Foot Locker's Initiatives on Track, Stock Up 47% in a Year
Foot Locker, Inc. FL is gaining momentum on the back of its focuses on development of supply chain, improvement of mobile and web platforms, implementation of new point-of-sale software, and expansion of data analytics capabilities. The company also plans to spend a major portion of the capital on its fleet of stores, including revamping and remodeling of the same. Further, it is exploring off-mall retail format opportunities and executing shop-in-shop spaces in collaboration with vendors. Apart from helping the company to outpace the industry in a year’s time, these efforts should aid the company to attain long-term goals.
In a year’s time, this Zacks Rank #3 (Hold) stock has rallied 46.7%, outperforming its industry’s and S&P 500 index’s growth of 28.2% and 15.9%, respectively. In fact, the aforementioned growth drivers also helped the company continue with its positive earnings surprise streak for the fourth straight quarter in second-quarter fiscal 2018, wherein both the top and bottom lines beat expectations and improved year over year. Markedly, the stock has gained 5.5% since the announcement of the results. (Read: Foot Locker Q2 Earnings & Sales Beat Estimates, Up Y/Y)
Foot Locker boasts a strong portfolio of leading brands under a variety of store banners that helps it to target specific markets and meet consumer demand efficiently. Also, the company is effectively managing inventory, investing in digital platforms, improving supply chain efficiencies along with reorganizing corporate and division staff. Furthermore, Foot Locker entered into a partnership with Nike for a pop-up store called Sneakeasy NYC and made a strategic investment of $15 million in Carbon38. The company's long-term financial goals include attaining sales of $10 billion, sales per gross square foot of $600, operating margin of 12.5%, net income margin of 8.5%, and return on invested capital of 17%.
The company’s efforts to improve its performance through its operational and financial initiatives are also commendable. These efforts include exploiting opportunities such as kids’ and women’s business, shop-in-shop expansion in collaboration with its vendors, store banner.com business, store refurbishment and enhancement of assortments likely to benefit the company in the long run. Foot Locker is focusing on augmenting its e-commerce platform, growing direct-to-consumer operations, margin expansion, tapping underpenetrated markets and testing new retail concept, Power Stores as well.
However, the company is facing higher SG&A expenses rate, which may strain margins to an extent. In fact, Foot Locker’s international division also continues to operate in a challenging environment. During the second quarter, Foot Locker Europe and Foot Locker Asia Pacific witnessed a low single-digit decline in comparable sales.
Nonetheless, the company expects comparable-store sales during the third quarter to be up in low single digits. For fiscal 2018, management envisions the metric to be up in low single-digit against 3.1% decline registered last year.
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