Dive Brief:

• A few weeks after acquiring two retailers, Foot Locker in its earnings report provided more details on the growth expectations for WSS and Atmos. The company expects low double-digit sales growth at both businesses over the next five years, executives said on a call with analysts.

• Foot Locker's own results exceeded expectations, with net income surging by almost $400 million compared to both 2020 and 2019, according to a company press release. Net sales increased by 9.5% from 2020 to $2.3 billion, and 28.2% above 2019's numbers. Comps at Foot Locker rose by 6.9%.

• The company spent $1.1 billion in the quarter on the acquisitions of WSS and Atmos and invested an additional $36 million in its store fleet, digital capabilities and supply chain. "The strength of our business has allowed us to invest in profitable, growing businesses," Foot Locker CEO Dick Johnson said on the call.

Dive Insight:

The focus on Foot Locker's earnings call was largely around investments. As it relates to the company's recent acquisitions, Foot Locker expects to benefit from sharing supply chain and private label capabilities with WSS, expecting to generate $10 million in "cost synergies" with the retailer. Both WSS and Atmos are projected to deliver low double-digits to low teens growth in EBITDA margins over the next five years.

Johnson touted the acquisitions as diversifying the company's fleet and product mix, as well as allowing it access to a broader range of customers and price values. Atmos' ability to create "unrivaled hype" in the industry is a benefit of that business, while WSS provides the company with a broader, family-focused banner.

"The recently announced acquisitions of WSS and Atmos make strategic sense, although we would like more details as to how the company will integrate them and how they can augment the Foot Locker business," Telsey Advisory Group analysts said in emailed comments. "That said, Foot Locker continues to face increased competition from brands and other retailers, which limits market share gains, as well as high enclosed mall exposure (85% in the US) where traffic remains softer than at off-mall stores."

To that point, Foot Locker's store footprint continues to be in flux. In Q2, the retailer opened 16 new stores, remodeled or relocated 23 and closed 57. The company is in the midst of shuttering its Footaction stores, part of a process to "position its store fleet for the future." According to Johnson, Foot Locker just completed the first Footaction conversion, switching the banner over to a Foot Locker. About 50 more of those are planned for the rest of the year, along with 130 Footaction closures, Johnson said.

While e-commerce has been the star of the past year and a half, giving many retailers a boost to their digital channels, Foot Locker's DTC sales have "normalized" somewhat since last year, according to Chief Financial Officer Andrew Page. In Q2, DTC made up 20.1% of total sales, down by over 13% from 2020. Despite that decrease, DTC is still above 2019 levels, when the channel made up 14.3% of sales.