FOOT LOCKER, INC. REPORTS 2022 THIRD QUARTER RESULTS; UPDATES 2022 OUTLOOK

• Third quarter sales and earnings above expectations
• Total sales decreased 0.7% from 2021 on a reported basis; increased 3.3% in constant currency
• Comparable-store sales increased 0.8% year-over-year
• EPS of $1.01 and Non-GAAP EPS of $1.27
• Raises 2022 EPS guidance to $4.42–$4.50, compared to prior range of $4.25–$4.45

NEW YORK, Nov. 18, 2022 /PRNewswire/ — Foot Locker, Inc. (NYSE: FL), the New York-based specialty athletic retailer, today reported financial results for its third quarter ended October 29, 2022.

“Foot Locker’s solid third quarter results in the midst of ongoing macroeconomic challenges are a testament to the strengths of this organization that I am honored to now be leading,” said Mary Dillon, President and Chief Executive Officer.  “Despite the tough environment, our expanding customer base remained resilient, and I’m proud that our team delivered sales above our expectations, thanks to their exceptional execution.”

Ms. Dillon continued, “I see tremendous opportunity to further leverage the power of our brand equity and our incredible field team to drive our growth in this exciting category.”

Third Quarter Results
The Company reported net income of $96 million, or $1.01 per share, for the 13 weeks ended October 29, 2022, compared with $158 million, or $1.52 per share, for the corresponding prior-year period.

On a non-GAAP basis, the Company earned $1.27 per share, compared with non-GAAP earnings of $1.74 per share in the prior-year period. Please see the GAAP to non-GAAP reconciliation below. 

Third quarter comparable-store sales increased by 0.8% against record sales levels last year, driven by strong demand, the Company’s brand diversification efforts, and improved access to high-quality inventory. Total sales decreased by 0.7%, to $2,173 million, compared with sales of $2,189 million in the third quarter of 2021. Excluding the effect of foreign exchange rate fluctuations, total sales for the third quarter increased by 3.3%.

Gross margin declined by 270 basis points compared with the prior-year period, driven mainly by higher markdowns on increased promotional activity across the industry, and modest supply chain cost pressure. 

SG&A increased by 60 basis points, driven mainly by labor inflation, partially offset by early savings from the Company’s cost optimization program. 

Year-To-Date Results
For the first nine months of the year, the Company posted net income of $323 million, or $3.38 per share, compared with $790 million, or $7.54 per share, for the corresponding prior-year period.  On a non-GAAP basis, earnings per share for the nine-month period totaled $3.98, compared to $5.80 in the corresponding prior-year period.  Year-to-date sales were $6,413 million, a decrease of 3.1% compared to $6,617 million in the corresponding nine months of 2021. Year-to-date, comparable store sales decreased 3.9%, while total year-to-date sales, excluding the effect of foreign currency fluctuations, decreased by 0.1%.

Financial Position
As of October 29, 2022, merchandise inventories were $1,685 million, up 29.5% compared to the end of the third quarter last year.  Current inventory quality and aging continue to be healthy and position the Company well to fulfill demand for the holiday season and the fourth quarter overall.  At quarter-end, the Company’s cash and cash equivalents totaled $351 million, while debt was $454 million.

During the third quarter of 2022, the Company paid a quarterly dividend of $0.40 per share, for a total of $37 million. 

Financial Outlook
Andrew Page, Executive Vice President and Chief Financial Officer, said, “Following better-than-expected results for the third quarter and strong momentum coming out of the quarter, we are increasing our outlook for the fourth quarter and the full year.  While the macroeconomic environment remains uncertain, our demand trends, and inventory position in high-quality product gives us confidence we can achieve our new range, while also remaining flexible to manage through ongoing volatility.”

The Company’s fourth quarter and updated full-year 2022 outlooks are summarized in the table below.

The Company provides earnings guidance only on a non-GAAP basis and does not provide a reconciliation of the Company’s forward-looking adjusted income taxes and diluted earnings per share guidance to the most directly comparable GAAP financial measures because of the inherent difficulty in forecasting and quantifying certain amounts that are necessary for such reconciliations.

Store Base Update
During the third quarter, the Company opened 24 new stores, remodeled or relocated 23 stores, and closed 29 stores. 

As of October 29, 2022, the Company operated 2,794 stores across 28 countries in North America, Europe, Asia, Australia, and New Zealand.  In addition, 155 franchised stores were operating in the Middle East and Asia.

Conference Call and Webcast
The Company is hosting a live conference call at 9:00 a.m. ET today, Friday, November 18, 2022, to review these results and provide an update on the business. An investor presentation will be available under the Investor Relations section of the Company’s corporate website before the start of the conference call.  This conference call may be accessed live by calling toll-free 1-844-701-1163 or international toll 1-412-317-5490, or via the Investor Relations section of footlocker-inc.com. Please log on to the website 15 minutes prior to the call to register. An archived replay of the conference call can be accessed approximately one hour following the end of the call at 1-877-344‑7529 in the U.S. or 1-855-669-9658 in Canada or 1-412-317-0088 internationally with passcode  3878666 through December 2, 2022. A replay of the call will also be available via webcast from footlocker-inc.com. 

Disclosure Regarding Forward-Looking Statements

This report contains forward-looking statements within the meaning of the federal securities laws.  Other than statements of historical facts, all statements which address activities, events, or developments that the Company anticipates will or may occur in the future, including, but not limited to, such things as future capital expenditures, expansion, strategic plans, financial objectives, dividend payments, stock repurchases, growth of the Company’s business and operations, including future cash flows, revenues, and earnings, and other such matters, are forward-looking statements.  These forward-looking statements are based on many assumptions and factors, which are detailed in the Company’s filings with the U.S. Securities and Exchange Commission.

These forward-looking statements are based largely on our expectations and judgments and are subject to a number of risks and uncertainties, many of which are unforeseeable and beyond our control. For additional discussion regarding risks and uncertainties that may affect forward-looking statements, see “Risk Factors” disclosed in the Company’s Annual Report on Form 10-K for the year ended January 29, 2022 filed on March 24, 2022. Any changes in such assumptions or factors could produce significantly different results. The Company undertakes no obligation to update the forward-looking statements, whether as a result of new information, future events, or otherwise.

Non-GAAP Financial Measures

In addition to reporting the Company’s financial results in accordance with generally accepted accounting principles (“GAAP”), the Company reports certain financial results that differ from what is reported under GAAP. Effective with the first quarter of 2022, the Company excludes all gains or losses associated with the minority investments to arrive at non-GAAP earnings; previously only certain amounts were adjusted. Those amounts not previously excluded from non-GAAP earnings during 2021 represented $17 million ($12 million after tax or $0.12 per share), $27 million ($20 million after tax, or $0.19 per share), and $27 million ($20 million or $0.21 per share) for the second, third, and fourth quarters of 2021, respectively. For the full year, this represented income of $71 million ($52 million after tax, or $0.50 per share) and was primarily related to our investment in Retailors, Ltd. Amounts recorded prior to 2021 were not significant. Non-GAAP financial measures that will be presented will exclude (i) minority investments, (ii) impairments and other charges, and (iii) certain tax matters that we believe are nonrecurring or unusual in nature.

Certain financial measures are identified as non-GAAP, such as sales changes excluding foreign currency fluctuations, adjusted income before income taxes, adjusted net income, and adjusted diluted earnings per share. We present certain amounts as excluding the effects of foreign currency fluctuations, which are also considered non-GAAP measures. Where amounts are expressed as excluding the…