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Foot Locker Holds Promising Prospects

June 23, 2014 | About:

Comfort is the main criterion for an athlete before choosing any apparel. So, the athletic-apparel giants are constantly innovating more and more new products to create a niche in customers’ hearts. The athletic footwear industry is gaining its momentum due to falling raw material prices and upcoming sports events. In terms of revenues, the total size of the U.S. athletic footwear industry is approximately $53.7 billion, 82.8% of which are contributed by Nike Inc. (NYSE:NKE) and Adidas AG (ADDYY). Other than these players, Foot Locker Inc. (NYSE:FL) is also playing well in this industry.

Founded in 1879, Foot Locker is a global retailer of shoes and apparel, operating 3,473 primarily mall-based stores (including 193 Runners Point Group stores) in the United States, Canada, Europe, Australia and New Zealand. The company operates in two segments: Athletic Stores and Direct-to-Customers. The Athletic Stores segment is an athletic footwear and apparel retailer whose formats include Foot Locker, Lady Foot Locker, Kids Foot Locker, Champs Sports, Footaction and CCS. The Direct-to-Customers segment includes Footlocker.com Inc. and other affiliates, including Eastbay Inc. and CCS, which sell to customers through Internet websites, mobile devices and catalogs.

Recent Performance

Total sales during the quarter ended on May 3 increased by a strong 14% versus the same quarter in the prior year to $1.87 billion, which came in above analyst´s estimates of $1.8 billion in revenues during the quarter. Comparable-store sales were remarkably healthy during the quarter, with an increase of 7.6% versus the same period in 2013.

Foot Locker delivered growing profit margins in comparison to the same period in 2013, gross margin increased to 34.6% of sales versus 34.2% in the year-ago period, while selling, general, and administrative expenses fell to 19% of sales from 19.2 %. The company reduced its average diluted share count by 3.3% year-over-year.

All in all, net income came in at $162 million, or $1.10 per share, versus $138 million, or $0.9 per share, in the prior year quarter. This represents an impressive increase of 22% in earnings per share, and the figure was considerably above analyst´s estimates of $1.06 in net income per share for the quarter.

Chairman and CEO Ken Hicks provided an optimistic assessment about the company´s performance in the earnings press release. "We are off to a great start in 2014, with our first-quarter results representing the highest quarterly sales and profits in our history as an athletic company for the third consecutive year."

The company opened 27 new stores during the quarter, it also remodeled or relocated 49 stores, and closed 36 stores during the period. Foot Locker operates 3,464 stores in 23 countries across North America, Europe, Australia, and New Zealand. In addition, 47 franchised Foot Locker stores are operated in the Middle East and South Korea, as well as 27 franchised Runners Point and Sidestep stores in Germany and Switzerland.

Strategies at Play

The company is following an aggressive strategy to pursue its brand expansion. These strategies include driving digital sales and marketing, and expanding operations of the company to the global market. These strategies have proved to be prolific as the company posted a substantial recovery in FY10 after a decline in the company's performance in FY09. A substantial improvement was achieved by employing technological advances and boosting sales through Internet and mobile websites. Similarly, Eastbay is Foot Locker's affiliate which provides athletes with sports solutions in the U.S.

With its strong performance in 2013, Foot Locker believes that by continuing to exploit opportunities like children's business, e-commerce, vendor partnerships (store-in-store), and improved product assortments, and development of its store banner.com will give a strong foothold in the coming years. Further, the company has more long term plans which include European expansion, store remodels, heavier technological investments, and an increased focus on its women’s business.

On a Concluding Note

Foot Locker has a stable and profitable growth. Further, the athletic footwear industry is also gaining its momentum. The company’s expansive strategies have shown robust growth, and the market share of it has been improved as well. In terms of management of its financial resources, Foot Locker’s overall performance has proved very efficient. Recently, acquisition of Runners Point Group has been completed, and this will add an increased momentum to Foot Locker’s portfolio. Finally, the demand for sports shoes will continue to increase in the near future as Americans and Europeans are more focused on exercising and getting healthy. I am therefore pretty bullish that this global retailer will not let its valued investors as well as customers down in the near future.

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