The global footwear market is expected to be worth $195 billion by the end of 2015, and most of the footwear companies are making the most of it. Foot Locker (FL) is not an exception, as the company is on a roll ever since it released impressive quarterly results. Also, Foot Locker is practicing various initiatives to maintain competitive edge over its peers like Brown Shoe (BWS) and DSW (DSW). Foot Locker, being the largest of the three in terms of store count globally, does display potential outlook in the future for its shareholders.
Store Growth and Expansion
Foot Locker operates approximately 3,510 stores across the U.S., Canada, Europe, Australia, and New Zealand. The company has opened nearly 28 new stores, remodeled and relocated about 118 stores and closed approximately 13 stores that were underperforming in the last quarter.
It posted a significant growth of 4.1% in same-store sales in spite of weak traffic that was offset by the increase in average selling prices of its merchandise. As a result, its revenue surged about 6.4% to $1.62 billion year-on-year and outstripped analysts' estimate of $1.59 billion in revenue. On the other side, Foot Locker was also able to control inventory build up to 6% while maintaining its handsome growth of 4.1% during the quarter.
Foot Locker, as per its stock repurchase program, bought back nearly 2 million shares worth $67 million. This remarkable growth in revenue, a lower share count as a result of share repurchases, and cost efficiencies helped the company to post earnings of $0.68 per share, an increase of 7.9% compared to last year that also beat the consensus estimate of $0.66 per share on earnings.
Also, it’s interesting to know that it was 15th consecutive quarter of growth for Foot Locker in sales and earnings, both on a GAAP and a non-GAAP basis. The company was able to get hold of the negative sentiments prevailing in the retail sector in general and delivered tremendous results despite macro-economic headwinds in the retail environment. Going forward, the company is confident of delivering on its full-year guidance of mid-single-digit comparable sales gain and double-digit percentage increase in earnings per share.
Foot Locker, however, has to keep an eye on its peers like Brown Shoe and DSW, as these competitors are taking various strategic steps to acquire a large market in the retail segment. For example, Brown Shoe’s share has gained approximately 44% during the year on the back of strong results, delivering $0.27 more in earnings in first nine months of fiscal 2013.
In addition, its same-store sales gained 4.9%, while its wholesale business zoomed 4.5%. Also, during the back-to-school season, its same-store sales surged to 5.6% as compared to the same period last year. The specialty retail business was, however, a drag on numbers as it dipped 7.8%. Nevertheless, this should not concern shareholders as it is well within 8% of company’s revenue. Also, the company is benefiting largely from its other businesses.
Apart from this, Brown Shoe has witnessed strong performance of its newest brand that is expected to gain more traction in the market as interest for the brand is continuously increasing. Going forward, the company is focusing on doubling the number of stores in fiscal 2014. This could be a good strategic move for the company that will increase its profitability in 2014.
On the other hand, when looking at DSW’s performance in the same quarter, it released quite mixed results as it comps fell marginally by 0.7% as compared to a 6.3% dip in the same quarter last year.
However, due to top line growth and effective control on inventory, earnings accelerated 14% to $0.58 per share. Also, the earnings were in line with the consensus estimate. DSW has also opened 16 new outlets, including two small format stores during the quarter.
All in all, Brown Shoe’s aim of doubling its store count looks like the biggest threat to Foot Locker. But from an investment point of view, I believe Footlocker would be a more sensible choice. Footlocker’s trailing P/E of 15 is very cheap when compared to DSW’s trailing P/E of 34. Also, Foot Locker’s dividend yield of 2% is double that of DSW’s 1%. Additionally, Footlocker’s presence across various geographies and a large store count are strong advantages that should help the company perform even better in the long run.