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Foot Locker Q1 profit, sales rise but miss Street; cuts earnings outlook

Foot Locker Inc. reported a mixed first quarter as its sales and earnings rose but not as much as analysts had expected.

Net income totaled $172 million, or $1.52 per share, for the quarter ended May 4, compared to net income of $165 million, or $1.38 per share in the year-ago period. Adjusted earnings were $1.53 per share. Analysts were expecting earnings of $1.61 a share. The earnings miss was Foot Locker’s first in five quarters.

Total sales rose 2.6% to $2.078 billion, below analysts' estimates of $2.12 billion. Same-store sales rose 4.6%.

The company's gross margin rate increased to 33.2% from 32.9% a year ago, while the SG&A expense rate increased to 20.0% from 19.0% in the first quarter of 2018, largely reflecting strategic investments the company is making in its digital capabilities and infrastructure.

Foot Locker has had a busy year so far, investing in several digital-first companies, including children’s apparel brand Rockets of Awesome and Goat Group, an online premium sneaker resell marketplace. Other investments include women’s luxury activewear brand Carbon38, tactical play and children’s lifestyle brand Super Heroic and footwear design academy Pensole.

"We started the year with great energy, innovative products, and exciting customer events, leading to solid top-line growth in the first quarter with strong performance across our regions, banners, channels, and categories," said Richard Johnson, president and CEO. "Based on the momentum we have underway, we feel confident that the updated strategic imperatives we introduced at our Investor Day in March position us to deliver on our long-term goals."

Foot Locker is on track with its previously stated full-year outlook, including sales, gross margin and SG&A. But it cut its full-year earnings outlook, citing the $1.2 billion stock buyback program that it announced back in February.

Similar to other retailers in its segment, Foot Locker is facing a big unknown as it heads into the rest of the year: the potential of increased tariffs on footwear. Last week, Foot Locker and some 170 other companies in the shoe and sports apparel business signed a letter sent to President Donald Trump urging him to him to abandon plans to implement a proposed 25% tariff on an additional $300 million in Chinese goods, including footwear, calling the tariffs a "catastrophic" move that will cost U.S. consumers $7 billion annually.

As of May 4, 2019, Foot Locker operated 3,201 stores in 27 countries in North America, Europe, Asia, Australia, and New Zealand. In addition, 119 franchised Foot Locker stores were operating in the Middle East, as well as 10 franchised Runners Point stores in Germany.
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