-date (YTD) period, total revenue declined slightly to $5,740 million from $5,784 million in the 9M prior year. Sales contributed $5,728 million, down from $5,774 million, while licensing revenue increased to $12 million from $10 million. Cost of sales decreased to $4,086 million from $4,149 million, while SG&A expenses rose to $1,419 million from $1,319 million.

Depreciation and amortisation also increased slightly to $153 million from $148 million, and impairment and other charges rose to $61 million from $59 million. Income from operations declined significantly to $21 million from $109 million.

The net other expense widened to $41 million compared to $1 million, resulting in a loss before income taxes of $26 million, down from an income of $101 million in the prior year. After income tax expense of $11 million, the company reported a net loss of $37 million, compared to a net income of $59 million in the prior year. Diluted loss per share stood at $0.38, down from diluted earnings per share of $0.63 in the prior year.

Outlook

For the full year 2024 ending February 1, 2025, Foot Locker has revised its outlook and expects sales to decline by 1.5 per cent to 1.0 per cent, with a fourth quarter (Q4) decline of 3.5 per cent to 1.5 per cent. The comparable sales growth is projected at 1.0 per cent to 1.5 per cent for the year, with Q4 growth expected at 1.5 per cent to 3.5 per cent.

The company expects store count to decrease by 4 per cent, and square footage by 2 per cent. EBIT margin has been revised down to 2.3 per cent to 2.5 per cent for the full year but higher in Q4 at 4.5 per cent to 5.0 per cent. Net interest expenses are forecast at $8 million, and the non-GAAP tax rate is estimated at 34.0 per cent. Non-GAAP EPS is revised to $1.20-$1.30, incorporating a $0.09 drag from a non-recurring FLX charge in Q2. Capital expenditures are projected at $270 million, with adjusted capital expenditures of $320 million, including ~$50 million for technology investments reflected in operating cash flows.

US' Foot Locker's Q3 sales drop 1.4%, comparable sales rise 2.4%