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Foot Locker (FL) Outpaces the Industry, Up 16% in 3 Months

Zacks Equity Research

Foot Locker, Inc. FL, one of the widely recognized names in the athletic footwear and apparel industry, has shown a decent run on the bourses in the past three months. Thanks to its operational and financial initiatives, the stock has been able to outpace the Zacks Retail - Apparel and Shoes industry as well as the S&P 500 index. In the past three months, shares of this New York-based company have increased about 15.6%, while both the industry and the index declined 16.7% and 8%, respectively.

Additionally, an uptrend in the Zacks Consensus Estimate also echoes the same sentiment. The consensus estimates for the current and next financial year have increased about 5 cents and 6 cents to $4.51 and $4.88, respectively. Notably, this Zacks Rank #3 (Hold) stock’s long-term earnings growth rate of 7.5% and a VGM Score of A reflect its inherent strength.

Let’s Introspect

Foot Locker boasts a strong portfolio of leading brands under a variety of store banners that aids it to target specific markets and efficiently cater to consumer demand. Notably, the company recently made a strategic investment in Super Heroic, Inc. As part of this, Kids Foot Locker will be the first outlet of Super Heroic products in the United States.

The company is effectively managing inventory, investing in digital platforms and improving supply chain efficiencies. The company’s digital endeavors comprise improvement of mobile and web platforms, implementation of new point-of-sale software worldwide, and expansion of data analytics capabilities. The company also entered into a partnership with Nike for a pop-up store called Sneakeasy.

Further, management is of the opinion that Foot Locker is likely to benefit by continually capitalizing on opportunities like kids’ and women’s business, shop-in-shop expansion in collaboration with its vendors, store banner.com business, store refurbishment and enhancement of assortments. Surely, the company has taken initiatives such as better price, omni-channel capabilities and unique products to stay competitive.

However, higher digital marketing investments and constant store remodeling and refurbishments add to costs. This may strain margins in the short run. Nonetheless, we believe it is better to face short-term impediments to attain long-term goals. 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%.

Clearly, you can see from above-mentioned factors that there are plenty of reasons to retain the stock for now.

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