Foot Locker Q1 beats on strong margins

BANGALORE Thu May 20, 2010 6:43pm EDT

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BANGALORE (Reuters) - Foot Locker's (FL.N) first-quarter results beat market expectations, boosted by robust margins and leaner inventory, sending the athletic shoe retailer's shares up 6 percent in after-market trade.

The company said it opened 14 new stores, remodeled or relocated 42 stores and closed 29 stores during the quarter.

Foot Locker has been closing underperforming stores as it cut jobs and consolidated the operations of its various store chains under one management structure.

"They are doing the right things. They have talked about becoming this home of sneakers for the Foot Locker stores, and to do that they need to invest fairly significantly... that is going to take some time," Sterne, Agee & Leach analyst Sam Poser said.

Poser expects the company to benefit from strong inventory controls and an improving athletic footwear climate in 2010, but sees currency as a major headwind in the second half of the year.

The analyst estimated that in 2009, 29 percent of Foot Locker's revenue came from international markets, 80 percent of which was generated from the U.K. and the Euro zone.

Excluding the effect of foreign currency fluctuations, Foot Locker's total sales in the first quarter rose 3 percent.

INVENTORY BOOST

The New York-based company scaled back its merchandise inventory by 7 percent during the first quarter.

Comparable store sales, a key metric of retail health, rose 5 percent during the quarter. "They are up against a strong merchandise performance last year and I would assume that with these comparable sales numbers and store closures, there is probably some occupancy leverage (driving the quarter)," Stifel Nicolaus analyst Thomas Shaw said.

For the first quarter ended May 1, it reported net income of $54 million, or 34 cents a share, up from $31 million, or 20 cents a share, a year earlier.

Revenue at the company, which competes with Finish Line Inc (FINL.O) rose 5 percent to $1.28 billion.

Analysts on average were looking for earnings of 28 cents a share, on revenue of $1.26 billion, according to Thomson Reuters I/B/E/S.

Shares of the New York-based company, which have risen 26 percent in the last one year, rose to $14.25 in trading after the bell. They had closed at $13.44 Thursday on the New York Stock Exchange.

(Reporting by Shradhha Sharma in Bangalore; Editing by Unnikrishnan Nair, Anthony Kurian)

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