Market Watchers: Foot Locker Fundamentals Intact

Market Watchers: Foot Locker Fundamentals Intact
Foot Locker is putting QR codes in stores to send shoppers online.

Growth trends remain strong at Foot Locker Inc., said analysts, even after the firm did not beat the Street.

“Expectations were very high going into the announcement,” said Citi analyst Kate McShane, explaining the decline in the firm’s share price.

“Fiscal 2014 could be significantly better than guidance implies,” she added. “There could be upside on [comparable-store sales] and gross margins from store remodels, share gains and a continued shift toward premium product.”

Sterne Agee analyst Sam Poser agreed, and also urged investors in a research note to buy the stock on Friday’s weakness.

“Same-store sales have improved from lower single digits in February to high single digits so far in March. Athletic remains strong, the running business was up low single digits, basketball was up more than 20 percent and the apparel sales and margins continue to improve,” he said.

John Zolidis, analyst at Buckingham Research Group, noted that the guidance of mid-single-digit comps for fiscal 2013 “demonstrates management’s confidence in its outlook [because] over the last two years, actual results have exceeded guidance by a wide margin.”

Foot Locker executives also sounded upbeat in a conference call with analysts.

Ken Hicks, chairman, president and CEO, noted that February comps registered a low single-digit gain despite being tough to beat in an economically challenging environment.

“The comp comparisons do get a little bit easier going forward, and although it is early, our March sales are off to a solid start, up high single digits. We were planning an even stronger start to the year and we’re monitoring some of the economic factors that we believe impacted business at the end of January and beginning of February. We’ll make adjustments as necessary, but our inventory is fresh and the product pipeline in basketball, running, classics and apparel is strong,” he said.

The athletic retailer also is using this year to continue to add new stores, remodel existing ones and fine-tune concepts for Lady Foot Locker and Six:02, and it is increasing its capital expenditure by $60 million to $220 million.

“We intend to continue building our presence in Europe, with 30 to 35 of the 73 new stores planned for 2013 targeted for Western Europe. By far, the biggest factor in the year-over-year increase in capital is due to doubling the spend on store remodels,” said Richard Johnson, EVP and COO.

The chain also plans to remodel close to 10 percent of the Foot Locker fleet, as well as a number of Kids Foot Locker doors. All told, the firm is undertaking more than 200 remodeling projects in 2013.

Foot Locker’s fourth-quarter net income, excluding asset impairment charges, came in at $111 million, or 73 cents a share. Sales for the period increased 14 percent, to $1.71 billion, from $1.5 billion a year ago, on the back of a comp-store sales increase of 7.9 percent.

Within footwear, basketball was exceptionally strong with a comp gain of more than 20 percent, the firm said. Lightweight running and technical running performed well, driven by the Free, Flex and Dual Fusion from Nike, as well as Asics, Mizuno and Brooks.

Among the store divisions, Kids Foot Locker was the top performer with a gain of almost 20 percent. Champs Sports increased double digits; Foot Locker grew high single digits, while Footaction was up mid-single digits. Lady Foot Locker posted a high-single-digit comp loss.