Athletic retailer Foot Locker (FL, Financial) released solid results for the fourth quarter. The company is pleased with this accomplishment which was better than analysts expected. The stock had been impressive on the market in the past as well and the recent results further strengthened its position in the market with a 4.2% growth in the share soon after it delivered its results. Looking ahead, Foot Locker is focused on its strategic priorities and is looking to seize opportunities that can drive its overall performance in achieving its key financial milestones. Let us have a detailed look at the overall underlying business.
Financial overview
Foot Locker reported a solid 25% growth in the net income amounting $146 million as compared to the same quarter last year. The company’s products are seeing a solid traction in the market, evident from a 10.2% growth in the comp-sales in the fourth quarter. While the total sales increased by 6.7% to $1.911 billion beating analysts’ estimate of $1.871 billion. Moving to its direct-to-customer segment, Foot Locker was up with an outstanding 21.9% sales gain while the store segment recorded 8.5% comparable store gain for the quarter.
Another reason for this solid growth in the comp sales and same store sales is the strengthening U.S. dollar. Foot Locker also has a solid track record, and it can be seen that the stock has gained considerably in the past six years. In the last year, the company’s EBIT margin has also soared by 11.4% of sales also leading a 7.3% net income margin improvement. While on the earnings front, Foot Locker posted a 22% growth in the EPS amounting $1.00 per share beating last year’s same period EPS of $0.82 per share.
Prospects
Foot Locker enjoys a solid position in the athletic market with its products seeing terrific traction, clearly evident by the growing comp sales. If the company’s products continue to be absorbed at such a rate, Foot Locker is expecting a 20% surge in its market share as investors are expected to receive these results positively. In addition, its association with Nike is also a wise strategic move by the company, which is making the brand more popular in the basketball shoes segment, and this becomes a key reason for Foot Locker’s solid position in Europe.
Moving ahead, Foot Locker has stretched its foot mark at several places across the nation. The company is now competing with 3,424 stores. However, it can be noticed that there is a decrease in the store count by 51 stores as compared to the past. This is because Foot Locker is now mainly focusing on productive stores and is closing down the underperforming stores to improve its margins. The company is now opening larger stores, and these real-estate projects are expected to add meaningfully to Foot Locker’s growth. To further support this, Foot Locker has also announced a $220 million capital spending program for 2015.
It is, however, facing headwinds in the apparel segment as the performance by the segment in the past was not up to the market. But the company is seeing some bright spots with Fleece tops and bottoms that can help it improve its margins. To rebuild its apparel business, Foot Locker is working with other vendors and partners to develop new updated lifestyles that can lift this segment in 2015.
The footwear segment remains its key growth contributor. The key performers of this segment are namely running silhouettes including the Roshe, Huarache and various elements of the Max Air platform from Nike. Not only Nike but other brands are also performing well –Â for example, Adidas with its popular Zed-X Flux shoe, Puma, New Balance and Asics also are developing encouraging lifestyle running footwear offerings.
Conclusion
Now moving to the fundamentals, the stock is cheap with a trailing P/E of 16.68, and the forward P/E of 13.97 shows solid growth in the earnings in the near term. The stock has a solid growth record over the last six years and an impressive profit margin of 7.27% shows further signs that it will gain market share in the future, making it a solid investment option. The retail market is also a favorable market these days, and it is expected to improve. Considering all these facts, I suggest that investors pick Foot Locker.
