Foot Locker Stock Is Getting a Major Boost from Nike’s Success

Nike’s momentum will probably be the main catalyst to get Foot Locker stock back on track

Foot Locker Stock Is Getting a Major Boost from Nike's Success

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While it’s been a choppy year for Foot Locker (NYSE:FL), the Foot Locker stock still is up about 7%. This is not bad in light of the challenges with the brick-and-mortar retail sector and the recent plunge in the equities markets.

Then again, FL’s management has been making some smart moves.  And yes, they are starting to pay off, as seen with the latest earnings report.

Granted, in Q3 the top-line saw a 0.5% decline to $1.86 billion. But keep in mind that part of this was due to the number of weeks in the quarter and impact of foreign currencies, which have been volatile.

Yet the key metric – which helped to bolster Foot Locker stock – was comparable-store sales, which grew by 2.9%. This was the second consecutive increase. All in all, it looks like FL’s merchandising strategies and full-price selling is getting traction – and this will probably not be temporary.

There was also improvement with gross margins, up 60 basis points to 31.6%. As for profits, they came to 95 cents a share, up about 9% on a year-over-year basis.

Nike and Foot Locker Stock

Perhaps the biggest catalyst for FL stock is Nike’s (NYSE:NKE) momentum. The company is certainly running on all cylinders. In the latest quarter, revenues jumped by 10% to $9.37 billion and earnings were 52 cents a share.

The key is that the company has been focused on product innovation. For example, the Jordan brand has returned to growth in North America – which is definitely important for FL. Other drivers include growth in the women’s segment, Express, smartwatches and digital efforts.

As for Foot Locker, it has a variety of Nike initiatives, such as the Discover Your Air campaign (which is for the Max Air franchises), Origins and Frequency Packs, and the Tuned Air franchise. The company also has the Nike Pro Athletes program, which involves FL employees who are trained in Nike offerings. This has been critical differentiator.

But of course, FL is more than just Nike. The company has also been investing in its alliance with Adidas (OTCMKTS:ADDYY), which has been growing at a nice pace. An example of this is the Never Made collection, which includes reimagined shoes of iconic designs.

Foot Locker Stock and Digital Investments

To deal with the potential threat of disruption from ecommerce operators like Amazon.com (NASDAQ:AMZN), Foot Locker has been investing in a digital strategy.

Part of this is a revamp of its line of mobile apps, such as with improved product presentations and features to increase engagement. One new function – in the main Foot Locker app – is The Hunt, which uses Augmented Reality for shopping. There are geo-targeted clues to unlock the chance to get limited-edition sneakers like the LeBron 16 game shoe.

In terms of the overall business, DTC (direct-to-consumer) accounts for about 14.5% of overall sales, up from 13.8% last year.

Bottom Line On Foot Locker Stock

Despite the bearishness on Wall Street, the American consumer remains upbeat. Consider that the latest holiday shopping season was the best in six years, with sales up 5.1% since the beginning of November.

No doubt, this bodes well for FL stock. Oh, and the valuation is at fairly low levels, with the forward price-to-earnings multiple at 10X. The dividend is also at 2.88%.

So in light of all this (including the catalyst from NKE stock) FL stock does look like a good way to play the strength in the retail market.

Tom Taulli is the author of High-Profit IPO StrategiesAll About Commodities and All About Short SellingFollow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2018/12/foot-locker-stock-nike-success/.

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