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0000850209 Foot Locker, Inc. false --01-28 Q3 2023 94,265,769 99,338,704 93,396,901 103,962 6,018,197 1,489 1 0 1 1 1 1 0 1 1 1 2 2 0.40 0.40 1 5 0.8 21.60 30.98 36.49 46.64 53.61 58.94 62.02 72.83 3 1 1 0 false false false false Other includes sales from banners that we no longer operate and primarily represented Eastbay in the prior-year period. Corporate expense consists of unallocated selling, general and administrative expenses, as well as depreciation and amortization related to our corporate headquarters, centrally managed departments, unallocated insurance and benefit programs, certain foreign exchange transaction gains and losses, and other items. On August 24, 2022, the Company granted options and other awards to its new President and Chief Executive Officer, Mary N. Dillon. These awards were granted outside of the 2007 Stock Incentive Plan as employment inducement awards and do not require shareholder approval under the rules of the New York Stock Exchange or otherwise. Shares available for future grant under this plan are reserved for the sole purpose to issue shares pursuant to her employment inducement awards. The balance sheet at January 28, 2023 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 28, 2023 This represents adjustments made to PSUs reflecting changes in estimates based upon our current performance against predefined financial targets. Includes sales from 14 and 16 Kids Foot Locker stores operating in Europe for October 28, 2023 and October 29, 2022, respectively. See Note 4, Impairment and Other Charges for further detail. The carrying value of debt as of both October 28, 2023 and October 29, 2022, included $5 million of issuer’s discount and costs. See Note 5, Other Income / (Expense), net. On May 17, 2023, the Company's shareholders approved the amended and restated 2007 Stock Incentive Plan, which increased shares available for grant by 10,300,000. 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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: October 28, 2023

 

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

 


 

https://cdn.kscope.io/8fe28de1afed2492ef4f09aa64422dbf-a1.jpg

(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

​FL

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 November 25, 2023: 94,161,807

 



 

 

 
 
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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 / (Loss) (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

15

  Item 3. Quantitative and Qualitative Disclosures About Market Risk 23

Item 4.

Controls and Procedures

23

PART II

OTHER INFORMATION

24

Item 1.

Legal Proceedings

24

Item 1A.

Risk Factors

24

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

24

  Item 3. Defaults Upon Senior Securities 24
  Item 4. Mine Safety Disclosures 24
  Item 5. Other Information 24

Item 6.

Exhibits

25

SIGNATURE

26

 ​

 

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 access to premium products, volume discounts, cooperative advertising, markdown allowances, or the ability to cancel orders or return merchandise; inventory management; our ability to fund our planned capital investments; a recession, volatility in the financial markets, and other global economic factors, including inflation; 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; cash management; liquidity; cash flow from operations; our ability to access the credit markets at competitive terms; borrowing capacity under our credit facility; repatriation of cash to the United States; supply chain issues; labor shortages and wage pressures; consumer spending levels; licensed store arrangements; the effect of certain governmental assistance programs; the success of our marketing and sponsorship arrangements; expectations regarding increasing global taxes; the effect of increased government regulation, compliance, and changes in law; the effect of the adverse outcome of any material litigation or government investigation that affects us or our industry generally; the effects of weather; ESG risks, including, but not limited to climate change; 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.

 

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 for a discussion of certain risks relating to our business and any investment in our securities. 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.

 ​

  

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

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CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

 

October 28,

  

October 29,

  

January 28,

 

($ in millions, except share amounts)

 

2023

  

2022

  

2023*

 

ASSETS

            

 

  

  

 

Current assets:

            

Cash and cash equivalents

 $187  $351  $536 

Merchandise inventories

  1,862   1,685   1,643 

Other current assets

  325   302   342 

  2,374   2,338   2,521 

Property and equipment, net

  884   897   920 

Operating lease right-of-use assets

  2,182   2,449   2,443 

Deferred taxes

  91   65   90 

Goodwill

  763   764   785 

Other intangible assets, net

  407   424   426 

Minority investments

  630   722   630 

Other assets

  89   103   92 

 $7,420  $7,762  $7,907 

 

  

  

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

            

 

  

  

 

Current liabilities:

 

         

Accounts payable

 $593  $522  $492 

Accrued and other liabilities

  369   455   568 

Current portion of debt and obligations under finance leases

  6   6   6 

Current portion of lease obligations

  491   539   544 

  1,459   1,522   1,610 

Long-term debt and obligations under finance leases

  443   448   446 

Long-term lease obligations

  1,994   2,212   2,230 

Other liabilities

  319   321   328 

Total liabilities

  4,215   4,503   4,614 

Commitments and contingencies

 

 
  

 
  

 
 

Shareholders’ equity:

 

  

  

 

Common stock and paid-in capital: 94,265,769; 99,338,704; and 93,396,901 shares issued, respectively

  772   798   760 

Retained earnings

  2,871   3,110   2,925 

Accumulated other comprehensive loss

  (434)  (443)  (392)

Less: Treasury stock at cost: 103,962; 6,018,983; and 1,489 shares, respectively

  (4)  (213)   

Noncontrolling interest

     7    

Total shareholders' equity

  3,205   3,259   3,293 

 $7,420  $7,762  $7,907 

 

*

The balance sheet at January 28, 2023 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 28, 2023

 

See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements. ​

 

 

Third Quarter 2023 Form 10-Q Page 1

 

 

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

 

Thirteen weeks ended

   

Thirty-nine weeks ended

 

 

October 28,

   

October 29,

   

October 28,

   

October 29,

 

($ in millions, except per share amounts)

 

2023

   

2022

   

2023

   

2022

 

Sales

  $ 1,986     $ 2,173     $ 5,774     $ 6,413  

Licensing revenue

    3       3       10       9  

Total revenue

    1,989       2,176       5,784       6,422  

 

   

   

   

 

Cost of sales

    1,443       1,477       4,149       4,323  

Selling, general and administrative expenses

    446       467       1,319       1,382  

Depreciation and amortization

    47       52       148       157  

Impairment and other

    6       20       59       38  

Income from operations

    47       160       109       522  

 

   

   

   

 

Interest expense, net

    (2 )     (3 )     (7 )     (13 )

Other income / (expense), net

    2       (14 )     (1 )     (33 )

Income before income taxes

    47       143       101       476  

Income tax expense

    19       47       42       154  

Net income

    28       96       59       322  

Net loss attributable to noncontrolling interests

                      1  

Net income attributable to Foot Locker, Inc.

  $ 28     $ 96     $ 59     $ 323  

 

   

   

   

 

Basic earnings per share

  $ 0.30     $ 1.02     $ 0.63     $ 3.41  

Weighted-average shares outstanding

    94.3       93.4       94.1       94.6  

 

   

   

   

 

Diluted earnings per share

  $ 0.30     $ 1.01     $ 0.63     $ 3.38  

Weighted-average shares outstanding, assuming dilution

    94.7       94.7       94.9       95.7  

 ​

See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

 

Third Quarter 2023 Form 10-Q Page 2

  

 

 

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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME / (LOSS)

(Unaudited)

 

 

Thirteen weeks ended

  

Thirty-nine weeks ended

 

 

October 28,

  

October 29,

  

October 28,

  

October 29,

 

($ in millions)

 

2023

  

2022

  

2023

  

2022

 

Net income attributable to Foot Locker, Inc.

 $28  $96  $59  $323 

Other comprehensive income / (loss), net of income tax

                

 

  

  

  

 

Foreign currency translation adjustment:

                

Translation adjustment arising during the period, net of income tax benefit of $(1), $-, $(1), and $(1), respectively

  (41)  (29)  (48)  (104)

     

      

 

Hedges contracts:

                

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

  2   (1)     (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, $2, and $2, respectively

  2   3   6   7 

Comprehensive income / (loss)

 $(9) $69  $17  $223 

    ​

See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

 

Third Quarter 2023 Form 10-Q Page 3

  

 

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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, $ in millions)

 

Shares

  

Amount

  

Shares

  

Amount

  

Earnings

  

Loss

  

interests

  

Equity

 

Balance at July 29, 2023

  94,253  $767   (99) $(4) $2,881  $(397) $  $3,247 

Restricted stock issued

  13                           

Share-based compensation expense

      5                       5 

Shares of common stock used to satisfy tax withholding obligations

          (5)                  

Net income

                  28           28 

Cash dividends on common stock ($0.40 per share)

                  (38)          (38)

Translation adjustment, net of tax

                      (41)      (41)

Change in cash flow hedges, net of tax

                      2       2 

Pension and postretirement adjustments, net of tax

                      2       2 

Balance at October 28, 2023

  94,266  $772   (104) $(4) $2,871  $(434) $  $3,205 

                

Balance at July 30, 2022

  99,319  $788   (6,018) $(213) $3,051  $(416) $7  $3,217 

Restricted stock issued

  2                           

Issued under director and stock plans

  18   1                       1 

Share-based compensation expense

     9                       9 

Shares of common stock used to satisfy tax withholding obligations

         (1)                  

Net income

                 96           96 

Cash dividends on common stock ($0.40 per share)

                 (37)          (37)

Translation adjustment, net of tax

                     (29)      (29)

Change in hedges, net of tax

                     (1)      (1)

Pension and postretirement adjustments, net of tax

                     3       3 

Balance at October 29, 2022

  99,339  $798   (6,019) $(213) $3,110  $(443) $7  $3,259 

   

 

Additional Paid-In

   

   

   

   

Accumulated

   

   

 

 

Capital &

   

   

   

   

Other

   

   

Total

 

Thirty-nine weeks ended

 

Common Stock

   

Treasury Stock

   

Retained

   

Comprehensive

   

Noncontrolling

   

Shareholders'

 

(shares in thousands, $ in millions)

 

Shares

   

Amount

   

Shares

   

Amount

   

Earnings

   

Loss

   

interests

   

Equity

 

Balance at January 28, 2023

    93,397     $ 760       (1 )   $     $ 2,925     $ (392 )   $     $ 3,293  

Restricted stock issued

    666                                            

Issued under director and stock plans

    203       6                                     6  

Share-based compensation expense

          9                                     9  

Shares of common stock used to satisfy tax withholding obligations

                (270 )     (10 )                       (10 )

Reissued for Employee Stock Purchase Plan

            (3 )     167       6                               3  

Net income

                            59                   59  

Cash dividends on common stock ($1.20 per share)

                            (113 )                 (113 )

Translation adjustment, net of tax

                                  (48 )           (48 )

Change in hedges, net of tax

                                  -              

Pension and postretirement adjustments, net of tax

                                  6             6  

Balance at October 28, 2023

    94,266     $ 772       (104 )   $ (4 )   $ 2,871     $ (434 )   $     $ 3,205  

                                               

Balance at January 29, 2022

    99,071     $ 770       (2,050 )   $ (88 )   $ 2,900     $ (343 )   $ 4     $ 3,243  

Restricted stock issued

    113                                            

Issued under director and stock plans

    155       5                                     5  

Share-based compensation expense

          25                                     25  

Shares of common stock used to satisfy tax withholding obligations

                (39 )     (1 )                       (1 )

Share repurchases

                (4,050 )     (129 )                       (129 )

Reissued for Employee Stock Purchase Plan

            (2 )     120       5                               3  

Noncontrolling interest capital contribution

                                                    4       4  

Net income

                            323          

(1

)     322  

Cash dividends on common stock ($1.20 per share)

                            (113 )                 (113 )

Translation adjustment, net of tax

                                  (104 )           (104 )

Change in hedges, net of tax

                                  (3 )           (3 )

Pension and postretirement adjustments, net of tax

                                  7             7  

Balance at October 29, 2022

    99,339     $ 798       (6,019 )   $ (213 )   $ 3,110     $ (443 )   $ 7     $ 3,259  

 

See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

 

Third Quarter 2023 Form 10-Q Page 4

 

 

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

Thirty-nine weeks ended

 

  October 28,     October 29,  

($ in millions)

 

2023

   

2022

 

From operating activities:

               

Net income

  $ 59     $ 322  

Adjustments to reconcile net income to net cash from operating activities:

 

   

 

Non-cash impairment and other

    20       5  

Fair value adjustments to minority investments

          52  

Depreciation and amortization

    148       157  

Deferred income taxes

    (5 )     14  

Share-based compensation expense

    9       25  

Gain on sales of businesses

    (4 )     (19 )

Gain on sale of property

    (3 )      

Change in assets and liabilities:

       

 

Merchandise inventories

    (249 )     (466 )

Accounts payable

    110       (58 )

Accrued and other liabilities

    (131 )     (46 )

Other, net

    (52 )     (18 )

Net cash used in operating activities

    (98 )     (32 )

From investing activities:

               

Capital expenditures

    (165 )     (218 )

Purchase of business, net of cash acquired

          (18 )

Minority investments

    (2 )     (5 )

Proceeds from sales of businesses

    16       47  

Proceeds from minority investments

          12  

Proceeds from sale of property

    6        

Net cash used in investing activities

    (145 )     (182 )

From financing activities:

               

Dividends paid on common stock

    (113 )     (113 )

Purchase of treasury shares

          (129 )

Payment of obligations under finance leases

    (5 )     (5 )

Shares of common stock repurchased to satisfy tax withholding obligations

    (10 )     (1 )

Treasury stock reissued under employee stock plan

    3       3  

Proceeds from exercise of stock options

    5       4  

Contribution from non-controlling interest

          4  

Net cash used in financing activities

    (120 )     (237 )

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

    4       (6 )

Net change in cash, cash equivalents, and restricted cash

    (359 )     (457 )

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

    582       850  

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

  $ 223     $ 393  

 

   

 

Supplemental information:

               

Interest paid

  $ 17     $ 17  

Income taxes paid

    86       131  

Cash paid for amounts included in measurement of operating lease liabilities

    509       527  

Cash paid for amounts included in measurement of finance lease liabilities

    6       7  

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

    175       363  

Assets obtained in exchange for finance lease obligations

    1       1  

 ​

See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

 ​

Third Quarter 2023 Form 10-Q Page 5

 

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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ​

 

1. Summary of Significant Accounting Policies

 

Business

 

Foot Locker, Inc., together with its consolidated subsidiaries (“Foot Locker,” “Company,” “we,” “our,” and “us”), is a leading footwear and apparel retailer. We have integrated all available shopping channels, including stores, websites, apps, and social channels. Store sales are primarily fulfilled from the store’s inventory, but may also be shipped from any of our distribution centers or from a different store location if an item is not available at the original store. Direct-to-customer orders are generally shipped to our customers through our distribution centers but may also be shipped from any store or a combination of our distribution centers and stores depending on availability of particular items. We operate in North America, Europe, and Asia Pacific, representing our operating segments. We aggregate these operating segments into one reportable segment based upon their shared customer base and similar economic characteristics.

 

Basis of Presentation

 

The accompanying interim Unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements.  In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The results of operations for any interim period are not necessarily indicative of the results expected for the year. Additionally, the results of operations for the period ended  October 28, 2023 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 the year. Fiscal year 2023 will include the 53-week period that ends on February 3, 2024.

 

The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the Notes to Consolidated Financial Statements contained in our 2022 Form 10-K. Certain reclassifications have been made to prior period financial statements to conform to the current period presentation. In 2023, we separately present licensing revenue as a component of total revenue in the Condensed Consolidated Statements of Operations, as previously licensing revenue was presented within other income / (expense), net.

 

There were no significant changes to the policies disclosed in Note 1, Summary of Significant Accounting Policies of our 2022 Form 10-K.

 

Recent Accounting Pronouncements

 

In November 2023, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2023-07, Improvements to Reportable Segment Disclosures. ASU 2023-07 requires additional disclosures, including more detailed information about segment expenses about a public entity’s reportable segments on an annual and interim basis. The new segment disclosures are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Management will review the extent of new disclosures necessary in the coming quarters, prior to implementation in our 2024 Annual Report on Form 10-K. Other than additional disclosure, we do not expect a change to our consolidated statements of operations, financial position, or cash flows.

 

Other 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.

 

Third Quarter 2023 Form 10-Q Page 6

 
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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

2. Revenue

 

The table below presents sales disaggregated by sales channel, as well as licensing revenue earned from our various franchised arrangements. Sales are attributable to the channel in which the sales transaction is initiated.

 

 

Thirteen weeks ended

  

Thirty-nine weeks ended

 

 

October 28,

  

October 29,

  

October 28,

  

October 29,

 

($ in millions)

 

2023

  

2022

  

2023

  

2022

 

Sales by Channel

                

Stores

 $1,649  $1,818  $4,834  $5,310 

Direct-to-customers

  337   355   940   1,103 

Total sales

  1,986   2,173   5,774   6,413 

Licensing revenue

  3   3   10   9 

Total revenue

 $1,989  $2,176  $5,784  $6,422 

 

Revenue is attributed to the country in which the transaction is fulfilled, and revenue by geographic area is presented in the following table.

 

 

Thirteen weeks ended

  

Thirty-nine weeks ended

 

 

October 28,

  

October 29,

  

October 28,

  

October 29,

 

($ in millions)

 

2023

  

2022

  

2023

  

2022

 

Revenue by Geography

                

United States

 $1,343  $1,503  $3,807  $4,433 

International

  646   673   1,977   1,989 

Total revenue

 $1,989  $2,176  $5,784  $6,422 

 

Sales by banner and operating segment are presented in the following table.

 

 

Thirteen weeks ended

  

Thirty-nine weeks ended

 

 

October 28,

  

October 29,

  

October 28,

  

October 29,

 

($ in millions)

 

2023

  

2022

  

2023

  

2022

 

Foot Locker

 $796  $852  $2,244  $2,411 

Champs Sports

  311   406   932   1,266 

Kids Foot Locker

  189   181   502   516 

WSS

  163   162   458   438 

Other (1)

  1   21   1   111 

North America

  1,460   1,622   4,137   4,742 

Foot Locker (2)

  407   392   1,202   1,173 

Sidestep

     20   26   69 

EMEA

  407   412   1,228   1,242 

Foot Locker

  81   99   281   292 

atmos

  38   40   128   137 

Asia Pacific

  119   139   409   429 

Total sales

 $1,986  $2,173  $5,774  $6,413 

 

(1)

Other includes sales from banners that we no longer operate and primarily represented Eastbay in the prior-year period.

(2)Includes sales from 14 and 16 Kids Foot Locker stores operating in Europe for  October 28, 2023 and October 29, 2022, respectively.

    

Third Quarter 2023 Form 10-Q Page 7

 
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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

2. Revenue (continued)

 

Contract Liabilities

 

We sell gift cards which do not have expiration dates. Revenue from gift card sales is recorded when the gift cards are redeemed by customers. Breakage income is recognized as revenue in proportion to the pattern of rights exercised by the customer. The table below presents the activity of our gift card liability balance.

 

 

October 28,

  

October 29,

 

($ in millions)

 

2023

  

2022

 

Gift card liability at beginning of year

 $36  $46 

Redemptions

  (225)  (187)

Breakage recognized in sales

  (10)  (12)

Activations

  215   178 

Foreign currency fluctuations

  (1)   

Gift card liability

 $15  $25 

 

We elected not to disclose the information about remaining performance obligations since the amount of gift cards redeemed after 12 months is not significant.

 

3. Segment Information

 

Foot Locker, Inc. operates one reportable segment. Division profit reflects income before income taxes, impairment and other, corporate expense, other income / (expense), net, and net interest expense.

 

 

Thirteen weeks ended

  

Thirty-nine weeks ended

 

 

October 28,

  

October 29,

  

October 28,

  

October 29,

 

($ in millions)

 

2023

  

2022

  

2023

  

2022

 

Division profit

 $67  $219  $192  $669 

Less: Impairment and other (1)

  6   20   59   38 

Less: Corporate expense (2)

  14   39   24   109 

Income from operations

  47   160   109   522 

Interest expense, net

  (2)  (3)  (7)  (13)

Other income / (expense), net (3)

  2   (14)  (1)  (33)

Income before income taxes

 $47  $143  $101  $476 

 ​

(1)

See Note 4, Impairment and Other Charges for further detail.

(2)

Corporate expense consists of unallocated selling, general and administrative expenses, as well as depreciation and amortization related to our corporate headquarters, centrally managed departments, unallocated insurance and benefit programs, certain foreign exchange transaction gains and losses, and other items.  

(3)

See Note 5, Other Income / (Expense), net.

 

4. Impairment and Other

 

 

Thirteen weeks ended

  

Thirty-nine weeks ended

 

 

October 28,

  

October 29,

  

October 28,

  

October 29,

 

($ in millions)

 

2023

  

2022

  

2023

  

2022

 

Transformation consulting

 $1  $17  $27  $27 

Impairment of long-lived assets and right-of-use assets

  (2)     19   5 

Reorganization costs

  7   2   12   2 

Acquisition and integration costs

     1      4 

Other

        1    

Total impairment and other

 $6  $20  $59  $38 

 ​

For the thirteen and thirty-nine weeks ended October 28, 2023, we incurred $1 million and $27 million of transformation consulting expense, respectively. For the thirteen weeks ended October 28, 2023, we recorded a $3 million credit from the settlement of lease obligations associated with Sidestep stores, partially offset by impairment on atmos U.S. assets of $1 million. For the thirty-nine weeks ended October 28, 2023, we recorded impairment charges of $19 million, primarily accelerated tenancy charges on right-of-use assets for the closures of the Sidestep banner and certain Foot Locker Asia stores. Additionally, we recorded reorganization costs of $7 million and $12 million, respectively, related to severance and the announced closure of the Sidestep banner, certain Foot Locker Asia stores, and a North American distribution center.

 

Third Quarter 2023 Form 10-Q Page 8

 
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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

5. Other Income / (Expense), net

 

 

Thirteen weeks ended

  

Thirty-nine weeks ended

 
  

October 28,

  

October 29,

  

October 28,

  

October 29,

 

($ in millions)

 

2023

  

2022

  

2023

  

2022

 

Pension and postretirement net benefit expense, excluding service cost

 $(2) $  $(6) $ 

Foot Locker Singapore and Malaysia divestiture

  2      4    

Gain on sale of property

  3      3    

Share of earnings / (losses) related to minority investments

        (1)  1 

Team Sales divestiture

     1      19 

Minority investment in Retailors, Ltd.

     (15)     (52)

Other

  (1)     (1)  (1)

Total other income / (expense), net

 $2  $(14) $(1) $(33)

 

Effective July 1, 2023, the Company sold its Foot Locker Singapore and Malaysia businesses, consisting primarily of inventory and fixed assets. During the thirty-nine weeks ended October 28, 2023, we received proceeds of $16 million (net of cash of $8 million), resulting in a gain of $4 million. In addition, during the thirteen weeks ended October 28, 2023, we sold a corporate office property in North America for proceeds of $6 million, resulting in a gain of $3 million.

 

6. Cash, Cash Equivalents, and Restricted Cash

 

The table below provides a reconciliation of cash and cash equivalents, as reported on our Condensed Consolidated Balance Sheets, to cash, cash equivalents, and restricted cash, as reported on our Condensed Consolidated Statements of Cash Flows.

 

 

October 28,

  

October 29,

 

($ in millions)

 

2023

  

2022

 

Cash and cash equivalents

 $187  $351 

Restricted cash included in other current assets

  3   14 

Restricted cash included in other non-current assets

  33   28 

Cash, cash equivalents, and restricted cash

 $223  $393 

 ​

Amounts included in restricted cash primarily relate to amounts held in escrow in connection with various leasing arrangements in Europe and deposits held in insurance trusts to satisfy the requirement to collateralize part of the self-insured workers’ compensation and liability claims.

 

7. Accumulated Other Comprehensive Loss

 

Accumulated other comprehensive loss (“AOCL”), net of tax, is comprised of the following:

 

 

October 28,

  

October 29,

  

January 28,

 

($ in millions)

 

2023

  

2022

  

2023

 

Foreign currency translation adjustments

 $(196) $(211) $(148)

Hedge contracts

  (3)  (3)  (3)

Unrecognized pension cost and postretirement benefit

  (235)  (229)  (241)

 $(434) $(443) $(392)

 ​

Third Quarter 2023 Form 10-Q Page 9

 
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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

7. Accumulated Other Comprehensive Loss (continued)

 

The changes in AOCL for the thirty-nine weeks ended October 28, 2023 were as follows:

 

 

Foreign