This summary is based on the third quarter fiscal 2006 earnings call conducted by Foot Locker, Inc. (FL: chart) on November 17, 2006.
Key Investors Issues
- The earnings per share were flat at 42 cents compared to year ago period.
- Sales grew to $1.43 billion from $1.41 billion in the prior year.
- For fiscal 2006, the firm expects EPS of $1.58 to $1.65, excluding asset write down charge.
Third Quarter Fiscal 2006 Financial Highlights
Net income for the quarter was 42 cents per share or $65 million, in line with last year’s results of 42 cents per share or $66 million.
Last year’s results reflected revisions in estimates to discontinued reserves and a favorable income tax settlement totaling 1 cent per share, or $1 million that was included in discontinued operations. Income from continuing operations for the third quarter of 2006 was 42 cents per share, or $65 million, compared to 41 cents per share or $65 million last year.
For the third quarter period, sales increased 1.6% to $1,430 million compared with $1,408 million in the year-ago period.
Third quarter comparable-store sales decreased 0.3%, which were at the low end of the company’s expectations. At the onset of the third quarter, the firm expected the same store sales for the period to increase low single digits in the U.S. and decrease mid single digits in Europe. The third quarter sales in the U.S. were in line with these expectations and reflected an improved trend versus the second quarter of this year. In Europe, the firm was significantly less promotional in this year''s quarter which contributed towards the achievement of a low double-digit division profit margin rate in this region.
- The comparable sales of the U.S. Foot Locker and Lady Foot Locker increased in low single digits.
- Footaction also produced a low single digit same store sales gain.
- Champs had another solid quarter with a low to mid single digit increase.
- Foot Locker foot comp store sales declined in mid single digits reflecting a large store base and favorable foreign exchange rate comparisons.
- Same store sales of Foot Locker Canada and Asia-Pacific increased in low to mid single digits.
- By month, same store sales decreased very low single digits in August, were flat in September and increased very low single digits in October.
Sales at the European business remained the firm’s largest challenge, although there were some positive signs of improvement late in the quarter.
On the positive side of the business, the company was quite a bit less promotional in Europe than it was during the third quarter of last year which was a big help on the profit line. In fact, the division’s profit margin rate in Europe was back in the very low double-digit range.
In other international businesses, Canada and the Asia-Pacific region performed very well, with solid sales gains and a healthy profit increase.
The company’s U.S. divisions also produced healthy sales gains in Marquee basketball and running as well as low-profile styles. These sales gains at the U.S. divisions however were offset by higher mark down rates. Average selling prices of the footwear business increased in low single digits in the U.S. and were flat in international stores.
For the third quarter, the company’s combined U.S. business generated a mid single digit same store sales increase on the footwear side of the business and a slight decline in apparel.
Strength in footwear was led by strong gains in the women''s and children''s categories. Increased sales of the low-profile styles drove the firm’s women''s business, with the kids gains reflected across several categories. On the men''s side of the footwear business, the firm generated a low single-digit gain in the basketball category driven by increased quantities of exciting Marquee shows and exciting styles of low-profile styles.
The weakness of the men''s side came in classics and cross-training. Marquee footwear styles sold particularly well during the third quarter include Jordan, Jordan Retro, Nike Shox running and Nike Air – products. Low-profile, Fusion styles sold well in U.S. stores during the third quarter including many styles from several of the firm’s key suppliers including PUMA, Adidas and Nike. The management also continues to see the skate category be more important to both the firm’s urban and suburb customers.
Champs produced another solid sales increase during the third quarter and for the full year.
Champs continues to increase its market share position versus its key competitor in suburb malls with solid sales gains in the women''s kids and men''s casual and specialty categories, with strong sales of low-profile and skate styles from the top suppliers. Apparel sales at Champs were generated across several categories.
Footaction generated a solid sales increase during the third quarter and is also tracking well towards a solid sales and profit increase for the year.
The firm expects that the profit gain for Footaction will be the highest of any of its divisions with a strong single digit percentage increase.
Lady Foot Locker was the strongest performer during the third quarter. 
