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Foot Locker's Operational Strength Fuels Stock's Bull Run

Zacks Equity Research

Foot Locker, Inc. FL, one of the widely recognized names in the athletic footwear and apparel industry, has exhibited an outstanding run on the bourses in the past three months. Thanks to its operational and financial initiatives, the stock has outpaced the Zacks Retail - Apparel And Shoes industry as well as the Retail-Wholesale sector. In the past three months, shares of this New York-based company have increased about 24.5%, while the industry and the sector advanced 13.2% and 6.6%, 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 28 cents and 49 cents to $5.16 and $5.60, respectively. Notably, this Zacks Rank #1 (Strong Buy) stock’s long-term earnings growth rate of 9.2% reflect its inherent strength. You can see the complete list of today’s Zacks #1 Rank stocks here.

We believe that strategic endeavors along with planned investments may help the company to attain long-term goal, which 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%. Management forecast mid-single digit comparable sales growth and double-digit increase in earnings per share for fiscal 2019.


Let’s Analyze

Foot Locker boasts a robust portfolio of leading brands under a variety of store banners that aids it to target specific markets and efficiently cater to consumer demand. 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 entered into a partnership with Nike for a pop-up store called Sneakeasy NYC and made a strategic investment of $15 million in Carbon38, a luxury active apparel company for women. The company also took minority interest in Goat, a managed marketplace for authentic sneakers, making an investment of $100 million. It invested $3 million in Super Heroic, a kid’s footwear brand and $12.5 million in “Rockets of Awesome” a children's apparel company. These investments broaden the company’s scope to expand products and brands, access new business segments and take advantage of innovative technologies.

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. Furthermore, international expansion, especially in Europe, is another growth catalyst.

Wrapping Up

The company is focusing on augmenting e-commerce platform, expanding direct-to-consumer operations, driving margin, tapping underpenetrated markets and opening Power Stores. We believe that such efforts will continue to aid the company’s performance and maintain its position in the good books of investors.

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