NEW YORK, Aug. 21 /PRNewswire-FirstCall/ -- Foot Locker, Inc. , the New York-based specialty athletic retailer, today reported financial results for its second quarter ended August 2, 2008.
Second Quarter Results
The Company reported net income of $18 million, or $0.11 per share, for the second quarter ended August 2, 2008 compared with a net loss of $18 million, or $0.12 per share, last year. Second quarter sales increased 1.5 percent, to $1,302 million this year compared with sales of $1,283 million for the corresponding prior year period. Second quarter comparable-store sales decreased 0.5 percent.
"Our second quarter earnings were at the high end of our expectations due primarily to lower than anticipated markdowns. As a result, our gross margin rate was 420 basis points favorable to the second quarter of last year and in line with our historic gross margin rates for the second fiscal quarter," stated Matthew D. Serra, Foot Locker, Inc.'s Chairman and Chief Executive Officer. "Our gross margin rate in the second quarter of last year was affected negatively by a strategic decision to accelerate the clearance of slow-selling merchandise."
Year-to-Date Results
Net income for the Company's first six months of the year was $21 million, or $0.13 per share, and includes store closing expenses of $3 million, after-tax, or $0.02 per share, and a non-cash impairment charge of $15 million, after-tax, or $0.10 per share. For comparison purposes, year-to-date net income in 2008, before the store closing expenses and impairment charge, was $39 million, or $0.25 per share. For the first six months of 2007, the Company had a net loss of $1 million, or $0.01 per share.
Year-to-date sales increased 0.5 percent to $2,611 million compared with sales of $2,599 million last year. Comparable-store sales decreased 1.7 percent.
Financial Position
At August 2, 2008, the Company's cash and short-term investments totaled $431 million while the debt on its balance sheet was $125 million. The Company's cash position, net of debt, was $173 million higher than the same time last year. During the second quarter the Company repaid the remaining $88 million of its bank term debt in advance of final maturity.
In line with a strategic initiative designed to improve inventory management, the Company's merchandise inventory at the end of the second quarter was 3.5 percent lower than at the end of the second quarter last year. On a constant currency basis, merchandise inventory was 5.4 percent below last year. At the Company's combined U.S. store businesses, merchandise inventory has been reduced by approximately 10 percent versus the level two years ago.
Store Base Update
During the first six months of the year, the Company opened 40 new stores, remodeled/relocated 162 stores and closed 97 stores. At August 2, 2008, the Company operated 3,728 stores in 21 countries in North America, Europe and Australia. In addition, 14 franchised stores were operating in the Middle East and South Korea.
Mr. Serra continued, "While we are encouraged with our financial results for the second quarter and first half of this year, we are being cautious in how we manage our business for the balance of the year given the uncertain economic environment in which we operate, particularly as it relates to consumer spending. We currently expect our net income for the full year, excluding the $0.10 per share impairment charge recorded during our first fiscal quarter, to be in a range of $0.70 to $0.85 per share."
The Company is hosting a live conference call at 9:00 a.m. (ET) on Friday, August 22, 2008 to discuss these results. This conference call may be accessed live from the Investor Relations section of the Foot Locker, Inc. website at http://www.footlocker-inc.com/. The conference call will be available for webcast replay until 5:00 p.m. on Friday, August 29, 2008.
Disclosure Regarding Forward-Looking Statements
This press release contains forward-looking statements within the meaning of the federal securities laws. All statements, other than statements of historical facts, which address activities, events or developments that the Company expects or anticipates will or may occur in the future, including, but not limited to, such things as future capital expenditures, expansion, strategic plans, 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 detailed in the Company's filings with the Securities and Exchange Commission, including the effects of currency fluctuations, customer demand, fashion trends, competitive market forces, uncertainties related to the effect of competitive products and pricing, customer acceptance of the Company's merchandise mix and retail locations, the Company's reliance on a few key vendors for a majority of its merchandise purchases (including a significant portion from one key vendor), unseasonable weather, economic conditions worldwide, any changes in business, political and economic conditions due to the threat of future terrorist activities in the United States or in other parts of the world and related U.S. military action overseas, the ability of the Company to execute its business plans effectively with regard to each of its business units, risks associated with foreign global sourcing, including political instability, changes in import regulations, and disruptions to transportation services and distribution. 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.
FOOT LOCKER, INC. Condensed Consolidated Statements of Operations (unaudited) Periods ended August 2, 2008 and August 4, 2007 (In millions, except per share amounts) Second Second Quarter Quarter 2008 2007 Sales $1,302 $1,283 Cost of sales 941 981 Selling, general and administrative expenses 299 286 Depreciation and amortization 33 44 Store closing costs 1 -- Interest expense, net 2 -- Other (income) expense (2) 1 1,274 1,312 Income (loss) before income taxes 28 (29) Income tax expense (benefit) 10 (11) Net income (loss) $18 $(18) Diluted EPS: Net income (loss) $0.11 $(0.12) Weighted-average diluted shares outstanding 155.4 154.0 Year-To-Date Year-To-Date 2008 2007 Sales $2,611 $2,599 Cost of sales 1,884 1,937 Selling, general and administrative expenses 598 576 Depreciation and amortization 65 87 Impairment charge 15 -- Store closing costs 5 -- Interest expense, net 3 -- Other (income) expense (2) 1 2,568 2,601 Income (loss) before income taxes 43 (2) Income tax expense (benefit) 22 (1) Net income (loss) $21 $(1) Diluted EPS: Net income (loss) $0.13 $(0.01) Weighted-average diluted shares outstanding 155.2 154.4
Reconciliation of Net Income from a GAAP-reported basis to a non-GAAP basis
(unaudited) Periods ended August 2, 2008 and August 4, 2007 (In millions, except per share amounts) Second Second Quarter Quarter 2008 2007 Net income - GAAP basis $18 $(18) Additions: Impairment charge --- --- Store closing costs --- --- Net income - non-GAAP basis $18 $(18) Net income per share - GAAP basis $0.11 $(0.12) Additions: Impairment charge --- --- Store closing costs --- --- Net income per share - non-GAAP basis $0.11 $(0.12) Year-To-Date Year-To-Date 2008 2007 Net income - GAAP basis $21 $(1) Additions: Impairment charge 15 --- Store closing costs 3 --- Net income - non-GAAP basis $39 $(1) Net income per share - GAAP basis $0.13 $(0.01) Additions: Impairment charge 0.10 --- Store closing costs 0.02 --- Net income per share - non-GAAP basis $0.25 $(0.01) FOOT LOCKER, INC. Condensed Consolidated Balance Sheets (unaudited) (In millions) August 2, August 4, 2008 2007 Assets CURRENT ASSETS Cash, cash equivalents and short-term investments $431 $363 Merchandise inventories 1,401 1,452 Other current assets 250 290 2,082 2,105 Property and equipment, net 529 648 Deferred tax assets 247 134 Other assets 413 453 3,271 $3,340 Liabilities and Shareholders' Equity CURRENT LIABILITIES Accounts payable $363 $368 Accrued and other liabilities 266 254 Current portion of long-term debt and obligations under capital leases -- 14 629 636 Long-term debt and obligations under capital leases 125 216 Other liabilities 257 245 SHAREHOLDERS' EQUITY 2,260 2,243 $3,271 $3,340 FOOT LOCKER, INC. Store and Estimated Square Footage (unaudited) (Square footage in thousands) August 2, August 4, July 29, 2008 2007 2006 Foot Locker U.S. Number of stores 1,245 1,321 1,363 Gross square footage 5,074 5,344 5,501 Selling square footage 3,030 3,162 3,241 Footaction Number of stores 343 373 365 Gross square footage 1,600 1,735 1,721 Selling square footage 993 1,066 1,063 Lady Foot Locker Number of stores 518 546 550 Gross square footage 1,148 1,217 1,229 Selling square footage 654 689 693 Kids Foot Locker Number of stores 312 331 325 Gross square footage 756 801 789 Selling square footage 448 476 470 Champs Sports Number of stores 573 575 559 Gross square footage 3,096 3,127 3,063 Selling square footage 2,081 2,123 2,105 Footquarters Number of stores -- 32 -- Gross square footage -- 188 -- Selling square footage -- 169 -- Foot Locker International Number of stores 737 727 732 Gross square footage 2,147 2,108 2,099 Selling square footage 1,097 1,080 1,093 Total Stores Operated Number of stores 3,728 3,905 3,894 Gross square footage 13,821 14,520 14,402 Selling square footage 8,303 8,765 8,665 Total Franchised Stores Number of stores 14 7 -- Gross square footage 54 20 -- Selling square footage 36 14 --
