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Foot Locker Hikes Dividend, Declares Share Buyback Program

Zacks Equity Research

In an effort to enhance shareholder value and sustain robust level of investment to achieve long-term goal, the retailer of athletic shoes and apparel Foot Locker, Inc. FL has approved three capital allocation initiatives.

Firstly, the company’s board of directors have declared a dividend hike in an attempt to bring investor focus back to the stock, which has witnessed a decline of 1.4% in the past three months, underperforming the Retail-Wholesale sector which has gained 3.6%. The company raised its quarterly dividend by 13% to 31 cents (or $1.24 annually) from 27.5 cents a share (or $1.1 annually). The increased dividend will be paid on Apr 28, 2016, to stockholders on record as of Apr 13. The dividend yield based on the new payout and the last closing market price is approximately 1.8%.

Secondly, the Board has also approved a fresh share repurchase program for three years, under which the company can repurchase shares worth $1.2 billion, replacing the earlier program of $1 billion. At the end of 2016, the company has repurchased $795 million of shares under the previous program since its announcement two year back.

Thirdly, for 2017, the board of directors has sanctioned $277 million capital expenditure program. In 2016, the company had invested $284 million. Foot Locker stated that the company will keep on spending capital to build on its key strategic initiatives. The company’s strategic initiatives include expansion of foot print in major cities globally, remodelling existing store fleet, building robust capabilities in direct-to-customer unit and upgrading technology as well as supply chain infrastructure.

However, fashion obsolescence, foreign currency headwinds, a competitive retail landscape and cautious consumer spending continue to pose concerns for this Zacks Rank #4 (Sell) company.

Stocks to Consider

Better-ranked stocks worth considering in the retail sector include The Children's Place, Inc. PLCE, Genesco Inc. GCO and Zumiez Inc. ZUMZ. All these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Children's Place has an impressive long-term earnings growth rate of 10.3%. Moreover, the company has recorded earnings beat in the trailing four quarters, with an average surprise of 36.3%.

Genesco has a long-term earnings growth rate of 9.5%.

Zumiez has an impressive long-term earnings growth rate of 15%.

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