You will be redirected back to your article in seconds
Skip to main content

Foot Locker Is Killing Off Footaction

Total sales at Foot Locker increased by 83 percent to $2.2 billion in the first quarter of 2021, with the athleticwear and footwear retailer reeling in net income of $202 million. But as the retailer bounces back, it is saying goodbye to one of its longtime banners.

In a Nutshell: Foot Locker’s apparel business had a “strong” quarter, with triple-digit growth year-over-year, according to Andrew Gray, executive vice president and global chief commercial officer at Foot Locker. Men’s and kids’ apparel is up “triple digits” as well, while women’s increased in the high double digits.

While apparel and accessory businesses both increased triple digits, footwear sales increased over 70 percent.

Gray described the casualization of society as the “catalyst” for Foot Locker’s business, with shorts driving the largest momentum gain. Apparel is up double digits from the first quarter of 2019.

Foot Locker will wind down its Footaction banner over the next two years, which trailed the remaining Foot Locker businesses in productivity and profitability, according to chairman and CEO Richard Johnson. The company plans to convert nearly one-third of 231 Footaction locations into new Foot Locker stores to establish a bolder women’s and kids’ presence, and also convert them into Champs Sports and Kids Foot Locker stores.

The company will close the majority of the remaining Footaction stores as leases expire over the next two years.

“Eighty-five percent of our Footaction stores are located in proximity of one of our other banners,” said Johnson in an earnings call. “There is a fair amount of overlap from both our store base, and our consumer base.”

Related Stories

Roughly 230 of 713 Canadian and European stores remain temporarily closed amid Covid-19 lockdowns in both markets. Covid-related restrictions pressured the European business throughout the first quarter, as the market’s fleet was open only 39 percent of possible operating days in the quarter.

During the quarter, Foot Locker opened 12 new stores, remodeled or relocated 15 stores, and closed 58 stores. The retailer operated 2,952 stores in 27 countries in North America, Europe, Asia, Australia, and New Zealand. In addition, 131 franchised Foot Locker stores were operating in the Middle East.

The company also announced it is opening its first high-profile store in Barcelona.

As of May 1, 2021, Foot Locker’s total merchandise inventories were approximately $1.0 billion, 30 percent lower than at the end of the first quarter last year. Using constant currencies, inventory decreased by 32.7 percent.

“Last year’s inventory was probably inflated by about 20 percent, given our store closures at the time, so the good news is, we continue to sell a lot of product,” Johnson said in the call. “As we get it in and sell it, we do see better flow going into the back half partly just based on the port situation. We see opportunities to get back to last year’s numbers from an inventory perspective.”

As it relates to the West Coast ports, inventory flow and receipt velocity improved as delays began to ease through the first quarter, Johnson said. Foot Locker expects further improvement in the second quarter, which should reflect positively on its inventory levels.

In the meantime, the retailer has worked with vendor partners to use alternate ports, and expedited rail and truck services to accelerate the flow of goods.

Gross margin was 34.8 percent, compared to 23 percent last year, but when compared to a the first quarter of 2019, gross margin improved 160 basis points (1.6 percentage points) over the 33.2 percent rate. Foot Locker’s merchandise margin rate improved 250 basis points (2.5 percentage points) over last year, and 80 basis points (0.8 percentage points) over 2019, as price reductions and markdowns “more than offset” the higher freight expense that comes with increased penetration of digital sales.

At quarter-end, Foot Locker’s cash and cash equivalents totaled $2 billion, while the debt on its balance sheet was $109 million. The company’s total cash position, net of debt, was $1.3 billion higher than at the same time last year.

During the first quarter of 2021, the company invested $51 million in its store fleet, digital platforms, supply chain and logistics capabilities and other infrastructure. Looking ahead, Foot Locker is tracking towards approximately $275 million in capital expenditures this year.

“Due to delays in inventory receipts, in the first quarter, some sales have shifted into the second quarter,” said Andrew Page, executive vice president and chief financial officer, Foot Locker, in the call. “We expect second-quarter total sales to be relatively in line with last year.”

Although the retailer won’t share a formal guidance, Page divulged expectations for the year ahead, saying that total 2021 sales are expected to increase at a “low double digit to low teens” rate over fiscal 2020.

Page said Foot Locker would see a “meaningful” gross margin expansion over fiscal 2020, largely reflecting a more rational promotional environment. When compared to fiscal 2019, the company expects to see “modest” gross margin improvement.

Net Sales: Total sales at Foot Locker increased by 83.1 percent to $2.2 billion in the first quarter of 2021, compared with sales of $1.2 billion in the same period last year. Excluding the effect of foreign exchange rate fluctuations, total sales for the first quarter increased by 79.4 percent. As compared to the first quarter of 2019, total sales increased 3.6 percent, and 2.4 percent excluding the effect of foreign exchange rate fluctuations.

Digital sales reached 43 percent sales, and represented 25 percent of total sales. Direct-to-consumer sales were also 25 percent of sales for the quarter, down from 31 percent in the prior year period.

Sales across the North America and Asia regions increased triple digits, while Foot Locker Pacific increased in the “mid-90s” percentage range. Despite extensive Covid restrictions, Foot Locker Europe still posted a “high 30 percent” increase in sales.

Net Earnings: Foot Locker reported net income of $202 million, or $1.93 per share, as compared with a net loss of $110 million, or $1.06 per share, for the corresponding prior-year period. On an adjusted basis, Foot Locker earned $1.96 per share, versus a loss of 67 cents per share in the first quarter of 2020.

As compared to the first quarter of 2019, earnings per share increased 27 percent from the $1.52 per share earned in that period. On an adjusted basis, earnings per share increased 28.1 percent from the $1.53 per share earned in the first quarter of 2019.

CEO’s Take: Johnson also shed light on Foot Locker’s relationship with Goat, the streetwear marketplace it made a $100 million investment in back in 2019.

“Our responsibility is to make sure that we have a clear line of demarcation between the primary market that we service so well, and the secondary market that Goat services so well,” Johnson said. “We continue to work with (co-founder) Eddy Lu and the team out at Goat to learn about customer experience, how we can enhance that experience and how they can leverage some of the supply chain, that we have. At the same time, we looked at how we can ingrain some of their customer experience principles in our business.”