Foot Locker Posts Higher Profits, Sales

Foot Locker Inc. (NYSE:FL) posted higher profits and sales but reported challenges in athletic apparel as competition to meet shoppers' growing desire for workout clothes and training gear heats up.

Apparel sales were down in the mid-single digits, the company said, and faced the steepest declines in Europe and at the Champs Sports division, which has typically relied upon sales of licensed apparel.

For Foot Locker, workout clothes, sports jerseys and training gear have been used mainly as a tool to drive customers to its stores to purchase shoes with three-quarters of last year's sales last year coming from footwear.

The U.S. sportswear industry is shifting toward more fashion- and lifestyle-focused athletic looks and away from technical sports products, like running footwear and licensed apparel where Foot Locker has traditionally done well. Retailers from department stores like Macy's Inc. and Kohl's Corp. to high-end fashion houses like Christian Dior S.A. and Chanel have been infusing sport-styled looks into their offerings, in response to growing consumer desire for workout clothes, a trend the industry calls "athleisure."

As the holiday season approaches with competitive promotions, Chief Operating Officer Richard Johnson said Foot Locker is trying to do more with smaller apparel offerings compared with department stores like Macy's, which carries some of the same marquee athletic brands, including Nike Inc.

"They do apparel different than we do. They can dedicate a lot more space to apparel," said Mr. Johnson, referring to Macy's. "It's not about more for us, it's about more of the right stuff for us."

Net income through the quarter ending Nov. 1 rose 15% to $120 million from a year earlier and sales excluding newly opened and newly closed stores rose 6.9%. Total sales grew 6.7% to $1.7 billion. Traffic fell less than 1% for the period, in part because of some store remodeling.

Shares of Foot Locker fell 4.1% in midafternoon trading to $54.62.

Foot Locker is also going through a management transition with Mr. Johnson taking over as chief executive from Ken Hicks on Dec. 1, as announced earlier this month. Mr. Hicks will remain chairman until May. He joined Foot Locker in 2009 from J.C. Penney Co. and returned the sneaker and apparel retailer to profitability, after three straight years of declining same-store sales and an $80 million loss in 2008.

Mr. Hicks said the timing of the transition will enable Mr. Johnson to develop the company's next long-term plan which will be announced next spring.

According to SportScanInfo, dollar sales of all sport licensed softgoods which includes apparel fell 0.2% for the year through Nov. 15. Matt Powell, a sport industry analyst with NPD Group, said the drop in licensed gear can be partly attributed to the recent World Series between two small-market Major League Baseball teams--the San Francisco Giants and the Kansas City Royals--and lackluster performances by major-market National Football League teams, including both New York squads.

On the footwear side, sales were driven by double-digit increases in basketball, led by Nike's Jordan brand and signature shoe lines from several top swoosh players, including Kobe Bryant, Kevin Durant, and LeBron James. Sales through the holiday period will largely be driven by several hotly anticipated shoe releases, including the initially-delayed Nike LeBron 12 NSRL shoe, now scheduled for Dec. 1.

Foot Locker is also seeing some new basketball stars gaining traction. "We're seeing the beginning of what we expect to be a significant Kyrie Irving business in the future," said Mr. Johnson, referring to the Cleveland Cavaliers' point guard.

(Chelsey Dulaney and Angela Chen contributed to this article.)