Foot Locker(FL) - 2024 Q1 - Quarterly Report

PART I Financial Statements Presents unaudited condensed consolidated financial statements for Q1 2023, including balance sheets, income, and cash flow statements with detailed notes Condensed Consolidated Balance Sheets Total assets decreased to $7,643 million by April 29, 2023, primarily due to lower cash and higher inventories | ($ in millions) | April 29, 2023 | April 30, 2022 | January 28, 2023 | | :--- | :--- | :--- | :--- | | Total Current Assets | $2,397 | $2,233 | $2,521 | | Total Assets | $7,643 | $7,878 | $7,907 | | Total Current Liabilities | $1,460 | $1,556 | $1,610 | | Total Liabilities | $4,360 | $4,663 | $4,614 | | Total Shareholders' Equity | $3,283 | $3,215 | $3,293 | - Cash and cash equivalents decreased to $313 million from $536 million at the start of the fiscal year[13] - Merchandise inventories increased to $1,758 million from $1,643 million at the start of the fiscal year[13] Condensed Consolidated Statements of Operations Total revenue decreased to $1,931 million in Q1 2023, resulting in net income of $36 million and diluted EPS of $0.38 | ($ in millions, except per share) | Thirteen weeks ended April 29, 2023 | Thirteen weeks ended April 30, 2022 | | :--- | :--- | :--- | | Total revenue | $1,931 | $2,178 | | Income from operations | $61 | $220 | | Net income attributable to Foot Locker, Inc. | $36 | $133 | | Diluted earnings per share | $0.38 | $1.37 | Condensed Consolidated Statements of Comprehensive Income Comprehensive income for Q1 2023 significantly decreased to $32 million, driven by lower net income and negative foreign currency translation | ($ in millions) | Thirteen weeks ended April 29, 2023 | Thirteen weeks ended April 30, 2022 | | :--- | :--- | :--- | | Net income attributable to Foot Locker, Inc. | $36 | $133 | | Other comprehensive income (loss) | $(4) | $(41) | | Comprehensive income | $32 | $92 | Condensed Consolidated Statements of Changes in Shareholders' Equity Shareholders' equity slightly decreased to $3,283 million in Q1 2023, influenced by cash dividends and partially offset by net income - Shareholders' equity decreased by $10 million during the quarter, from $3,293 million to $3,283 million[21] - The company paid cash dividends of $38 million, or $0.40 per share, during the quarter[21] Condensed Consolidated Statements of Cash Flows Net cash used in operating activities increased to $118 million in Q1 2023, primarily due to lower net income and increased inventories | ($ in millions) | Thirteen weeks ended April 29, 2023 | Thirteen weeks ended April 30, 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | $(118) | $(21) | | Net cash used in investing activities | $(59) | $(105) | | Net cash used in financing activities | $(46) | $(128) | | Net change in cash, cash equivalents, and restricted cash | $(223) | $(255) | Notes to the Unaudited Condensed Consolidated Financial Statements Detailed notes explain accounting policies and financial statement items, covering revenue disaggregation, segment information, and impairment charges Revenue by Channel (Q1 2023 vs Q1 2022) | ($ in millions) | April 29, 2023 | April 30, 2022 | | :--- | :--- | :--- | | Stores | $1,613 | $1,776 | | Direct-to-customers | $314 | $399 | | Total sales | $1,927 | $2,175 | Revenue by Geography (Q1 2023 vs Q1 2022) | ($ in millions) | April 29, 2023 | April 30, 2022 | | :--- | :--- | :--- | | United States | $1,287 | $1,544 | | International | $644 | $634 | | Total revenue | $1,931 | $2,178 | - The company incurred $39 million in 'Impairment and other' charges in Q1 2023, up from $6 million in Q1 2022, including $19 million for transformation consulting and $18 million for asset impairment related to store closures[39] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2023 financial condition and operations, highlighting an 11.4% sales decrease and 9.1% comparable-store sales decline - Total sales for Q1 2023 decreased by 11.4% to $1,927 million compared to the prior year, or 10.0% excluding foreign currency effects[94] - Comparable-store sales decreased by 9.1% in Q1 2023, attributed to changing vendor mix, macroeconomic headwinds, and lower income tax refunds in the U.S[95][97] - Gross margin rate decreased by 400 basis points to 30.0%, driven by a 250 basis point decline in merchandise margin and 150 basis point deleverage in occupancy costs[99][101] - The company operated 2,692 stores at the end of the quarter, down from 2,815 in the prior year[81] Results of Operations Operating results declined significantly in Q1 2023, with income from operations at $61 million and adjusted net income at $66 million GAAP vs Non-GAAP Reconciliation | ($ in millions, except per share) | Q1 2023 (GAAP) | Q1 2023 (Non-GAAP) | Q1 2022 (GAAP) | Q1 2022 (Non-GAAP) | | :--- | :--- | :--- | :--- | :--- | | Income before income taxes | $57 | $97 | $190 | $220 | | Net income | $36 | $66 | $133 | $155 | | Diluted EPS | $0.38 | $0.70 | $1.37 | $1.60 | - The gross margin rate fell to 30.0% from 34.0% year-over-year, due to higher markdowns, increased merchandise costs, higher shrink, and sales deleverage on fixed occupancy costs[99][101] - SG&A expenses decreased by $32 million to $431 million, but increased as a percentage of sales to 22.4% from 21.3% due to sales deleverage[102] Liquidity and Capital Resources Net cash used in operating activities increased to $118 million in Q1 2023, with $313 million cash and $275 million projected for capital spending - Net cash used in operating activities increased to $118 million in Q1 2023 from $21 million in Q1 2022, reflecting lower net income and working capital changes[117][118] - Full-year 2023 capital expenditure is expected to be $275 million, focused on store remodels/openings and technology development[115] - No shares were repurchased in Q1 2023, with approximately $1.1 billion remaining available under the current share repurchase program[114][122] Quantitative and Qualitative Disclosures About Market Risk No significant changes in market risk exposures or their management have occurred since the 2022 Form 10-K filing - There have been no significant changes in the company's primary risk exposures or management of market risks from the information provided in the 2022 Form 10-K[125] Controls and Procedures Disclosure controls and procedures were ineffective as of April 29, 2023, due to un-remediated material weaknesses in WSS IT general controls - The CEO and CFO concluded that as of April 29, 2023, the company's disclosure controls and procedures were not effective[127] - The ineffectiveness is due to un-remediated material weaknesses in IT general controls (logical access and change management) at the WSS business[127] - Management is implementing remediation actions, including designing new controls and enhancing training, with the expectation of completing remediation before the end of 2023[128] PART II - OTHER INFORMATION Legal Proceedings The company is involved in routine litigation, with no expected material adverse effect on financial position, liquidity, or operations - Pending legal proceedings consist of ordinary, routine litigation incidental to the business, including commercial, intellectual property, customer, and employment-related claims[77] - The company does not believe that the outcome of any pending legal proceedings would have a material adverse effect on its financial position, liquidity, or operations[78] Risk Factors No significant changes to the risk factors described in the company's 2022 Annual Report on Form 10-K have occurred - There have not been any significant changes with respect to the risks described in the company's 2022 Form 10-K[132] Unregistered Sales of Equity Securities and Use of Proceeds Details on common stock acquired during the quarter, primarily for tax withholding obligations on employee stock awards | Period | Total Shares Purchased | Average Price Paid Per Share | Shares Purchased as Part of Program | Dollar Value Remaining Under Program | | :--- | :--- | :--- | :--- | :--- | | Jan 29 - Feb 25, 2023 | — | — | — | $1,103,814,042 | | Feb 26 - Apr 1, 2023 | 239,806 | $37.99 | — | $1,103,814,042 | | Apr 2 - Apr 29, 2023 | 19,575 | $39.85 | — | $1,103,814,042 | - The shares purchased were acquired to satisfy tax withholding obligations for holders of restricted stock unit and performance-based awards, not as part of the public share repurchase program[134] Defaults Upon Senior Securities This item is not applicable for the reporting period - Not applicable[135] Mine Safety Disclosures This item is not applicable for the reporting period - Not applicable[135] Other Information This item is not applicable for the reporting period - Not applicable[135] Exhibits Lists exhibits filed with Form 10-Q, including Credit Agreement amendment, stock plans, CEO/CFO certifications, and XBRL data - Key exhibits filed include: * Amendment No. 3 to Credit Agreement (Exhibit 10.1) * Foot Locker 2007 Stock Incentive Plan (Amended and Restated) (Exhibit 10.2) * 2023 Foot Locker Employee Stock Purchase Plan (Exhibit 10.3) * CEO and CFO Certifications (Exhibits 31.1, 31.2, 32) * Inline XBRL Documents (Exhibit 101)[136]