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Foot Locker Mulls Closing Stores After Disappointing Q2

Foot Locker released its second quarter earnings, showing disappointing results amid a challenging retail environment and lagging sales.

After a difficult first quarter Foot Locker followed with a second quarter full of shortcomings and the company said it’s considering shrinking its store base to cut back on expenses.

Net income came in at $51 million, or $0.39 per share, compared with $127 million, or $0.94 per share during the same period last year—a 59.8% decline. Foot Locker attributed a portion of the sizable decrease to a $50 million pre-tax litigation charge resulting from a recent appeals court decision in a lawsuit regarding pension plans from 1996. Non-GAAP net income was $81 million and non-GAAP earnings were $0.62 per share.

Second quarter comparable store sales decreased at 6 percent. Total sales fell 4.4% to $1,701 million during the second quarter, compared to the $1.780 million during the same period last year, a 4.4% decline.

“While we believe our position in the market for premium sneakers remains very strong and our customers continue to look to us for compelling new athletic footwear and apparel styles,” Foot Locker chairman and CEO Richard Johnson, said. “Sales of some recent top styles fell well short of our expectations and impacted this quarter’s results. At the same time, we were affected by the limited availability of innovative new products in the market. We believe these industry dynamics will persist through 2017, and we expect comparable sales to be down three to four percent over the remainder of the year.”

Gross margin rate also took a plunge in the quarter, dropping to 29.6% of sales, from 33 percent last year.

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“We are obviously disappointed in the results for the quarter, and our team is working quickly to adjust our operations to a changed retail landscape in which we are seeing our consumers move faster than ever from one source of inspiration or influence to another,” Johnson said. “In addition to working with our vendor partners to identify and capture new trends faster, we are also evaluating a realignment of our capital expenditure priorities and additional expense reductions so we can regain our momentum on both the top and bottom lines and deliver long-term value for our shareholders.”

Considering what it called “sales challenges” in this “unprecedented retail environment” Foot Locker EVP and CFO Lauren Peters said the company is considering a range of alternatives to reduce expenses, including adjustments to its “largely productive” store base, cutting back on overall capital spending and “shifting of emphasis from real estate to digital and supply chain.”