Foot Locker Says Delayed Tax Returns Accounts for Slower Sales

Shares of Foot Locker, Inc were down nearly 16 percent in trading on Friday after the athletic shoe and apparel retailers reported that its first quarter results were hit pretty hard by soft sales resulting from a delay in customers receiving their IRS tax refunds.

According to Foot Locker Inc Chief Executive Richard Johnson, “The slow start we experienced in February, which we believe was largely due to the delay in income-tax refunds, was unfortunately not fully offset by much stronger sales in March and April.”

Now you may not be aware of this but a newer law (enacted in 2015) says that the IRS cannot issue any tax refunds on returns claiming either an earned-income tax credit or any additional child tax credit(s) until February 15. This, then, is one reason why some taxpayers simply wait to file their taxes (until closer to the deadline). And this, says Foot Locker is why some retailers and restaurants found sales a little slow in the first quarter.

GlogalData Retail analyst Carter Harrison explains: “The refund issue is often bandied about as an excuse for underperformance. However, in Foot Locker’s case, we believe the point is a valid one, as many younger consumers use part of their windfalls to buy expensive sneakers, and many parents do the same for their kids.”

Now, it is important to note that Foot Locker still reported sales up from last year ($2 billion versus $1.99 billion), with same store sales up 0.5 percent. Estimates, however, had originally put growth near $2.02 billion with same store sales up 1.4 percent. Perhaps more importantly, though, earnings per share fell from $1.39 from a year earlier to $1.38.

Johnson also goes on to say that the company did not “have sufficient quantities of some of the hot running products that adult customers have been snapping up,” adding that the basketball business, right now, is pretty soft, “which has been a relatively important component of kids sales in recent years.”

“Fortunately,” he continues, “as we move through the rest of the year, the kids exposure to signature basketball will lessen, and we expect lifestyle product quantities to improve.”

Harrison, though, has continued worries. He attests, “Although delayed refunds affected the first part of the trading period, it is more worrying that sales did not pick up towards the back end of the quarter. Admittedly some of the fillip provided by refunds may well be pushed into the next period, but we believe current performance has also been tempered by a lower level of demand within the sporting-goods category.”

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