Foot Locker, Inc. (FL Quick QuoteFL - Free Report) posted second-quarter fiscal 2024 results, with both the bottom and top lines surpassing the Zacks Consensus Estimate. Also, revenues were above while earnings were below the year-ago quarter's level. The company lowered its margin guidance due to heightened promotional pressure.

However, in the second quarter, the Lace Up Plan demonstrated its effectiveness by driving a return to positive total and comparable sales growth, along with gross margin expansion. Strong top-line trends were noted as the quarter progressed, including a solid start to Back-to-School and stabilization in the Champs Sports banner.

Additionally, the Lace Up Plan continues to unlock significant opportunities by leveraging strong brand partnerships, enhancing in-store experiences and strengthening customer connections through digital and loyalty initiatives. Over the past three months, FL's shares have risen 42.5% against the industry’s 4.5% decline.

More on Foot Locker’s Q2 Results

The athletic shoes and apparel retailer posted an adjusted loss of 5 cents per share, which is narrower than the Zacks Consensus Estimate of an adjusted loss of 8 cents per share. However, the figure marked a deterioration from the prior-year quarter's adjusted earnings per share of 4 cents.

Total revenues of $1,896 million increased 1.9% from the year-ago period's figure. Excluding the impacts of foreign-currency fluctuations, total sales increased 2.5%. Revenues surpassed the Zacks Consensus Estimate of $1,883 million. However, a non-recurring expense related to the launch of the  enhanced FLX Rewards Program in the United States decreased sales by $11 million.

Comparable sales increased 2.6% year over year, driven by 5.2% comps growth in global Foot Locker and Kids Foot Locker sales.

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Insight Into FL’s Margins

FL's gross margin rate increased 50 basis points (bps). Excluding the non-recurring FLX Rewards Program impact, the gross margin improved 90 bps due to its lower markdown levels and occupancy leverage. We expected the gross margin to be flat year over year.

The selling, general and administrative (SG&A) expenses, as a percentage of sales, increased 130 bps from the prior-year period's level. This increase was due to investments in technology and brand-building, along with higher inflation. However, it was partially offset by savings from the cost-optimization program and ongoing expense discipline. We anticipated SG&A expenses to expand 150 bps.

Foot Locker's Q2 Store Update

In the fiscal second quarter, the company inaugurated five stores and closed 31. Additionally, during this period, it remodeled or relocated 14 stores and modernized 67 to adhere to its latest design standards, integrating essential aspects of its current brand specifications.

As of Aug. 3, 2024, FL managed 2,464 stores across 26 countries in North America, Europe, Asia, Australia and New Zealand. Moreover, 213 franchised stores were operational in the Middle East and Asia.

FL’s Financial Snapshot: Cash, Debt and Equity Overview

The Zacks Rank #3 (Hold) company ended the fiscal second quarter with cash and cash equivalents of $291 million. Long-term debt and obligations under finance leases amounted to $440 million and shareholders’ equity totaled $2,897 million. As of Aug. 3, 2024, merchandise inventories were $1,648 million, down 10% from the year-earlier quarter's figure.

What Lies Ahead for Foot Locker?

For fiscal 2024, management expects sales to grow 1% to decline 1%, including a 1% headwind from the lapping of an extra week in 2023. The company expects comps to increase in the band of 1-3% year over year. Licensing revenues are likely to be $17 million.

The gross margin is anticipated to be 29.5-29.7% compared with the prior estimated range of 29.8-30% due to promotional pressure in international and WSS. Management expects EBIT margin to be in the band of 2.8-3.2%. The SG&A rate is anticipated to be in the range of 24.1-24.3% compared with the earlier expected 24.4-24.6%, due to ongoing investment spending.

Foot Locker envisions adjusted earnings per share to be in the range of $1.50-$1.70. Management predicts an adjusted CapEx of $330 million, including $55 million in technology investment reflected in operating cash flows.

Key Picks

Some better-ranked stocks are Boot Barn Holdings, Inc. (BOOT Quick QuoteBOOT - Free Report) , Deckers Outdoor Corporation (DECK) and Steven Madden, Ltd. (SHOO Quick QuoteSHOO - Free Report) .

Boot Barn operates as a lifestyle retail chain devoted to western and work-related footwear, apparel and accessories. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Boot Barn’s fiscal 2025 earnings and sales indicates growth of 8.9% and 10.7%, respectively, from the fiscal 2023 reported figures. BOOT has a trailing four-quarter average earnings surprise of 7.1%.

Deckers Outdoor is a leading designer, producer and brand manager of innovative, niche footwear and accessories. It has a Zacks Rank #2 (Buy) at present. DECK delivered a 25.9% earnings surprise in the last reported quarter.

The consensus estimate for Deckers’ fiscal 2025 earnings and sales indicates growth of 8.4% and 11.5%, respectively, from the fiscal 2024 reported levels. DECK has a trailing four-quarter average earnings surprise of 47.2%.

Steven Madden designs, sources, markets and sells fashion-forward name-brand and private-label footwear. It currently has a Zacks Rank of 2. 

The Zacks Consensus Estimate for Steven Madden’s 2024 earnings and sales indicates growth of 6.9% and 12.6%, respectively, from the year-ago reported actuals. SHOO has a trailing four-quarter average earnings surprise of 9.5%.