FOOT LOCKER, INC. Business Overview
Foot Locker, Inc. leads the celebration of sneaker and youth culture around the globe through a portfolio of banners includingFoot Locker ,Lady Foot Locker , Kids Foot Locker,Champs Sports ,Eastbay , Footaction, and Sidestep.Foot Locker, Inc. and its subsidiaries hereafter are referred to as the "Company," "we," "our," or "us." We operate primarily mall-based stores, as well as stores in high-traffic urban retail areas and high streets, in 27 countries includingthe United States ,Canada ,Europe ,Australia ,New Zealand , andAsia . 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 names of our store banners (including:footlocker.com , kidsfootlocker.com, champssports.com, footaction.com, footlocker.ca, footlocker.eu and related e-commerce sites in the various European countries that we operate, footlocker.com.au, footlocker.nz, sidestep-shoes.de, side-stepshoes.nl, footlocker.hk, footlocker.sg, footlocker.mo, footlocker.my, and footlockerkorea.kr). 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 websites for eastbay.com and eastbayteamsales.com.
Store Count
At
Franchise Operations
A total of 134 franchised stores were operating atJuly 31, 2021 , as compared with 127 and 138 stores atJanuary 30, 2021 andAugust 1, 2020 , respectively. 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
InMarch 2020 , theWorld Health Organization designated COVID-19 a pandemic. COVID-19 had a significant effect on overall economic conditions in the various geographic areas in which we have operations. Our top priority is to protect our team members and their families, our customers, and our operations. We have made best efforts to comply with all precautionary measures as directed by health authorities and local, state, and national governments. Beginning inMarch 2020 and through the remainder of the first quarter of 2020, we temporarily closed substantially all of our retail store locations in response to governmental orders related to the COVID-19 outbreak. Throughout 2020, the pandemic and the shelter in place orders negatively affected customer traffic into the stores that were operating, and certain stores required additional closures during the remainder of the year. For the second quarter of this year, we operated approximately 94 percent of the possible operating days, as compared with 70 percent in the second quarter of 2020. Our stores inCanada , Sidestep stores and our stores operating inAustralia were adversely affected during the second quarter. Our distribution centers have been operating relatively unaffected during this time. In order to mitigate the effects of the temporary closures, we have been operating in-store fulfillment activities while stores were closed to customers. Given the dynamic nature of these circumstances, the duration of business disruption, reduced customer traffic in our stores, and potential effects related to evolving safety protocols and requirements for proof of vaccination, the related financial effect cannot be reasonably estimated at this time but may materially affect our business for the remainder of 2021. Second Quarter 2021 Form 10-Q Page 18 Table of Contents
Reconciliation of Non-GAAP Measures
In addition to reporting our financial results in accordance withU.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.
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. Presented below is a reconciliation of GAAP
and non-GAAP.
Thirteen weeks ended Twenty-six weeks ended
July 31, August 1, July 31, August 1,
($ in millions, except per
share amounts) 2021 2020 2021 2020
Pre-tax income:
Income (loss) before income
taxes $ 587 $ 70 $ 871 $ (35)
Pre-tax amounts excluded from
GAAP:
Impairment and other charges 36 38 40 54
Other income, net (303) - (303) -
Adjusted income before income
taxes (non-GAAP) $ 320 $ 108 $ 608 $ 19
After-tax income:
Net income (loss) $ 430 $ 45 $ 632 (65)
After-tax adjustments excluded
from GAAP:
Impairment and other charges,
net of income tax benefit of
$9 , $6 , $10 , and $9 million ,
respectively 27 32 30 45
Other income, net - net of
income tax expense of $79 , $-,
$79 , and $- million,
respectively (224) - (224) -
Tax charge related to
revaluation of certain
intellectual property rights - (2) - 25
Adjusted net income (non-GAAP)
5
Earnings per share:
Diluted earnings (loss) per
share $ 4.09 $ 0.43 $ 6.02 (0.62)
Diluted EPS amounts excluded
from GAAP:
Impairment and other charges 0.25 0.30 0.28 0.43
Other income, net (2.13) - (2.13) -
Tax charge related to
revaluation of certainintellectual property rights - (0.02) - 0.24 Adjusted diluted earnings per share (non-GAAP)$ 2.21 $ 0.71 $ 4.17 0.05 Second Quarter 2021 Form 10-Q Page 19 Table of Contents During the thirteen weeks and twenty-six weeks endedJuly 31, 2021 , we recorded pre-tax charges of$36 million and$40 million , respectively, classified as Impairment and Other. See the Impairment and Other Charges section for further information. During the thirteen and twenty-six weeks endedJuly 31, 2021 , we recorded non-cash gains of$303 million , or$224 million after-tax, classified in other income, net. One of our minority investments, GOAT, which is measured using the fair value measurement alternative, received additional funding at a higher valuation resulting in a$290 million fair value adjustment. Additionally, during the quarter, we acquired a minority stake in a public entity at an initial discount of$9 million . Due to the infrequent and nonrecurring nature of the gain and discount, respectively, the income was removed to arrive to non-GAAP earnings. Finally, other income includes$4 million related to our insurance recovery from the 2020 social unrest, which is the amount by which the recovery exceeded the book value losses previously recorded. Related to the non-GAAP adjustments for income taxes, during the first half of 2020 we recorded a$25 million tax charge related to the revaluation of certain intellectual property rights, pursuant to a non-U.S. advance pricing agreement.
Segment Reporting
We have determined that we have three operating segments,North America , EMEA, andAsia Pacific . OurNorth America operating segment includes the results of the following banners operating in theU.S. andCanada :Foot Locker , Kids Foot Locker,Lady Foot Locker ,Champs Sports , and Footaction, including each of their related e-commerce businesses, as well as ourEastbay business that includes internet, catalog, and team sales. Our EMEA operating segment includes the results of the following banners operating inEurope :Foot Locker , Sidestep, and Kids Foot Locker, including each of their related e-commerce businesses. OurAsia Pacific operating segment includes the results ofFoot Locker and Kids Foot Locker and the related e-commerce businesses operating inAustralia ,New Zealand , andAsia . We have further aggregated these operating segments into one reportable segment based upon their shared customer base and similar economic characteristics. Results of Operations We evaluate performance based on several factors, primarily the banner's financial results, referred to as division profit. Division profit reflects income before income taxes, impairment and other charges, corporate expenses, non-operating income, and net interest (expense) income. The table below summarizes our results: Thirteen weeks ended Twenty-six weeks ended July 31, August 1, July 31, August 1, ($ in millions) 2021 2020 2021 2020 Sales$ 2,275 $ 2,077 $ 4,428 $ 3,253 Operating Results Division profit 332 125 647 46 Less: Impairment and other charges (1) 36 38 40 54 Less: Corporate expense (2) 32 18 61 28 Income (loss) from operations 264 69 546 (36) Interest expense, net (2) (2) (4) (3) Other income, net (3) 325 3 329 4 Income before income taxes$ 587 $ 70 $ 871 $ (35)
(1) See the Impairment and Other Charges section for further information.
Corporate expense consists of unallocated selling, general and administrative
expenses as well as depreciation and amortization related to the Company's (2) corporate headquarters, centrally managed departments, unallocated insurance
and benefit programs, certain foreign exchange transaction gains and losses,
and other items.
Second Quarter 2021 Form 10-Q Page 20
Table of Contents
Other income 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 (3) 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, net section for further information.
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.
The information shown below represents certain sales metrics by sales channel:
Thirteen weeks ended Twenty-six weeks ended
July 31, August 1, July 31, August 1,
($ in millions) 2021 2020 2021 2020
Stores
Sales $ 1,817 $ 1,388 $ 3,437 $ 2,202
$ Change $ 429 $ 1,235 $
% Change 30.9 % 56.1 %
% of total sales 79.9 % 66.8 % 77.6 % 67.7 %Comparable sales increase (decrease) 28.4 % (7.6) %
54.0 % (32.1) % Direct-to-customers Sales$ 458 $ 689 $ 991 $ 1,051 $ Change$ (231) $ (60) $ % Change (33.5) % (5.7) % % of total sales 20.1 % 33.2
22.4 % 32.3 % Comparable sales (decrease) increase (35.1) % 172.8 (8.2) % 84.3 %
For the thirteen weeks endedJuly 31, 2021 , total sales increased by$198 million , or 9.5 percent, to$2,275 million , as compared with the corresponding prior-year period. For the twenty-six weeks endedJuly 31, 2021 , total sales increased by$1,175 million , or 36.1 percent, to$4,428 million , as compared with the corresponding prior-year period. Excluding the effect of foreign currency fluctuations, total sales increased by$151 million , or 7.3 percent, for the thirteen weeks endedJuly 31, 2021 and increased by$1,085 million , or 33.4 percent, for the twenty-six weeks endedJuly 31, 2021 . These comparisons were significantly affected by the closures necessitated by the COVID-19 pandemic, most of the stores were closed during the first quarter of 2020 when our stores were only open for 48 percent of the total available operating days. Our stores were open for 70 percent of the operating days last year as compared with 94 percent this year. By geography, our European and Canadian operations continued to be negatively affected by the required closures during the current year.Europe andCanada were open for 87 percent and 68 percent of the total available operating days, respectively. OurAsia Pacific operating segment was affected in the quarter and operated 81 percent of the available days. While sales increased significantly compared with the prior-year periods, we also exceeded sales for the corresponding periods of 2019. Excluding the effect of foreign exchange rate fluctuations, as compared with the 2019, sales increased by 25.8 percent and by 13.1 percent for the quarter and year-to-date periods, respectively. Second Quarter 2021 Form 10-Q Page 21 Table of Contents Total comparable sales represented an increase of 6.9 percent for the quarter and an increase of 33.4 percent for the year-to-date period. Our stores channel generated significant increases for both the quarter and year-to-date periods, which was a result of the temporary closure of our stores across all of our banners around the world during the first half of 2020. Partially offset by a decline in our direct-to-customer channel as shopping navigated back to physical locations. While our digital penetration declined as compared with 2020, our penetration is higher than our historical levels. We continue to leverage our technology platforms to improve the digital experience. Our significant improvement also reflected increased consumer demand for exciting and new product offerings and the effect of government stimulus. For the combined channels, sales excluding foreign currency fluctuations, for the second quarter of 2021 for the operating segments ofNorth America and EMEA increased by 5.1 percent and by 14.9 percent, respectively, as compared with the corresponding prior-year period. For the year-to-date period,North America increased by 35.4 percent and EMEA increased by 20.3 percent as compared to the prior year.Asia Pacific generated significant increases in the quarter and year-to-date periods from both continued success inAustralia and New Zealand , coupled with growth inAsia , based on expansion in that region. All our operating segments generated significant sales increases as compared to the first half of last year, which was negatively affected by the temporary store closures necessitated by the pandemic. Our North American operating segment's sales strength was across all banners, except for Footaction as we are winding down that business. Sales growth inNorth America was led by Kids Foot Locker andChamps Sports . Within EMEA, sales from theFoot Locker banner increased, offset by a decline in sales due to theRunners Point shutdown. Sidestep's sales for both the quarter and year-to-date periods were relatively unchanged, despite the continued pressure from COVID-19 closures. From a product perspective for the combined channels, the increase for both the quarter and year-to-date periods was across all families of business - footwear, apparel, and accessories. Sales of children's footwear led the sales by wearer segment for the second quarter, while sales of men's footwear declined partially from lower sales due to the wind-down of Footaction and the shutdown ofRunners Point . For the year-to-date period, all wearer segments within the footwear category experienced increases, with the largest increases coming from sales of men's and children's basketball footwear styles. Apparel sales benefited from increases in sales across all wearer segments, led by sales of men's and kids' apparel. The continued athleisure and fitness trend, coupled with exciting product offerings from our suppliers, drove the significant increase in sales as compared with last year. Gross Margin Thirteen weeks ended Twenty-six weeks ended July 31, August 1, July 31, August 1, 2021 2020 2021 2020 Gross margin rate 35.1 % 25.9 % 34.9 % 24.9 % Basis point increase in the gross margin rate 920 1,000 Components of the change- Merchandise margin rate improvement 870 640 Lower occupancy and buyers' compensation expense rate 50 360 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 increased for both the thirteen weeks and twenty-six weeks endedJuly 31, 2021 , as compared with the corresponding prior-year period, reflecting a higher merchandise margin rate since we were significantly less promotional than a year ago, coupled with leverage on the relatively fixed
costs.
Second Quarter 2021 Form 10-Q Page 22
Table of Contents
Comparing the gross margin rate to the thirteen weeks endedAugust 3, 2019 , gross margin improved by 500 basis points, reflecting a 170-basis point improvement in the merchandise margin rate and a 330-basis point improvement on occupancy and buyers' compensation rate. Comparing the gross margin rate to the twenty-six weeks endedAugust 3, 2019 , gross margin improved by 320 basis points, reflecting a 130-basis point improvement in the merchandise margin rate and a 190 basis point improvement on occupancy and buyers' compensation rate. The occupancy rate was positively affected for both the thirteen weeks and twenty-six weeks endedJuly 31, 2021 , as compared with corresponding prior-year period, reflecting an increase in sales and COVID-19 related rent abatements. Due to completed lease negotiations, we were able to record$6 million and$11 million of rent savings due to rent abatements during the thirteen and twenty-six weeks endedJuly 31, 2021 , respectively, as compared to rent abatements of$6 million in both of the corresponding prior-year periods endedAugust 1, 2020 . We record rent abatements in rent expense when the negotiations are completed and the leases are modified.
Selling, General and Administrative Expenses (SG&A)
Thirteen weeks ended Twenty-six weeks ended
July 31, August 1, July 31, August 1,
($ in millions) 2021 2020 2021 2020
SG&A $ 450 $ 387 $ 868 $ 703
$ Change $ 63 $ 165
% Change 16.3 % 23.5 %
SG&A as a percentage of sales 19.8 % 18.6 % 19.6 % 21.6 %
SG&A increased by $63 million and $165 million for the thirteen weeks and the
twenty-six weeks ended July 31, 2021 , respectively, as compared with the
corresponding prior-year period. Excluding the effect of foreign currency
fluctuations, SG&A increased by $53 million and $142 million for the thirteen
weeks and the twenty-six weeks ended July 31, 2021 , respectively, as compared
with the corresponding prior-year periods.
SG&A, as a percentage of sales, as compared with the corresponding prior-year
periods was affected by the higher sales in the current year and the effect of
prior-year COVID-19 related matters. SG&A for the thirteen weeks ended
July 31, 2021 and August 1, 2020 included payroll subsidies from local
governments of $4 million and $17 million , respectively. On a year-to-date
basis, the subsidies were $14 million this year as compared with $57 million
last year. The higher prior year amounts related to the fact that we continued
to pay our employees throughout most of the first quarter of 2020 despite the
temporary store closures. The thirteen weeks and twenty-six weeks ended
July 31, 2021 included $2 million and $4 million , respectively, for personal
protective equipment expense, a decrease of $4 million and $2 million ,
respectively, as compared with the corresponding prior-year periods.
Incentive compensation expense was $8 million lower in the second quarter of
2021; however, it was $12 million higher for the twenty-six weeks of the current
year, as compared with the corresponding prior-year periods. For the current
year we are outperforming the targeted results. Also, the prior year was
affected by the fact that the bonus plan was not established until the second
quarter, thus that quarter incurred higher expense.
Excluding the above-mentioned items and the effect of foreign currency
fluctuations, SG&A increased by $52 million or 14.1 percent and $89 million or
12.3 percent primarily representing variable expenses associated with higher
sales.
Second Quarter 2021 Form 10-Q Page 23
Table of Contents
Depreciation and Amortization
Thirteen weeks ended Twenty-six weeks ended
July 31, August 1, July 31, August 1,
($ in millions) 2021 2020 2021 2020
Depreciation and amortization $ 48 $ 44 $
93 $ 88
$ Change $ 4 $ 5
% Change 9.1 % 5.7 %
Depreciation and amortization expense increased by $4 million and $5 million for
the thirteen weeks and twenty-six weeks ended July 31, 2021 , respectively, as
compared with the corresponding prior-year periods. Excluding the effect of
foreign currency fluctuations, depreciation and amortization increased by $3
million for both the quarter and year-to-date periods as compared with the
corresponding prior-year periods. The increase was primarily related to the
acceleration of depreciation and amortization associated with the Footaction
closures.
Impairment and Other Charges
During the second quarter of 2021, we conducted an impairment review of certain
Footaction stores as a result of the Company's decision to convert many of the
stores to other existing banner concepts and close the remaining stores, either
through natural lease expiration or early termination. We evaluated the
long-lived assets, including the right-of-use assets and recorded non-cash
charges of $39 million to write down store fixtures, leasehold improvements, and
right-of-use assets for approximately 60 locations. Additionally, we recorded
charges of $4 million primarily in other lease-related termination costs.
Partially offsetting these charges was $11 million of additional insurance
recovery related to the prior year social unrest losses, $7 million of which is
classified in impairment and other charges as it relates to the book value of
losses recorded in 2020, with $4 million recorded in other income.
Also included in the year-to-date period of 2021 is a $2 million charge related
to one of our minority investments and charges of $2 million primarily related
to severance costs in connection with the reorganization of certain support
functions.
Corporate Expense
Thirteen weeks ended Twenty-six weeks ended
July 31, August 1, July 31, August 1,
($ in millions) 2021 2020 2021 2020
Corporate expense $ 32 $ 18 $ 61 $ 28
$ Change $ 14 $ 33
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.
Depreciation and amortization included in corporate expense was $9 million and
$6 million for the thirteen weeks ended July 31, 2021 and August 1, 2020 ,
respectively, and $16 million and $11 million for the twenty-six weeks ended
July 31, 2021 and August 1, 2020 , respectively.
The allocation of corporate expense to the operating divisions is adjusted
annually based upon an internal study; accordingly, the allocation increased by
$5 million and $10 million for the thirteen and twenty-six weeks ended
July 31, 2021 , respectively, thus reducing corporate expense. Excluding the
corporate allocation change, corporate expense increased by $19 million and $43
million for the thirteen and twenty-six weeks ended July 31, 2021 , respectively,
as compared with the prior-year periods. The increases for both periods were
primarily due to higher information technology and support expenses and an
increase in professional fees.
Second Quarter 2021 Form 10-Q Page 24
Table of Contents
Additionally, we recorded higher incentive compensation expense in the
twenty-six weeks ended
Operating Results
Thirteen weeks ended Twenty-six weeks ended
July 31, August 1, July 31, August 1,
($ in millions) 2021 2020 2021 2020
Division profit $ 332 $ 125 $ 647 $ 46
Division profit margin 14.6 % 6.0 % 14.6 % 1.4 %
Division profit margin as a percentage of sales increased to 14.6 percent of
sales for both the thirteen and twenty-six weeks ended July 31, 2021 , with both
sales channels generating significant improvements in both gross margin and
expense leverage. The results for prior year were negatively affected by the
pandemic.
Interest Expense, Net
Thirteen weeks ended Twenty-six weeks ended
July 31, August 1, July 31, August 1,
($ in millions) 2021 2020 2021 2020
Interest expense $ (3) $ (4) $ (6) $ (7)
Interest income 1 2 2 4
Interest expense, net $ (2) $ (2) $ (4) $ (3)
We recorded $2 million and $4 million of net interest expense for the thirteen
and twenty-six weeks ended July 31, 2021 , respectively, as compared with net
interest expense of $2 million and $3 million for the corresponding prior-year
periods. Interest expense decreased due to the lack of borrowings on the
revolving credit facility, as compared to 2020, as well as the retirement of $20
million of our 8.5 percent debentures in the fourth quarter of 2020.
Additionally, interest income decreased primarily as a result of lower average
interest rates on our cash and cash equivalents.
Other Income, Net
Thirteen weeks ended Twenty-six weeks ended
July 31, August 1, July 31, August 1,
($ in millions) 2021 2020 2021 2020
Other income, net $ 325 $ 3 $ 329 $ 4
Other income 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 change during the thirteen weeks ended July 31, 2021 was primarily due to a
$290 million increase in the fair value of our minority investment in GOAT,
which is measured using the fair value measurement alternative. GOAT received
additional funding at a higher valuation than the investment amount previously
on our balance sheet. Additionally, the Company invested $68 million to acquire
a common stock minority stake in a public entity, which is re-measured to fair
value each quarter. We recognized income of $24 million for this investment
representing a discount in the initial purchase price of $9 million and
appreciation in the value of stock of $15 million . Other income for thirteen
weeks ended July 31, 2021 also includes $4 million related to our insurance
recovery from the 2020 social unrest, which is the amount by which the recovery
exceeded the book value of losses previously recorded.
Second Quarter 2021 Form 10-Q Page 25
Table of Contents
Income Taxes
Thirteen weeks ended Twenty-six weeks ended
July 31, August 1, July 31, August 1,
($ in millions) 2021 2020 2021 2020
Provision for income taxes $ 157 $ 25 $ 239 $ 30
Effective tax rate 26.8 % 35.4 % 27.4 % (85.5) %
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 occur 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. During the thirteen weeks and twenty-six weeks endedJuly 31, 2021 , we recorded$1 million and$2 million , respectively, related to excess tax benefits from share-based compensation. The tax rate for the twenty-six weeks endedAugust 1, 2020 was negatively affected by a$27 million tax charge related to the revaluation of certain intellectual property rights pursuant to a non-U.S. advance pricing agreement. During the thirteen weeks endedAugust 1, 2020 , due to an improved financial outlook, we reduced this tax charge recognized in the first quarter of 2020 by$2 million . Partially offsetting the intellectual property rights charge, we recognized a$2 million tax benefit for the reversal of a withholding tax accrual that was no longer required in the year-to-date period of 2020. Excluding the above-mentioned discrete items, the effective tax rates for the current year periods declined, as compared with the corresponding prior-year periods, primarily due to the change in the mix of domestic and foreign earnings and losses. Further, our higher domestic income reduced the effect of non-deductible items. We currently expect our full-year tax rate to approximate 29 percent excluding the effect of any nonrecurring items that may occur. The actual tax rate will vary depending on the level and mix of income earned in the various jurisdictions.
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. 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.
Second Quarter 2021 Form 10-Q Page 26
Table of Contents
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 31, 2021 , approximately $789 million remained
available under our current $1.2 billion share repurchase program.
In
Any material adverse change in customer demand, fashion trends, competitive
market forces, or customer acceptance of our merchandise mix, retail locations
and websites, uncertainties related to the effect of competitive products and
pricing, our reliance on a few key suppliers for a significant portion of our
merchandise purchases and risks associated with global product sourcing,
economic conditions worldwide, the effects of currency fluctuations, continued
uncertainties caused by the COVID-19 pandemic, as well as other factors listed
under the headings "Disclosure Regarding Forward-Looking Statements," and "Risk
Factors" could affect our ability to continue to fund our needs from business
operations.
Operating Activities
Twenty-six weeks ended
July 31, August 1,
($ in millions) 2021 2020
Net cash provided by operating activities $ 402
$ (204) Operating activities reflects net income (loss) adjusted for non-cash items and working capital changes. Adjustments to net income (loss) for non-cash items include gains, impairment charges, other charges, depreciation and amortization, deferred income taxes, and share-based compensation expense. The decrease in cash provided by operating activities reflected higher merchandise purchases and payments on accounts payable and accrued and other liabilities, partially offset by higher net income, as compared with the same period last year. The increased merchandise purchases were necessitated by our higher sales results and that we ended the prior year with low levels due to supply chain disruptions. As ofJuly 31, 2021 , we have withheld approximately$24 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. During the fourth quarter of 2020, we were notified by our property insurance carrier that it had approved, and in 2021 we collected, a$10 million partial settlement on our claim for losses sustained in connection with the social unrest of 2020. During the second quarter of 2021, we received an additional$11 million from our property insurance carrier for the remainder of the claim. The$21 million received during 2021 was classified in the statement of cash flows on the basis of the related insurance coverage. Accordingly,$18 million was related to inventory and other operating costs and was therefore classified in operating activities. The balance of$3 million was related to losses sustained on our property and equipment and was classified in investing activities. We are continuing to work with our insurers to determine if additional incurred losses under our property insurance policy will be covered; however, we do not expect that future recoveries will be significant. Second Quarter 2021 Form 10-Q Page 27 Table of Contents Investing Activities Twenty-six weeks ended July 31, August 1, ($ in millions) 2021 2020
Net cash used in investing activities
$ (68) For the twenty-six weeks endedJuly 31, 2021 , net cash used in investing activities increased by$68 million primarily due to a$70 million increase in minority investments. During the second quarter, we invested$68 million in a public entity and$6 million in various limited partner venture capital funds managed by Black fund managers,who are committed to advancing diverse-led business as part of our Leading in Education and Economic Development initiative. Capital expenditures increased by$4 million to$87 million , as compared with the corresponding prior-year period. Our full-year capital spending is expected to be$250 million . The revised forecast includes$158 million related to the remodeling or relocation of approximately 165 existing stores and the opening of approximately 120 new stores, as well as$92 million for the development of information systems, websites, and infrastructure, including supply chain initiatives. The capital expenditures forecast includes the anticipated costs related to the conversion of the Footaction stores to our other banners, although the timing of these expenditures is being evaluated. In connection with the shutdown of theRunners Point banner completed last year, during the first quarter of 2021, we sold the former headquarters resulting in proceeds of$3 million .
As noted above, related to our insurance claim from the social unrest in 2020,
we received proceeds of
Financing Activities
Twenty-six weeks ended
July 31, August 1,
($ in millions) 2021 2020
Net cash used in financing activities
$ (35) Cash used in financing activities consisted primarily of our return to shareholders initiatives, including our share repurchase program and cash dividends, as follows: Twenty-six weeks ended July 31, August 1, ($ in millions) 2021 2020 Share repurchases$ 41 $ - Dividends paid on common stock 42 42
Total returned to shareholders
During the twenty-six weeks endedJuly 31, 2021 , we repurchased 745,544 shares of common stock for$41 million under our share repurchase program, whereas in the prior year we did not repurchase shares. We also declared and paid$42 million in dividends representing quarterly rates of$0.20 per share during the twenty-six weeks endedJuly 31, 2021 . OnAugust 16, 2021 , our Board of Directors declared a quarterly dividend of$0.30 per share to be paid onOctober 29, 2021 representing an increase of$0.10 per share or 50 percent. In the prior-year period, we paid$42 million of dividends in the first quarter of 2020 and suspended the second quarter dividend as a result of the COVID-19 pandemic.
Second Quarter 2021 Form 10-Q Page 28
Table of Contents
We paid
In the first quarter of 2020, we borrowed
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 Annual Report on Form 10-K for the fiscal year endedJanuary 30, 2021 .
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.
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