Foot Locker (FL) shares rise after reporting strong revenue and earnings growth
Fueled by stronger than expected same-store sales growth, Foot Locker (FL) reported 3rd Quarter revenues and earnings that easily exceeded analyst expectations, sending shares to a new 52 week high this morning. Foot Locker recorded non-gaap earnings per share of $0.68 on $1.62 billion in sales as same-store sales increased by 4.1% year-over-year, bringing their eps to $2.04 on $4.71 billion in revenue for the first 9 months of 2013. Foot Locker continued their trend of closing unprofitable domestic stores, consolidating in the US while expanding their store base overseas. The company closed 16 stores in the US market while their international store count grew by 208 year-over-year.
During the conference call, management was quite upbeat about the prospects for the current quarter. They are expecting same-store sales growth in the low to mid single digits, currently running in the mid-single digit range for Q4 thus far. CEO Ken Hicks stated that new athletic apparel product launches have been well received so far this quarter, led by Nike (NKE) and their Jordan brand, and expects launches to remain strong throughout the holiday season. Foot Locker also said the implementation of Runners Point Group, acquired earlier this year, has been progressing well. Runners Point Group was profitable for the quarter and management believes they have yet to begin to drive the margin improvements that they see themselves generating there. FL sees margin improvements in current Foot Locker and Footaction stores coming from future price mark-ups, an improved product blend, and better performance from their private branded apparel products.
Foot Locker (FL) stock is a buy at current levels, Management Agrees
Foot Locker remained aggressive with their share buyback in the 3rd Quarter, repurchasing nearly 2 million shares of stock at a cost of $67 million during Q3. FL has bought back almost 5 million shares total in 2013 at a cost of $167 million while simultaneously paying an $0.80 annual dividend. They have $423 million remaining on their current buyback plan and are well ahead of pace to complete it within the allotted 3 years. Their balance sheet remains extremely strong with cash and short-term investments totaling $796 million versus only $140 million in debt.
As of publication, FL stock is up 4% on the day, setting a new 52 week high. I have had a strong buy recommendation on Foot Locker since I published my analysis of them last month with a long-term price target of $58. My thesis is based on the continued strength of long-term trends in the athletic apparel sector, Foot Locker’s leading position in the US athletic shoe retail market, and an assumed gradual appreciation towards fair value (FL currently trades for significantly less than their peers in the athletic apparel industry using just about any valuation metric). I continue to view Foot Locker as a strong buy and one of my top picks in today’s markets.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I have no business relationship with any company whose stock is mentioned in this article.