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Foot Locker to Close 165 Stores Despite Hitting Record High Full-Year Sales

After announcing a new capital expenditure plan on Feb. 20, Foot Locker officially revealed the details of its next ventures Friday morning—along with FY18 and Q4 financial reports that confirm the company recorded record revenue in 2018.

In a Nutshell: Foot Locker has been actively investing in startups like Super Heroic and Rockets of Awesome in recent months, along with a $2 million dollar investment in a designer pipeline through the Pensole Design Academy and a $100 million investment in GOAT, a sneaker resale platform.

In its FY18 earnings conference call, the company revealed more details on the $275 million capital expenditure program for the coming year, announcing its plans to further invest in its supply chain, infrastructure and overall customer experience.

Of the total, $175 million will be used to expand its store fleet with 80 new stores, over a dozen power stores and further retail expansion into Asia. Additionally, 190 stores will be remodeled or relocated over the coming year. Foot Locker will also invest capital into a revamp of its personalization services and membership program. The company said it will roll out an upgraded point-of-service software program for its physical retail business and upgrade its international e-commerce sites to an integrated platform.

It isn’t all roses for the footwear firm, however, Foot Locker announced plans to close 165 stores in FY19, with a significant concentration of those closings occurring in the U.S. and Europe at Foot Locker and Lady Foot Locker locations.

In early trading Friday, the retailer’s share price had risen more than 5 percent to $62.82.

Sales: Foot Locker recorded total sales of $2.27 billion in the fourth quarter of FY18, with a $95 million sales week in the 53rd week of 2018, up 2.8 percent on the $2.21 billion registered in the comparable period of 2017. This exceeded analyst projections that predicted around $2.19 billion in sales for the quarter.

Sales for the total year were the highest in company history, at $7.93 billion, an increase of 2 percent over the $7.78 billion registered in fiscal 2017.

Footwear sales were the biggest winner for the company, up double digits, led by men’s running and classic styles. Basketball sneakers were down mid-single digits. Full-year comparable-store sales increased by 2.7 year over year.

Foot Locker expects another mid-single digit comparable sales increase in FY19 but said its total sales may experience a slight headwind, limiting the chance for the company to improve on its record. The company also warned investors against the prospect of smaller and later tax refunds caused by the government shutdown and tax reform.

Earnings: In Q4, Foot Locker returned net income of $177 million to shareholders, for a total of $1.56 EPS, compared to a $1.14 EPS in 2017—an increase of 37 percent. Analysts expected income of around $1.40 in the quarter.

Over the entirety of FY18, Foot Locker earned net income of $541 million for $4.17 EPS, 18 percent over the $3.99 earned in 2017. This was, however, lower than analyst projections of $4.57, likely reflecting the company’s investment activity.

Foot Locker expects a double-digit increase in EPS for FY19, along with an improvement of its gross margin by around 20 to 40 basis points. Foot Locker’s EPS in FY19 will also be positively affected by the $1.2 billion share repurchase program, the company said.

CEO’s Take: Richard Johnson, chairman and CEO of Foot Locker, touted the retailer’s commitment to its core business and the company’s focus on youth culture as the reasons for its strong performance in 2018.

“This positive performance was made possible by our team’s unrelenting focus on providing compelling assortments to our customers, launching exciting collaborations with our strategic partners, both long-standing and new, and making our stores and digital channels unique and exciting destinations,” Johnson said. “Looking at 2019, we believe that by maintaining our focus on bringing differentiated experiences to youth culture, we can continue to elevate our financial performance by generating a mid-single digit comparable sales gain and another double-digit percentage increase in earnings per share.”

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