September 21, 2020

Foot Locker Gains More Than 54% in 6 Months: Here’s Why

Foot Locker, Inc. FL continues to cheer investors, as evident from the stock’s bullish run on bourses, thanks to robust business strategies. Stellar second-quarter fiscal 2020 results amid the pandemic-induced uncertainties further added impetus to the stock. Impressively, the athletic footwear and apparel company’s shares have appreciated 54.2% over the past six months, ahead of the industry’s 48.2% rally and the broader S&P 500 market’s 37% increase. Let’s delve deeper.

Robust Endeavors

Foot Locker remains focused on improving performance through its operational and financial initiatives. It is effectively managing inventory, investing in digital platforms and improving supply-chain efficiencies. In addition, the retailer has been augmenting its e-commerce platform, growing direct-to-consumer (“DTC”) operations, tapping into underpenetrated markets and opening Power Stores. During the second quarter of fiscal 2020, the DTC channel strengthened and increased 173% year over year. As a rate of sales, DTC rose to 33.2% of sales, up from 14.3% last year. The company’s FLX-membership program also bodes well.

 

International expansion, especially in Europe, is another growth catalyst. Notably, the company deployed new websites in nine additional European countries that developed the modernized platform rolled out in North America in the prior year. We expect the company to benefit in the long run, thanks to its endeavors to explore opportunities in kids’ and women’s business, shop-in-shop expansion in collaboration with its vendors, store refurbishment and enhancement of assortments.

Q2 Highlights

Foot Locker’s top and bottom lines outpaced the Zacks Consensus Estimate and grew year over year. Results benefited from the company’s sturdy efforts along with the digital business. Management also highlighted the huge response to the company’s assortment as stores started reopening. Strong sales coupled with disciplined cost control aided the company to revert to positive earnings per share. Moreover, comparable-store sales jumped 18.6%. However, gross margin continued to be under pressure during fiscal second quarter due to lower merchandise-margin rate owing to the use of markdowns to clear aging assortments and an increased mix of DTC.

Through the back-to-school period in the back half of fiscal, the company is committed to offer a robust customer experience. Also, it looks well positioned to cash in on evolving customer-shopping patterns with continued focus on digital and other strategic endeavors. Management did not update fiscal 2020 guidance on evolving pandemic-related uncertainties and its potential impact on the back-to-school season, team-sports participation and other government-stimulus packages. Nonetheless, Foot Locker believes that it is well poised to maneuver amid the pandemic. The company’s board reinstated the quarterly dividend program on robust liquidity and more stable cash outlook. It has announced a quarterly cash dividend of 15 cents per share, payable Oct 30, 2020 to shareholders of record as on Oct 16.

On a concluding note, Foot Locker appears to be a strong contender based on the aforementioned strengths. Encouragingly, it displays a Zacks Rank #3 (Hold).

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