Foot Locker (FL) 4Q Better Than Outlook Implies - PiperJaffray

Piper Jaffray analyst, Erinn Murphy cut projected 1Q EPS on Foot Locker (NYSE: FL) to $1.41 (vs. $1.45 prior) to reflect incremental spend from the headquarter relocation during the quarter. However, full year is unchanged at $4.75 as strength in the underlying business offsets higher than expected one time costs.

Adjusted EPS was $1.16 vs. the Street's $1.12. Comp-store sales were up 7.9%, which compares to the Street's published 5.9% gain. Total sales growth of 5% included a 380bps FX headwind; constant-currency sales growth was up 8.8%. Inventory was up 2.8% Y/Y on a reported basis. Gross margins were up 70bps Y/Y, to 33.6%. Adjusted SG&A was at 19.3%. Overall guidance is calling for comp growth of +MSD in each quarter of FY17 and +DD EPS growth with Q1 expected to post the softest Y/Y growth. Gross margin is expected to improve 10-30 bps behind improved occupancy leverage and SG&A is expected to lever 10-30 bps (with a $4M headwind in Q1 from incremental HQ relocation expenses).

Geographically, Foot Locker experienced +teens comp growth in Europe (led by +DD increases in almost all countries), +DD growth in Canada, and +mid-teens Y/Y comp growth in APAC. During Q4, comps in the U.S. were +MSD (low end) in November, +teens in December, up +LSD in January, and February-to-date up +LSD. However, the company expects to end Q1 with a mid-single digit comp.

By category Foot Locker posted +mid-teen Y/Y comps in footwear, driven by +teens growth in running, +MSD (low end) growth in basketball and solid results in the boots and classic category (including good Timberland growth). In apparel comps were +LSD, while results in accessories were down HSD. Merchandise margins were +50 bps in Q4 driven by an improvement in apparel margins. Lastly, Foot Locker closed 49 net stores during the quarter (down 1.2% Y/Y looking at the total store base), and the overall DTC comp was +9.6% during the quarter, or 12.7% of total sales.

No change to Neutral rating or price target of $67 based on 14x FY17E EPS.

For an analyst ratings summary and ratings history on Foot Locker click here. For more ratings news on Foot Locker click here.

Shares of Foot Locker closed at $64.14 yesterday.

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