SEC Filing | Foot Locker, Inc.

View:

Download DOC

Download PDF

Download XLS

Download XBRL

Table of Contents

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 30, 2022



☐	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

(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 34^th 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

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 August 26, 2022: 93,301,646

Table of Contents

TABLE OF CONTENTS

			Page
PART I	FINANCIAL INFORMATION		1
	Item 1.	Financial Statements (Unaudited)	1
		Condensed Consolidated Balance Sheets (Unaudited)	1
		Condensed Consolidated Statements of Operations (Unaudited)	2
		Condensed Consolidated Statements of Comprehensive Income (Unaudited)	3
		Condensed Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)	4
		Condensed Consolidated Statements of Cash Flows (Unaudited)	5
		Notes to the Unaudited Condensed Consolidated Financial Statements (Unaudited)	6
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
	Item 4.	Controls and Procedures	30

PART II	OTHER INFORMATION		31
	Item 1.	Legal Proceedings	31
	Item 1A.	Risk Factors	31
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	31
	Item 6.	Exhibits	32

SIGNATURE			33

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.” Statements may be forward looking even in the absence of these particular words.

Examples of forward-looking statements include, but are not limited to, statements regarding our financial position, business strategy, and other plans and objectives for our future operations, and generation of free cash flow. These forward-looking statements are based on our current expectations and beliefs concerning future developments and their potential effect on us. The forward-looking statements contained herein are largely based on our expectations for the future, which reflect certain estimates and assumptions made by our management. These estimates and assumptions reflect our best judgment based on currently known market conditions, operating trends, and other factors. Although we believe such estimates and assumptions to be reasonable, they are inherently uncertain and involve a number of risks and uncertainties that are beyond our control. As such, management’s assumptions about future events may prove to be inaccurate.

We do not intend to publicly update or revise any forward-looking statements as a result of new information, future events, changes in circumstances, or otherwise. These cautionary statements qualify all forward-looking statements attributable to us, or persons acting on our behalf. Management cautions you that the forward-looking statements contained herein are not guarantees of future performance, and we cannot assure you that such statements will be realized or that the events and circumstances they describe will occur. Factors that could cause actual results to differ materially from those anticipated or implied in the forward-looking statements herein include, but are not limited to, a change in the relationship with any of our key suppliers, including the unavailability of premium products at competitive prices, volume discounts, cooperative advertising, markdown allowances, or ability to cancel orders and return merchandise; our ability to fund our planned capital investments; volatility in the financial markets or other global economic factors; difficulties in appropriately allocating capital and resources among our strategic opportunities; our ability to realize the expected benefits from acquisitions; business opportunities and expansion; investments; expenses; dividends; share repurchases; liquidity; cash flow from operations; use of cash and cash requirements; borrowing capacity; repatriation of cash to the United States; supply chain issues, including delays in merchandise receipts and increasing cost pressure caused by higher oceanic shipping and freight costs; labor shortages; expectations regarding increased wages; inflation; consumer spending levels; the effect of governmental assistance programs; social unrest; continuing risks relating to the effects of the COVID-19 pandemic, including vaccines and safety protocols; expectations regarding increasing global taxes; the effect of increased government regulation and changes in law; the effect of the adverse outcome of any material litigation against us or judicial decisions that affect us or our industry generally; the effects of weather; climate change; ESG risks; increased competition; geopolitical events; the financial effect of accounting regulations and critical accounting policies; credit risk relating to the risk of loss as a result of non-performance by our counterparties; and any other factors set forth in the section entitled “Risk Factors” of our most recent Annual Report on Form 10-K.

All written and oral forward-looking statements attributable to us are expressly qualified in their entirety by this cautionary statement. 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. 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. The Company does not undertake to update any particular forward-looking statement included in this document. See “Risk Factors” included in the Annual Report for a discussion of certain risks relating to our business and any investment in our securities. 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.

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

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


	July 30,		July 31,		January 29,
($ in millions, except share amounts)	2022		2021		2022*
ASSETS

Current assets:
Cash and cash equivalents	$	386	$	1,845	$	804
Merchandise inventories		1,644		1,081		1,266
Other current assets		285		252		293
		2,315		3,178		2,363
Property and equipment, net		899		743		917
Operating lease right-of-use assets		2,526		2,569		2,616
Deferred taxes		74		108		86
Goodwill		773		158		797
Other intangible assets, net		432		16		454
Minority investments		736		728		781
Other assets		113		85		121
	$	7,868	$	7,585	$	8,135

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:
Accounts payable	$	596	$	539	$	596
Accrued and other liabilities		435		474		561
Current portion of debt and obligations under finance leases		6		102		6
Current portion of lease obligations		548		566		572
		1,585		1,681		1,735
Long-term debt and obligations under finance leases		449		10		451
Long-term lease obligations		2,287		2,363		2,363
Other liabilities		330		190		343
Total liabilities		4,651		4,244		4,892
Commitments and contingencies
Shareholders’ equity:
Common stock and paid-in capital: 99,319,014; 104,515,702; and 99,070,796 shares issued, respectively		788		799		770
Retained earnings		3,051		2,916		2,900
Accumulated other comprehensive loss		(416)		(338)		(343)
Less: Treasury stock at cost: 6,018,197; 714,490; and 2,050,000 shares, respectively		(213)		(41)		(88)
Noncontrolling interest		7		5		4
Total shareholders' equity		3,217		3,341		3,243
	$	7,868	$	7,585	$	8,135

The balance sheet at January 29, 2022 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 29, 2022.

See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

Second Quarter 2022 Form 10-Q Page 1

Table of Contents

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Thirteen weeks ended				Twenty-six weeks ended
	July 30,		July 31,		July 30,		July 31,
($ in millions, except per share amounts)	2022		2021		2022		2021
Sales	$	2,065	$	2,275	$	4,240	$	4,428

Cost of sales		1,411	$	1,477		2,846		2,881
Selling, general and administrative expenses		452	$	450		915		868
Depreciation and amortization		51	$	48		105		93
Impairment and other charges		12	$	36		18		40
Income from operations		139		264		356		546

Interest expense, net		(5)	$	(2)		(10)		(4)
Other income / (expense), net		9	$	325		(13)		329
Income before income taxes		143		587		333		871
Income tax expense		49	$	157		107		239
Net income		94		430		226		632
Net loss attributable to noncontrolling interests		—		—		1		—
Net income attributable to Foot Locker, Inc.	$	94	$	430	$	227	$	632

Basic earnings per share	$	1.00	$	4.14	$	2.39	$	6.10
Weighted-average shares outstanding		94.1		103.8		95.1		103.7

Diluted earnings per share	$	0.99	$	4.09	$	2.36	$	6.02
Weighted-average shares outstanding, assuming dilution		95.1		105.2		96.1		105.1

See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

Second Quarter 2022 Form 10-Q Page 2

Table of Contents

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


		Thirteen weeks ended				Twenty-six weeks ended
	July 30,		July 31,		July 30,		July 31,
($ in millions)	2022		2021		2022		2021
Net income attributable to Foot Locker, Inc.	$	94	$	430	$	227	$	632
Other comprehensive income (loss), net of income tax

Foreign currency translation adjustment:
Translation adjustment arising during the period, net of income tax (benefit)/expense of $-, $-, $(1) and $1, respectively		(31)		(14)		(75)		(10)

Hedges contracts:
Change in fair value of derivatives, net of income tax benefit of $-, $-, $-, and $-, respectively		(3)		—		(2)		—

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 and $1, respectively		2		2		4		3
Comprehensive income	$	62	$	418	$	154	$	625

See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

Second Quarter 2022 Form 10-Q Page 3

Table of Contents

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 April 30, 2022	99,233	$	779	(4,732)	$	(178)	$	2,995	$	(384)	$	3	$	3,215
Restricted stock issued	23													—
Issued under director and stock plans	63		2											2
Share-based compensation expense			9											9
Shares of common stock used to satisfy tax withholding obligations				(6)										—
Share repurchases				(1,400)		(40)								(40)
Reissued for Employee Stock Purchase Plan ("ESPP")			(2)	120		5								3
Noncontrolling interest capital contribution												4		4
Net income								94						94
Cash dividends on common stock ($0.40 per share)								(38)						(38)
Translation adjustment, net of tax										(31)				(31)
Change in hedges, net of tax										(3)				(3)
Pension and postretirement adjustments, net of tax										2				2
Balance at July 30, 2022	99,319	$	788	(6,018)	$	(213)	$	3,051	$	(416)	$	7	$	3,217

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 ESPP			(7)	301		14								7
Net income								430						430
Cash dividends 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


	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 29, 2022	99,071	$	770	(2,050)	$	(88)	$	2,900	$	(343)	$	4	$	3,243
Restricted stock issued	111													—
Issued under director and stock plans	137		4											4
Share-based compensation expense			16											16
Shares of common stock used to satisfy tax withholding obligations				(38)		(1)								(1)
Share repurchases				(4,050)		(129)								(129)
Reissued for ESPP			(2)	120		5								3
Noncontrolling interest capital contribution												4		4
Net income								227				(1)		226
Cash dividends on common stock ($0.80 per share)								(76)						(76)
Translation adjustment, net of tax										(75)				(75)
Change in hedges, net of tax										(2)				(2)
Pension and postretirement adjustments, net of tax										4				4
Balance at July 30, 2022	99,319	$	788	(6,018)	$	(213)	$	3,051	$	(416)	$	7	$	3,217

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 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

See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

Second Quarter 2022 Form 10-Q Page 4

Table of Contents

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Twenty-six weeks ended
	July 30,		July 31,
($ in millions)	2022		2021
From operating activities:
Net income	$	226	$	632
Adjustments to reconcile net income to net cash from operating activities:
Non-cash impairment and other charges		5		45
Fair value adjustments to minority investments		38		(314)
Depreciation and amortization		105		93
Deferred income taxes		8		67
Share-based compensation expense		16		16
Gain on disposal of business		(18)		—
Change in assets and liabilities:
Merchandise inventories		(413)		(163)
Accounts payable		10		139
Accrued and other liabilities		(69)		(12)
Insurance recovery received for inventory loss		—		8
Other, net		(10)		(109)
Net cash (used in) provided by operating activities		(102)		402
From investing activities:
Capital expenditures		(156)		(87)
Purchase of business, net of cash acquired		(12)		—
Minority investments		(4)		(78)
Proceeds from sale of business		47		—
Proceeds from minority investments		12		—
Proceeds from sale of property		—		3
Insurance proceeds related to loss on property and equipment		—		3
Net cash used in investing activities		(113)		(159)
From financing activities:
Purchase of treasury shares		(129)		(41)
Dividends paid on common stock		(76)		(42)
Payment of obligations under finance leases		(3)		(1)
Shares of common stock repurchased to satisfy tax withholding obligations		(1)		(11)
Treasury stock reissued under employee stock plan		3		7
Proceeds from exercise of stock options		3		10
Contribution from non-controlling interest		4		—
Payment of revolving credit agreement costs		—		(1)
Net cash used in financing activities		(199)		(79)
Effect of exchange rate fluctuations on cash, cash equivalents, and restricted cash		(5)		(1)
Net change in cash, cash equivalents, and restricted cash		(419)		163
Cash, cash equivalents, and restricted cash at beginning of year		850		1,718
Cash, cash equivalents, and restricted cash at end of period	$	431	$	1,881

Cash paid during the year:
Interest	$	8	$	6
Income taxes	$	103	$	229
Cash paid for amounts included in measurement of operating lease liabilities	$	354	$	358

Non-cash investing activities: