Foot Locker (FL) recently delivered strong second quarter results driven by 9.6% same-store sales growth and expanding profit margins. Analysts revised their estimates significantly higher for the company after the report, sending the stock to a Zacks Rank #1 (Strong Buy).
The valuation picture looks very reasonable too with shares trading at less than 14x forward earnings, excluding net cash.
Foot Locker is a shoe and apparel retailer with 3,423 stores in 23 countries across the globe primarily under the brand names Foot Locker, Lady Foot Locker, Kids Foot Locker, Champs Sports and Footaction.
Second Quarter Results
Foot Locker reported stellar second quarter results on August 21. Earnings per share came in at 84 cents per share, crushing the Zacks Consensus Estimate of 69 cents per share, a 33% increase year-over-year.
Total sales rose 3% to $1.695 billion, ahead of the consensus of $1.664 billion. This was driven by a very strong 9.6% increase in same-store sales. Excluding foreign currency effects, total sales rose 10%.
Profit margins expanded too. The gross margin improved 60 basis points to 32.6% of sales while selling, general and administrative expenses improved by 140 basis points to 19.5% of sales. Meanwhile, operating income surged 27% year-over-year.
Estimates Soaring
Following strong Q2 results, analysts revised their estimates significantly higher for both 2015 and 2016. This sent the stock to a Zacks Rank #1 (Strong Buy).
The 2015 consensus estimate is now $4.19, up from $4.02 before the report. The 2016 consensus has increased from $4.48 to $4.68 over the same period. Based on current estimates, analysts are projecting 17% EPS growth this year and 12% growth next year.
Reasonable Valuation
Foot Locker has a very strong balance sheet with nearly $6 per share in cash and investments, net of debt. Excluding this, shares trade at less than 14x the 2016 consensus estimate. It enterprise value to EBIT ratio is 10.
The Bottom Line
With strong same-store sales, expanding margins, rising estimates and reasonable valuation, Foot Locker stock offers investors attractive upside potential.
Todd Bunton, CFA is a Stock Strategist for Zacks Investment Research and Editor of the Income Plus Investor and Surprise Trader services.
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