Foot Locker Shares Surge Ahead On Upbeat Q4 2014 Results

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Mar 09, 2015
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Foot Locker Inc. (FL, Financial) witnessed a 5.7% surge in shares during pre-market trading following an upbeat Q4 earnings report for fiscal 2014. The athletic-shoe retailer reported a 25% jump in profits for the quarter to $146 million due to robust sales over the holiday period. At the same time, the company’s EPS stood at $1.01 per diluted share, beating the consensus estimate figure of 91 cents a share. Consequently, the Foot Locker stock is up 37% over the past 12 months. Following the results, the company’s shares rose to a 12-month high of $59.85 during the day’s trading to close at $59.37.

Revenues Increase Despite Currency Headwinds

Foot Locker’s sales grew 6.7% during the fourth quarter to $1.91 billion, compared to the prior-year quarter’s figure of $1.79 billion, despite currency headwinds hurting overall sales growth by around 3.4%. With the company’s top-line performance being backed by enduring expenditure-management efforts, Foot Locker saw its gross margin rate growing to 33.2% of sales, with a below 20% annual SG&A expenditure rate for the first time in the company’s history. Foot Locker also reported 2.5% growth in inventory during the quarter.

While overall sales during the quarter grew 10.1% excluding the impact of foreign currency headwinds, comparable-store sales grew 10.2%, with shoes, specifically for running and basketball driving sales. The company also benefited from greater in-store footfalls owing to the popularity of the Jordan Brand. However, Foot Locker’s sales for the quarter lagged in the apparel department.

Historic Rise in Full-year Profits

For the full-fiscal 2014, Foot Locker reported a historical rise in sales and profits. While overall sales for the year grew 10% to $7.15 billion compared to the last fiscal’s $6.5 billion, the retailer’s profit for the year stood at $520 million, or $3.56 per diluted share, versus the previous fiscal’s profit of $429 million, or $2.85 per diluted share. The results represent Foot Locker’s fifth straight double-digit percentage growth in annual EPS and its fourth successive year of record profits. The company, which competes with businesses such as The Finish Line (FINL, Financial) and the privately held Sports Authority Inc. in the specialty sports shoes and apparel market, attributed the results to its enduring efforts to improve infrastructure, including stores, support facilities and digital capabilities.

The Year Ahead

While Foot Locker ended the quarter with $967 million in cash, the company management acquired $131 million of shares at an average of $55.98 per share as part of its share buyback program. The company also recently announced a $1 billion share buyback program and a 14% quarterly dividend increase to $0.25 per share. The Foot Locker management also approved a $220 million CAPEX program for fiscal 2015, as the company continues spending on key initiatives.

Although the company has yet to announce its outlook for FY2015, the management expects mid-single digit growth in comparable sales during the year, with a stronger dollar likely to impact net income.

Final Thoughts

Foot Locker, which operates around 3,460 stores across the globe, including 74 franchised stores, ended the fourth quarter and full-fiscal 2014 on a high note. The cash-rich company, which is still undervalued in the market, is steadily growing its presence in the European market. With a robust stock price performance, revenue growth, impressive EPS growth record and a strong financial position, experts foresee Foot Locker’s earnings growing at an annual average of 11.5%-12.5% over the next five years. Consequently, the Foot Locker stock currently carries a ‘buy’ guidance.