How a Diverse Mix of Brands, Investments Is Fueling Foot Locker

Foot Locker Inc. is finding strength in diversity — both of product and in business partners.

The specialty athletic retailer today reported Q4 sales and profit that blew past market watchers’ estimates continuing a stretch of renewed momentum after a brief shortfall in 2017 — which it had said was spurred by underwhelming athletic product and soft trends.

Chairman, president and CEO Dick Johnson told investors during a conference call today that this time around, the firm’s “strong growth” in footwear was “fueled by the strength of business that is more diverse than ever” — with a particularly strong product mix in the running and basketball categories. (Still, it’s worth noting that men’s basketball sales were down mid-single digits during the quarter, while men’s running and classic styles posted double-digit gains.)

“This included from Adidas, a strong Jordan business and the continuing demand for [Nike] Max Air,” Johnson added. “The strong performance in our women’s and apparel businesses, compared with the breadth and depth of exciting products from brands such as Fila, Vans and Champion, as well as the addition of lifestyle brands, illustrates the growth work our team has done to extend the reach of our company.”

During the period, retailer saw stronger-than-expected growth, led by same-store sales, which increased 9.7 percent — more than double the number analysts’ had predicted. It also reported profits of $158 million, or $1.39 per share, for the three months ending Feb. 2. On an adjusted basis, Foot Locker earned $1.56 per share, a 37 percent gain from the same time last year and well ahead of the $1.40 forecast. Total sales for the period rose 2.8 percent to $2.27 billion, handily topping analysts’ bets for sales of $2.19 billion.

Another factor driving new excitement at Foot Locker is likely its aggressive spree of investments in recent months. Just this week, the company announced it had put $12.5 million toward children’s apparel company Rockets of Awesome, serving as the lead investor in a Series C round worth a total of $19.5 million.

The move came less than three weeks after it said it was making a $100 million strategic investment in GOAT Group, which operates sneaker marketplaces GOAT and Flight Club. Within the last 13 months, the company has also thrown financial support behind three other businesses. Last month, it made a $2 million strategic investment in Pensole Inc. and $3 million toward a Series Seed II investment round in children’s lifestyle brand Super Heroic. Additionally, it contributed $15 million in Series A funding toward Los Angeles-based women’s luxury activewear maker Carbon38 last January.

Speaking with investors today, Johnson gave more insight into the firm’s new investment strategy — noting that it had thrown an additional $10 million behind Carbon38 at the start of this year to boost its women’s push.

“[Carbon38 co-founder and CEO Katie Warner Johnson] and her team have done a great job of building a strong luxury active brand with a loyal customer base,” Johnson said. “We are continuing to partner with her to further develop the business. Of the many opportunities we believe our strategic investment provides perhaps the most exciting is the window into the broader women’s consumer set that Carbon38 serves as we strive to accelerate and expand our connection with female shoppers.”

Johnson added that he views the investments as an opportunity to support new brands but also to place financial backing behind “the right people.”

“I couldn’t be more proud or excited for our company to partner with such high quality and diverse group of entrepreneurs,” Foot Locker’s chief said calling out Super Heroic co-founder Jason Mayden and Rockets of Awesome founder and CEO Rachel Blumenthal. “Our goal moving forward will be to empower the growth, while harnessing the insights capabilities and innovation that can help shape our business for the future.”

The most recent beneficiary of Foot Locker’s giving, Blumenthal told FN this week that she expects her business to open its first standalone store — in time for back-to-school — as well as grow its omnichannel experience using the new cash infusion.

“This particular partnership presented a unique opportunity to work with a highly experienced retailer with hands-on expertise across merchandising, retail, customer experience, supply chain and operations,” Blumenthal said. “Foot Locker’s innovative investment strategy enables a business of our stage immeasurable access and leverage before we have our own scale. We’re incredibly fortunate to not only learn alongside such expertise but to partner in pushing each other to think differently and create magical shopping experiences for our customers.”

Foot Locker today offered preliminary 2019 guidance calling for mid-single-digit comp growth and and double-digit EPS gains.

Investors have been cheering the retailer’s recent performance as well as its long-term business strategy.

After surging double digits at market open, as of 1:30 p.m. ET, the company’s shares remained in the green nearly 6 percent to $62.92.

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