Foot Locker Stock Has More Upside (FL)

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Foot Locker, Inc. (FL) stock has been running both a race and a marathon this year, and after another better-than-expected quarter, Foot Locker stock still looks like it has room to run.

foot-locker-stock-fl-earningsAs the latest results showed, Foot Locker continues to build on its success and shrug off dwindling customer traffic at malls where so many of its stores are based.

Foot Locker has been doubling down on running shoes — the most popular item in athletic footwear — as well as remodeling stores and closing weaker locations. Indeed, more than anything, Foot Locker is riding high on sales of high-cost, high-margin basketball shoes.

That decision proved to be critical because athletic footwear and apparel is a rare bright spot in an otherwise sluggish industry. Sales of athletic wear grew 7% in 2012 and another 13% last year, according to market researcher NPD Group. Take those athletic and footwear sales out of the mix, and total apparel sales actually declined over the last two years.

Now FL stock is within striking distance of another all-time high after cooling off with the rest of the autumn market slump. FL stock is up 32% for the year to date with very little pause. The S&P 500, meanwhile, is up a respectable 12%.

That sort of outperformance on the part of Foot Locker is more due to operations and execution rather than the usual suspects of cost cuts and financial engineering. As CEO Ken Hicks said in a press release:

“The team at Foot Locker has produced another very strong quarter, marking our 19th consecutive quarter of meaningful sales and profit growth. We are making substantial progress towards our key operational and financial objectives, including net income margin, sales per gross square foot, and return on invested capital.”

Foot Locker on a Roll

For the most recent quarter, Foot Locker earnings came to $120 million, or 82 cents a share, up from $104 million, or 70 cents  pe share, a year earlier. However, after excluding special items — as Wall Street analysts typically do — earnings rose 22% to 83 cents per share.

On that basis, Foot Locker beat analysts’ average forecast by 4 cents per share, according to a survey by FactSet. That’s a very healthy beat.

Sales, meanwhile, likewise exceeded Street estimates. For the third quarter, Foot Locker revenue rose nearly 7% to $1.73 billion. Take out the drag from foreign currencies and Foot Locker’s top line would have grown nearly 8%.

As for new money, FL stocks still looks like a good deal even at current levels. Shares trade for less than 15 times forward earnings, for one thing. That’s cheaper than the broader market. Additionally, FL stock trades essentially in line with its own long-term average forward earnings multiple. That doesn’t make it cheap, of course, but neither does it look too expensive.

If anything, FL stock should trade at a premium to its own track record because of top-line results. Revenue growth throughout the recover has been hard to come by — especially in the retail business. Foot Locker, however, is churning out some solid sales gains. The Street expects the company to end the year with a revenue gain of almost 10%.

As much as the wider retail industry has been mixed-to-bad, Foot Locker is running wild, and that portends more upside for FL stock.

As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2014/11/foot-locker-stock-fl-stock/.

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