This Footwear Retailer Will Scale New Heights
Footwear retailer Foot Locker has soared ever since the company posted solid fourth-quarter results last month. Foot Locker's robust growth isn't surprising as its strategies have worked well, and its prospects for the long run are also impressive. Given that Foot Locker retails shoes manufactured by the likes of Nike and Under Armour, it has considerable room for improvement as these manufacturers grow their businesses.
In addition, Foot Locker's direct-to-channel (online) sales have been booming, leading the retailer to report solid comparable-store sales growth of 5.3% in the most recent quarter. The company's online-comp sales jumped 13%, driven by the strong performance of its websites for different store banners such as footlocker.com, ladyfootlocker.com, kidsfootlocker.com, footaction.com, and champssports.com .
Unfortunately, everything was not rosy for Foot Locker. Despite displaying good performance, its footwear segment suffered some weakness. The international business saw a slowdown in regions such as Asia Pacific, Europe, and Canada. In the U.S., the adverse winter weather hurt sales of running shoes. However, the runner and basketball footwear segments performed well internationally as a result of mild weather in most of Foot Locker's other markets. Basketball footwear proved to be a key growth driver for the company. Going forward, retailing Nike's shoes is expected to be one of Foot Locker's key growth drivers.
Foot Locker is expecting a boost from retail sales of Nike's Jordan Brand shoes. Other signature basketball shoes such as LeBron, Kobe, and KD Footwear along with Foamposites have similarly been driving Foot Locker's sales. Looking ahead, Nike is showing signs of recovery in Europe, which is a positive for Foot Locker.
The European segment accounted for nearly 20% of Nike's sales; the company reported 11% revenue growth year over year. With the FIFA World Cup around the corner, Nike can easily sustain this run; it sponsors teams in England, France, and the Netherlands, which are the best European contenders.
Foot Locker is looking well positioned for 2014 and beyond with many remodeling programs and capital spending projects pending. The company expects to remodel 20% and 30% of its Foot Locker and Champ Sports stores, respectively, this year. Furthermore, it has great expectations for new Jordan 23 shops in Footaction.
Foot Locker will also focus more on strengthening its women's business along with an international expansion. Foot Locker is looking to invest $220 million this year in a variety of store, digital, technology, and infrastructure projects with a view to diversify operations. The company operates more than 1,000 stores in 29 countries; it is looking at better sales numbers in the future driven by the likes of Nike, Adidas, ASICS, Under Armour, Mizuno, New Balance, and Puma.
A solid pick
Foot Locker's concentration on the footwear segment and its global presence are good advantages to have when compared to peers such as Dick's Sporting Goods While Dick's Sporting Goods addresses more market segments such as hunting, apparel, bikes, fitness equipment, etc., it will not be able to able to reap the benefits of the FIFA World Cup as the company operates only in the U.S. Even though Dick's Sporting Goods' growth rate has topped the industry's average, Foot Locker may do better going forward. In addition, Dick's concentration in the U.S. exposes it to domestic headwinds such as a colder weather and weak consumer spending patterns. For example, in the previous quarter, Dick's saw weak sales in the hunting and golf segment as cold weather across the U.S. kept people indoors. Also, the company issued a weak guidance.
Apart from the FIFA World Cup, Foot Locker also has a stronger balance sheet than Dick's Sporting Goods. Foot Locker ended the recent quarter with $867 million in cash, while Dick's Sporting Goods had $182 million. Also, Foot Locker has an operating margin of 10.3%, which is much better than Dick's 8.8%. And finally, Foot Locker's dividend yield of 2% swings the game further in its favor, as Dick's yields just 0.9%.
Needless to say, Foot Locker's prospects look good. The company's expansion strategy and upcoming products from vendors such as Nike, Adidas, Under Armour, and Puma should help Foot Locker sustain growth momentum. This should lead to stock price appreciation and shareholder returns. All told, these facts make Foot Locker worth a closer look by Foolish investors.
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The article This Footwear Retailer Will Scale New Heights originally appeared on Fool.com.Amal Singh has no position in any stocks mentioned. The Motley Fool recommends Nike. The Motley Fool owns shares of Nike. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.
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