Foot Locker, Inc.
) recently reported its tenth straight quarter with a positive
earnings surprise, sending all 11 earnings estimates for this
fiscal year higher in the past 30 days. In addition, this
well-known Zacks #1 Rank (Strong Buy) athletic retailer pays a
dividend that yields a smart 2.1% annually.
Solid Third Quarter Results
On November 16, Foot Locker reported fiscal third quarter adjusted
earnings of 63 cents per share, surpassing the Zacks Consensus
Estimate by 16.7% and last year's earnings by 47%. Results were
driven by impressive top-line growth and solid expense management.
Total sales rose 9.3% to $1.52 billion year over year, driven by a
solid comparable store sales increase of 10.2%. Sales comfortably
beat the Zacks Consensus Estimate of $1.47 billion.
Gross margins expanded 60 basis points to 33.1%, due to sales
growth and effective leverage of fixed occupancy and buying costs.
Dividend and Share Repurchases
In addition to the impressive earnings growth, Foot Locker pays a
regular quarterly dividend of 18 cents per share, representing an
annual dividend yield of 2.1%. The company has raised the payout
twice since early 2011, including a 9% increase in February this
Foot Locker has plenty of cash. Net of debt, its cash position
increased $158 million at the end of the quarter from the prior
year. Moreover, the company repurchased 841 thousand shares in the
quarter worth $29.7 million, as part of its $400 million share
repurchase program announced earlier this year.
For the fourth quarter, management expects comps to reach the upper
end of its previous guidance for a mid single-digit increase,
gaining from an extra week in the quarter. Furthermore, gross
margin is expected to expand about 50 basis points.
Earnings Momentum Jumps
The strong quarterly report drove all 11 estimates for fiscal 2012
higher in the past 30 days, sending the Zacks Consensus Estimate up
by 4.1% to $2.55. Meanwhile, the Zacks Consensus Estimate for
fiscal 2013 has moved up the same percentage to $2.81, as 11 of 12
estimates were boosted. These outlooks suggest year-over-year
growth of 40.2% and 10.2%, respectively.
Very Attractive Valuation
Foot Locker currently trades at a forward price-to-equity (P/E) of
13.67x, reflecting a 10.0% discount to the peer group average of
15.18x. The stock is also attractive on a price-to-sales basis with
shares trading at 0.88x, a 7.4% discount to the peer group average
The stock trades at a discount of 5.7% on a price-to-book basis.
The PEG ratio is 0.96, a 4% discount to the benchmark of 1 for a
fairly priced stock. Overall, the stock is cheap at current levels
and may be attractive for the bulls.
Chart Echoing Strength
The chart shows that consensus estimates have been trending
significantly higher since 2011, as the company has delivered 10
straight positive earnings surprises. The uptrend in 2012 and 2013
earnings estimates should encourage investors as the stock is
likely to follow the trend. Also, the stock price has been
consistently below the earnings estimates, reflecting that the
stock is still undervalued.
Based in New York, Foot Locker is a leading retailer of athletic
shoes and apparel and operates through two segments: Athletic
Stores and Direct-to-Consumer. Athletic Stores is a leading
footwear and apparel retailer that operates through Foot Locker,
Footaction, Lady Foot Locker, Kids Foot Locker, Champs Sports, and
CCS retail stores. The Direct-to-Consumer channel operates through
the websites footlocker.com, Eastbay, and CCS.com.
The company operated 3,367 stores at the end of October 27, 2012 in
23 countries in North America, Europe, Australia, and New Zealand.
The company has a market cap of $5.26 billion.
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