FOOT LOCKER, INC.Large Accelerated 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Table of Contents

s

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: July 31, 2021

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission File Number: 1-10299

Graphic

(Exact name of registrant as specified in its charter)

New York

13-3513936

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

330 West 34th Street, New York, New York 10001

(Address of principal executive offices, Zip Code)

(212-720-3700)

(Registrant’s telephone number, including area code)

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01

Preferred Stock Purchase Rights

FL

New York Stock Exchange

New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer  

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No 

Number of shares of Common Stock outstanding as of September 3, 2021: 103,807,679

Table of Contents

Graphic

TABLE OF CONTENTS

Page

PART I

FINANCIAL INFORMATION

1

Item 1.

Financial Statements

1

Condensed Consolidated Balance Sheets

1

Condensed Consolidated Statements of Operations

2

Condensed Consolidated Statements of Comprehensive Income (Loss)

3

Condensed Consolidated Statements of Changes in Shareholders’ Equity

4

Condensed Consolidated Statements of Cash Flows

5

Notes to the Unaudited Condensed Consolidated Financial Statements

6

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

18

Item 4.

Controls and Procedures

29

PART II

OTHER INFORMATION

29

Item 1.

Legal Proceedings

29

Item 1A.

Risk Factors

30

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

30

Item 6.

Exhibits

31

SIGNATURE

32

Table of Contents

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q includes “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often include words such as “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “seeks,” “continues,” “feels,” “forecasts,” or words of similar meaning, or future or conditional verbs, such as “will,” “should,” “could,” “may,” “aims,” “intends,” or “projects.” These statements include statements relating to trends in or expectations relating to the expected effects of our initiatives, strategies and plans, as well as trends in or expectations regarding our financial results and long-term growth model and drivers, tax rates, business opportunities and expansion, acquisitions or investments, expenses, dividends, share repurchases, and our mitigation strategies, liquidity, cash flow from operations, use of cash and cash requirements, borrowing capacity and use of proceeds, repatriation of cash to the U.S., the effects of all variants of the coronavirus pandemic (COVID-19), including but not limited to supply chain issues, and social unrest, on our financial results. A forward-looking statement is neither a prediction nor a guarantee of future events or circumstances, and those future events or circumstances may not occur. You should not place undue reliance on forward-looking statements, which speak to our views only as of the date of this filing. These forward-looking statements are all based on currently-available operating, financial, and competitive information, and are subject to various risks and uncertainties, many of which are unforeseeable and beyond our control, such as the ongoing uncertainty related to COVID-19. Additional risks and uncertainties that we do not presently know about or that we currently consider to be insignificant may also affect our business operations and financial performance.

Please refer to “Item 1A. Risk Factors” of our most recent Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission. Given these risks and uncertainties, you should not rely on forward-looking statements as predictions of actual results. Any or all of the forward-looking statements contained in this report or any other public statement made by us, including by our management, may turn out to be incorrect. We are including this cautionary note to make applicable and take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 for forward-looking statements. We expressly disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Table of Contents

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Graphic

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

July 31,

August 1,

January 30,

($ in millions, except share amounts)

    

2021

    

2020

    

2021*

    

ASSETS

 

  

 

  

 

  

 

Current assets:

 

  

 

  

 

  

 

Cash and cash equivalents

$

1,845

$

1,373

$

1,680

Merchandise inventories

 

1,081

 

1,194

 

923

Other current assets

 

252

 

266

 

232

 

3,178

 

2,833

 

2,835

Property and equipment, net

 

743

 

782

 

788

Operating lease right-of-use assets

2,569

2,810

2,716

Deferred taxes

 

108

 

70

 

101

Goodwill

 

158

 

158

 

159

Other intangible assets, net

 

16

 

19

 

17

Minority investments

728

150

337

Other assets

 

85

 

90

 

90

$

7,585

$

6,912

$

7,043

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

  

 

  

 

  

Current liabilities:

 

  

 

  

 

  

Accounts payable

$

539

$

630

$

402

Accrued and other liabilities

 

474

 

455

 

560

Current portion of debt and obligations under finance leases

102

102

Current portion of lease obligations

566

587

580

 

1,681

 

1,672

 

1,644

Long-term debt and obligations under finance leases

 

10

 

124

 

8

Long-term lease obligations

2,363

2,579

2,499

Other liabilities

 

190

 

134

 

116

Total liabilities

 

4,244

 

4,509

 

4,267

Commitments and contingencies

 

Shareholders’ equity:

Common stock and paid-in capital: 104,515,702; 104,391,691; and 103,693,359 shares issued, respectively

799

774

779

Retained earnings

2,916

1,996

2,326

Accumulated other comprehensive loss

(338)

(367)

(331)

Less: Treasury stock at cost: 714,490; 426; and 74,236 shares, respectively

(41)

(3)

Noncontrolling interest

5

5

Total shareholders' equity

3,341

2,403

2,776

$

7,585

$

6,912

$

7,043

*

The balance sheet at January 30, 2021 has been derived from the previously reported audited consolidated financial statements at that date, but does not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in Foot Locker, Inc.’s Annual Report on Form 10-K for the year ended January 30, 2021.

See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

Second Quarter 2021 Form 10-Q Page 1

Table of Contents

Graphic

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

Thirteen weeks ended

Twenty-six weeks ended

    

July 31,

August 1,

July 31,

August 1,

($ in millions, except per share amounts)

    

2021

    

2020

    

2021

    

2020

    

Sales

$

2,275

$

2,077

$

4,428

$

3,253

Cost of sales

 

1,477

 

1,539

 

2,881

 

2,444

Selling, general and administrative expenses

 

450

 

387

 

868

 

703

Depreciation and amortization

 

48

 

44

 

93

 

88

Impairment and other charges

 

36

 

38

 

40

 

54

Income (loss) from operations

 

264

 

69

 

546

 

(36)

Interest expense, net

 

(2)

 

(2)

 

(4)

 

(3)

Other income, net

 

325

 

3

 

329

 

4

Income (loss) before income taxes

 

587

 

70

 

871

 

(35)

Income tax expense

 

157

 

25

 

239

 

30

Net income (loss)

$

430

$

45

$

632

$

(65)

Basic earnings (loss) per share

$

4.14

$

0.43

$

6.10

$

(0.62)

Weighted-average shares outstanding

 

103.8

 

104.5

 

103.7

 

104.4

Diluted earnings (loss) per share

$

4.09

$

0.43

$

6.02

$

(0.62)

Weighted-average shares outstanding, assuming dilution

 

105.2

 

105.1

 

105.1

 

104.4

See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

Second Quarter 2021 Form 10-Q Page 2

Table of Contents

Graphic

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

Thirteen weeks ended

Twenty-six weeks ended

    

July 31,

August 1,

July 31,

August 1,

($ in millions)

    

2021

    

2020

    

2021

    

2020

    

Net income (loss)

$

430

$

45

$

632

$

(65)

Other comprehensive income (loss), net of income tax

 

  

 

  

 

  

 

  

Foreign currency translation adjustment:

 

  

 

  

 

  

 

  

Translation adjustment arising during the period, net of income tax expense of $-, $4, $1, and $2, respectively

 

(14)

 

36

 

(10)

 

20

Cash flow hedges:

 

  

 

  

 

  

 

  

Change in fair value of derivatives, net of income tax expense of $-, $-, $-, and $1, respectively

 

 

 

 

3

Pension and postretirement adjustments:

 

  

 

 

  

 

  

Amortization of net actuarial gain/loss and prior service cost included in net periodic benefit costs, net of income tax expense of $-, $1, $1, and $2, respectively

 

2

 

1

 

3

4

Comprehensive income (loss)

$

418

$

82

$

625

$

(38)

See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

Second Quarter 2021 Form 10-Q Page 3

Table of Contents

Graphic

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)

   

Additional Paid-In

   

   

   

Accumulated

Capital &

Other

Total

Thirteen weeks ended

Common Stock

Treasury Stock

Retained

Comprehensive

Noncontrolling

Shareholders'

(shares in thousands, amounts in millions)

Shares

Amount

Shares

Amount

Earnings

Loss

interests

Equity

Balance at May 1, 2021

 

104,286

$

791

(887)

$

(47)

$

2,507

$

(326)

$

5

$

2,930

Restricted stock issued

 

11

Issued under director and stock plans

 

219

7

7

Share based compensation expense

 

8

8

Shares of common stock used to satisfy tax withholding obligations

 

(3)

(1)

(1)

Share repurchases

 

(125)

(7)

(7)

Reissued for Employee Stock Purchase Plan ("ESPP")

 

(7)

301

14

7

Net income

 

430

430

Cash dividends declared on common stock ($0.20 per share)

 

(21)

(21)

Translation adjustment, net of tax

 

(14)

(14)

Pension and postretirement adjustments, net of tax

 

2

2

Balance at July 31, 2021

 

104,516

$

799

 

(714)

$

(41)

$

2,916

$

(338)

$

5

$

3,341

Balance at May 2, 2020

 

104,245

$

767

 

(23)

$

$

1,951

$

(404)

$

$

2,314

Restricted stock issued

 

13

Issued under director and stock plans

 

134

3

3

Share-based compensation expense

 

4

4

Reissued for ESPP

 

23

Net income

 

45

45

Translation adjustment, net of tax

 

36

36

Pension and postretirement adjustments, net of tax

 

1

1

Balance at August 1, 2020

 

104,392

$

774

 

$

$

1,996

$

(367)

$

$

2,403

   

Additional Paid-In

   

   

   

Accumulated

Capital &

Other

Total

Twenty-six weeks ended

Common Stock

Treasury Stock

Retained

Comprehensive

Noncontrolling

Shareholders'

(shares in thousands, amounts in millions)

Shares

Amount

Shares

Amount

Earnings

Loss

interests

Equity

Balance at January 30, 2021

 

103,693

$

779

 

(74)

$

(3)

$

2,326

$

(331)

$

5

$

2,776

Restricted stock issued

 

479

Issued under director and stock plans

 

344

11

11

Share based compensation expense

 

16

16

Shares of common stock used to satisfy tax withholding obligations

 

(195)

(11)

(11)

Share repurchases

 

(746)

(41)

(41)

Reissued for ESPP

 

(7)

301

14

7

Net income

 

632

632

Cash dividends declared on common stock ($0.40 per share)

 

(42)

(42)

Translation adjustment, net of tax

 

(10)

(10)

Pension and postretirement adjustments, net of tax

 

3

3

Balance at July 31, 2021

 

104,516

$

799

 

(714)

$

(41)

$

2,916

$

(338)

$

5

$

3,341

Balance at February 1, 2020

 

104,188

$

764

 

$

$

2,103

$

(394)

$

$

2,473

Restricted stock issued

 

67

Issued under director and stock plans

 

137

3

3

Share-based compensation expense

 

7

7

Shares of common stock used to satisfy tax withholding obligations

 

(23)

Reissued for ESPP

 

23

Net loss

 

(65)

(65)

Cash dividends declared on common stock ($0.40 per share)

 

(42)

(42)

Translation adjustment, net of tax

 

20

20

Change in cash flow hedges, net of tax

 

3

3

Pension and postretirement adjustments, net of tax

 

4

4

Balance at August 1, 2020

 

104,392

$

774

 

$

$

1,996

$

(367)

$

$

2,403

See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

Second Quarter 2021 Form 10-Q Page 4

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

Twenty-six weeks ended

July 31,

August 1,

($ in millions)

    

2021

    

2020

From operating activities:

 

  

 

  

Net income (loss)

$

632

$

(65)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

Non-cash impairment and other charges

 

45

 

31

Non-cash gains

(314)

Depreciation and amortization

 

93

 

88

Deferred income taxes

 

67

 

22

Share-based compensation expense

 

16

 

7

Change in assets and liabilities:

 

 

Merchandise inventories

 

(163)

 

12

Accounts payable

 

139

 

291

Accrued and other liabilities

 

(12)

 

142

Insurance receivable for inventory loss

 

8

 

Other, net

 

(109)

 

78

Net cash provided by operating activities

 

402

 

606

From investing activities:

 

  

 

  

Capital expenditures

 

(87)

 

(83)

Minority investments

 

(78)

 

(8)

Proceeds from sale of property

3

Insurance proceeds related to loss on property and equipment

 

3

 

Net cash used in investing activities

 

(159)

 

(91)

From financing activities:

 

  

 

  

Dividends paid on common stock

(42)

 

(42)

Purchase of treasury shares

(41)

 

Proceeds from exercise of stock options

10

 

Treasury stock reissued under employee stock plan

 

7

 

Shares of common stock repurchased to satisfy tax withholding obligations

(11)

 

Payment of obligations under finance leases

(1)

Payment of revolving credit agreement costs

(1)

(4)

Proceeds from common stock issued under employee stock plan

2

Proceeds from the revolving credit facility

330

Repayment of the revolving credit facility

(330)

Net cash used in financing activities

 

(79)

 

(44)

Effect of exchange rate fluctuations on cash, cash equivalents, and restricted cash

 

(1)

 

(3)

Net change in cash, cash equivalents, and restricted cash

 

163

 

468

Cash, cash equivalents, and restricted cash at beginning of year

 

1,718

 

942

Cash, cash equivalents, and restricted cash at end of period

$

1,881

$

1,410

Cash paid during the year:

 

  

 

  

Interest

$

6

$

7

Income taxes

$

229

$

11

Non-cash investing activities:

Cash paid for amounts included in measurement of lease liabilities

$

358

$

279

Right-of-use assets obtained in exchange for operating lease obligations

$

171

$

135

Assets obtained in exchange for finance lease obligations

$

4

$

4

See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

Second Quarter 2021 Form 10-Q Page 5

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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated financial statements contained in this report are unaudited. In the opinion of management, the condensed consolidated financial statements include all normal, recurring adjustments necessary for a fair presentation of the results for the interim periods presented. As used in these Notes to the Unaudited Condensed Consolidated Financial Statements the terms “Foot Locker,” “Company,” “we,” “our,” and “us” refer to Foot Locker, Inc. and its consolidated subsidiaries.

The preparation of financial statements in accordance with U.S. generally accepted accounting principles requires us to make estimates and assumptions that affect the amounts reported in the accompanying Unaudited Condensed Consolidated Financial Statements and these Notes and related disclosures. Actual results may differ from those estimates. The results of operations for any interim period are not necessarily indicative of the results expected for the year. The results of operations for the period ended July 31, 2021 are not necessarily indicative of the results to be expected for the full fiscal year due to the continued uncertainty of general economic conditions that may affect us for the remainder of 2021. Specifically, the ongoing pandemic (“COVID-19”) including the dissemination and adoption of COVID-19 vaccines and their effectiveness against COVID-19 and its evolving strains, some of which may be more transmissible or virulent than the initial strain or additional widespread resurgences in COVID-19 infections, including evolving safety protocols including requirements for proof of vaccination, are significant uncertainties. COVID-19, as well as port delays, may affect our sales, traffic to our stores, our distribution capabilities, and distribution capabilities of our suppliers.

The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the Notes to Consolidated Financial Statements contained in our Form 10-K for the year ended January 30, 2021, as filed with the U.S. Securities and Exchange Commission on March 25, 2021.

There were no significant changes to the policies disclosed in Note 1, Summary of Significant Accounting Policies of our Annual Report on Form 10-K for the year ended January 30, 2021.

Recent Accounting Pronouncements

Recently issued accounting pronouncements did not, or are not believed by management to, have a material effect on our present or future consolidated financial statements.

2. Revenue

The table below presents sales disaggregated based upon sales channel. Sales are attributable to the channel in which the sales transaction is initiated.

Thirteen weeks ended

Twenty-six weeks ended

July 31,

August 1,

July 31,

August 1,

($ in millions)

    

2021

    

2020

    

2021

    

2020

Sales by Channel

Stores

$

1,817

$

1,388

$

3,437

$

2,202

Direct-to-customers

 

458

 

689

 

991

 

1,051

Total sales

$

2,275

$

2,077

$

4,428

$

3,253

Second Quarter 2021 Form 10-Q Page 6

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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Sales disaggregated based upon geographic area is presented in the table below. Sales are attributable to the geographic area in which the sales transaction is fulfilled.