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Bull of the Day: Foot Locker, Inc. (FL)

Benjamin Rains

Shares of Foot Locker (FL) have climbed 14% this year to outpace the S&P 500 and its industry’s 9% average climb. The sneaker-focused sporting goods retailer is also coming off a better-than-expected quarter and looks poised to expand its bottom line as it invests in the future of its industry.

Overview

Foot Locker saw its comparable-store sales, which includes existing stores and its website, surge 9.7%. This blew away Wall Street’s 4.5% estimate. More specifically, physical same-store sales popped 5.7%, while online sales skyrocketed roughly 30%. This strength was important for Foot Locker during the vital holiday shopping period and helped shake off concerns that sportswear giants such as Nike (NKE) and Adidas’ (ADDYY) direct-to-consumer push in the Amazon (AMZN) age would hurt FL.

Investors should note that some of the strength came on the back of consumers’ willingness to spend more money on sneakers. In fact, average selling prices jumped by a double-digit percent to help offset a low-single-digit decline in traffic. Yet, executives noted that Foot Locker’s traffic outpaced overall mall traffic.

 

 

Growth Initiatives

The New York-based company announced in early February a $100 million minority investment in secondary sneaker market firm GOAT Group. Foot Locker’s investment comes as the sneaker market continues to explode. For instance, luxury fashion e-commerce company Farfetch (FTCH) purchased Stadium Goods for $250 million late last year in an effort to capture a portion of this quickly growing market.

Foot Locker’s core customers are digital natives that range from 12- to 25-year-olds. This means FL must adapt with the times and cater to its tech-savvy “sneakerhead” consumers. The company currently boasts 9.7 million followers on quickly expanding Instagram (FB)—where brands are built and people shop—to top the likes of Under Armour’s (UAA) 7 million and blow away Dicks Sporting Goods (DKS).

Foot Locker has also invested millions in children's lifestyle brand Super Heroic, women's luxury activewear brand Carbon38, and footwear design academy Pensole. Plus, late last month, FL invested in subscription-based clothing service Rockets of Awesome, which is akin to Stitch Fix. (SFIX) for kids.

 

 

Outlook

Clearly, Foot Locker is looking to the future in order to grow in a quickly changing retail landscape. As we mentioned at the top, shares of FL have climbed 14% so far this year and are now up 39% over the last 12 months. This crushes the Retail-Apparel/Shoe Market’s 14% average decline and easily tops the S&P 500’s 5% growth. Investors will also notice that FL stock has been able to return to growth, while its industry and the likes of Nordstrom (JWN) and Dick’s have failed to regain traction.

Looking ahead, FL’s first-quarter fiscal 2019 revenue is projected to pop 3.42% to reach $2.09 billion, based on our current Zacks Consensus Estimate. This would top last quarter’s 2.8% top-line expansion, which topped analyst expectations. For the full year, the retailer’s revenue is expected to jump over 4% to reach $8.26 billion. Once again this would easily beat 2018’s 2% revenue growth.  

Earnings Trends

At the bottom end of the income statement, Foot Locker’s adjusted Q1 earnings are projected to jump 12.4% to reach $1.63 a share. The company is expected to see its bottom-line expand by 9.3% in the second quarter, with 9.6% EPS expansion expected for the full-year year. Peeking even further ahead, FL’s adjusted fiscal 2020 earnings are projected to jump 8.5% above our current-year estimate.

Investors should also note that the company’s earnings estimate revision activity has trended almost completely in the right direction recently, highlighted by the positive movement for 2019 and 2020. This means that at least some analysts are more bullish on FL’s longer-term earnings outlook.

 

 

Bottom Line

Foot Locker is currently a Zacks Rank #1 (Strong Buy) based somewhat on its recent earnings estimate revision activity. The company also sports an “A” grade for Value and a “B” for Momentum in our Style Scores system.

FL is currently trading at 11.4X forward 12-month Zacks Consensus EPS estimates. This represents a discount compared to its industry’s 15.1X average and the S&P’s 16.8X. Maybe more importantly, Foot Locker stock has traded as high as 17.3X over the last five years, with a five-year median of 13.2X. Foot Locker is also a dividend payer that recently declared a quarterly cash dividend of $0.38 per share.

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Under Armour, Inc. (UAA) : Free Stock Analysis Report
 
Stitch Fix, Inc. (SFIX) : Free Stock Analysis Report
 
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Foot Locker, Inc. (FL) : Free Stock Analysis Report
 
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