Foot Locker's Diversified Business Model Makes It A Buy

Foot Locker, Inc. FL reported solid Q3 results, with strong comp numbers. The performance was “a testament to the company's more diversified/evolved operating model,” as Foot Locker continues to adjust its assortment by category, brand and channel, Brean Capital’s Eric Tracy said in a report. He maintains a Buy rating on the company, while raising the price target from $77 to $78.

Foot Locker reported its Q3 EPS at $1.13, ahead of Brean Capital’s and the consensus estimate of $1.10. Comp growth came in at a solid 4.7 percent, beating Brean Capital’s estimate of 4.0 percent.

Model To Continue to Deliver

Foot Locker is increasingly diversifying its operating model, which “serves to limit over-reliance on any one category/brand,” Tracy mentioned.

Management re-affirmed the FY 2016 guidance for comps at mid-single-digit growth and EPS at double-digits.

Tracy considers the target as achievable, given the company’s flexibility in “allocations by style (lifestyle/ retro), vendors (adidas AG (ADR) ADDYY, Under Armour Inc UA to a lesser degree), and channel that allows FL to participate more fully in hottest trends.”

Foot Locker would achieve the target despite the multi-year comps and a slower innovation pipeline at Nike Inc NKE, which currently constitutes about 70 percent of mix, the analyst said, adding that the company’s lean inventories and disciplined expense management would also contribute.