PR Newswire | Aug 21, 2020 06:46AM EDT

Reinstates Quarterly Dividend Program

08/21 05:45 CDT

Foot Locker, Inc. Reports 2020 Second Quarter Results; Board Of Directors Reinstates Quarterly Dividend Program- Second Quarter Comparable-Store Sales Increased 18.6 Percent- Second Quarter Net Income of $45 Million, or $0.43 per Share- Non-GAAP Net Income of $75 Million, or $0.71 per Share- Board Declares Quarterly Dividend of $0.15 per Share NEW YORK, Aug. 21, 2020

NEW YORK, Aug. 21, 2020 /PRNewswire/ -- Foot Locker, Inc. (NYSE: FL), the New York-based specialty athletic retailer, today reported financial results for its second quarter ended August 1, 2020.

SecondQuarter ResultsNet income for the Company's second quarter of 2020 was $45 million, or $0.43 per share, compared to net income of $60 million, or $0.55 per share in the corresponding prior-year period. Included in these results are the following pre-tax charges: 1) $19 million related to the wind down of the Runners Point banner and the Eastbay restructuring, 2) $18 million for costs incurred in connection with the recent social unrest, and 3) $1 million related to administrative costs for its previously disclosed pension matter. Excluding these items, non-GAAP earnings were $0.71 per share for the second quarter of 2020, as compared to non-GAAP EPS of $0.66 for the same period in 2019. A reconciliation of GAAP to non-GAAP results is included in the tables below.

Second quarter comparable-store sales increased 18.6 percent. Total second quarter sales increased 17.1 percent, to $2,077 million, compared to sales of $1,774 million for the corresponding prior-year period. Excluding the effect of foreign exchange rate fluctuations, total sales for the second quarter of 2020 increased 17.3 percent. The Company's gross margin rate decreased to 25.9 percent from 30.1 percent a year ago, while the SG&A expense rate decreased to 18.6 percent from 22.2 percent in the second quarter of 2020.

"I'm proud of the exceptional effort from our team this quarter," said Richard Johnson, President and Chief Executive Officer. "Despite the challenging backdrop of the pandemic, and social unrest, we achieved strong second quarter results, led by our digital business, with a return to growth in both the top and bottom line. As our global fleet of stores reopened, our customers responded with enthusiasm and energy to our assortments and visited our stores with a high intent to purchase."

"As the COVID-19 situation continues to evolve, we believe we have the right strategies and strong leadership in place to strengthen our customer connectivity, deepen our strategic relationships with our vendors, navigate the challenges ahead, and emerge from this period better positioned than ever."

Year-To-Date ResultsFor the first six months of the year, the Company posted a net loss of $65 million, or $0.62 per share on a GAAP basis, compared to net income of $232 million, or $2.08 per share, for the corresponding period in 2019. On a non-GAAP basis, earnings per share for the six-month period totaled $0.05, compared to $2.20 per share earned in the same period in 2019. Year-to-date sales were $3,253 million, a decrease of 15.6 percent compared to sales of $3,852 million in the corresponding six-month period of 2019. Year-to-date, comparable store sales decreased 14.5 percent, while total year-to-date sales, excluding the effect of foreign currency fluctuations, decreased by 15.1 percent.

Financial PositionAs of August 1, 2020, the Company's merchandise inventories were $1,194 million, 2.7 percent lower than at the end of the second quarter last year. Using constant currencies, inventory decreased 3.7 percent.

The Company's cash totaled $1,373 million, while the debt on its balance sheet was $121 million, which reflects the repayment of the $330 million previously borrowed from the Company's credit facility. As part of its cash preservation measures, the Company did not pay a dividend or repurchase any shares during the second quarter.

With the strong liquidity position and more stable cash outlook, the Company announced today that the Board of Directors reinstated the quarterly dividend program and declared a quarterly cash dividend on the Company's common stock of $0.15 per share, which will be payable on October 30, 2020 to shareholders of record on October 16, 2020.

"The second quarter was truly a testament to our team's ability to be nimble and to our financial and operational discipline. We delivered a meaningful increase in sales, managed our expenses tightly, and made progress towards our goal of improving our inventory position," said Lauren Peters, Executive Vice President and Chief Financial Officer. "Looking ahead, we believe the Company is well positioned financially to maneuver through the evolving COVID-19 pandemic. As a first step, the Board reinstated the dividend at a cautious but meaningful level to begin returning cash to shareholders. As always, the Board will continue to evaluate the dividend program on a quarterly basis."

Financial OutlookThe Company previously withdrew its full-year 2020 guidance in March. Given the uncertainty surrounding the evolving COVID-19 pandemic and its potential impact on the back-to-school season, team sports participation, and additional government stimulus packages, the Company does not plan to provide a full-year 2020 outlook at this time.

Store Base UpdateDuring the second quarter, the Company opened 18 new stores, remodeled or relocated 26 stores, and closed 31 stores. As of August 1, 2020, the Company operated 3,100 stores in 27 countries in North America, Europe, Asia, Australia, and New Zealand. In addition, 134 franchised Foot Locker stores were operating in the Middle East, as well as 4 franchised Runners Point stores in Germany.

The Company is hosting a live conference call at 9:00 a.m. ET today, August 21, 2020, to review these results and provide an update on the business. 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 the Foot Locker, Inc. website at https://www.footlocker-inc.com. Please log on to the website 15 minutes prior to the call in order 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 10146191 through September 4, 2020. A replay of the call will be also be available via webcast from the same Investor Relations section of the Foot Locker, Inc. website at https://www.footlocker-inc.com.

Disclosure Regarding Forward-Looking Statements

This press release 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, the continued effect of the global pandemic, 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 on 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 February 1, 2020 filed on March 27, 2020, and the Company's Quarterly Report on Form 10-Q for the quarter ended May 2, 2020 filed on June 10, 2020. Any changes in such assumptions or factors could produce significantly different results. The Company undertakes no obligation to update forward-looking statements, whether as a result of new information, future events, or otherwise.

Condensed Consolidated Statements of Operations

(unaudited)

Periods ended August 1, 2020 and August 3, 2019

(In millions, except per share amounts)

Second Quarter Second Quarter Year-to-Date

2020 2019 2020 2019

Sales $ 2,077 $ 1,774 $ 3,253 $ 3,852

Cost of sales 1,539 1,240 2,444 2,629

SG&A 387 393 703 809

Depreciation and amortization 44 46 88 90

Impairment and other charges 38 14 54 15

Income (loss) from operations 69 81 (36) 309

Interest (expense) income, net (2) 2 (3) 6

Other income, net 3 2 4 4

Income (loss) before income 70 85 (35) 319taxes

Income tax expense 25 25 30 87

Net income (loss) $ 45 $ 60 $ (65) $ 232

Diluted earnings (loss) per $ 0.43 $ 0.55 $ (0.62) $ 2.08share

Weighted-average diluted shares 105.1 111.1 104.4 112.1outstanding

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. We have presented certain financial measures 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 effects of foreign currency fluctuations, such changes are determined by translating all amounts in both years using the prior-year average foreign exchange rates. Presenting amounts on a constant currency basis is useful to investors because it enables them to better understand the changes in our business that are not related to currency movements.

These non-GAAP measures are presented because we believe they assist investors in comparing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core business or affect comparability. In addition, these non-GAAP measures are useful in assessing our progress in achieving our long-term financial objectives.

We estimate the tax effect of all non-GAAP adjustments by applying a marginal tax rate to each of the respective items. The income tax items represent the discrete amount that affected the period.

The non-GAAP financial information is provided in addition to, and not as an alternative to, our reported results prepared in accordance with GAAP. The various non-GAAP adjustments are summarized in the tables on the following pages.

Non-GAAP Reconciliation

(unaudited)

Periods ended August 1, 2020 and August 3, 2019

(In millions, except per share amounts)

Reconciliation of GAAP to non-GAAP results:

Second Quarter Second Quarter Year-to-Date

2020 2019 2020 2019

Pre-tax income:

Income (loss) $ 70 $ 85 $ (35) $ 319before income taxes

Pre-tax adjustmentsexcluded from GAAP:

Impairment and 38 14 54 15other charges ^(1)

Adjusted income(loss) before $ 108 $ 99 $ 19 $ 334income taxes(non-GAAP)

After-tax income:

Net income (loss) $ 45 $ 60 $ (65) $ 232

After-taxadjustmentsexcluded from GAAP:

Impairment andother charges, netof income tax 32 10 45 11benefit of $6, $4,$9, and $4 million,respectively ^(1)

Tax (benefit)charge related torevaluation ofcertain (2) - 25 -intellectualproperty rights ^(2)

U.S. tax reform ^ - 2 - 2(3)

Adjusted net income $ 75 $ 72 $ 5 $ 245(loss) (non-GAAP)

Second Quarter Second Quarter Year-to-Date

2020 2019 2020 2019

Earnings per share:

Diluted earnings $ 0.43 $ 0.55 $ (0.62) $ 2.08(loss) per share

Diluted EPS amountsexcluded from GAAP:

Impairment and 0.30 0.09 0.43 0.10other charges ^(1)

Tax (benefit)charge related torevaluation ofcertain (0.02) - 0.24 -intellectualproperty rights^(2)

U.S. tax reform ^ - 0.02 - 0.02(3)

Adjusted dilutedearnings (loss) per $ 0.71 $ 0.66 $ 0.05 $ 2.20share (non-GAAP)

Notes on Non-GAAP Adjustments:

(1) Included with this caption are impairment charges and various charges,as follows:

Second Quarter Second Quarter Year-to-Date

2020 2019 2020 2019

Impairment andother charges(pre-tax):

Costs and lossesrelated to social $ 18 - $ 18 $ -unrest *

Runners Point 16 - 16 -shutdown

Impairment - - 15 -

Eastbay 3 - 3 -reorganization

Pension reformation 1 1 2 2

SIX:02 shutdown - 13 - 13

$ 38 $ 14 $ 54 $ 15

* Represented inventory losses of $14 million, damages to store property of $2million, and repairs and other costs of $2 million incurred in connection withthe riots that affected certain parts of the United States and Canada duringthe second quarter of 2020.

(2) During the first quarter of 2020, the Company recorded a $27 million taxcharge related to the revaluation of certain intellectual property rights,pursuant to a non-U.S. advance pricing agreement. Due to the improvedfinancial outlook during the second quarter of 2020, the Company reversed $2million of the revaluation charge.

(3) In connection with U.S. tax reform, the Company recorded a charge for $2million for the thirteen weeks ended August 3, 2019. The charge reflected anadjustment to U.S. tax on foreign income.

Condensed Consolidated Balance Sheets

(unaudited)

(In millions)

August 1, August 3,

2020 2019

ASSETS

Current assets:

Cash and cash equivalents $ 1,373 $ 939

Merchandise inventories 1,194 1,227

Other current assets 262 280

2,829 2,446

Property and equipment, net 778 796

Operating lease right-of-use assets 2,811 2,976

Deferred taxes 70 92

Other assets 420 410

$ 6,908 $ 6,720

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

Accounts payable 630 420

Accrued and other liabilities 450 312

Current portion of lease obligations 588 497

1,668 1,229

Long-term debt 121 123

Long-term lease obligations 2,582 2,750

Other liabilities 134 106

Total liabilities 4,505 4,208

Total shareholders' equity 2,403 2,512

$ 6,908 $ 6,720

Store Count and Square Footage

(unaudited)

Store activity is as follows:

February 1, August 1, Relocations/

2020 Opened Closed 2020 Remodels

Foot Locker U.S. 867 8 3 872 12

Foot Locker Europe 636 5 13 628 7

Foot Locker Canada 105 - 1 104 -

Foot Locker Pacific 91 - - 91 -

Foot Locker Asia 14 1 - 15 -

Kids Foot Locker 431 1 5 427 6

Lady Foot Locker 46 - 5 41 -

Champs Sports 536 5 4 537 3

Footaction 245 1 5 241 6

Runners Point 81 1 12 70 -

Sidestep 77 1 4 74 1

Total 3,129 23 52 3,100 35

Selling and gross square footage are as follows:

February 1, 2020 August 1, 2020

(in thousands) Selling Gross Selling Gross

Foot Locker U.S. 2,403 4,191 2,437 4,263

Foot Locker Europe 1,016 2,181 1,012 2,170

Foot Locker Canada 263 432 261 428

Foot Locker Pacific 148 240 148 240

Foot Locker Asia 42 76 44 79

Kids Foot Locker 740 1,278 739 1,275

Lady Foot Locker 66 110 58 97

Champs Sports 1,930 2,999 1,933 3,008

Footaction 777 1,317 754 1,238

Runners Point 105 185 93 168

Sidestep 75 137 73 134

Total 7,565 13,146 7,552 13,100

Contact: James R. LanceVice President, Corporate Finance and Investor Relations Foot Locker, Inc. (212) 720-4600

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SOURCE Foot Locker, Inc.