Taking a look at the Q1 numbers, EPS fell 2% year/year to $1.36, missing the Capital IQ consensus by $0.02. The miss ends a very impressive streak of EPS beats which extended all the way back to 2Q13. As noted above, FL issued downside guidance on April 20, lowering its outlook to EPS of $1.36-$1.39 vs. the then Cap IQ Consensus of $1.48. It also lowered its comparable store sales forecast to low-single digit growth vs. its prior outlook of mid-single digit growth.
Circling back to its results, FL came up a bit short on the topline with revenue increasing a modest 0.7% to $2.0 billion vs. the $2.02 billion consensus. Comparable store sales for the quarter came in at +0.5%, a significant drop from Q4's +5.0%, and lower than what it had been expecting for the quarter. Again, some of this is attributable to tax refunds coming back later in the quarter as compared to 1Q16. Giving some credence to this is the fact that March and April comparable store sales were up high single digits. A strong Easter selling period provided a lift here.
Further evidence of the tough competitive climate is that gross margin ticked lower by 100 basis points year/year to 34.0%. This was driven by a 2.3% bump in Cost of Sales. In a very difficult pricing environment, even modest increases in Cost of Sales can be difficult to offset. Also, SG&A costs increased by 30 basis points to 18.5% of sales. So, with the virtually flat revenue growth, dip in gross margin, and bump in SG&A costs, it's easy to see how EPS slipped lower.
On the positive side, FL did comment that its inventory is well-positioned to drive better topline results throughout the year, and, that it is looking for opportunities on the cost side to drive mid-single digit EPS growth for the year. In a tough climate, that would be a commendable performance.