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This Company Should Make Your Portfolio Rock Solid

May 29, 2014 | About:
Suravi Thacker

Suravi Thacker

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The first quarter of 2014 has indeed brought in a lot of bad news from the retail industry. This is because colder winter hampered traffic at retail stores, resulting in lower revenue. Most of the retailers reported lackluster numbers which failed to meet the estimates.

However, there are exceptions that seem to be bucking the trend. Athletic shoe retailer Foot Locker (FL) lit up the Street when it posted its blockbuster first quarter numbers. The results were ahead of analysts’ expectations, sending its share price north.

Into the Quarter

Driven by higher demand for its products, revenue grew 14% to $1.87 billion over last year. This was way ahead of the estimate of $1.79 billion. The top line was driven by an increase in same store sales of 7.6% as more shoppers got attracted to its new and enhanced product offerings. This is in sharp contrast to other retailers who are finding it difficult to even register positive same store sales.

Moreover, the company performed well despite problems such as lower mall traffic and higher input costs. One of the primary drivers of demand has been Nike (NKE)'s products which lure customers to Foot Locker’s stores. Nike has been very innovative with its products and continuously strives to provide better technology products for customers’ convenience. For instance, Nike’s light weight running shoes were one of the bright spots during the quarter. Also, basketball products resonated well with customers.

The direct-to-customer segment also performed well with a comp gain of 17.2%. The growth in the segment is driven by the store banner.com business and now makes 11.3% of the overall revenue.

The footwear retailer also managed its costs well, which was evident from the widening of its margins to 34.6% from 34.2% last year. Also, its earnings surged $0.20 per share to $1.10 per share as compared to the prior year.

Strengthening Its Position

Foot Locker has been strengthening its position by making a number of strategic moves. It acquired Runners Point Group last year, a specialty retailer of athletic shoes. This buyout will help in expanding its presence in the athletic footwear space, especially in Germany. Moreover, it also has an online presence which will help Foot Locker in boosting its e-commerce business.

Also, the company is making efforts to expand its children’s and women’s business since demand in these categories has been rising. In fact, the women segment has been doing extremely well.

Foot Locker has also resorted to shop in shop expansion, which will further help in attracting more customers. Also, it has remodeled its stores to make them more attractive to customers.

In order to keep customers hooked to its stores, the footwear retailer is also enhancing its product assortments to provide a wide variety of offerings to shoppers.

Conclusive Thoughts

Foot Locker has been able to put up a great quarter despite a number of difficulties faced. Therefore, with the changing weather conditions, the retailer is expected to do even better. Moreover, the partnership with Nike has been quite fruitful and is one of the key drivers. The company has also undertaken a large number of initiatives to further grow its business, including the last year’s acquisition. Therefore, prudent investors should take positions since this retailer is set to grow.


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