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Foot Locker’s Q4 Sales Drop on Weak Holiday Demand

A single-day sales record couldn’t fully offset weak holiday sales in Q4 for Foot Locker, which reported full-year net income lower than the prior fiscal year.

In a Nutshell: Sales at the athletic footwear and apparel giant reached $8 billion for the first time, the company said Friday, and earnings exceeded Wall Street estimates. Foot Locker recorded a single-day sales record in Q4, earning more than $115 million in revenue.

However, lower-than-anticipated holiday demand led to fourth-quarter sales that missed Foot Locker’s expectations.

“While we had leading positions in key on-trend footwear styles, this was not enough to offset softer than expected demand during the compressed holiday season, a very promotional marketplace for apparel, and tougher launch comparisons,” Foot Locker Inc. chairman and CEO Richard Johnson said.

This environment led to a decrease in both comparable store sales and total sales for the quarter as the retailer put into place a strategy to manage “slower-moving items.” Foot Locker’s gross margin rate fell as a result but executive vice president and chief financial officer Lauren Peters said the company’s “disciplined expense management” helped to offset these challenges.

Foot Locker’s return on invested capital rose 50 basis points to 12.5 percent during fiscal year 2019 and the company closed a net of 31 stores from its total of 3,129.

Sales: Fourth-quarter sales fell 2.2 percent to $2.22 billion, lower than the $2.24 billion average Wall Street estimate . For the full year, the retailer recorded revenue of $8.005 billion, an increase of 0.8 percent over the previous fiscal year. Full-year comparable sales were also up 2.2 percent.

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Foot Locker anticipates comparable sales will rise in the low-single digits in fiscal year 2020.

Earnings: Non-GAAP net income of $171 million resulted in $1.63 EPS in the fourth quarter, higher than the Wall Street estimate of $1.58. Full-year net income reached $498 million, down from $541 million in 2018.

On a non-GAAP basis, EPS reached $4.93 in 2019—a 4.7 percent increase over the previous year’s earnings and ahead of the average Wall Street estimate of $4.89.

CEO’s Take: Foot Locker will continue to focus on positioning itself in sneaker and youth culture, said Johnson, adding that despite industry headwinds, the company continues to work toward its long-term financial goals.

“We built a strong foundation in 2019 and we believe we have the right plan in place to deliver against our long-term financial objectives,” Johnson said. “We are optimistic about our company’s future, and by making progress against our strategic imperatives, we believe we will strengthen our position at the center of sneaker and youth culture, and create value for our shareholders.”