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As Of Filer Filing For·On·As Docs:Size 9/07/22 Foot Locker, Inc. 10-Q 7/30/22 85:9.8M |
Document/Exhibit Description Pages Size
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6: EX-99 Miscellaneous Exhibit HTML 26K
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s
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM i 10-Q
(Mark One)
| |
| |
i ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended: i July 30, 2022
OR
| |
| |
i ☐ | 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: i 1-10299
(Exact name of registrant as specified in its charter)
| |
| |
i New York | i 13-3513936 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
i 330 West 34th Street, i New York, i New York i 10001
(Address of principal executive offices, Zip Code)
( i 212- i 720-3700)
(Registrant’s telephone number, including area code)
| | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
i Common Stock, par value $0.01 | i FL | i 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. i 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). i 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 ◻ | i Smaller reporting company ◻ |
i 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 i ◻ No ☒
Number of shares of Common Stock outstanding as of August 26, 2022: i 93,301,646
| | | Page |
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 |
| Management’s Discussion and Analysis of Financial Condition and Results of Operations | 20 | |
| 30 | ||
| | | |
31 | |||
| 31 | ||
| 31 | ||
| 31 | ||
| 32 | ||
| | | |
33 | |||
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.
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 | | $ | i 386 | | $ | i 1,845 | | $ | i 804 |
Merchandise inventories | |
| i 1,644 | |
| i 1,081 | |
| i 1,266 |
Other current assets | |
| i 285 | |
| i 252 | |
| i 293 |
| |
| i 2,315 | |
| i 3,178 | |
| i 2,363 |
Property and equipment, net | |
| i 899 | |
| i 743 | |
| i 917 |
Operating lease right-of-use assets | | | i 2,526 | | | i 2,569 | | | i 2,616 |
Deferred taxes | |
| i 74 | |
| i 108 | |
| i 86 |
Goodwill | |
| i 773 | |
| i 158 | |
| i 797 |
Other intangible assets, net | |
| i 432 | |
| i 16 | |
| i 454 |
Minority investments | | | i 736 | | | i 728 | | | i 781 |
Other assets | |
| i 113 | |
| i 85 | |
| i 121 |
| | $ | i 7,868 | | $ | i 7,585 | | $ | i 8,135 |
| | | | | | | | | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | |
|
| |
|
| |
|
|
| | | | | | | | | |
Current liabilities: | |
| | |
|
| |
|
|
Accounts payable | | $ | i 596 | | $ | i 539 | | $ | i 596 |
Accrued and other liabilities | |
| i 435 | |
| i 474 | |
| i 561 |
Current portion of debt and obligations under finance leases | | | i 6 | | | i 102 | | | i 6 |
Current portion of lease obligations | | | i 548 | | | i 566 | | | i 572 |
| |
| i 1,585 | |
| i 1,681 | |
| i 1,735 |
Long-term debt and obligations under finance leases | |
| i 449 | |
| i 10 | |
| i 451 |
Long-term lease obligations | | | i 2,287 | | | i 2,363 | | | i 2,363 |
Other liabilities | |
| i 330 | |
| i 190 | |
| i 343 |
Total liabilities | |
| i 4,651 | |
| i 4,244 | |
| i 4,892 |
Commitments and contingencies | |
| | | | | | | |
Shareholders’ equity: | | | | | | | | | |
Common stock and paid-in capital: i 99,319,014; i 104,515,702; and i 99,070,796 shares issued, respectively | | | i 788 | | | i 799 | | | i 770 |
Retained earnings | | | i 3,051 | | | i 2,916 | | | i 2,900 |
Accumulated other comprehensive loss | | | ( i 416) | | | ( i 338) | | | ( i 343) |
Less: Treasury stock at cost: i 6,018,197; i 714,490; and i 2,050,000 shares, respectively | | | ( i 213) | | | ( i 41) | | | ( i 88) |
Noncontrolling interest | | | i 7 | | | i 5 | | | i 4 |
Total shareholders' equity | | | i 3,217 | | | i 3,341 | | | i 3,243 |
| | $ | i 7,868 | | $ | i 7,585 | | $ | i 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
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 | | $ | i 2,065 | | $ | i 2,275 | | $ | i 4,240 | | $ | i 4,428 |
| | | | | | | | | | | | |
Cost of sales | |
| i 1,411 | | $ | i 1,477 | |
| i 2,846 | |
| i 2,881 |
Selling, general and administrative expenses | |
| i 452 | | $ | i 450 | |
| i 915 | |
| i 868 |
Depreciation and amortization | |
| i 51 | | $ | i 48 | |
| i 105 | |
| i 93 |
Impairment and other charges | |
| i 12 | | $ | i 36 | |
| i 18 | |
| i 40 |
Income from operations | |
| i 139 | |
| i 264 | |
| i 356 | |
| i 546 |
| | | | | | | | | | | | |
Interest expense, net | |
| ( i 5) | | $ | ( i 2) | |
| ( i 10) | |
| ( i 4) |
Other income / (expense), net | |
| i 9 | | $ | i 325 | |
| ( i 13) | |
| i 329 |
Income before income taxes | |
| i 143 | |
| i 587 | |
| i 333 | |
| i 871 |
Income tax expense | |
| i 49 | | $ | i 157 | |
| i 107 | |
| i 239 |
Net income | | | i 94 | | | i 430 | | | i 226 | | | i 632 |
Net loss attributable to noncontrolling interests | | | — | | | — | | | i 1 | | | — |
Net income attributable to Foot Locker, Inc. | | $ | i 94 | | $ | i 430 | | $ | i 227 | | $ | i 632 |
| | | | | | | | | | | | |
Basic earnings per share | | $ | i 1.00 | | $ | i 4.14 | | $ | i 2.39 | | $ | i 6.10 |
Weighted-average shares outstanding | |
| i 94.1 | | | i 103.8 | |
| i 95.1 | |
| i 103.7 |
| | | | | | | | | | | | |
Diluted earnings per share | | $ | i 0.99 | | $ | i 4.09 | | $ | i 2.36 | | $ | i 6.02 |
Weighted-average shares outstanding, assuming dilution | |
| i 95.1 | | | i 105.2 | |
| i 96.1 | |
| i 105.1 |
See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.
Second Quarter 2022 Form 10-Q Page 2
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. | | $ | i 94 | | $ | i 430 | | $ | i 227 | | $ | i 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 $-, $-, $( i 1) and $ i 1, respectively | |
| ( i 31) | |
| ( i 14) | |
| ( i 75) | |
| ( i 10) |
| | | | | | | | | | | | |
Hedges contracts: | |
|
| |
|
| |
|
| |
|
|
Change in fair value of derivatives, net of income tax benefit of $-, $-, $-, and $-, respectively | |
| ( i 3) | |
| — | |
| ( i 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 $-, $-, $ i 1 and $ i 1, respectively | |
| i 2 | |
| i 2 | |
| i 4 | | | i 3 |
Comprehensive income | | $ | i 62 | | $ | i 418 | | $ | i 154 | | $ | i 625 |
See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.
Second Quarter 2022 Form 10-Q Page 3
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 |
| i 99,233 | | $ | i 779 | | ( i 4,732) | | $ | ( i 178) | | $ | i 2,995 | | $ | ( i 384) | | $ | i 3 | | $ | i 3,215 |
Restricted stock issued |
| i 23 | | | | | | | | | | | | | | | | | | | | — |
Issued under director and stock plans |
| i 63 | | | i 2 | | | | | | | | | | | | | | | | | i 2 |
Share-based compensation expense |
| | | | i 9 | | | | | | | | | | | | | | | | | i 9 |
Shares of common stock used to satisfy tax withholding obligations |
| | | | | | ( i 6) | | | | | | | | | | | | | | | — |
Share repurchases |
| | | | | | ( i 1,400) | | | ( i 40) | | | | | | | | | | | | ( i 40) |
Reissued for Employee Stock Purchase Plan ("ESPP") |
| | | | ( i 2) | | i 120 | | | i 5 | | | | | | | | | | | | i 3 |
Noncontrolling interest capital contribution | | | | | | | | | | | | | | | | | | | i 4 | | | i 4 |
Net income |
| | | | | | | | | | | | i 94 | | | | | | | | | i 94 |
Cash dividends on common stock ($ i 0.40 per share) |
| | | | | | | | | | | | ( i 38) | | | | | | | | | ( i 38) |
Translation adjustment, net of tax |
| | | | | | | | | | | | | | | ( i 31) | | | | | | ( i 31) |
Change in hedges, net of tax |
| | | | | | | | | | | | | | | ( i 3) | | | | | | ( i 3) |
Pension and postretirement adjustments, net of tax |
| | | | | | | | | | | | | | | i 2 | | | | | | i 2 |
Balance at July 30, 2022 |
| i 99,319 | | $ | i 788 |
| ( i 6,018) | | $ | ( i 213) | | $ | i 3,051 | | $ | ( i 416) | | $ | i 7 | | $ | i 3,217 |
| | | | | | | | | | | | | | | | | | | | | | |
Balance at May 1, 2021 |
| i 104,286 | | $ | i 791 | | ( i 887) | | $ | ( i 47) | | $ | i 2,507 | | $ | ( i 326) | | $ | i 5 | | $ | i 2,930 |
Restricted stock issued |
| i 11 | | | | | | | | | | | | | | | | | | | | — |
Issued under director and stock plans |
| i 219 | | | i 7 | | | | | | | | | | | | | | | | | i 7 |
Share-based compensation expense |
| | | | i 8 | | | | | | | | | | | | | | | | | i 8 |
Shares of common stock used to satisfy tax withholding obligations |
| | | | | | ( i 3) | | | ( i 1) | | | | | | | | | | | | ( i 1) |
Share repurchases |
| | | | | | ( i 125) | | | ( i 7) | | | | | | | | | | | | ( i 7) |
Reissued for ESPP |
| | | | ( i 7) | | i 301 | | | i 14 | | | | | | | | | | | | i 7 |
Net income |
| | | | | | | | | | | | i 430 | | | | | | | | | i 430 |
Cash dividends on common stock ($ i 0.20 per share) |
| | | | | | | | | | | | ( i 21) | | | | | | | | | ( i 21) |
Translation adjustment, net of tax |
| | | | | | | | | | | | | | | ( i 14) | | | | | | ( i 14) |
Pension and postretirement adjustments, net of tax | | | | | | | | | | | | | | | | i 2 | | | | | | i 2 |
Balance at July 31, 2021 |
| i 104,516 | | $ | i 799 | | ( i 714) | | $ | ( i 41) | | $ | i 2,916 | | $ | ( i 338) | | $ | i 5 | | $ | i 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 |
| i 99,071 | | $ | i 770 | | ( i 2,050) | | $ | ( i 88) | | $ | i 2,900 | | $ | ( i 343) | | $ | i 4 | | $ | i 3,243 |
Restricted stock issued |
| i 111 | | | | | | | | | | | | | | | | | | | | — |
Issued under director and stock plans |
| i 137 | | | i 4 | | | | | | | | | | | | | | | | | i 4 |
Share-based compensation expense |
| | | | i 16 | | | | | | | | | | | | | | | | | i 16 |
Shares of common stock used to satisfy tax withholding obligations |
| | | | | | ( i 38) | | | ( i 1) | | | | | | | | | | | | ( i 1) |
Share repurchases |
| | | | | | ( i 4,050) | | | ( i 129) | | | | | | | | | | | | ( i 129) |
Reissued for ESPP |
| | | | ( i 2) | | i 120 | | | i 5 | | | | | | | | | | | | i 3 |
Noncontrolling interest capital contribution | | | | | | | | | | | | | | | | | | | i 4 | | | i 4 |
Net income |
| | | | | | | | | | | | i 227 | | | | | | ( i 1) | | | i 226 |
Cash dividends on common stock ($ i 0.80 per share) |
| | | | | | | | | | | | ( i 76) | | | | | | | | | ( i 76) |
Translation adjustment, net of tax |
| | | | | | | | | | | | | | | ( i 75) | | | | | | ( i 75) |
Change in hedges, net of tax |
| | | | | | | | | | | | | | | ( i 2) | | | | | | ( i 2) |
Pension and postretirement adjustments, net of tax |
| | | | | | | | | | | | | | | i 4 | | | | | | i 4 |
Balance at July 30, 2022 |
| i 99,319 | | $ | i 788 | | ( i 6,018) | | $ | ( i 213) | | $ | i 3,051 | | $ | ( i 416) | | $ | i 7 | | $ | i 3,217 |
| | | | | | | | | | | | | | | | | | | | | | |
Balance at January 30, 2021 |
| i 103,693 | | $ | i 779 | | ( i 74) | | $ | ( i 3) | | $ | i 2,326 | | $ | ( i 331) | | $ | i 5 | | $ | i 2,776 |
Restricted stock issued |
| i 479 | | | | | | | | | | | | | | | | | | | | — |
Issued under director and stock plans |
| i 344 | | | i 11 | | | | | | | | | | | | | | | | | i 11 |
Share-based compensation expense |
| | | | i 16 | | | | | | | | | | | | | | | | | i 16 |
Shares of common stock used to satisfy tax withholding obligations |
| | | | | | ( i 195) | | | ( i 11) | | | | | | | | | | | | ( i 11) |
Share repurchases | | | | | | | ( i 746) | | | ( i 41) | | | | | | | | | | | | ( i 41) |
Reissued for ESPP | | | | | ( i 7) | | i 301 | | | i 14 | | | | | | | | | | | | i 7 |
Net income |
| | | | | | | | | | | | i 632 | | | | | | | | | i 632 |
Cash dividends on common stock ($ i 0.40 per share) |
| | | | | | | | | | | | ( i 42) | | | | | | | | | ( i 42) |
Translation adjustment, net of tax |
| | | | | | | | | | | | | | | ( i 10) | | | | | | ( i 10) |
Pension and postretirement adjustments, net of tax |
| | | | | | | | | | | | | | | i 3 | | | | | | i 3 |
Balance at July 31, 2021 |
| i 104,516 | | $ | i 799 | | ( i 714) | | $ | ( i 41) | | $ | i 2,916 | | $ | ( i 338) | | $ | i 5 | | $ | i 3,341 |
See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.
Second Quarter 2022 Form 10-Q Page 4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| | | | | | |
| | Twenty-six weeks ended | ||||
| | July 30, | | July 31, | ||
($ in millions) |
| 2022 |
| 2021 | ||
From operating activities: |
| |
|
| |
|
Net income | | $ | i 226 | | $ | i 632 |
Adjustments to reconcile net income to net cash from operating activities: | |
| | |
| |
Non-cash impairment and other charges | |
| i 5 | |
| i 45 |
Fair value adjustments to minority investments | | | i 38 | | | ( i 314) |
Depreciation and amortization | |
| i 105 | |
| i 93 |
Deferred income taxes | |
| i 8 | |
| i 67 |
Share-based compensation expense | |
| i 16 | |
| i 16 |
Gain on disposal of business | | | ( i 18) | | | — |
Change in assets and liabilities: | |
| | |
| |
Merchandise inventories | |
| ( i 413) | |
| ( i 163) |
Accounts payable | |
| i 10 | |
| i 139 |
Accrued and other liabilities | |
| ( i 69) | |
| ( i 12) |
Insurance recovery received for inventory loss | |
| — | |
| i 8 |
Other, net | |
| ( i 10) | |
| ( i 109) |
Net cash (used in) provided by operating activities | |
| ( i 102) | |
| i 402 |
From investing activities: | |
|
| |
|
|
Capital expenditures | |
| ( i 156) | |
| ( i 87) |
Purchase of business, net of cash acquired | |
| ( i 12) | |
| — |
Minority investments | |
| ( i 4) | |
| ( i 78) |
Proceeds from sale of business | | | i 47 | | | — |
Proceeds from minority investments | | | i 12 | | | — |
Proceeds from sale of property | | | — | | | i 3 |
Insurance proceeds related to loss on property and equipment | |
| — | |
| i 3 |
Net cash used in investing activities | |
| ( i 113) | |
| ( i 159) |
From financing activities: | |
|
| |
|
|
Purchase of treasury shares | | | ( i 129) | |
| ( i 41) |
Dividends paid on common stock | | | ( i 76) | |
| ( i 42) |
Payment of obligations under finance leases | | | ( i 3) | | | ( i 1) |
Shares of common stock repurchased to satisfy tax withholding obligations | | | ( i 1) | |
| ( i 11) |
Treasury stock reissued under employee stock plan | |
| i 3 | |
| i 7 |
Proceeds from exercise of stock options | | | i 3 | |
| i 10 |
Contribution from non-controlling interest | | | i 4 | | | — |
Payment of revolving credit agreement costs | | | — | | | ( i 1) |
Net cash used in financing activities | |
| ( i 199) | |
| ( i 79) |
Effect of exchange rate fluctuations on cash, cash equivalents, and restricted cash | |
| ( i 5) | |
| ( i 1) |
Net change in cash, cash equivalents, and restricted cash | |
| ( i 419) | |
| i 163 |
Cash, cash equivalents, and restricted cash at beginning of year | |
| i 850 | |
| i 1,718 |
Cash, cash equivalents, and restricted cash at end of period | | $ | i 431 | | $ | i 1,881 |
| | | | | | |
Cash paid during the year: | |
|
| |
|
|
Interest | | $ | i 8 | | $ | i 6 |
Income taxes | | $ | i 103 | | $ | i 229 |
Cash paid for amounts included in measurement of operating lease liabilities | | $ | i 354 | | $ | i 358 |
| | | | | | |
Non-cash investing activities: | | | | | | |
Right-of-use assets obtained in exchange for operating lease obligations | | $ | i 277 | | $ | i 171 |
Assets obtained in exchange for finance lease obligations | | $ | i 1 | | $ | i 4 |
See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.
Second Quarter 2022 Form 10-Q Page 5
1. Summary of Significant Accounting Policies
iBasis 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 30, 2022 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 2022.
The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the Notes to Consolidated Financial Statements contained in our 2021 Form 10-K.
There were no significant changes to the policies disclosed in Note 1, Summary of Significant Accounting Policies of our 2021 Form 10-K.
iRecent 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.
/ i2. Acquisitions
In 2021, we acquired WSS and atmos, i two businesses that will allow us to further differentiate our product offerings, as well as our customer base, and diversify our retail store and omnichannel portfolio.
WSS
During the twenty-six weeks ended July 30, 2022, we paid an additional $ i 4 million upon the finalization of the value of net assets acquired, with a corresponding increase to goodwill as compared with the amounts presented in the most recent annual report. The aggregate purchase price for the acquisition has increased to $ i 811 million ($ i 741 million, net of cash acquired). There were i no additional payments or changes to the value of net assets acquired in the thirteen weeks ended July 30, 2022.
/Second Quarter 2022 Form 10-Q Page 6
2. Acquisitions (continued)
iThe following table represents the final allocation of the purchase price for WSS.
| | | |
($ in millions) |
| | |
Assets acquired: |
| |
|
Cash and cash equivalents | | $ | i 70 |
Merchandise inventories | |
| i 82 |
Other current assets | |
| i 10 |
Property and equipment, net | |
| i 133 |
Operating lease right-of-use assets | | | i 143 |
Tradenames | |
| i 296 |
Customer relationships | | | i 13 |
Other assets | |
| i 4 |
Liabilities assumed: | |
|
|
Accounts payable | | $ | ( i 58) |
Current portion of obligations under finance leases | | | ( i 3) |
Current portion of lease obligations | | | ( i 19) |
Long-term portion of obligations under finance leases | | | ( i 50) |
Long-term lease obligations | | | ( i 127) |
Deferred taxes | | | ( i 84) |
Other liabilities | |
| ( i 4) |
| | | |
Goodwill | | | i 405 |
Total purchase price | | $ | i 811 |
atmos
During the thirteen and twenty-six weeks ended July 30, 2022, we paid an additional $ i 5 million and $ i 8 million, respectively, in connection with the finalization of certain post-closing conditions. The aggregate purchase price for the acquisition has increased to $ i 368 million, subject to adjustment for the finalization of the value of net assets acquired and other post-closing matters. The preliminary purchase price includes contingent consideration initially measured at $ i 35 million, which can reach up to $ i 111 million based on achieving certain revenue growth and EBITDA performance targets. The fair value of the contingent consideration has not changed from the initial measurement. The preliminary purchase price does not yet reflect the finalization of the net working capital provisions and other post-closing adjustments. At closing, we placed $ i 30 million in escrow, and an additional $ i 6 million will be payable if certain post-closing conditions are satisfied. We expect to finalize the remaining amounts by the end of this fiscal year.
The following table represents the preliminary allocation of the purchase price for atmos and includes fair value adjustments to certain assets and liabilities since our most recent annual report. Changes to amounts reported at year end and the previous quarter included an $ i 8 million increase in goodwill due to the additional purchase price, revised downward valuation of the tradenames and the addition of the customer list intangible. The adjustments did not have a significant effect on the consolidated results of operations. We determined that the atmos tradenames will have an indefinite life and will not be amortized.
We are assessing the tax deductibility of the goodwill related to the acquisition.
Second Quarter 2022 Form 10-Q Page 7
2. Acquisitions (continued)
iThe following table represents the preliminary allocation of the purchase price for atmos.
| | | |
($ in millions) |
| | |
Assets acquired: |
| |
|
Cash and cash equivalents | | $ | i 6 |
Merchandise inventories | |
| i 22 |
Other current assets | |
| i 12 |
Property and equipment, net | |
| i 7 |
Operating lease right-of-use assets | | | i 44 |
Tradenames | |
| i 130 |
Customer relationships | | | i 9 |
Other assets | |
| i 6 |
Liabilities assumed: | |
| |
Accounts payable | | $ | ( i 10) |
Current portion of lease obligations | | | ( i 10) |
Other current liabilities | | | ( i 8) |
Long-term lease obligations | | | ( i 35) |
Deferred taxes | | | ( i 44) |
Other liabilities | |
| ( i 8) |
| | | |
Goodwill (1) | | | i 247 |
Total purchase price (2) | | $ | i 368 |
| (1) | Goodwill represented on this table is at the exchange rate in effect as of the date of acquisition. |
| (2) | Total purchase price consists of $ i 333 million in cash and $ i 35 million of contingent consideration. |
i3. Revenue
iThe 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 30, | | July 31, | | July 30, | | July 31, | ||||
($ in millions) |
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||
Sales by Channel | | | | | | | | | | | | |
Stores | | $ | i 1,716 | | $ | i 1,817 | | $ | i 3,492 | | $ | i 3,437 |
Direct-to-customers | |
| i 349 | |
| i 458 | |
| i 748 | |
| i 991 |
Total sales | | $ | i 2,065 | | $ | i 2,275 | | $ | i 4,240 | | $ | i 4,428 |
iSales disaggregated based upon geographic area are presented in the table below. Sales are attributable to the geographic area in which the sales transaction is fulfilled.
| | | | | | | | | | | | |
| | Thirteen weeks ended | | Twenty-six weeks ended | ||||||||
| | July 30, | | July 31, | | July 30, | | July 31, | ||||
($ in millions) |
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||
Sales by Geography | | | | | | | | | | | | |
United States | | $ | i 1,383 | | $ | i 1,623 | | $ | i 2,923 | | $ | i 3,336 |
International | |
| i 682 | |
| i 652 | |
| i 1,317 | |
| i 1,092 |
Total sales | | $ | i 2,065 | | $ | i 2,275 | | $ | i 4,240 | | $ | i 4,428 |
/Second Quarter 2022 Form 10-Q Page 8
3. 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.
i | | | | | | |
| | July 30, | | July 31, | ||
($ in millions) | | 2022 | | 2021 | ||
Gift card liability at beginning of year | | $ | i 46 | | $ | i 41 |
Redemptions | | | ( i 120) | | | ( i 122) |
Breakage recognized in sales | | | ( i 8) | | | ( i 9) |
Activations | | | i 115 | | | i 128 |
Foreign currency fluctuations | | | ( i 1) | | | — |
Gift card liability | | $ | i 32 | | $ | i 38 |
We elected not to disclose the information about remaining performance obligations since the amount of gift cards redeemed after 12 months is not significant.
i4. Segment Information
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.
iWe evaluate performance based on several factors, primarily the banner’s financial results, referred to as division profit. Division profit reflects income before income taxes, impairment and other charges, corporate expense, non-operating income, and net interest expense.
| | | | | | | | | | | | |
| | Thirteen weeks ended | | Twenty-six weeks ended | ||||||||
| | July 30, | | July 31, | | July 30, | | July 31, | ||||
($ in millions) |
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||
Sales | | $ | i 2,065 | | $ | i 2,275 | | $ | i 4,240 | | $ | i 4,428 |
| | | | | | | | | | | | |
Operating Results | |
|
| |
|
| |
|
| |
|
|
Division profit | | | i 184 | | | i 332 | | $ | i 444 | | $ | i 647 |
Less: Impairment and other charges (1) | |
| i 12 | |
| i 36 | |
| i 18 | |
| i 40 |
Less: Corporate expense (2) | |
| i 33 | |
| i 32 | |
| i 70 | |
| i 61 |
Income from operations | |
| i 139 | |
| i 264 | |
| i 356 | |
| i 546 |
Interest expense, net | |
| ( i 5) | |
| ( i 2) | |
| ( i 10) | |
| ( i 4) |
Other income / (expense), net (3) | |
| i 9 | |
| i 325 | |
| ( i 13) | |
| i 329 |
Income before income taxes | | $ | i 143 | | $ | i 587 | | $ | i 333 | | $ | i 871 |
| (1) | See Note 5, 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) | Other income / (expense), net for the thirteen weeks and twenty-six weeks ended July 30, 2022 represented primarily the loss on the change in fair value of our investment in Retailors, Ltd., a publicly-listed entity, which was partially offset by other income. See Note 6, Other Income / (Expense), net. |
/Second Quarter 2022 Form 10-Q Page 9
5. Impairment and Other Charges
| | | | | | | | | | | | |
i
| | | | | | | | | | | | | |
| | Thirteen weeks ended | | Twenty-six weeks ended | | ||||||||
| | July 30, | | July 31, | | July 30, | | July 31, | | ||||
($ in millions) |
| 2022 |
| 2021 |
| 2022 |
| 2021 | | ||||
Transformation consulting | | $ | i 9 | | $ | — | | $ | i 10 | | $ | — | |
Impairment of long-lived assets and right-of-use assets | | | i 2 | | | i 39 | | | i 5 | | | i 39 | |
Acquisition and integration costs | | | i 1 | | | — | | | i 3 | | | — | |
Lease termination costs | | | — | | | i 4 | | | — | | | i 4 | |
Impairment of investments | | | — | | | — | | | — | | | i 2 | |
Reorganization costs | | | — | | | — | | | — | | | i 2 | |
Insurance recovery | | | — | | | ( i 7) | | | — | | | ( i 7) | |
Total impairment and other charges | | $ | i 12 | | $ | i 36 | | $ | i 18 | | $ | i 40 | |
For the thirteen and twenty-six weeks ended July 30, 2022, we incurred $ i 9 million and $ i 10 million of transformation consulting expense, respectively. We recorded impairment charges of $ i 2 million and $ i 5 million related to long-lived assets and right-of-use assets, as well as accelerated tenancy charges for the thirteen and twenty-six weeks ended July 30, 2022, respectively. Additionally, we recorded $ i 1 million and $ i 3 million in acquisition and integration costs related to WSS and atmos for the thirteen and twenty-six weeks ended July 30, 2022, respectively.
For the thirteen and twenty-six weeks ended July 31, 2021, we recorded impairment charges of $ i i 39 / million, related to the decision to exit the Footaction banner. For the thirteen and twenty-six weeks ended July 31, 2021, we recorded charges of $ i i 4 / million in lease-related termination costs, offset by $ i i 7 / million of insurance recovery income related to 2020 social unrest losses. For the twenty-six weeks ended July 31, 2021, we recorded an impairment charge of $ i 2 million related to the underperformance of one of our minority investments, and a severance charge of $ i 2 million in connection with the reorganization of certain support functions.
/ i6. Other Income / (Expense), net
Effective June 27, 2022, the Company reached a definitive agreement to sell all assets related to the Eastbay Team Sales business, consisting primarily of inventory and accounts receivable. We received proceeds of $ i 47 million from the transaction, resulting in a gain of $ i 18 million, reported in other income / (expense), net.
/ i7. Cash, Cash Equivalents, and Restricted Cash
iThe 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.
| | | | | | |
| | July 30, | | July 31, | ||
($ in millions) |
| 2022 |
| 2021 | ||
Cash and cash equivalents | | $ | i 386 | | $ | i 1,845 |
Restricted cash included in other current assets | | | i 7 | | | i 7 |
Restricted cash included in other non-current assets | | | i 38 | | | i 29 |
Cash, cash equivalents, and restricted cash | | $ | i 431 | | $ | i 1,881 |
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.
/Second Quarter 2022 Form 10-Q Page 10
8. Goodwill
See footnote 2, Acquisitions, for additional information on our recent acquisitions.
In conjunction with the sale of the Eastbay Team Sales business, we allocated $ i 6 million of goodwill to the assets sold, representing the allocable share of the fair value of the reporting unit disposed of.
We review goodwill for impairment annually during the first quarter of each fiscal year, or more frequently if impairment indicators arise. The review of impairment consists of either using a qualitative approach to determine whether it is more likely than not that the fair value of the assets is less than their respective carrying values or a one-step quantitative impairment test. The results of the first quarter analysis did not result in an impairment since the fair value of each reporting unit exceeded its carrying value.
/ i9. Other Intangible Assets, net
iThe components of finite-lived intangible assets and intangible assets not subject to amortization are as follows:
| | | | | | | | | | | | | | | | | | |
| | | | | ||||||||||||||
| | Gross | | Accum. | | Net | | Gross | | Accum. | | Net | ||||||
($ in millions) | | value | | amort. | | value | | value | | amort. | | value | ||||||
Amortized intangible assets: (1) |
| | | | | | | | | | | | | | | | | |
Lease acquisition costs | | $ | i 97 | | $ | ( i 95) | | $ | i 2 | | $ | i 116 | | $ | ( i 112) | | $ | i 4 |
Trademarks/tradenames (2) | | | i 18 | | | ( i 18) | | | — | | | i 20 | | | ( i 17) | | | i 3 |
Customer lists | | | i 20 | | | ( i 5) | | | i 15 | | | — | | | — | | | — |
| | $ | i 135 | | $ | ( i 118) | | $ | i 17 | | $ | i 136 | | $ | ( i 129) | | $ | i 7 |
| | | | | | | | | | | | | | | | | | |
Indefinite life intangible assets: (1) | | | | | | | | | | | | | | | | | | |
Trademarks/tradenames | | | | | | | | $ | i 415 | | | | | | | | $ | i 9 |
Other intangible assets, net | | | | | | | | $ | i 432 | | | | | | | | $ | i 16 |
| (1) | The change in the ending balances also reflects the effect of foreign currency fluctuations due primarily to movements of the euro in relation to the U.S. dollar. |
| (2) | During the fourth quarter of 2021, we recorded a non-cash impairment charge related to the Footaction tradename. |
In connection with the acquisitions of WSS and atmos, we recognized indefinite life intangible assets of $ i 296 million for WSS related tradenames and $ i 130 million for atmos related tradenames. Additionally, we recognized customer list intangible assets of $ i 13 million for WSS and $ i 9 million for atmos, both of which will be amortized over i 3 years. The intangibles related to atmos were originally recorded at the exchange rate in effect as of the date of acquisition and are presented in the above table at current period exchange rates. Amortizing intangible assets primarily represent the WSS and atmos customer lists, and lease acquisition costs, which are amounts that are required to secure prime lease locations and other lease rights, primarily in Europe.
iAmortization expense recorded is as follows:
| | | | | | | | | | | | | |
| | Thirteen weeks ended | | | Twenty-six weeks ended | ||||||||
| | July 30, | | July 31, | | July 30, | | July 31, | | ||||
($ in millions) |
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| ||||
Amortization expense | | $ | i 2 | | $ | i 1 | | $ | i 5 | | $ | i 2 | |
/Second Quarter 2022 Form 10-Q Page 11
9. Other Intangible Assets, net (continued)
iEstimated future amortization expense for finite-life intangible assets is as follows:
| | | |
($ in millions) |
| | |
Remainder of 2022 | | $ | i 4 |
2023 | | | i 7 |
2024 | |
| i 5 |
2025 | | | i 1 |
i10. Accumulated Other Comprehensive Loss
iAccumulated other comprehensive loss (“AOCL”), net of tax, is comprised of the following:
| | | | | | | | | |
| | July 30, | | July 31, | | January 29, | |||
($ in millions) |
| 2022 |
| 2021 |
| 2022 | |||
Foreign currency translation adjustments | | $ | ( i 182) | | $ | ( i 74) | | $ | ( i 107) |
Hedge contracts | |
| ( i 2) | |
| ( i 1) | | | — |
Unrecognized pension cost and postretirement benefit | |
| ( i 232) | |
| ( i 263) | | | ( i 236) |
| | $ | ( i 416) | | $ | ( i 338) | | $ | ( i 343) |
iThe changes in AOCL for the twenty-six weeks ended July 30, 2022 were as follows:
| | | | | | | | | | | | |
| | Foreign | | | | | Items Related | | | | ||
| | Currency | | | | | to Pension and | | | | ||
| | Translation | | | | Postretirement | | | | |||
($ in millions) |
| Adjustments |
| Hedges |
| Benefits |
| Total | ||||
Balance as of January 29, 2022 | | $ | ( i 107) | | | — | | $ | ( i 236) | | $ | ( i 343) |
| | | | | | | | | | | | |
OCI before reclassification | |
| ( i 75) | | | i 2 | | | — | |
| ( i 73) |
Reclassification of hedges, net of tax | | | — | | | ( i 4) | | | — | | | ( i 4) |
Amortization of pension actuarial loss, net of tax | |
| — | | | — | | | i 4 | |
| i 4 |
Other comprehensive income | |
| ( i 75) | |
| ( i 2) | |
| i 4 | |
| ( i 73) |
Balance as of July 30, 2022 | | $ | ( i 182) | | $ | ( i 2) | | $ | ( i 232) | | $ | ( i 416) |
iReclassifications from AOCL for the twenty-six weeks ended July 30, 2022 were as follows:
| | | |
($ in millions) |
| | |
Reclassification of hedge loss: |
| |
|
Cross-currency swap | | $ | ( i 4) |
Income tax | | | — |
Reclassification of hedges, net of tax | | $ | ( i 4) |
| | | |
Amortization of actuarial loss: | | | |
Pension benefits | | $ | i 5 |
Income tax benefit | |
| ( i 1) |
Amortization of actuarial loss, net of tax | | $ | i 4 |
Total, net of tax | | $ | i — |
/
Second Quarter 2022 Form 10-Q Page 12
11. Financial Instruments and Risk Management
Fair Value Hedge
On May 6, 2022, we entered into a cross-currency swap contract to reduce the effect of the fluctuating U.S. Dollar (“USD”) to Japanese Yen (“JPY”) foreign exchange rate on our foreign currency-denominated intercompany loan between our Japanese and U.S. subsidiary. We expect the gains and losses on this contract to offset losses and gains on the hedged transaction in an effort to reduce the earnings volatility resulting from the remeasurement of the principal and interest accrued on the loan. Though the intercompany loan eliminates in consolidation, the foreign currency remeasurement of the loan and interest by the U.S. subsidiary is reflected in the consolidated financial statements.
The cross-currency swap contract has a notional amount of JPY i 11 billion and final receipt of $ i 85 million. The cross-currency swap contract, which matures on November 2, 2031, swaps Yen-denominated interest payments for U.S. dollar-denominated interest payments, thereby economically converting the JPY i 11 billion fixed-rate i 3.51% intercompany loan to a fixed-rate i 6.77% USD-denominated receivable for our U.S. subsidiary.
We designated the cross-currency swap contract to hedge the changes in value of the intercompany loan and its variability on earnings. We will apply fair value hedge accounting, and we will consider market factors other than the change in the spot exchange rate on the notional amount of the swap to be excluded components. The foreign currency spot rate fluctuations on the cross-currency swap notional amount and interest accruals are reported in earnings each period, while all other changes are reported in other comprehensive income. Because the terms of the hedged item and the hedging instrument match and the likelihood of swap counterparty default is not probable, the hedge is expected to exactly offset changes in the fair value of the foreign currency debt resulting from to foreign currency fluctuations over the term of the swap.
As of July 30, 2022, the cross-currency swap had a fair value of $ i 1 million and was included in other assets. We record the changes in the fair value of the contract to AOCL. Each period, we reclassify an amount out of AOCL equal to the remeasurement gain or loss on the hedged intercompany loan that is recorded in selling, general and administrative expenses. As of July 30, 2022, there was $ i 3 million in AOCL, net of tax, related to the cross-currency swap. In addition, we recognize swap interest income based on the differential in fixed interest rates per the contract. For the thirteen and twenty-six weeks ended July 30, 2022, we recorded $ i i 1 / million of income in interest expense, net. Refer to Note 10 for further information regarding amounts recorded in AOCL.
/ i12. Fair Value Measurements
Our financial assets are recorded at fair value, using a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. The three levels of inputs used to measure fair value are categorized as follows:
Level 1 – | Quoted prices for identical instruments in active markets. |
Level 2 – | Observable inputs other than quoted prices included within Level 1, including quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs or significant value-drivers are observable in active markets. |
Level 3 – | Model-derived valuations in which one or more significant inputs or significant value-drivers are unobservable. |
Second Quarter 2022 Form 10-Q Page 13
12. Fair Value Measurements (continued)
In 2021, we invested $ i 68 million to take a common stock minority stake in a public entity, Retailors, Ltd, which is traded on the Tel Aviv stock exchange. This investment is classified as a Level 1 instrument since the fair value is readily available in an active market.
The fair value of the auction rate security, classified as available-for-sale, is determined by using quoted prices for similar instruments in active markets and accordingly is classified as a Level 2 instrument.
The fair value of the contingent consideration liability associated with the atmos acquisition is estimated using an option pricing model simulation that determines an average projected payment value across numerous iterations.
Our derivative financial instruments are valued using market-based inputs to valuation models. These valuation models require a variety of inputs, including contractual terms, market prices, yield curves, and measures of volatility and, therefore, are classified as Level 2 instruments.
iAssets and Liabilities Measured at Fair Value on a Recurring Basis
| | | | | | | | | | | | | | | | | | |
($ in millions) | | As of July 30, 2022 | | As of July 31, 2021 | ||||||||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Level 1 |
| Level 2 |
| Level 3 | ||||||
Assets |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Minority investment in common stock | | $ | i 107 | | $ | — | | $ | — | | $ | i 92 | | $ | — | | $ | — |
Available-for-sale security | | | — | | | i 6 | | | — | | | — | | | i 7 | | | — |
Foreign exchange forward contracts | |
| — | |
| i 1 | |
| — | |
| — | |
| i 1 | |
| — |
Cross-currency swap contract | | | — | | | i 1 | | | — | | | — | | | — | | | — |
Total assets | | $ | i 107 | | $ | i 8 | | $ | — | | $ | i 92 | | $ | i 8 | | $ | — |
Liabilities | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Contingent consideration | |
| — | |
| — | |
| i 35 | |
| — | |
| — | |
| — |
Foreign exchange forward contracts | |
| — | |
| — | |
| — | |
| — | |
| i 2 | |
| — |
Total liabilities | | $ | — | | $ | — | | $ | i 35 | | $ | — | | $ | i 2 | | $ | — |
There were i i i i no / / / transfers into or out of Level 1, Level 2, or Level 3 assets and liabilities for any of the periods presented.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Assets and liabilities recognized or disclosed at fair value on the consolidated financial statements on a nonrecurring basis include items such as property, plant and equipment, operating lease right-of-use assets, goodwill, other intangible assets, and minority investments that are not accounted for under the equity method of accounting. These assets are measured using Level 3 inputs, if determined to be impaired.
Minority investments measured using the fair value measurement alternative had a carrying value of $ i 579 million and $ i 612 million as of July 30, 2022 and July 31, 2021, respectively.
Second Quarter 2022 Form 10-Q Page 14
12. Fair Value Measurements (continued)
Long-Term Debt
The fair value of long-term debt is determined by using model-derived valuations in which all significant inputs or significant value drivers are observable in active markets and, therefore, are classified as Level 2. The balance as of July 30, 2022 includes the $ i 400 million i 4% Notes. The carrying value and estimated fair value of long-term debt were as follows:
i | | | | | | |
($ in millions) |
|
| ||||
Carrying value (1) | | $ | i 394 | | $ | i 99 |
Fair value | | $ | i 313 | | $ | i 102 |
| (1) | The carrying value of debt as of July 30, 2022 reflects $ i 6 million of issuer’s discount and costs related to the 4% Notes. |
The carrying values of cash and cash equivalents, and other current receivables and payables approximate their fair value.
i13. Earnings Per Share
We account for earnings per share (“EPS”) using the treasury stock method. Basic EPS is computed by dividing net income for the period by the weighted-average number of common shares outstanding at the end of the period. Diluted earnings per share reflects the weighted-average number of common shares outstanding during the period used in the basic EPS computation plus dilutive common stock equivalents. The computation of diluted earnings per share does not assume conversion, exercise, or contingent issuance of securities that would have an anti-dilutive effect on EPS.
iThe computation of basic and diluted EPS is as follows:
| | | | | | | | | | | | |
| | Thirteen weeks ended | | Twenty-six weeks ended | ||||||||
| | July 30, | | July 31, | | July 30, | | July 31, | ||||
(in millions, except per share data) |
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||
Net income attributable to Foot Locker, Inc. | | $ | i 94 | | $ | i 430 | | $ | i 227 | | $ | i 632 |
| | | | | | | | | | | | |
Weighted-average common shares outstanding | |
| i 94.1 | |
| i 103.8 | |
| i 95.1 | |
| i 103.7 |
Dilutive effect of potential common shares | |
| i 1.0 | |
| i 1.4 | |
| i 1.0 | |
| i 1.4 |
Weighted-average common shares outstanding assuming dilution | |
| i 95.1 | |
| i 105.2 | |
| i 96.1 | |
| i 105.1 |
| | | | | | | | | | | | |
Earnings per share - basic | | $ | i 1.00 | | $ | i 4.14 | | $ | i 2.39 | | $ | i 6.10 |
Earnings per share - diluted | | $ | i 0.99 | | $ | i 4.09 | | $ | i 2.36 | | $ | i 6.02 |
| | | | | | | | | | | | |
Anti-dilutive share-based awards excluded from diluted calculation | |
| i 2.8 | |
| i 1.5 | |
| i 2.7 | |
| i 1.7 |
Performance stock units related to our long-term incentive programs of i 0.8 million and i 0.6 million have been excluded from diluted weighted-average shares for the periods ended July 30, 2022 and July 31, 2021, respectively. The issuance of these shares is contingent on our performance metrics as compared to the pre-established performance goals, which have not been achieved.
/Second Quarter 2022 Form 10-Q Page 15
14. Pension
The components of net periodic pension benefit expense are presented in the table below. Service cost is recognized as part of SG&A expense, while the other components are recognized as part of Other income / (expense), net.
i
| | | | | | | | | | | | |
| | Thirteen weeks ended | | Twenty-six weeks ended | ||||||||
| | | July 30, | | | July 31, | | | July 30, | | | July 31, |
($ in millions) | | | 2022 | | | 2021 | | | 2022 | | | 2021 |
Service cost | | $ | i 3 | | $ | i 4 | | $ | i 7 | | $ | i 8 |
Interest cost | | | i 5 | |
| i 5 | | | i 10 | | | i 9 |
Expected return on plan assets | | | ( i 7) | |
| ( i 8) | | | ( i 15) | | | ( i 17) |
Amortization of net loss | | | i 3 | |
| i 2 | | | i 5 | | | i 5 |
Net benefit expense | | $ | i 4 | | $ | i 3 | | $ | i 7 | | $ | i 5 |
/
i15. Share-Based Compensation
iTotal compensation expense, included in SG&A, and the associated tax benefits recognized related to our share-based compensation plans, were as follows:
| | | | | | | | | | | | |
| | Thirteen weeks ended | | Twenty-six weeks ended | ||||||||
| | July 30, | | July 31, | | July 30, | | July 31, | ||||
($ in millions) | | 2022 | | 2021 | | 2022 | | 2021 | ||||
Options and employee stock purchase plan | | $ | i 2 | | $ | i 2 | | $ | i 3 | | $ | i 4 |
Restricted stock units and performance stock units | |
| i 7 | |
| i 6 | |
| i 13 | |
| i 12 |
Total share-based compensation expense | | $ | i 9 | | $ | i 8 | | $ | i 16 | | $ | i 16 |
| | | | | | | | | | | | |
Tax benefit recognized | | $ | i 1 | | $ | i 1 | | $ | i 2 | | $ | i 2 |
Valuation Model and Assumptions
We use the Black-Scholes option-pricing model to estimate the fair value of options and the stock purchase plan. The Black-Scholes option-pricing model incorporates various and subjective assumptions, including expected term and expected volatility.
iThe table below shows assumptions used to compute share-based compensation expense for awards granted during the twenty-six weeks ended July 30, 2022 and July 31, 2021.
| | | | | | | | | | | | | |
| | | Stock Option Plans | | | Stock Purchase Plan | | ||||||
| | July 30, | | July 31, | | July 30, | | | |||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| ||||
Weighted-average risk free rate of interest |
| | i 2.3 | % | | i 0.9 | % | | i 0.4 | % | | i 0.2 | % |
Expected volatility |
| | i 48.2 | % | | i 47 | % | | i 40 | % | | i 48 | % |
Weighted-average expected award life (in years) |
| | i 5.3 |
| | i 5.5 |
| | i 1.0 |
| | i 1.0 |
|
Dividend yield |
| | i 3.7 | % | | i 1.5 | % | | i 2.0 | % | | i 5.0 | % |
Weighted-average fair value | | $ | i 10.5 | | $ | i 20.22 | | $ | i 23.47 | | $ | i 7.84 | |
/Second Quarter 2022 Form 10-Q Page 16
15. Share-Based Compensation (continued)
The information in the table below provides activity under our stock option plans for the twenty-six weeks ended July 30, 2022.
i
| | | | | | | | |
|
| |
| Weighted- |
| Weighted- | ||
| | Number | | Average | | Average | ||
| | of | | Remaining | | Exercise | ||
| | Shares | | Contractual Life | | Price | ||
| | (in thousands) | | (in years) | | (per share) | ||
Options outstanding at the beginning of the year |
| i 3,211 | | | |
| $ | i 48.84 |
Granted |
| i 522 | |
| |
| | i 31.02 |
Exercised |
| ( i 116) | |
| |
| | i 26.15 |
Expired or cancelled |
| ( i 148) | |
| |
| | i 51.29 |
Options outstanding at July 30, 2022 |
| i 3,469 | |
| i 5.1 | | $ | i 46.82 |
Options exercisable at July 30, 2022 |
| i 2,635 | |
| i 3.9 | | $ | i 51.67 |
Options available for future grant at July 30, 2022 | | i 1,837 | | | | | | |
The total fair value of options vested July 30, 2022 and July 31, 2021 was $ i i 4 / million for both periods. The cash received from option exercises during the thirteen and twenty-six weeks ended July 30, 2022 were $ i 1 million and $ i 3 million, respectively. The related tax benefits realized from option exercises during the thirteen and twenty-six weeks ended July 30, 2022 were i i no / t significant. The cash received from option exercises during the thirteen and twenty-six weeks ended July 31, 2021 were $ i 6 million and $ i 10 million, respectively. The related tax benefits realized from option exercises during the thirteen and twenty-six weeks ended July 31, 2021 were $ i 1 million and $ i 2 million, respectively.
iThe total intrinsic value of options exercised (the difference between the market price of our common stock on the exercise date and the price paid by the optionee to exercise the option) is presented below:
| | | | | | | | | | | | |
| | Thirteen weeks ended | | Twenty-six weeks ended | ||||||||
| | July 30, | | July 31, | | July 30, | | July 31, | ||||
($ in millions) |
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||
Exercised | | $ | — | | $ | i 5 | | $ | — | | $ | i 8 |
iThe aggregate intrinsic value for stock options outstanding, and outstanding and exercisable (the difference between our closing stock price on the last trading day of the period and the exercise price of the options, multiplied by the number of in-the-money stock options) is presented below:
| | | | | | |
| | Twenty-six weeks ended | ||||
| | July 30, | | July 31, | ||
($ in millions) | | 2022 | | 2021 | ||
Outstanding | | $ | i 5 | | $ | i 40 |
Outstanding and exercisable | | $ | i 3 | | $ | i 20 |
As of July 30, 2022, there was $ i 5 million of total unrecognized compensation cost related to nonvested stock options which is expected to be recognized over a remaining weighted-average period of i 1.6 years.
Second Quarter 2022 Form 10-Q Page 17
15. Share-Based Compensation (continued)
iThe table below summarizes information about stock options outstanding and exercisable at July 30, 2022.
| | | | | | | | | | | | |
| | Options Outstanding | Options Exercisable | |||||||||
| | | | Weighted- | | | | | | | | |
| | | | Average | | Weighted- | | | | Weighted- | ||
| | | | Remaining | | Average | | | | Average | ||
Range of Exercise | | Number | | Contractual | | Exercise | | Number | | Exercise | ||
Prices |
| Outstanding |
| Life |
| Price |
| Exercisable |
| Price | ||
|
| (in thousands, except prices per share and contractual life) | ||||||||||
$ i 21.60 - $ i 36.51 |
| i 1,326 | | i 7.4 | | $ | i 26.37 |
| i 601 | | $ | i 24.21 |
$ i 44.78 - $ i 48.98 |
| i 449 | | i 3.3 | |
| i 45.02 |
| i 448 | |
| i 45.02 |
$ i 53.61 - $ i 58.94 |
| i 506 | | i 5.8 | |
| i 56.68 |
| i 398 | |
| i 57.44 |
$ i 62.02 - $ i 72.83 | | i 1,188 | | i 3.0 | |
| i 66.13 |
| i 1,188 | |
| i 66.13 |
|
| i 3,469 |
| i 5.1 | | $ | i 46.82 |
| i 2,635 | | $ | i 51.67 |
Restricted Stock Units and Performance Stock Units
Restricted stock units (“RSU”) are awarded to certain officers, key employees of the Company, and nonemployee directors. Additionally, performance stock units (“PSU”) are awarded to officers and certain key employees in connection with our long-term incentive program. Each RSU and PSU represents the right to receive one share of our common stock provided that the applicable performance and vesting conditions are satisfied. PSU awards granted in 2022 also include a performance objective based on our relative total shareholder return over the performance period to a pre-determined peer group, assuming the reinvestment of dividends. The fair value of these awards is determined using a Monte Carlo simulation as of the date of the grant and share-based compensation expense will not be adjusted should the target awards vary from actual awards.
Generally, RSU awards fully vest after the passage of time, typically i three years for employees and i one year for nonemployee directors, provided there is continued service with the Company until the vesting date, subject to the terms of the award. PSU awards are earned only after the attainment of performance goals in connection with the relevant performance period and vest after an additional i one-year period. i No dividends are paid or accumulated on any RSU or PSU awards. Compensation expense is recognized over the vesting period. RSU and PSU activity for the twenty-six weeks ended July 30, 2022 is summarized as follows:
i
| | | | | | | | | |
| | | | | Weighted-Average | | | ||
| | Number | Remaining | Weighted-Average | |||||
| | of | Contractual | Grant Date | |||||
| | Shares | Life | Fair Value | |||||
|
| | (in thousands) |
| | (in years) |
| | (per share) |
Nonvested at beginning of year |
| | i 1,391 | |
| | | $ | i 43.95 |
Granted |
| | i 1,026 | |
| |
| | i 30.22 |
Vested |
| | ( i 110) | |
| |
| | i 55.58 |
Performance adjustment (1) | | | ( i 60) | | | | | | |
Forfeited |
| | ( i 92) | |
| |
| | i 34.41 |
Nonvested at July 30, 2022 |
| | i 2,155 | |
| i 1.8 | | $ | i 36.95 |
| | | | | | | | | |
Aggregate value ($ in millions) | | $ | i 80 | |
|
| |
| |
| (1) | This represents adjustments made to PSUs reflecting changes in estimates based upon our current performance against predefined financial targets. |
Second Quarter 2022 Form 10-Q Page 18
15. Share-Based Compensation (continued)
The total value of RSU and PSU awards that vested during the twenty-six weeks ended July 30, 2022 and July 31, 2021 was $ i 6 million and $ i 22 million, respectively. As of July 30, 2022, there was $ i 44 million of total unrecognized compensation cost related to nonvested awards.
i16. Legal Proceedings
Legal proceedings pending against the Company or its consolidated subsidiaries consist of ordinary, routine litigation, including administrative proceedings, incidental to the business of the Company or businesses that have been sold or discontinued by the Company in past years. These legal proceedings include commercial, intellectual property, customer, environmental, and employment-related claims.
We do not believe that the outcome of any such legal proceedings pending against the Company or its consolidated subsidiaries, as described above, would have a material adverse effect on our consolidated financial position, liquidity, or results of operations, taken as a whole, based upon current knowledge and taking into consideration current accruals. Litigation is inherently unpredictable. Judgments could be rendered or settlements made that could adversely affect the Company’s operating results or cash flows in a particular period.
Second Quarter 2022 Form 10-Q Page 19
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Business Overview
Foot Locker, Inc. leads the celebration of sneaker and youth culture around the globe through a portfolio of brands including Foot Locker, Lady Foot Locker, Kids Foot Locker, Champs Sports, Eastbay, atmos, WSS, Footaction, and Sidestep. As of July 30, 2022, we operated 2,799 primarily mall-based stores, as well as stores in high-traffic urban retail areas and high streets, in 28 countries across the United States, Canada, Europe, Australia, New Zealand, and Asia, as well as websites and mobile apps. Our purpose is to inspire and empower youth culture around the world, by fueling a shared passion for self-expression and creating unrivaled experiences at the heart of the global sneaker community.
We use our omni-channel capabilities to bridge the digital world and physical stores, including order-in-store, buy online and pickup-in-store, and buy online and ship-from-store, as well as e-commerce. We operate websites and mobile apps aligned with the brand names of our store banners including footlocker.com, kidsfootlocker.com, champssports.com, atmosusa.com, shopwss.com and related e-commerce sites in the various international countries that we operate. These sites offer some of the largest online product selections and provide a seamless link between e-commerce and physical stores. We also operate the website for eastbay.com.
Store Count
At July 30, 2022, we operated 2,799 stores as compared with 2,858 and 2,911 stores at January 29, 2022 and July 31, 2021, respectively.
Franchise Operations
A total of 148 franchised stores were operating at July 30, 2022, as compared with 142 and 134 stores at January 29, 2022 and July 31, 2021, respectively, operating in the Middle East and Asia. Revenue from franchised stores was not significant for any of the periods presented. These stores are not included in the operating store count above.
COVID-19 Update
We continue to monitor outbreaks of COVID-19 which cause store closures, reduced operating hours, capacity limitations, and social distancing that may be required to help ensure the health and safety of our team members and our customers. COVID-19 has had, and may continue to have, an effect on ports and trade, as well as global travel.
Reconciliation of Non-GAAP Measures
In addition to reporting our financial results in accordance with U.S. generally accepted accounting principles (“GAAP”), we report certain financial results that differ from what is reported under GAAP. We have presented certain financial measures identified as non-GAAP, such as sales changes excluding foreign currency fluctuations, adjusted income before income taxes, adjusted net income, and adjusted diluted earnings per share.
We present certain amounts as excluding the effects of foreign currency fluctuations, which are also considered non-GAAP measures. Where amounts are expressed as excluding the effects of foreign currency fluctuations, such changes are determined by translating all amounts in both years using the prior-year average foreign exchange rates. Presenting amounts on a constant currency basis is useful to investors because it enables them to better understand the changes in our business that are not related to currency movements.
Second Quarter 2022 Form 10-Q Page 20
These non-GAAP measures are presented because we believe they assist investors in comparing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core business or affect comparability. In addition, these non-GAAP measures are useful in assessing our progress in achieving our long-term financial objectives. We estimate the tax effect of all non-GAAP adjustments by applying a marginal tax rate to each of the respective items. The income tax items represent the discrete amount that affected the period. The non-GAAP financial information is provided in addition to, and not as an alternative to, our reported results prepared in accordance with GAAP.
Effective with the first quarter of 2022, the calculation for non-GAAP earnings excludes gains and losses from all minority investments, including the adjustments related to the investment in Retailors, Ltd. We believe this is a more representative measure of our recurring earnings, assists in the comparability of results, and is consistent with how management reviews performance. The non-GAAP results for 2021 have been recast, as applicable, to conform to the current year’s presentation. As we report quarterly results through 2022, we will provide updated non-GAAP reconciliations for the corresponding prior year’s quarter under this revised definition.
Presented below is a reconciliation of GAAP and non-GAAP.
| | | | | | | | | | | | |
| | 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 | ||||
Pre-tax income: |
| |
|
| |
|
| |
|
| |
|
Income before income taxes | | $ | 143 | | $ | 587 | | $ | 333 | | $ | 871 |
Pre-tax amounts excluded from GAAP: | |
| | |
|
| |
|
| |
|
|
Impairment and other charges | |
| 12 | |
| 36 |
|
| 18 | |
| 40 |
Other income / expense, net | | | (6) | | | (320) | | | 18 | | | (320) |
Adjusted income before income taxes (non-GAAP) | | $ | 149 | | $ | 303 | | $ | 369 | | $ | 591 |
| | | | | | | | | | | | |
After-tax income: | |
|
| |
|
| |
|
| |
|
|
Net income attributable to Foot Locker, Inc. | | $ | 94 | | $ | 430 | | $ | 227 | |
| 632 |
After-tax adjustments excluded from GAAP: | |
| | |
|
| |
|
| |
|
|
Impairment and other charges, net of income tax benefit of $3, $9, $5, and $10, respectively | | | 9 | | | 27 | | | 13 | | | 30 |
Other income / expense, net of (expense)/income tax benefit of $(3), $(84), $3, and $(84), respectively | | | (3) | | | (236) | | | 15 | | | (236) |
Tax reserves charge | | | 5 | | | — | | | 5 | | | — |
Adjusted net income (non-GAAP) | | $ | 105 | | $ | 221 | | $ | 260 | |
| 426 |
| | | | | | | | | | | | |
Earnings per share: | |
| | |
|
| |
|
| |
|
|
Diluted earnings per share | | $ | 0.99 | | $ | 4.09 | | $ | 2.36 | |
| 6.02 |
Diluted EPS amounts excluded from GAAP: | |
| | |
| | |
| | |
| |
Impairment and other charges | | | 0.09 | | | 0.25 | | | 0.14 | | | 0.28 |
Other income / expense, net | | | (0.03) | | | (2.25) | | | 0.16 | | | (2.25) |
Tax reserves charge | | | 0.05 | | | — | | | 0.05 | | | — |
Adjusted diluted earnings per share (non-GAAP) | | $ | 1.10 | | $ | 2.09 | | $ | 2.71 | |
| 4.05 |
During the thirteen and twenty-six weeks ended July 30, 2022, we recorded pre-tax charges of $12 million and $18 million, respectively, classified as Impairment and Other. See the Impairment and Other Charges section for further information.
Second Quarter 2022 Form 10-Q Page 21
The adjustments made to other income / (expense), net reflect gains or losses primarily associated with our minority investments. See the Other Income / (Expense), net section for further information.
In the second quarter of 2022, we recorded a $5 million charge related to our income tax reserves due to the resolution of a foreign tax settlement.
Segment Reporting
We have determined that we have three operating segments, North America, EMEA, and Asia Pacific. Our North America operating segment includes the results of the following banners operating in the U.S. and Canada: Foot Locker, Kids Foot Locker, Lady Foot Locker, Champs Sports, WSS, and Footaction, including each of their related e-commerce businesses, as well as our Eastbay business. Our EMEA operating segment includes the results of the following banners operating in Europe: Foot Locker, Sidestep, and Kids Foot Locker, including each of their related e-commerce businesses. Our Asia Pacific operating segment includes the results of the Foot Locker banner and its related e-commerce business operating in Australia, New Zealand, and Asia, as well as atmos, which operates primarily in Asia. We have further aggregated these operating segments into one reportable segment based upon their shared customer base and similar economic characteristics.
Results of Operations
We evaluate performance based on several factors, primarily the banner’s financial results, referred to as division profit. Division profit reflects income before income taxes, impairment and other charges, corporate expenses, non-operating income, and net interest expense.
The table below summarizes our results.
| | | | | | | | | | | | |
| Thirteen weeks ended | | Twenty-six weeks ended | |||||||||
| July 30, | | July 31, | | July 30, | | July 31, | |||||
($ in millions) | 2022 |
| 2021 | | 2022 |
| 2021 | |||||
Sales | | $ | 2,065 | | $ | 2,275 | | $ | 4,240 | | $ | 4,428 |
| | | | | | | | | | | | |
Operating Results | | | | | | | | | | | | |
Division profit | | | 184 | | | 332 | | | 444 | | | 647 |
Less: Impairment and other charges (1) | | | 12 | | | 36 | | | 18 | | | 40 |
Less: Corporate expense (2) | | | 33 | | | 32 | | | 70 | | | 61 |
Income from operations | | | 139 | | | 264 | | | 356 | | | 546 |
Interest expense, net | | | (5) | | | (2) | | | (10) | | | (4) |
Other income / (expense), net (3) | | | 9 | | | 325 | | | (13) | | | 329 |
Income before income taxes | | $ | 143 | | $ | 587 | | $ | 333 | | $ | 871 |
| (1) | See the Impairment and Other Charges section for further information. |
| (2) | Corporate expense consists of unallocated selling, general and administrative expenses as well as depreciation and amortization related to the Company’s corporate headquarters, centrally managed departments, unallocated insurance and benefit programs, certain foreign exchange transaction gains and losses, and other items. |
| (3) | Other income / (expense), net includes non-operating items, franchise royalty income, changes in fair value of minority interests measured at fair value or using the fair value measurement alternative, changes in the market value of our available-for-sale security, our share of earnings or losses related to our equity method investments, and net benefit expense related to our pension and postretirement programs excluding the service cost component. See the Other income / (expense), net section for further information. |
Second Quarter 2022 Form 10-Q Page 22
Sales
All references to comparable-store sales for a given period relate to sales of stores that were open at the period-end and had been open for more than one year. The computation of consolidated comparable sales also includes our direct-to-customers channel. Stores opened or closed during the period are not included in the comparable-store base; however, stores closed temporarily for relocation or remodeling are included. Stores that were temporarily closed due to the COVID-19 pandemic are also included in the computation of comparable-store sales. Computations exclude the effect of foreign currency fluctuations.
Sales from acquired businesses that include inventory are included in the computation of comparable-store sales after 15 months of operations. Accordingly, sales of WSS and atmos have been excluded from the computation of comparable-store sales. As a result of the Eastbay Team Sales divestiture, sales from this business were removed for the computation of comparable sales for all periods.
The information shown below represents certain sales metrics by sales channel.
| | | | | | | | | | | | | |
| | Thirteen weeks ended | | Twenty-six weeks ended | | ||||||||
| | July 30, | July 31, | | July 30, | July 31, | | ||||||
($ in millions) | | 2022 | 2021 | | 2022 | 2021 | | ||||||
Stores | | | | | | | | | | | | | |
Sales | | $ | 1,716 | | $ | 1,817 | | $ | 3,492 | | $ | 3,437 | |
$ Change | | $ | (101) | | | | | $ | 55 | | | | |
% Change | | | (5.6) | % | | | | | 1.6 | % | | | |
% of total sales | | | 83.1 | % | | 79.9 | % | | 82.4 | % | | 77.6 | % |
Comparable sales (decrease) increase | | | (6.0) | % | | 28.4 | % | | 0.5 | % | | 54.0 | % |
| | | | | | | | | | | | | |
Direct-to-customers | | | | | | | | | | | | | |
Sales | | $ | 349 | | $ | 458 | | $ | 748 | | $ | 991 | |
$ Change | | $ | (109) | | | | | $ | (243) | | | | |
% Change | | | (23.8) | % | | | | | (24.5) | % | | | |
% of total sales | | | 16.9 | % | | 20.1 | | | 17.6 | % | | 22.4 | % |
Comparable sales decrease | | | (26.7) | % | | (35.1) | | | (28.3) | % | | (8.2) | % |
For the thirteen weeks ended July 30, 2022, total sales decreased by $210 million, or 9.2%, to $2,065 million, as compared with the corresponding prior-year period. For the twenty-six weeks ended July 30, 2022, total sales decreased by $188 million, or 4.2%, to $4,240 million, as compared with the corresponding prior-year period. Excluding the effect of foreign currency fluctuations, total sales decreased by $139 million, or 6.1%, for the thirteen weeks ended July 30, 2022, and decreased by $76 million, or 1.7%, for the twenty-six weeks ended July 30, 2022. Sales from our acquired WSS and atmos banners were $137 million and $48 million, respectively, for the thirteen weeks ended July 30, 2022, and $275 million and $101 million, respectively for the twenty-six weeks ended July 30, 2022. The information shown below represents certain combined stores and direct-to-customers sales metrics, excluding the sales from WSS and atmos.
| | | | | | | | | | |
| | Thirteen weeks | | | Twenty-six weeks | | ||||
| | Constant Currencies | | Comparable Sales | | | Constant Currencies | | Comparable Sales | |
North America | | (21.5) | % | (16.1) | % | | (19.2) | % | (13.9) | % |
EMEA | | 6.7 | % | 4.5 | % | | 26.7 | % | 23.6 | % |
Asia Pacific | | 21.5 | % | 17.7 | % | | 18.1 | % | 14.0 | % |
| | (14.1) | % | (10.3) | % | | (10.1) | % | (6.2) | % |
Second Quarter 2022 Form 10-Q Page 23
Despite the decline in sales as compared with our record levels in 2021, sales exceeded the results of 2019. Excluding the effect of foreign exchange rate fluctuations and our acquisitions, sales increased by 7.4% and by 1.1% for the quarter and year-to-date periods, respectively, as compared with the corresponding periods of 2019.
Comparable sales for both our stores and direct-to-customer channels decreased for the quarter. Our direct-to-customer channel saw significant decreases as shoppers navigated back to physical locations. For the year-to-date period, comparable sales were slightly up for our stores, while direct-to-customer decreased when compared with the prior year.
Our North American operating segment’s sales, excluding WSS, and comparable-store sales for the current year were negatively affected by the significant fiscal stimulus, which contributed to last year’s growth, as well as the effects of inflation on customer demand. Additionally, the wind down of the Footaction business negatively affected sales, last year we operated 211 stores as compared with 14 this quarter. Within EMEA, sales from the Foot Locker and Sidestep banners increased as tourism returned to more historical levels coupled with an increase in operating days resulting from COVID-19 related store closures in the prior year. Asia Pacific, excluding atmos, generated increases from both strong performance in Australia and New Zealand, coupled with growth in Asia, based on expansion in that region. Asia Pacific’s increases were also affected by the increase in operating days, the current year was essentially open for all days as compared with approximately 80% last year.
From a product perspective for the combined channels, sales declined for both the quarter and year-to-date periods and was related to decreased sales of footwear and apparel, partially offset by increased sales of accessories. The decline in footwear for the second quarter was primarily due to men’s and kids’ basketball footwear, and the decline in sales of apparel represented a decline in sales of men’s and performance apparel, however sales of women’s apparel generated an increase. For the year-to-date period, all wearer segments within the footwear category experienced declines, with the largest decreases coming from men’s and children’s basketball footwear styles. Apparel sales decreased in the men’s and children’s categories, while women’s increased.
Gross Margin
| | | | | | | | | | |
| | Thirteen weeks ended | | | Twenty-six weeks ended | | ||||
| | July 30, | | July 31, | | | July 30, | | | |
|
| 2022 |
| 2021 |
|
| 2022 |
| 2021 |
|
Gross margin rate |
| 31.7 | % | 35.1 | % |
| 32.9 | % | 34.9 | % |
Basis point decrease in the gross margin rate |
| (340) |
| |
|
| (200) |
| |
|
Components of the change: |
|
|
| |
|
| |
| |
|
Merchandise margin rate decline |
| (260) |
| |
|
| (160) |
| |
|
Occupancy and buyers’ compensation expense rate |
| (80) |
| |
|
| (40) |
| |
|
Gross margin is calculated as sales minus cost of sales. Cost of sales includes: the cost of merchandise, freight, distribution costs including related depreciation expense, shipping and handling, occupancy and buyers’ compensation. Occupancy costs include rent (including fixed common area maintenance charges and other fixed non-lease components), real estate taxes, general maintenance, and utilities.
The gross margin rate decreased to 31.7% for the thirteen weeks ended July 30, 2022, as compared with the corresponding prior-year period, reflecting a 260-basis point decrease in the merchandise margin rate, and an 80-basis point deleverage in the occupancy and buyers’ compensation rate. For the twenty-six weeks ended July 30, 2022, the gross margin rate declined by 200 basis points, reflecting a 160-basis point decrease in the merchandise margin rate and a 40-basis point deleverage in the occupancy and buyers’ compensation rate.
Second Quarter 2022 Form 10-Q Page 24
The declines in merchandise margin rate reflected higher markdowns versus historically-low levels last year and higher supply chain costs. Additionally, merchandise margin is negatively affected by the recent acquisitions that generate a lower rate, which is offset by lower occupancy costs and therefore not significantly affecting the overall gross margin rate. The occupancy rate deleverage also reflected the effect of prior year rent abatements related to COVID-19 that represented $6 million and $11 million for the thirteen and twenty-six weeks of last year, respectively, as compared with insignificant amounts this year.
Selling, General and Administrative Expenses (SG&A)
| | | | | | | | | | | | | | |
| | Thirteen weeks ended | | | Twenty-six weeks ended | | ||||||||
| | July 30, | | July 31, | | | July 30, | | July 31, |
| ||||
($ in millions) |
| 2022 |
| 2021 |
|
| 2022 |
| 2021 | | ||||
SG&A | | $ | 452 | | $ | 450 | | | $ | 915 | | $ | 868 | |
$ Change | | $ | 2 | | | | | | $ | 47 | | | | |
% Change | |
| 0.4 | % |
| | | |
| 5.4 | % | | | |
SG&A as a percentage of sales | |
| 21.9 | % |
| 19.8 | % | |
| 21.6 | % |
| 19.6 | % |
SG&A increased by $2 million, or $22 million excluding the effect of foreign currency fluctuations, for the thirteen weeks ended July 30, 2022, as compared with the corresponding prior-year period. For the year-to-date period SG&A increased by $47 million, or $77 million excluding the effect of foreign currency fluctuations. Our newly acquired businesses contributed $38 million and $72 million for the quarter and year-to-date periods, respectively, to the overall increase. As a percentage of sales, SG&A increased by 210 basis points and 200 basis points for the thirteen and twenty-six weeks ended July 30, 2022, respectively, driven by higher labor costs, information technology and support expenses, as well as the effect of COVID-19 related matters in the prior year.
SG&A for the thirteen and twenty-six weeks ended July 30, 2022 included nominal payroll subsidies from local governments, compared with $4 million and $14 million for the corresponding prior-year periods, respectively.
Depreciation and Amortization
| | | | | | | | | | | | | | |
| | Thirteen weeks ended | | | Twenty-six weeks ended | | ||||||||
| | July 30, | | July 31, | | | July 30, | | July 31, | | ||||
($ in millions) |
| 2022 |
| 2021 |
|
| 2022 |
| 2021 |
| ||||
Depreciation and amortization | | $ | 51 | | $ | 48 | | | $ | 105 | | $ | 93 | |
$ Change | | $ | 3 | | | | | | $ | 12 | | | | |
% Change | |
| 6.3 | % | | | | |
| 12.9 | % |
| | |
Depreciation and amortization expense increased by $3 million and $12 million for the thirteen weeks and twenty-six weeks ended July 30, 2022, respectively, as compared with the corresponding prior-year periods. Excluding the effect of foreign currency fluctuations, depreciation and amortization increased by $5 million and $15 million for the thirteen weeks and twenty-six weeks ended July 30, 2022, respectively, as compared with the corresponding prior-year periods. The increase was primarily related to the acquisitions of WSS and atmos.
Impairment and Other Charges
Transformation consulting charges were $9 million and $10 million for the thirteen and twenty-six weeks ended July 30, 2022, respectively. Impairment of long-lived assets and right-of-use assets was $2 million and $5 million for the thirteen and twenty-six weeks ended July 30, 2022, respectively, and $39 million for both the thirteen and twenty-six weeks ended July 31, 2021. Acquisition and integration costs related to WSS and atmos were $1 million and $3 million for the thirteen and twenty-six weeks ended July 30, 2022, respectively.
Second Quarter 2022 Form 10-Q Page 25
For the thirteen and twenty-six weeks ended July 31, 2021, we recorded charges of $4 million in lease-related termination costs, offset by $7 million of insurance recovery income related to 2020 social unrest losses. For the twenty-six weeks ended July 31, 2021, we recorded an impairment charge of $2 million related to the underperformance of one of our minority investments, and a severance charge of $2 million in connection with the reorganization of certain support functions.
Corporate Expense
| | | | | | | | | | | | | | |
| | Thirteen weeks ended | | | Twenty-six weeks ended | | ||||||||
| | July 30, | | July 31, | | | July 30, | | July 31, | | ||||
($ in millions) |
| 2022 |
| 2021 |
|
| 2022 |
| 2021 |
| ||||
Corporate expense | | $ | 33 | | $ | 32 | | | $ | 70 | | $ | 61 | |
$ Change | | $ | 1 | | | | | | $ | 9 | | | | |
Corporate expense consists of unallocated 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.
Corporate expense increased by $1 million and $9 million for the thirteen and twenty-six weeks ended July 30, 2022, respectively, as compared with the corresponding prior-year periods. Depreciation and amortization included in corporate expense was $10 million and $9 million for the thirteen weeks ended July 30, 2022 and July 31, 2021, respectively, and $19 million and $16 million for the twenty-six weeks ended July 30, 2022 and July 31, 2021, respectively. These increases were primarily due to higher information technology and support expenses.
Operating Results
| | | | | | | | | | | | | | |
| | Thirteen weeks ended | | | Twenty-six weeks ended |
| ||||||||
|
| July 30, |
| July 31, |
| | July 30, |
| July 31, |
| ||||
($ in millions) | | 2022 | | 2021 | | | 2022 | | 2021 |
| ||||
Division profit | | $ | 184 | | $ | 332 | | | $ | 444 | | $ | 647 | |
Division profit margin | |
| 8.9 | % |
| 14.6 | % | |
| 10.5 | % |
| 14.6 | % |
Division profit margin as a percentage of sales decreased to 8.9% and 10.5% of sales for the thirteen weeks and twenty-six weeks ended July 30, 2022, respectively, with both sales channels experiencing declines in gross margin and deleveraging expenses. WSS and atmos generated division profit of $6 million and $8 million, respectively for the second quarter, and $19 million and $16 million for the year-to-date period.
Interest Expense, Net
| | | | | | | | | | | | | |
| | Thirteen weeks ended | | Twenty-six weeks ended |
| ||||||||
| | July 30, | | July 31, | | July 30, | | July 31, | | ||||
($ in millions) | | 2022 |
| 2021 |
| 2022 |
| 2021 |
| ||||
Interest expense | | $ | (6) | | $ | (3) | | $ | (12) | | $ | (6) | |
Interest income | |
| 1 | |
| 1 | |
| 2 | |
| 2 | |
Interest (expense) income, net | | $ | (5) | | $ | (2) | | $ | (10) | | $ | (4) | |
We recorded $5 million and $10 million of net interest expense for the thirteen and twenty-six weeks ended July 30, 2022, respectively as compared with net interest expense of $2 million and $4 million for the corresponding prior-year periods. Interest expense increased primarily due to the issuance of the 4% Notes.
Second Quarter 2022 Form 10-Q Page 26
Other Income / (Expense), Net
| | | | | | | | | | | | | | |
| | Thirteen weeks ended | | | Twenty-six weeks ended | | ||||||||
| | July 30, | | July 31, | | | July 30, | | July 31, | | ||||
($ in millions) | | 2022 |
| 2021 | | | 2022 | | 2021 | | ||||
Other income / (expense), net | | $ | 9 | | $ | 325 | | | $ | (13) | | $ | 329 | |
This caption includes non-operating items, including franchise royalty income, changes in fair value of minority investments measured at fair value or using the fair value measurement alternative, changes in the market value of our available-for-sale security, our share of earnings or losses related to our equity method investments, and net benefit (expense) related to our pension and postretirement programs excluding the service cost component.
The thirteen weeks ended July 30, 2022 reflected a gain of $18 million from the divestiture of Eastbay Team Sales, $13 million loss related to a decline in the fair value of our Retailors, Ltd. investment, partially offset by $1 million of income associated with our other minority investments. The twenty-six weeks ended July 30, 2022 reflected the gain from the divestiture of $18 million, a decline in our Retailors, Ltd. investment of $38 million, offset by $1 million of dividend income, and $1 million of income from our other minority investments. The prior year amounts included a gain of $290 million representing the fair value adjustment of our minority investment in GOAT, a gain of $24 million related to our Retailors, Ltd. investment, $4 million insurance recovery related to the 2020 social unrest, and $2 million of income associated with our other minority investments. These were all considered our non-GAAP adjustments in all of the periods presented.
Other income / (expense), net also includes $3 million and $6 million of franchise income for the thirteen and twenty-six weeks ended July 30, 2022, respectively. The year-to-date period also includes a charge of $1 million related to our auction rate security.
Income Taxes
| | | | | | | | | | | | | |
| | Thirteen weeks ended | | Twenty-six weeks ended | |||||||||
|
| July 30, |
| July 31, |
| July 30, |
| July 31, | | ||||
($ in millions) | | 2022 | | 2021 | | 2022 | | 2021 | | ||||
Provision for income taxes | | $ | 49 | | $ | 157 | | $ | 107 | | $ | 239 | |
Effective tax rate | |
| 34.5 | % |
| 26.8 | % |
| 32.1 | % |
| 27.4 | % |
Our current year interim provision for income taxes was measured using an estimated annual effective tax rate, which represented a blend of federal, state, and foreign taxes and included the effect of certain nondeductible items as well as changes in our mix of domestic and foreign earnings or losses, adjusted for discrete items that occurred within the periods presented.
We regularly assess the adequacy of our provisions for income tax contingencies in accordance with applicable authoritative guidance on accounting for income taxes. As a result, we may adjust the reserves for unrecognized tax benefits considering new facts and developments, such as changes to interpretations of relevant tax law, assessments from taxing authorities, settlements with taxing authorities, and lapses of statutes of limitation. The changes in tax reserves were not significant for any of the periods presented.
In the second quarter of 2022, we recorded a $5 million charge related to our income tax reserves due to the resolution of a foreign tax settlement. Partially offsetting this charge were tax benefits totaling $2 million from reserves releases due to various statute of limitation lapses. The changes in tax reserves were not significant for any of the prior-year periods.
During the quarter ended July 30, 2022, we also recorded a tax expense of $6 million in connection with Eastbay Team Sales divestiture, including the effect of a non-deductible goodwill write-off.
Second Quarter 2022 Form 10-Q Page 27
During the twenty-six weeks ended July 30, 2022, we recorded $1 million of expense related to tax deficiencies from share-based compensation, as compared with excess tax benefits of $1 million and $2 million in the first and second quarters of the corresponding prior-year periods, respectively.
Excluding the above-mentioned discrete items, the effective tax rates for the current year periods increased, as compared with the corresponding prior-year periods, primarily due to the change in the mix of domestic and foreign earnings.
Our effective tax rate will vary due to numerous factors, such as level and geographic mix of income and losses, acquisitions, investments, intercompany transactions, foreign currency exchange rates, our stock price, changes in our deferred tax assets and liabilities and their valuation, changes in the laws, regulations, administrative practices, principles, and interpretations related to tax, including changes to the global tax framework and other laws and accounting rules in various jurisdictions.
On August 16, 2022, President Biden signed the Inflation Reduction Act (“IRA”) of 2022 into law. The IRA contains a number of revisions to the Internal Revenue Code, including a 15% corporate minimum tax and a 1% excise tax on corporate stock repurchases in tax years beginning after December 31, 2022. We do not currently expect the IRA tax provisions will have a significant effect on our overall effective tax rate.
Liquidity and Capital Resources
Liquidity
Our primary source of liquidity has been cash flow from operations, while the principal uses of cash have been to fund inventory and other working capital requirements; finance capital expenditures related to store openings, store remodelings, internet and mobile sites, information systems, and other support facilities; make retirement plan contributions, quarterly dividend payments, and interest payments; and fund other cash requirements to support the development of our short-term and long-term operating strategies, including strategic investments. We generally finance real estate with operating leases. We believe our cash, cash equivalents, future cash flow from operations, and amounts available under our credit agreement will be adequate to fund these requirements.
The Company may also repurchase its common stock or seek to retire or purchase outstanding debt through open market purchases, privately negotiated transactions, or otherwise. Share repurchases and retirement of debt, if any, will depend on prevailing market conditions, liquidity requirements, contractual restrictions, strategic considerations, and other factors. The amounts involved may be material. As of July 30, 2022, approximately $1,103 million remained available under our current $1.2 billion share repurchase program, which was approved in February 2022. The new program does not have an expiration date.
Any material adverse change in customer demand, fashion trends, competitive market forces, or customer acceptance of our merchandise mix, retail locations and websites, uncertainties related to the effect of competitive products and pricing, our reliance on a few key suppliers for a significant portion of our merchandise purchases and risks associated with global product sourcing, economic conditions worldwide, the effects of currency fluctuations, continued uncertainties caused by the COVID-19 pandemic, as well as other factors listed under the headings “Disclosure Regarding Forward-Looking Statements,” and “Risk Factors” could affect our ability to continue to fund our needs from business operations.
Second Quarter 2022 Form 10-Q Page 28
Operating Activities
| | | | | | | |
| | Twenty-six weeks ended |
| ||||
| | July 30, | | July 31, | | ||
($ in millions) |
| 2022 |
| 2021 |
| ||
Net cash (used in) provided by operating activities | | $ | (102) | | $ | 402 | |
$ Change | | $ | (504) | | | | |
Operating activities reflects net income adjusted for non-cash items and working capital changes. Adjustments to net income for non-cash items include gains, losses, impairment charges, other charges, depreciation and amortization, deferred income taxes, and share-based compensation expense.
The decrease in cash from operating activities reflected higher merchandise purchases and payments of accounts payable and accrued and other liabilities, as well as lower net income, as compared with the same period last year. Higher merchandise purchases were necessary as our year-end inventory levels were affected by the COVID-19 pandemic and the associated supply chain challenges.
As of July 30, 2022, we have withheld approximately $7 million of lease and lease-related payments as we continue to negotiate rent deferrals or abatements with our landlords for the period that our stores were closed due to the COVID-19 pandemic.
Investing Activities
| | | | | | | |
| | Twenty-six weeks ended |
| ||||
| | July 30, | | July 31, | | ||
($ in millions) |
| 2022 |
| 2021 |
| ||
Net cash used in investing activities | | $ | (113) | | $ | (159) | |
$ Change | | $ | 46 | | | | |
The change in investing activities primarily reflected higher capital expenditures, partially offset by divestiture of certain assets.
For the twenty-six weeks ended July 30, 2022, capital expenditures increased by $69 million to $156 million, as compared with the corresponding prior-year period. Our full-year capital spending is expected to be $275 million. The forecast includes $191 million related to the remodeling or relocation of approximately 140 existing stores and the opening of approximately 110 new stores, as well as $84 million for the development of information systems, websites, and infrastructure, including supply chain initiatives.
During the twenty-six weeks ended July 30, 2022, we paid an additional $12 million for the WSS and atmos acquisitions upon the satisfaction of certain post-closing conditions.
We have invested $4 million in minority investments during the current year, including various limited partner venture capital funds managed by Black fund managers, who are committed to advancing diverse-led businesses as part of our Leading in Education and Economic Development (LEED) initiative. During the second quarter of 2022, we sold our position in one of our minority investments receiving proceeds of $12 million. In the prior-year period, we invested $68 million in a public entity, Retailors Ltd., and $10 million in minority investments primarily related to LEED.
Also during the second quarter of 2022, we sold our Eastbay Team Sales business receiving proceeds of $47 million and resulting in a gain of $18 million.
We sold the former Runners Point headquarters in the first quarter of 2021, generating proceeds of $3 million. Also last year, we received insurance proceeds of $3 million related to property and equipment claims from the social unrest losses in 2020.
Second Quarter 2022 Form 10-Q Page 29
Financing Activities
| | | | | | | |
| | Twenty-six weeks ended |
| ||||
| | July 30, | | July 31, | | ||
($ in millions) |
| 2022 |
| 2021 |
| ||
Net cash used in financing activities | | $ | (199) | | $ | (79) | |
$ Change | | $ | (120) | | | | |
Cash used in financing activities was driven by our return to shareholders initiatives, including our share repurchase program and cash dividends, as follows:
| | | | | | | |
| | Twenty-six weeks ended |
| ||||
| | July 30, | | July 31, | | ||
($ in millions) |
| 2022 |
| 2021 |
| ||
Share repurchases | | $ | 129 | | $ | 41 | |
Dividends paid on common stock | | | 76 | | | 42 | |
Total returned to shareholders | | $ | 205 | | $ | 83 | |
During the twenty-six weeks ended July 30, 2022, we repurchased 4,050,000 shares of common stock for $129 million under our share repurchase programs, whereas in the prior year we spent $41 million to repurchase shares. We also declared and paid $76 million in dividends representing a quarterly rate of $0.40 per share in 2022, as compared with a quarterly rate of $0.20 per share in the prior-year period.
We paid $1 million to satisfy tax withholding obligations relating to the vesting of share-based equity awards during the twenty-six weeks ended July 30, 2022, as compared with $11 million in 2021. Offsetting this amount were proceeds received in connection with employee stock programs of $6 million in the current year, as compared with $17 million in the prior-year period.
Additionally, we paid $3 million of principal on our finance lease obligations, mainly related to certain WSS stores.
Critical Accounting Policies and Estimates
There have been no significant changes to our critical accounting policies and estimates from the information provided in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in the 2021 Form 10-K.
Recent Accounting Pronouncements
Descriptions of the recently issued and adopted accounting principles are included in Item 1. “Financial Statements” in Note 1, Summary of Significant Accounting Policies, to the Condensed Consolidated Financial Statements.
Item 4. Controls and Procedures
During the quarter, the Company’s management performed an evaluation, under the supervision and with the participation of the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on that evaluation, the Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures were effective to ensure that information relating to the Company that is required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC rules and forms, and is accumulated and communicated to management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.
Second Quarter 2022 Form 10-Q Page 30
During the quarter ended July 30, 2022, there were no changes, other than process changes that may be necessary related to the newly acquired businesses, in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) of the Exchange Act), that materially affected or are reasonably likely to affect the Company’s internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Information regarding the Company’s legal proceedings is contained in the Legal Proceedings note under Item 1. “Financial Statements” in Part I.
Item 1A. Risk Factors
In addition to the other information discussed in this report, the factors described in Part I, Item 1A. “Risk Factors” in our 2021 Annual Report on Form 10-K filed with the SEC on March 24, 2022 should be considered as they could materially affect our business, financial condition, or future results.
There have not been any significant changes with respect to the risks described in our 2021 Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The table below provides information with respect to shares of the Company’s common stock for the thirteen weeks ended July 30, 2022.
| | | | | | | | | | |
| | | | | | | Total Number of | | | Dollar Value of |
| | Total | | Average | | Shares Purchased as | | | Shares that may | |
| | Number | | Price | | Part of Publicly | | | yet be Purchased | |
| | of Shares | | Paid Per | | Announced | | | Under the | |
Date Purchased |
| Purchased (1) |
| Share (1) | | Program (2) |
| | Program (2) | |
May 1 to May 28, 2022 |
| — | | $ | — |
| — | | $ | 1,143,322,902 |
May 29 to July 2, 2022 |
| 1,405,235 | |
| 28.22 |
| 1,400,000 | |
| 1,103,814,042 |
July 3 to July 30, 2022 |
| 549 | |
| 26.97 |
| — | |
| 1,103,814,042 |
|
| 1,405,784 | | $ | 28.22 |
| 1,400,000 | |
|
|
| (1) | These columns include shares acquired in satisfaction of the tax withholding obligations of holders of restricted stock unit awards, which vested during the quarter. The calculation of the average price paid per share includes all fees, commissions, and other costs associated with the repurchase of such shares. |
| (2) | On February 24, 2022, the Board of Directors approved a new $1.2 billion share repurchase program. The new program does not have an expiration date. |
Second Quarter 2022 Form 10-Q Page 31
Item 6. Exhibits
| | |
Exhibit No. |
| Description |
10.1 † | | |
10.2 † | | |
10.3 † | | |
10.4 † | | |
10.5 † | | |
10.6 † | | |
10.7 † | | |
10.8 † | | |
15* | | |
31.1* | | |
31.2* | | |
32** | | |
99* | | |
101.INS* | | Inline XBRL Instance Document. |
101.SCH* | | Inline XBRL Taxonomy Extension Schema. |
101.CAL* | | Inline XBRL Taxonomy Extension Calculation Linkbase. |
101.DEF* | | Inline XBRL Taxonomy Extension Definition Linkbase. |
101.LAB* | | Inline XBRL Taxonomy Extension Label Linkbase. |
101.PRE* | | Inline XBRL Taxonomy Extension Presentation Linkbase. |
104* | | Cover Page Interactive Data File (embedded within the Inline XBRL datafile). |
† Management contract or compensatory plan or arrangement
** Furnished herewith
| |
| |
| |
Second Quarter 2022 Form 10-Q Page 32
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| |
Date: September 7, 2022 | FOOT LOCKER, INC. |
| |
| |
| /s/ Andrew E. Page |
| |
| Executive Vice President and Chief Financial Officer |
Second Quarter 2022 Form 10-Q Page 33
| This ‘10-Q’ Filing | Date | Other Filings | ||
|---|---|---|---|---|
 | ||||
| 11/2/31 | ||||
| 12/31/22 | ||||
| Filed on: | 9/7/22 | |||
| 8/26/22 | 4 | |||
| 8/16/22 | ||||
| 7/31/22 | ||||
| For Period end: | 7/30/22 | |||
| 7/2/22 | ||||
| 6/27/22 | ||||
| 5/28/22 | ||||
| 5/6/22 | ||||
| 4/30/22 | 10-Q | |||
| 3/24/22 | 10-K | |||
| 2/24/22 | ||||
| 1/29/22 | 10-K | |||
| 7/31/21 | 10-Q, 8-K | |||
| 5/1/21 | 10-Q | |||
| 1/30/21 | 10-K | |||
| List all Filings | ||||
As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 8/24/22 Foot Locker, Inc. S-8 8/24/22 9:253K Nuvo Group, Inc./FA 8/19/22 Foot Locker, Inc. 8-K:2,5,9 8/19/22 13:384K Nuvo Group, Inc./FA 7/15/22 Foot Locker, Inc. 8-K:5,9 7/15/22 11:326K Nuvo Group, Inc./FA |