Foot Locker Shares Race Ahead Of Pack

4/7/2014


  Recent Price
$47
  Dividend
$0.88
  Yield
1.9%
  P/E Ratio
16
  Shares (millions)
148
  Long-Term Debt as % of Capital
5%
  52-Week Price Range
$46.94 - $31.36

After testing investors' patience for much of 2013, Foot Locker ($47; FL) shares have delivered a 22% total return in the past two months, racing ahead of the 4% return for the S&P 1500 Consumer Discretionary Index.

The retailer's strong January-quarter report and bullish guidance contributed to the rally. Consensus estimates project earnings of $3.22 per share in fiscal 2015 ending January, up 12% on 6% revenue growth. Estimates have risen since early March, when management said it expects per-share profits to climb by double digits and same-store sales to grow at a mid-single-digit rate. On strong growth from basketball, the retailer has jumped off to a promising start, with same-store sales growing by low double digits in the first five weeks of the April quarter.

Foot Locker boasts steady growth, shrewd inventory management, and a fortress-like balance sheet. Same-store sales have risen in 16 straight quarters and averaged 6.9% growth in the past 10 quarters. Foot Locker is a Buy and a Long-Term Buy.

Ahead of the pack

Athletic shoes enjoy a widening cultural acceptance — even luxury brands such as Prada are getting into the mix. In a bid to fend off the likes of Amazon.com ($343; AMZN), Foot Locker sells footwear with exclusive patterns and colors. Moreover, Nike ($74; NKE) does not sell its top-tier products at Amazon.

The retailer operates 3,473 stores under multiple brands, including the core Foot Locker chain (54% of total stores, with 63% in North America, 32% in Europe, and 5% in Asia). Other brands include Champs Sports (16% of total sales), Kids Foot Locker (10%), Lady Foot Locker (7%), Footaction (8%), and Runners Point (6%). International operations generate 30% of sales.

Foot Locker's footwear business saw pricing and volume gains in the January quarter. The basketball category remains strong, and the running category, though soft in the January quarter, should rebound as the U.S. weather turns warmer. Apparel and accessory sales slipped during the quarter.

Sales growth has exceeded inventory growth in 17 straight quarters, and Foot Locker expects sales to climb at twice the rate of inventory this year. Foot Locker also sees opportunities to improve its markdown rate to expand gross profit margins, which held nearly steady at record levels last year.

Foot Locker returned 80% of fiscal 2014 net income to shareholders through dividends and stock buybacks. The stock yields 1.9%, compared to its sector average of 1.1%. Stock buybacks reduced the share count 3% last year; about $371 million remains on the buyback plan, enough to repurchase 5% of outstanding shares.

Finding stocks with attractive valuations has become increasingly difficult within the consumer-discretionary sector. But Foot Locker shares trade at just 17 times trailing earnings, 23% below their five-year average. Just 22% of stocks in the sector trade at a discount to their five-year average P/E ratio — and 6% trade more than 20% off their historical average.

An annual report for Foot Locker Inc. is available at 112 W. 34th St., New York, NY 10120; (212) 720-3700; www.footlocker-inc.com.

FOOT LOCKER
Quarter
Per-Share Earnings*
($)
Sales
Change
Quarterly
Price Range
($)
P/E Ratio
Range
Jan '14
0.82
vs.
0.64
5%
42.12
-
36.65
16 - 14
Oct '13
0.68
vs.
0.63
6%
39.22
-
31.91
15 - 12
Jul '13
0.46
vs.
0.38
6%
37.85
-
32.08
15 - 13
Apr '13
0.91
vs.
0.83
4%
36.99
-
31.30
15 - 13
           
Year
(Jan.)
Sales
 ($Bil.)
Per-Share
Earnings*
($)
Per-Share
Dividend
($)
52-Week
Price Range
($)
P/E Ratio
Range
2014
6.51
2.87
0.78
41.73
-
31.30
15 - 11
2013
6.18
2.47
0.71
37.65
-
26.29
15 - 11
2012
5.62
1.82
0.65
26.82
-
16.66
15 - 9
2011
5.05
1.10
0.60
20.08
-
11.30
18 - 10
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
99
82
80
90
43
99
87

   * Earnings exclude special items.
   † Quadrix® scores are percentile ranks, with 100 the best.


Current Hotline

Stock Spotlight

Individual Stock Reports

ISRs make stock research easy!

Perhaps the most valuable two page reports available anywhere.

All the data you would normally have to plow through years of 10-K filings, earnings reports, and reams of market data to assemble — yours all in one concise report.

ISRs contain our proprietary Quadrix scores — find out how we rate all the stocks in the S&P 500.

Visit us at individualstockreports.com