The past three months have been tough for most retailers, but not Foot Locker (FL).
On Tuesday the Commerce Department released its consumer spending figures for June and they weren’t inspiring. Sales at retailers and restaurants declined 0.3% from May. Figures for the prior two months were also revised down to show weaker consumption than previously estimated this spring.
This reveals that growth in the second quarter has hardly been inspiring.
Sales in April were revised down from a 2% increase to flat. Retail sales rose 1% in May, revised down from an initially reported 1.2% gain.
Granted sales are stronger — slightly — than they were in the first quarter, and the year-over-year trend is higher. But it’s still not robust growth, and it’s certainly not gaining momentum.
The decline last month was broad-based, with sales falling across several categories, including furniture and clothing stores, auto dealers, and building material and garden suppliers.
Car sales have been the major factor for quite a while, and it looks like there’s not much help from other sectors yet to pick up the economy.
But even this cloud has one particularly silver lining — FL stock is going strong.
It’s up almost 24% year to date, even in the midst of this challenging retail market. The fact is, footwear and sports apparel are selling, even while other products aren’t.
It’s no surprise then that if you follow sports giant Nike’s (NKE) performance, it closely resembles FL’s. Or, should I say, vice versa. NKE’s growth underpins FL’s growth.
How much will these companies grow moving forward? Well, that’s where FL actually has an advantage.
NKE is already in virtually every market across the planet. FL has nearly 3,500 stores but only 90 of them are in the robust Asian market. And its international divisions (in Asia and Europe) are the company’s strongest sales growth according to Foot Locker CFO Lauren Peters.
This growth potential is very exciting. And it’s not just FL’s brick and mortar brands that will be gaining more international interest — Foot Locker, Lady Foot Locker, Kids Foot Locker, Champs Sports, Footaction, SIX:02, Runners Point, Sidestep and Run2 should all see stronger sales.
Web stores will also be ramping up for expansion into new markets – eastbay.com, final-score.com, eastbayteamsales.com, ccs.com, as well as its store-named sites.
While Americans are used to seeing “department stores” of sports shoes and apparel, this concept isn’t as common abroad.
And if NKE sales are any indication, international growth will be very good for FL’s bottom line. NKE derives 52% of its revenue outside the U.S. market.
FL reported first-quarter numbers at the end of May and it was very encouraging, even in a consumer market that seems to be in the doldrums – comparable sales were up 7.8%, which significantly bested its competitors.
That kind of growth can be sustained in coming quarters. And if all goes well, are likely to increase as FL expands its global reach into new markets.
And to top it all off, the stock kicks off a nice 1.4% dividend, which may not be much, but it still beats inflation. Bottom line: there’s a lot to like here.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool,PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
