This Company Is Winning My Vote 1 Step at a Time

With the exception of a very select few shoe manufacturers, the footwear sector is walking all over Wall Street's estimates.

I recently chronicled the multiyear troubles for classic tennis shoe designer K-Swiss (NAS: KSWS) and I've come down harshly on Deckers Outdoor (NAS: DECK) for aggressive spending and reliance on its UGG brand for 87% of its revenue. Outside of these two anomalies, sales are stronger than ever.

Nike (NYS: NKE) continues to grow its brand power and its market share with new ambassadors (Jeremy Lin) and a variety of new and improved shoes. It's been one of the few shoemakers unaffected by rising raw material costs because it has been able to pass along price increases to consumers. Similarly, Steven Madden's (NAS: SHOO) stock hit an all-time high last month. The company announced it was purchasing lower price-point brands Topline and Cejon in May 2011 and the focus on price-conscious consumers has investors intrigued.

If you add up all of the brand power and brand loyalty in this sector, you'll get a very rosy forecast for shoe retail chain Foot Locker (NYS: FL) , which is quietly putting one foot in front of the other and blowing away its competition.

If you recall, Foot Locker is one of my "10 Mid Caps to Rule Them All" and its quarterly report last night showed exactly why.

For the quarter, Foot Locker's adjusted net income rose 41% to $0.55 from the $0.39 it reported in the year-ago period and eclipsed Wall Street's expectations by $0.04. Total fourth-quarter sales increased 8% to $1.5 billion with comparable-store sales jumping a more impressive 7.5%. This marks the eighth consecutive quarter of profit and sales growth, as well as earnings beats.

Don't think shareholders are being left out of the loop, either. As if repurchasing 4.9 million shares for $104 million during 2011 wasn't enough, Foot Locker last month approved a new, three-year, $400 million share repurchase program. Foot Locker ended the year with $157 million more in cash than it had at this time last year and a net cash position of $716 million, or about $4.67 per share.

But let's face it -- we'd rather have that money in our pockets in the form of a dividend. Well, relax, because Foot Locker also agreed to boost its dividend by 9% to a quarterly payout of $0.18. The company's quarterly payout has doubled since 2006 and shareholders will enjoy a new yield of 2.5%.

Two years ago Foot Locker implemented a plan to not only grow its business, but to grow it sustainably, and now we're seeing the fruits of those changes. As of last year, the company had closed in excess of 650 stores (including a net closure of 57 in the fourth quarter) and has turned its attention to the high-margin, high-in-demand running shoe business. Rather than fighting the trends, Foot Locker realizes America's obsession with health-consciousness and is utilizing its inventory to focus on those areas.

It isn't a tough concept, but if you buy what consumers want, the business pretty much runs itself. Foot Locker looks like it's poised for many more years of strength, and despite the run-up, I feel it still represents an excellent value to long-term investors.

Disagree with me? Tell me about it in the comments section below and consider adding Foot Locker to your free and personalized watchlist.

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At the time thisarticle was published Fool contributor Sean Williams has no material interest in any companies mentioned in this article. Shoe shopping is his ultimate kryptonite. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.Motley Fool newsletter services have recommended buying shares of Deckers Outdoor and Nike, as well as creating a diagonal call position in Nike. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy that always puts its best foot forward.

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