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Suravi Thacker
Suravi Thacker
Articles (157) 

Foot Locker Is a Great Buy

July 22, 2014 | About:

Foot Locker (NYSE:FL), the global retailer of athletic shoes and apparel, is becoming more and more interesting with each passing day. Its extraordinary strategic moves seem to take it to new highs. The footwear retailer recently posted its third quarter results, which rocked the Streets and overwhelmed its investors.

The strategic moves

New product launches, more variety of colors, and new store openings drove revenue 14% higher to $1.87 billion. In fact, if we exclude the negative impact of foreign currency movements revenue jumped 13.4% over last year. The company witnessed growth in all its segments as customers flocked into its stores, attracted by new products. Also, its e-commerce business experienced great growth.

The retailer’s adjusted earnings moved north by a whopping 22% to $1.10 per share. Foot Locker was commendable in its pricing efforts. It could easily pass on the rising input prices to the customers as shoppers were highly impressed by its offerings. Its new athletic collection, which caters to the high-end customers, helped drive the bottom line as well as margins.

By the segments

One of the star performers of the quarter was Foot Locker’s Kids segment. Its Champs Sports line is expected to grow even more after its banner stores are rolled out successfully. The footwear retailer has been remodeling its stores in order to make them more appealing to customers. It has restructured 49 stores already and has plans to further remodel more stores. Along with that it has opened 27 new stores, which are driving customers galore. Other segments that performed well are domestic Foot Locker and Footaction. Same store sales were remarkably high for these segments.

However, the segment that caters to women was lagging. Lady Foot Locker is being restructured by the company to cater to the more active and young women, providing them with more stylish and premium product offerings. Its strategy of opening different types of stores, which are larger in size and offer only premium athletic apparel, shoes and accessories, is expected to do well.

Geographically, Foot Locker experienced higher revenue from Canada and Asia, where customers liked its special athletic offerings. However, Europe was almost flat, mainly because of the prevailing uncertain economic conditions. Nonetheless, customers’ attraction towards basketball and performance players’ shoes can beget benefits going forward.

A key driver

A very important reason for Foot Locker’s extraordinary demand and stellar performance was the fact that its products from companies such as Nike (NYSE:NKE) attracted crowds. Nike’s running shoes were a show stealer. It is a customer favorite and continues to show growth. Even Nike’s accessories, such as high-performance socks and hats, drove Foot Locker’s revenue. Nike’s innovative approach to product development has been something that customers look forward to and is expected to continue to benefit Foot Locker going forward.

In fact, Foot Locker is not alone in receiving the benefits of Nike’s products and marketing initiatives. Even industry peer Finish Line (NASDAQ:FINL) is enjoying the launch of new Nike products, which showed up on its last quarter’s revenue growth of 16%. Nike’s Jordan brand is a potential performer that is expected to help drive Finish Line’s revenue north in the holiday season. Also, Finish Line keeps more apparel offerings in its stores than its peers. Hence, growing demand for jerseys and other athletic wear will prove to be beneficial for the retailer.

Conclusive thoughts

This is not the first time that Foot Locker has proven itself to be a great industry player. Its efforts, such as new products and colors, are endless and look quite interesting. Its initiatives for the direct-to-consumer business, such as developing sites and applications for all kinds of devices and gadgets such as tablets and smartphones, seem ready to reap huge benefits going forward. Moreover, the peak holiday season is coming, for which the retailer has already set up new stores that offer premium products. Hence, Foot Locker is expected to continue to shine and looks like a sound investment for the long term.

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