Foot Locker, Inc. (FL, Financial), incorporated under the laws of New York in 1989, is a leading global retailer of athletically inspired shoes and apparel, operating 3,423 primarily mall-based stores in the United States, Canada, Europe, Australia,and New Zealand as of January 31, 2015.
The company has seen good earnings growth over the last five years, and its sales increased from $5.05 bn in 2010 to $7.15 bn in 2014. During the same period, its EPS more than tripled from $1.08 to $3.61.
Going forward, analysts are expecting the company to post an EPS of $3.99 in 2015 and $4.41 in 2016. Analysts' opinion is overwhelmingly bullish on the company with 15 out of 22 analysts rating the company Buy.
The company recently posted strong Q1 results topping consensus estimates by a cent. However, the stock corrected as some investors were worried because of the weakness in basketball market last quarter. Deutsche Bank analyst Paul Trussell believes that fear about a slowdown in basketball provide an opportunity to buy shares at a discount. In his latest research report, he wrote,
"Importantly, this improvement occurred despite a modest industry slowdown in the basketball category. To this end, casual and fashion athletic sneakers as well as certain running models have picked up steam and we believe FL’s performance is an indication of its ability to smartly manage inventory and continue to take advantage of whatever athletic trend has emerged. Moreover, we expect to hear about progress made this quarter on women’s, apparel, e-commerce, and European initiatives.
Coupled with strong margin performance (up 154 bps YOY to 15.1%), we believe FL will drive double-digit earnings growth for the next few years. Unwarranted fears about a slowdown in the sneaker cycle, or more specifically basketball, provide an opportunity to own FL shares at a discount.”
Foot Locker is trading at a forward PE of 14.39 and has a dividend yield of 1.60%. The company is doing a good job in terms of returning cash to shareholders. Last quarter, it repurchased 2.3 million shares for approximately $129 million and paid another $35 million as dividends. I believe Foot Locker is a good Buy given its high growth rate and reasonable valuations.
