10-Q 1 fl-20221029x10q.htm 10-Q
FOOT LOCKER, INC.Large Accelerated 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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 29, 2022

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

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, 2022: 93,320,427

Graphic

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

31

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

32

Item 6.

Exhibits

33

SIGNATURE

34

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.

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

Graphic

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

October 29,

October 30,

January 29,

($ in millions, except share amounts)

    

2022

    

2021

    

2022*

ASSETS

 

  

 

  

 

  

Current assets:

 

  

 

  

 

  

Cash and cash equivalents

$

351

$

1,339

$

804

Merchandise inventories

 

1,685

 

1,301

 

1,266

Other current assets

 

302

 

253

 

293

 

2,338

 

2,893

 

2,363

Property and equipment, net

 

897

 

860

 

917

Operating lease right-of-use assets

2,449

2,619

2,616

Deferred taxes

 

65

 

95

 

86

Goodwill

 

764

 

651

 

797

Other intangible assets, net

 

424

 

235

 

454

Minority investments

722

762

781

Other assets

 

103

 

96

 

121

$

7,762

$

8,211

$

8,135

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

  

 

  

 

  

Current liabilities:

 

 

  

 

  

Accounts payable

$

522

$

578

$

596

Accrued and other liabilities

 

455

 

498

 

561

Current portion of debt and obligations under finance leases

6

104

6

Current portion of lease obligations

539

577

572

 

1,522

 

1,757

 

1,735

Long-term debt and obligations under finance leases

 

448

 

456

 

451

Long-term lease obligations

2,212

2,421

2,363

Other liabilities

 

321

 

235

 

343

Total liabilities

 

4,503

 

4,869

 

4,892

Commitments and contingencies

 

Shareholders’ equity:

Common stock and paid-in capital: 99,338,704; 104,541,760; and 99,070,796 shares issued, respectively

798

806

770

Retained earnings

3,110

3,044

2,900

Accumulated other comprehensive loss

(443)

(343)

(343)

Less: Treasury stock at cost: 6,018,983; 3,473,932; and 2,050,000 shares, respectively

(213)

(170)

(88)

Noncontrolling interest

7

5

4

Total shareholders' equity

3,259

3,342

3,243

$

7,762

$

8,211

$

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.

Third Quarter 2022 Form 10-Q Page 1

Graphic

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

Thirteen weeks ended

Thirty-nine weeks ended

October 29,

October 30,

October 29,

October 30,

($ in millions, except per share amounts)

    

2022

    

2021

    

2022

    

2021

Sales

$

2,173

$

2,189

$

6,413

$

6,617

Cost of sales

 

1,477

1,429

 

4,323

 

4,310

Selling, general and administrative expenses

 

467

458

 

1,382

 

1,326

Depreciation and amortization

 

52

49

 

157

 

142

Impairment and other charges

 

20

57

 

38

 

97

Income from operations

 

157

196

 

513

 

742

Interest expense, net

 

(3)

(4)

 

(13)

 

(8)

Other income / (expense), net

 

(11)

30

 

(24)

 

359

Income before income taxes

 

143

222

 

476

 

1,093

Income tax expense

 

47

64

 

154

 

303

Net income

96

158

322

790

Net loss attributable to noncontrolling interests

1

Net income attributable to Foot Locker, Inc.

$

96

$

158

$

323

$

790

Basic earnings per share

$

1.02

$

1.53

$

3.41

$

7.63

Weighted-average shares outstanding

 

93.4

103.2

 

94.6

 

103.5

Diluted earnings per share

$

1.01

$

1.52

$

3.38

$

7.54

Weighted-average shares outstanding, assuming dilution

 

94.7

104.4

 

95.7

 

104.9

See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

Third Quarter 2022 Form 10-Q Page 2

Graphic

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

Thirteen weeks ended

Thirty-nine weeks ended

October 29,

October 30,

October 29,

October 30,

($ in millions)

    

2022

    

2021

    

2022

    

2021

Net income attributable to Foot Locker, Inc.

$

96

$

158

$

323

$

790

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

 

(29)

 

(7)

 

(104)

 

(17)

Hedges contracts:

 

  

 

  

 

  

 

  

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

 

(1)

 

1

 

(3)

 

1

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

 

3

 

1

 

7

4

Comprehensive income

$

69

$

153

$

223

$

778

See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

Third Quarter 2022 Form 10-Q Page 3

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 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

Balance at July 31, 2021

 

104,516

$

799

(714)

$

(41)

$

2,916

$

(338)

$

5

$

3,341

Restricted stock issued

 

19

Issued under director and stock plans

 

7

Share-based compensation expense

7

7

Shares of common stock used to satisfy tax withholding obligations

 

(10)

Share repurchases

 

(2,750)

(129)

(129)

Net income

 

158

158

Cash dividends on common stock ($0.30 per share)

 

(30)

(30)

Translation adjustment, net of tax

 

(7)

(7)

Change in hedges, net of tax

 

1

1

Pension and postretirement adjustments, net of tax

1

1

Balance at October 30, 2021

 

104,542

$

806

(3,474)

$

(170)

$

3,044

$

(343)

$

5

$

3,342

   

Additional Paid-In

   

   

   

Accumulated

Capital &

Other

Total

Thirty-nine 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

 

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 ("ESPP")

 

(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

Balance at January 30, 2021

 

103,693

$

779

(74)

$

(3)

$

2,326

$

(331)

$

5

$

2,776

Restricted stock issued

 

498

Issued under director and stock plans

 

351

11

11

Share-based compensation expense

 

23

23

Shares of common stock used to satisfy tax withholding obligations

 

(205)

(11)

(11)

Share repurchases

(3,496)

(170)

(170)

Reissued for ESPP

(7)

301

14

7

Net income

 

790

790

Cash dividends on common stock ($0.70 per share)

 

(72)

(72)

Translation adjustment, net of tax

 

(17)

(17)

Change in hedges, net of tax

 

1

1

Pension and postretirement adjustments, net of tax

 

4

4

Balance at October 30, 2021

 

104,542

$

806

(3,474)

$

(170)

$

3,044

$

(343)

$

5

$

3,342

See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

Third Quarter 2022 Form 10-Q Page 4

Graphic

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

Thirty-nine weeks ended

October 29,

October 30,

($ in millions)

    

2022

    

2021

From operating activities:

 

  

 

  

Net income

$

322

$

790

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

 

 

Non-cash impairment and other charges

 

5

 

88

Fair value adjustments to minority investments

52

(340)

Depreciation and amortization

 

157

 

142

Deferred income taxes

 

14

 

57

Share-based compensation expense

 

25

 

23

Gain on disposal of business

(19)

Change in assets and liabilities:

 

 

Merchandise inventories

 

(466)

 

(306)

Accounts payable

 

(58)

 

122

Accrued and other liabilities

 

(46)

 

16

Insurance recovery received for inventory loss

 

 

8

Other, net

 

(18)

 

(102)

Net cash (used in) / provided by operating activities

 

(32)

 

498

From investing activities:

 

  

 

  

Capital expenditures

 

(218)

 

(137)

Purchase of business, net of cash acquired

 

(18)

 

(737)

Minority investments

 

(5)

 

(115)

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

 

(182)

 

(983)

From financing activities:

 

  

 

  

Proceeds from debt issuance, net

 

395

Payment of debt issuance costs

(2)

Purchase of treasury shares

(129)

 

(170)

Dividends paid on common stock

(113)

 

(72)

Payment of obligations under finance leases

(5)

(3)

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

4

 

10

Contribution from non-controlling interest

4

Net cash (used in) / provided by financing activities

 

(237)

 

154

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

 

(6)

 

(2)

Net change in cash, cash equivalents, and restricted cash

 

(457)

 

(333)

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

 

850

 

1,718

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

$

393

$

1,385

Cash paid during the year:

 

  

 

  

Interest

$

17

$

7

Income taxes

$

131

$

313

Cash paid for amounts included in measurement of operating lease liabilities

$

527

$

527

Cash paid for amounts included in measurement of finance lease liabilities

$

7