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A month has gone by since the last earnings report for Foot Locker (FL). Shares have lost about 5.1% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Foot Locker due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Foot Locker Q2 Earnings Meet, Revenues Miss
Foot Locker, Inc. came out with its second-quarter fiscal 2019 results, wherein the bottom line met the Zacks Consensus Estimate but the top line fell short of the same for the second quarter in row. Also, both sales and earnings per share declined year over year. We note that the rate of growth of comparable-store sales decelerated sharply on a sequential basis. Moreover, gross margin remained under pressure. Management stated that results came in at the low end of expectations.
This operator of athletic shoes and apparel retailer reported adjusted earnings of 66 cents a share that came in line with consensus mark. However, it declined 12% from the year-ago period. This can be attributed to lower sales and higher SG&A expenses.
The company generated total sales of $1,774 million that fell 0.4% year over year and came below the consensus estimate of $1,828 million. We note that adverse currency fluctuations hurt net sales by $22 million. Excluding the effect of foreign currency fluctuations, total sales rose 0.8%.
Meanwhile, comparable-store sales rose 0.8% during the quarter under review, following an increase of 4.6% in the preceding quarter. By month May comparable sales were down low single-digits, June was up low single-digits, and July was stronger producing a mid-single-digit increase. Comparable sales decreased 0.1% at its stores, while direct to customer channel sales increased 6.5%. DTC business increased to 14.3% of total sales during the quarter, up from 13.5% in the year-ago period.
Foot Locker's gross margin rate contracted 10 basis points to 30.1% during the quarter. Merchandise margin rate shriveled 20 basis points due to the higher mix of DTC, which carries higher freight costs.
We note that SG&A expense rate deleveraged 90 basis points to 22.2% due to strategic investments in digital capabilities and infrastructure as well as wages. Management had earlier projected gross margin to be flat to down 20 basis points and SG&A expenses rate to increase 80-100 basis points in the second quarter.