Why Foot Locker Is One Retail Stock to Own
Short and sweet today because quite honestly, I have to go rock training session number two for the day at the gym. First, I told you to buy Foot Locker shares (http://video.foxbusiness.com/v/1728945321001/how-to-profit-from-the-cons...) on July 10. Considering I am a young guy wearing makeup, plus giving a stock pick, in front of people I can't see, that should give me some Street cred. Second, I would like you to buy more Foot Locker if having acted on the initial recommendation, or dabble in a new position upon saying hello today. At 12.5x forward earnings estimates, I think the stock is deserving of a higher multiple given superior fundamentals relative to its primary mall rival, Finish Line (which is playing catch up on technology investments), and on the notion consensus is too conservative for the current quarter, the holiday quarter, and 2013. Main risk: the muscular arm of fiscal cliff comes down hard on the psyche and wallets of consumers, causing a resistance to price increases Foot Locker is trying to recoup from the likes of Nike, Adidas, Puma, etc.
Want additional “support for the thesis”…here you go!
•Foot Locker is one of the few specialty retailers actually doing well in Europe (go ask Abercrombie & Fitch management how Hollister Europe is doing #fail). In fact, same-store sales in Europe in August are up by a mid-single digit percentage, an improvement from the second quarter run rate. There is a degree of Olympics boost in the sales number, but even flattish sales for the rest of the period will surprise a market in the third quarter that is going to have to deal with renewed European debt risk flare.
•A greater percentage of the merchandise assortment is priced above $100 now, and these are the categories in which Foot Locker is rocking out financially. A steady stream of basketball and colors/fashion are enticing consumers. Shortly, that $315 LeBron sneak (which won't make you fly or rich like LeBron) will only juice Foot Locker's financials.
•A new tech-based labor scheduling plan is in all U.S. stores, and soon, in Europe. I have seen the cost benefits to Wal-Mart and Home Depot from these tech-focused worker productivity initiatives, and it should pad Foot Locker's operating margins while sales are surprisingly strong.
•I sense that Lady Foot Locker, long an afterthought, is on the precipice of a re-branding (think new banner). This would be welcome news as a means to reinvigorate interest amongst female consumers, and position Foot Locker well ahead of Lululemon and Under Armour perhaps accelerating their female store level presentations.