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Foot Locker Soars to Record Heights in Q4, 2014

New York-based specialty athletic retailer Foot Locker (FL) reported financial results for its fourth quarter and full year ended Jan. 31 that beat Wall Street estimates on both the top and bottom lines.

In 2014, the Company generated its fifth consecutive double-digit percentage increase in annual earnings per share and its fourth consecutive year of record earnings.

Total fourth quarter sales increased 6.7% to $1.91 billion from $1.79 billion in 2013, topping analyst estimates of $1.87 billion. Excluding the effect of foreign currency fluctuations, total sales increased 10.1%. Comparable-store sales in the quarter increased by 10.2%, sprinting past Wall Street estimates of 5.8%. Comps in footwear were in the high teens, more than compensating for a low-single-digit decline in apparel comps.

Basketball and running shoes did particularly well, with brand Jordan continuing to be a standout. Other high-performing product lines include retro basketball styles, Nike’s Kyrie, Lebron, Kobe and Durant styles, and UnderArmour’s Clutchfit. Within casual footwear, boots from Timberland and Nike did very well in the fourth quarter.

On the quarterly earnings conference call, CFO Lauren Peters remarked that the company increased gross margin by 40 basis points in the fourth quarter to 33.2% of sales, and reduced the annual SG&A expense rate to below 20 percent for the first time.

Net income for the quarter was $146 million, or $1.01 per share, an increase of 25 percent over earnings per share of $0.81 for the prior-year period, and above the consensus of $.91 per share.

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During the fourth quarter, the Company realized a gain from the sale of a property and wrote down a trademark.  Excluding these one-time events, earnings were $1.00 per share, a 22 percent increase over the comparable earnings per share of $0.82 in 2013.

For the full year, sales increased 9.9% in 2014 to a record $7.15 billion from $6,5 billion last year. Comparable-store sales increased 8 percent in 2014. Net income for the year rose 21 percent to $520 million, or $3.56 per share, from $429 million, or $2.85 per share, in 2013. Excluding items, earnings were $3.58 per share in 2014, an increase of 25 percent over the $2.87 per share earned on a comparable basis in 2013.

During the fourth quarter, the Company repurchased 2.34 million shares of its common stock for $131 million. For the full year, the Company repurchased 5.9 million shares for $305 million.

“We remain intently focused on executing our key strategies,” said Richard Johnson, Foot Locker’s president and CEO.  “Along with elevating the level of investments in our stores, digital capabilities, support facilities, and — most importantly — our people, that focus has enabled us to develop into a high-performance company that has reached record heights of financial and operational success.  In fact, we have approached or surpassed many of the goals in our most recent set of long-term objectives, and I am very proud of the entire team at Foot Locker, Inc. for this excellent accomplishment.”

“Looking ahead,” Mr. Johnson said, “we intend to stay focused on our strategic priorities and seize opportunities to raise the bar again and achieve our next set of financial milestones.”

The company is planning for foreign currency headwinds in 2015 from the stronger dollar that will temper same-store sales growth to mid-single-digit levels.

The Company opened 86 new stores, remodeled/relocated 319 stores, and closed 136 stores during fiscal 2014. As of January 31, 2015, the Company operated 3,423 stores in 23 countries in North America, Europe, Australia, and New Zealand. In addition, 51 franchised Foot Locker stores were operating in the Middle East and South Korea, as well as 27 franchised Runners Point and Sidestep stores in Germany and Switzerland. The company expects to open 100 new stores in 2015 and to close around 80, with most of the net new stores in Kids and Europe.

According to Peters, the company managed to avoid West Coast port disruption by bringing product in ahead of schedule, which helped it maximize sales opportunity and create excitement around February’s NBA All-Star Game in NYC, giving the business a great boost in the new fiscal year.