View Full Version : FL ==> The Tuition Winner

07-21-2012, 12:12 PM
How many of you have gone to a soccer game for 8 yr old kids and have heard the following:

• “Hey ref, your seeing eye dog just arrived!”
• “Hey ref, I have seen a potato with better eyes than you.”
• “Hey…Stevie Wonder.. I mean Ref.”
• “Hey ref, I have a $20 off coupon for lasik surgery do you want it?”
• “Hey ref, You're so bad even your mother hates you!”
• “Hey ref, 4 out of 5 fans agree you stink!”
• “Nice call. YA Jerk!!”
• “Hey ref, Are you always this horrible or is it just today?”
• “Hey ref, your calls are so bad I am Unfriending you on facebook!”
• “I just twittered the ref sucks!”
• "Why are you here? Did the CYO game get cancelled?"
• "Check your cell phone, because you've missed a couple of calls!"
• “Hey ref, open your eyes, you’re missing a good game!”

Yea…that’s right, these parents are so clever with their witty remarks to the youth referee. Of course, my all time favorite is:

“Go back to Foot Locker!”


So….I did.

Yesterday I bought stock in FL (Foot Locker) at 32.88. I will sell it in 4 – 6 weeks at 37.90. Here’s why I like FL:


Take a look at this chart. FL is up 46% in the last 52 weeks yet has a PE of only 16. Like other great retail chains, it continues to grow its sales, slowly and steadily, by opening up stores in places where the stores make money.
Now don’t get me wrong. I’m the first person who scratched my head when I found out this company was profitable. I mean really, the sales people are dressed like referees. What?? What happens when you walk into the store, they call you for a foul?

All jokes aside, the name of the game is money.

Foot Locker, Inc., together with its subsidiaries, operates as a retailer of athletic footwear and apparel. The company operates in two segments, Athletic Stores and Direct-to-Customers. The Athletic Stores segment retails athletic footwear, apparel, accessories, and equipment under various formats, including Foot Locker, Lady Foot Locker, Kids Foot Locker, Champs Sports, Footaction, and CCS. As of January 28, 2012, it operated 3,369 stores in 23 countries in North America, Europe, Australia, and New Zealand. While the Foot Locker stores cater to the athletic connoisseur, Lady Foot Locker is for active women, kids foot locker caters to a younger audience, Champs to a high school athlete, Eastbay to elite varsity players and CCS to lifestyle enthusiasts. In addition to the brick and mortar stores, there are direct-to-consumer channels, including footlocker.com, Eastbay and CCS.com. Each of the companies has a distinct mission with the same core values. Foot Locker, Inc. was founded in 1879 and is based in New York, New York.

That’s right ladies, this company is 133 years old. That’s another thing I didn’t know about Foot Locker. The difference between Foot Locker today, versus 100 years ago, is that they are now selling brands of sporting good products that are highly recognized. You just don’t walk into Foot Locker for a pair of sneakers. You are buying brand imaging, and paying stupidly high prices for these brands. Something that was a luxury 20 years ago is now a must have. Why is this happening? Because Sporting Goods are now mainstream. You think all of those hours on Sundays spend on the soccer fields with your kids hasn’t permeated your brain? Think again.

Historically, sporting goods stores were small, family-owned businesses that serviced the needs of the local community. Wholesalers were the primary suppliers of merchandise, and operators had little or no competition from other retailers because of their high level of specialization. During the past two decades, the arena for sporting goods retailers has changed, with industry players evolving into national chains that have considerable buying power. The rise in sporting chain numbers has created an opportunity for mass merchandisers to seek a market share, with retailers benefiting from their ability to offer consumer-specific brands.

The proof of this is in Foot Locker's performance. First, FL has sequential revenue growth over the last four quarters. Over the same period, the company has beaten ANAL-ysts projections in each of these quarters. Amplifying these stats is the fact that the gross margin has improved sequentially in these quarters from 30% in July 2011, to 32%, and then in the most recent quarter it improved again to 34%. Of course these great revenue and margins numbers will translate to earnings. Foot Locker has seen net income growth of over 400%. And that, ladies, is why the stock price is going up.

The balance sheet is also attractive. They have a cash balance of almost $900 million with only around $135 million of debt. The company has also announced its share repurchase plans of $400 million, which is well supported by its cash flow position. Green lights all around. How are they doing it?
Foot Locker isn’t selling the stuff you see on Centre Street in Value Village. Heck, you can’t even find this stuff at Spags.


(Yea..this is how I spent my Saturdays as a kid…but that’s another story.)

What Foot Locker does sell is Nike and Under Armor - the stuff that the spoiled, image conscious and insecure populace of today want to spend their hard earned cash on. Probably the most significant driver will be the brands that Foot Locker sells. They are selling stuff that moves. The company's online segment showed impressive growth as well, mainly due to increase in its internet sales.

Before I forget, another reason to like Foot Locker's stock is that its dividend is right around 2.0% currently. I love dividends. It’s like the prize in the Cracker Jack box, the fortune cookie or just plain old free money. Since the company reinstated its quarterly dividend in 2003, payouts have increased to the tune of 500%. That works out to an annual increase of 22% per year. With the $345 million in free cash flow they are showing, there’s plenty of room to continue to grow this dividend. This is nice for folks who plan on owning this stock a lot longer than I intend to.

In its most recent quarter, Foot Locker reported earnings of $0.83, 38% higher than the previous year's EPS, and a 9.7% rise in comparable-store sales. That's phenomenal considering that consumer wages are only increasing by 2% and overall spending remains lackluster. I mean..that’s really insane. This success is not just coming from the revenue side. Foot Locker has been able to keep its costs under control by pruning underperforming locations and fixing up some of its older stores that are still in good locations. At the same time Foot Locker has done a really good job of sticking with the brands that people want and avoiding all the flavor of the month stuff that makes retailers think they are smart but always end up making them look really stupid.

Now here’s why I really like this stock. The company's P/E is at a 35% discount to the industry as well as its five year average, indicating it is currently undervalued. The forward PE is only 12.5. Other multiples like price-to-sales and price-to-book are also at a discount to the industry averages, indicating the stock has value. I love getting good stuff cheap. (Here we go again with the Spags reference.) I’ll stick to the sports metaphor…Foot Locker is a triple play. This stock has something for growth, value, and income investors!

If you look at their most recent investor presentation, FL execs will tell you that the company reviewed its core values with all employees: integrity, leadership, excellent service, team work, innovation and community. I wonder if they gave out toy sneakers with the values emblazoned on them? Either way, it looks like they are making their employees drink the Koolaid. They must be on drugs..why would they wear those referee jerseys in the store?

In the next five years Foot Locker expects to achieve sales of $7.5 Billion up
from $5.6 Billion in fiscal 2011. Management expects to achieve sales per gross square foot of $500 (up from current $406), EBIT margin of 11% percent (up from current 7.9%), net income margin of 7% (up from current 5.0%), return on invested capital of 14% (up from current 11.8%) and increase inventory turnover to more than 3 times (up from current 2.6 times). Lofty goals yes…but they have put them out there and I don’t doubt that they can achieve these. If they come anywhere near these goals, the company stock will certainly ascened rewardingly.

What does $$$MR. MARKET$$$ think?

The ANAL-ysts predict that Foot Locker will post earnings per share of $2.38 in the current year and $2.63 next year based on revenues of 6.04B and 6.25B respectively.

I smell something and it’s not foot odor….no it’s the stink emanating from the ANAL-ysts pathetic projections. $$$MR. MARKET$$$ projects that Foot Locker will actually sell 6.2B this year which will generate $2.55 per share. If you take its existing PE of 16.2 and multiply it by these earnings of 2.55, that gets you a stock price of 16.2 x 2.55 = $41.31, which well exceeds my target sale price. That’s using a PE multiple that is ALREADY well below industry PE values. And oh, by the way don’t forget your dividend on the way out the door. KAH – CHING!

But why listen to $$$MR. MARKET$$ Listen to the Foot Locker customers:
“This store has the most caring and cool sales help! I have 2 basketball player sons, and they wear size 15 shoes. I always get SO lucky in this store! All the sales people are great! I just bought 3 pairs of shoes last week!”

Or from this person

“I have been visiting this foot locker for 10 years now and it has been by far my most consistently enjoyable shopping experience. They've had the same manager for quite some time, totally blanking on his name but he's a shorter white dude, and he is the epitome of what a store owner should be. He's helpful, knowledgeable, kind, more than willing to go out of his way to help others, and he will try his best to both accomodate and make the shopping experience as easy as possible on each customer.

Obviously you aren't going to find limited jordans here, and if you go there expecting that you'll be disappointed. However, when I have been looking for J's the staff was more than helpful in locating and securing them for me. I went in yesterday to buy a pair of shoes for my little nephew who was adamant about having them in a certain color. I was helped by an associate named Joseph who called 3 (!) different stores until he found a pair of lebrons in red and black. All of that work for a $70 sale, wow, exemplary customer service doesn't begin to explain what Joseph did.

I've worked retail and I know I wouldn't have tried as hard as Joseph did for a rather small sale, but thank god he did and I should be getting the shoes before Christmas.

This foot locker is amazing, and as always I look forward to my next visit. Thanks for everything guys!”

…or finally from this person:

“We stopped in here last weekend, and to be honest, i wasn't expecting much.

This is smaller than other Foot Lockers I've been to, and the parking lot is designed horribly.

I was disappointed that they don't carry Women's Adidas, as this are almost always the brand i go with for exercise shoes. (I don't care about labels, I've just had really good luck with this brand.)

When we arrived we were immediately helped by someone. He was informative and knowledgeable about many different shoes, and not at all pushy.

One of the pairs of shoes he highly recommended were actually one of the cheapest shoes in the store.

He was very patient, and helped both my husband and I find great shoes at prices were both pleased with.

The experience was so completely opposite from our experience the previous day at Roadrunner, it was almost shocking.

We both left happily with our new shoes, and if we aren't happy with them within 30 days, (even though they have been worn outside) we can return and get a full refund.”

While the customers are yapping, the CEO Ken Hicks has a lot more to say:

“The marquee basketball business was outstanding in February, and indeed, throughout the quarter, as key player shoes such as the Lebron, Rose, Kobe and Durant, all sold exceptionally well. Lauren said I'd put color into my remarks, well our vendors put color into these players' shoes and our customers snap them up. In fact, color was a consistent theme throughout all of our categories and we expect it to continue to be so in the future.

First, we said we would strengthen our apparel business, which you can see from recent results, we're doing. We continue to refine the assortments by banner. We have a stronger performance apparel story in Foot Locker, for example, compared to the lifestyle apparel in Footaction, where we carry items that you won't see in our other banners such as RockSmith tees and Levi's jeans. We also introduced the new Nike NFL apparel in our Champs Sports stores, which we feel very good about going forward.

.....we have identified the overall Women's business as an area of exceptional growth potential, and we're working hard to develop the proper long-range formula. Meanwhile, we have the largest chains of Women's athletic stores, Lady Foot Locker, to run on a day-to-day basis, and we've been making progress. I mentioned some of the apparel changes we've made, but we also gained traction in footwear. We produced gains in Nike performance running, driven by in-season TR and Dual Fusion, as well as with the Free, which we launched in 5 colors across the entire chain.

Looking ahead, more broadly, we remain confident about the trends in the athletic business. Customers are continuing to respond favorably to the new technologies and colors across many categories of footwear, apparel and accessories. In addition, we have some external factors working in our favor over the rest of the year

Yes, our branded business continues to be strong, because of, I tell you, the vendors are coming out with some great product. I mean, Nike, Adidas has been very, very strong, Under Armour. We've been very fortunate. With regards to margins, we continue to improve the margins. The branded margins are somewhat higher than the private label, but we're continuing to make progress on both fronts.

Yes, we're working with Under Armour. They've got a major effort in Women's and as do all of our vendors, quite frankly. And they're working with us very closely. We've got a good relationship with them. And they realize that to be successful in the mall, we need to work together, and we are on the apparel front and on the shoe front. That said, from all the vendors looking forward this fall, as I said, we've got the World Cup, we've got the Olympics, we've got a full season of football, a full season of basketball and we've got some great names out there that are all exciting. I mean, you got Lebron and Wade and Rose and Durant's just hotter than a pistol, both on and off the court, that -- this is an exciting time for us.

2012 has gotten off to an outstanding start, with our first quarter results representing the highest level of quarterly earnings in the Company's history as an athletic business. The first quarter continued our recent track record of meaningful sales and profit increases over the comparable prior-year periods. We remain focused on executing the initiatives of our updated strategic plan and objectives in order to continue to drive our strong financial performance."

Maybe after all is said and done, I’m gonna by me some $250 Durant sneakers. On second thought, I just paid two college tuitions…maybe I’ll shop at Spags after all. I still get nightmares from that cowboy hat.

Let me know what you think of this write up. Please share with your friends if you enjoyed it.

I am HUGE!!

$$$MR. MARKET$$$$


07-21-2012, 12:31 PM
Another really terrific thorough writeup. I learn a lot not just from the individual facts, but the different measures you consider. Thanks MM for sharing your analysis.

07-23-2012, 01:28 PM
I bought some this morning after the market dipped; got a good price at 32.18. I'm a little concerned about reduced retail performance across the board on earnings coming in over the last few days - but compared to other retailers, FL is looking good.

07-24-2012, 12:13 AM
I'm in with you at 32.5!

07-25-2012, 08:19 AM
32.6; giddyup!

09-04-2012, 04:54 PM
Looks like we're about halfway there!

09-13-2012, 11:49 PM
Got my 14% gain with a sell at the close today at $37... coulda had 15% if I'd put in a limit order in sooner, but I'll take 14% any day!

Thanks for FL, $$MM!!! An outstanding pick, and I can't wait for the next one!

09-14-2012, 10:36 AM
getting close!

03-23-2013, 02:02 AM
I got back into this one again at $33... and am ready to ride it up to 37 one more time!

05-23-2013, 08:22 PM
Forbes Earnings Preview: Foot Locker
By Narrative Science
Comment Now Follow Comments
Foot Locker FL -0.42% (FL) reports its first quarter earnings on Friday, May 24, 2013.

The consensus estimate is 87 cents per share, up 4.8% from a year ago when Foot reported earnings of 83 cents per share.

The consensus estimate has declined from 91 cents over the past three months. For the fiscal year, analysts are projecting earnings of $2.82 per share. Revenue is projected to eclipse the year-earlier total of $1.58 billion by 3.3%, finishing at $1.63 billion for the quarter. For the year, revenue is projected to roll in at $6.4 billion.

The company has reported increasing profit for three straight quarters. In the fourth quarter of the last fiscal year, net income rose 28.4% while it rose 60.6% in the third quarter of the last fiscal year and 59.5% in the second quarter of the last fiscal year.

The majority of analysts (91.7%) rate Foot as a buy. This compares favorably to the analyst ratings of its nearest five competitors, which average 63.9% buys. That rating hasn’t budged in three months as the average analyst rating of the stock has remained unchanged.

07-12-2013, 10:16 AM
I got back into this one again at $33... and am ready to ride it up to 37 one more time!

...and it's back to 37 again! Time to sell, or give it one more week to hit 38?!?

anyway, FL is HUUUUUUGE!!!

07-12-2013, 01:14 PM
...and it's back to 37 again! Time to sell, or give it one more week to hit 38?!?

anyway, FL is HUUUUUUGE!!!

This is a great pick. Even if a person is dyslexic and bought LF by mistake, LF is a huge pick also. The Huge One's latest pick,FLT, is not doing so well today, but its dyslexic cousin TLF is up over 1% as I write. There is a pattern developing here.

08-03-2013, 01:21 PM
This Specialty Retailer Is an UnderdogBy Eshna De (http://beta.fool.com/tinade/) - July 7, 2013 | Tickers: DKS (http://beta.fool.com/ticker/dicks-sporting-goods-inc/), FL (http://beta.fool.com/ticker/foot-locker-inc/), FINL (http://beta.fool.com/ticker/the-finish-line-inc/) | 0 Comments (http://beta.fool.com/tinade/2013/07/07/this-specialty-retailer-is-an-underdog/39400/?source=eogyholnk0000001#disqus_thread)
Eshna is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
If there is one stock that has been conserving its energy, it is Foot Locker (NYSE: FL (http://caps.fool.com/Ticker/FL.aspx)). The specialty retailer has around 3,321 stores in some of the best malls in the Western world. Despite posting impressive sales and earnings gains over the past many quarters, the company's stock has not performed commensurately. Throughout this year it has added around 12.94% to its stock price, well behind the S&P index which has gone up by 14.04%.
What makes Foot Locker interesting, however, is that it currently has quite a few big opportunities that could act as catalyst for its stock and unleash its true value.
Where most companies are treading Europe with caution, we find that Foot Locker is doing some neat business in the continent. European operations are profitable and management has a positive outlook. The company has added around 40 stores since end January. The total number of stores in the continent stands at 600 at present.
In addition to increasing its business from the existing brick and mortar stores, Foot Locker also has a big opportunity in e-commerce in Europe as this has been mostly an unchartered territory. Management has now set an aggressive target of 10% digital sales for the entire company which includes Europe.
The biggest growth generator for the company will likely be the German athletic retailerRunners Point Group, which Foot Locker is acquiring. The latter has recently received approval from Federal Cartel Office in Germany and the deal is expected to close by the end of July.
Runners Point has around 200 stores in Germany, the Netherlands, Switzerland, and Austria and is a fast growing and profitable business with 9% same-store sales growth last year. This acquisition will position the company nicely in Germany, which it believes to be the strongest economy in Europe at the moment.
Runners Point has some good brands like Sidestep, which carry good prospects. Foot Locker is evaluating the possibility of turning some of its flagship stores into Runners Point and Sidestep stores to capitalize on the brand opportunity. The company expects the acquisition to be accretive from 2013 itself.
Kids business and apparel
Kids Foot Locker is a faster-growing business than its adult counterparts. It clocked 20% same-store sales growth during the first quarter. Footwear grew by low double digits and apparel sales were even stronger. Inherently, the kids business enjoys higher momentum due to smaller replenishment cycles as kids keep outgrowing their shoes and clothes.
For its part, Foot Lockers has brought about changes in the store layouts to create an attractive format for kids. The “Pro Zone” and hero-sized footprints have become extremely popular. The company has taken a target of remodeling 20% of its kid’s footwear range along the lines of adult Hero shoes by the end of this year. Foot Locker is working with key vendors like Nike and Under Armour to expand children’s collection.
The other big opportunity for the company lies in apparel. Foot Locker is leveraging its existing relationship with its big suppliers to rapidly build up its apparel section.
Currently, apparel and accessories together account for 24% of sales.The company wants apparel to eventually command 30% of sales, however. Foot Locker has been increasing its assortments in terms of adding more brands and more colors over the past few years. It hottest selling items are Nike's Jordan brand, Adidas, and Under Armour brands.
Profitability increases
Foot Locker monitors the performance of its stores continuously and keeps shutting down unproductive stores. Currently, it is closing quite a few smaller Lady Foot Locker stores and opening new stores in other, more profitable formats. The company closed 39 stores and opened 25 during the first quarter.
As a result, Foot Locker is deriving incremental sales from lower store bases which implies that the company's entire increase is coming from same-store sales growth. Over the last ten years or so, the company has pushed up its sales per square feet by 40%. This increase also adds to the company's bottom line.
In the first quarter, Foot Locker increased its total sales by $60 million or 3.8% to $1.64 billion, backed by a 5.2% increase in same-store sales. The store count of 3,321 at the end of the first quarter compared with 3,360 at the end of the same period in 2012. During this period, net income increased from $128 million to $138 million. As much as 25% of this $10 million increase stemmed from incremental sales and improved productivity.
Foot Locker plans to close 88 stores during the current quarter and open another 73. This indicates that profitability gains will continue over the coming quarters.
Peer analysis
Foot Locker competes with all specialty retailers, but its closest peers are Finish Line(NASDAQ: FINL (http://caps.fool.com/Ticker/FINL.aspx)) and Dick’s Sporting Goods (NYSE: DKS (http://caps.fool.com/Ticker/DKS.aspx)). Of the three, Foot Locker has put up the best performance in terms of same store sales growth in the most recent quarters respectively. Compared to the former’s 5.2% increase, the other two posted an increase of 2.4% and a decline of 3.8% respectively.
Like Foot Locker, the other two retailers are also pursuing new opportunities for fuelling growth. Finish Line has entered into an agreement with Macy’s to become its exclusive athletic footwear partner. Finish Line stores will be set up 450 Macy’s locations.
The company is hoping to capitalize Macy’s superior visibility and brand image to promote its sales. In the most recent quarter, sales at stores that have opened at Macy’s locations were stronger than the remaining lineup.
Dick’s, on the other hand, sees its growth coming from increasing the number of its stores. It feels that it has the potential to increase its store count to around 1,100, which is more than double the current strength. It has also launched a running specialty store format called "True Runner" and will be introducing another "Field & Stream" concept later this year. Both formats are expected to further increase sales.
Last word
Foot Locker has strong future prospects stemming from its European operations, its growing kids business and apparel lineup, and its improving profitability. The company's stock has a price-to-earnings ratio of 13.45, which is lower than Finish Line’s 16.81 and Dick’s 20.68. At its current valuation and given its growth prospects, Foot Locker is an attractive proposition for investors.

11-14-2013, 10:41 AM
...and it's back to 37 again! Time to sell, or give it one more week to hit 38?!?

anyway, FL is HUUUUUUGE!!!

should have sold, I guess, because it went down to 33 and now right back to 37 again! what to do? what to do? Limit order for 37.5 and split the difference. That's the ticket!

11-18-2013, 10:37 AM
should have sold, I guess, because it went down to 33 and now right back to 37 again! what to do? what to do? Limit order for 37.5 and split the difference. That's the ticket!

I'm out now with 37.4 and another 12% profit on this one! (Couldn't wait for the extra dime)
Thanks for the awesome pick, $$MM!!!! You are HUUUUUUUUUUUUUUUUUUUUUUUGE!!!!

11-22-2013, 12:43 PM
My My mY...what do we have here???

11-22-2013, 01:35 PM
My My mY...what do we have here???

Whoops, you did it again !