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Foot Locker Marching Ahead of Industry: What's Driving It?

Zacks Equity Research

Still lower gasoline prices, an improving labor market and positive consumer sentiment are enough to drive momentum in the retail space. Therefore, it would be feasible on your part to add a few retail stocks to portfolio that have solid fundamentals and could provide a sound investment opportunity. Here we have highlighted one such stock – Foot Locker, Inc. FL – that looks promising and carries a Zacks Rank #2 (Buy), with a long-term earnings growth rate of 9.7% and a VGM Score of “A”.

In the past one year, Foot Locker has exhibited an impressive run in the index. The stock has not only outperformed the Zacks categorized Retail-Apparel/Shoe industry but also the broader sector. In the said period, the stock has increased 15.3%, while the industry declined 23.7%. Meanwhile, the broader Retail-Wholesale sector advanced 6.8%.

Factors Defining the Growth Path

Foot Locker is one of the most widely recognized names in the athletic footwear and apparel industry. It boasts a strong portfolio of leading brands under a variety of store banners which aids it to target specific markets and effectively meet consumer demand. The company had outlined long-term financial goals that 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 a return on invested capital of 17%.

Management believes that the company can benefit in the long run by persistently capitalizing on opportunities like children’s business, shop-in-shop expansion in collaboration with its vendors, store banner.com business, store refurbishment and enhancement of assortments. International expansion, especially in Europe, is another catalyst.

Further, Foot Locker is focused on augmenting eCommerce platform, growing direct-to-consumer operations, margin expansion and foraying into under-penetrated markets.

Foot Locker posted positive earnings surprise for the third straight quarter, as it reported fourth-quarter fiscal 2016 results. Sturdy comparable sales performance, cost containment efforts and strategic initiatives aided it to continue registering year-over-year growth in both the top line and bottom line. Despite sluggish sales environment, management projects mid-single digit increase in comparable sales and anticipates double-digit growth in earnings per share in fiscal 2017.

Other Stocks to Consider

Investors may consider other top ranked stocks such as Best Buy Co., Inc. BBY, Burlington Stores, Inc. BURL and The Children's Place, Inc. PLCE all flaunting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Best Buy delivered an average positive earnings surprise of 27.7% in the trailing four quarters and has a long-term earnings growth rate of 10.5%.

Burlington Stores delivered an average positive earnings surprise of 26.3% in the trailing four quarters and has a long-term earnings growth rate of 15.9%.

Children's Place delivered an average positive earnings surprise of 39% in the trailing four quarters and has a long-term earnings growth rate of 8%.

Sell These Stocks. Now.

Just released, today's 220 Zacks Rank #5 Strong Sells demand urgent attention. If any are lurking in your portfolio or Watch List, they should be removed immediately. These are sinister companies because many appear to be sound investments. However, from 1988 through 2016, stocks from our Strong Sell list have actually performed 6X worse than the S&P 500.