Foot Locker Runs Faster Than Rivals In Sneaker Race

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Catwalks from New York to Milan confirmed the trend this spring: sneakers have arrived.

Models during the spring shows trotted out the latest designer fashions footed in all manner of sneaker styles, from basic white to colorful high-tops.

A look around the office, mall or line at your local coffee spot says as much. Sneakers are entrenched fashion accessories. Of course, teens are still the early and most active adopters, coveting the latest fanciful launches from top brands -- from flat Converse All Stars to high-tech performance athletic shoes.


Teens' penchant for the next new sneaker has been powering strong results at athletic footwear retailerFoot Locker ( FL ), an IBD 50 stock.

Its core "sweet-spot" customer base skews to people ages 12 to 20, and heavily male, analysts say.

"Teens want brands other kids are wearing," said analyst Christopher Svezia of Susquehanna Financial Group.

And Foot Locker is delivering. Quarterly earnings have notched up in double or triple digits on a year-over-year basis for all but one of the last 15 quarters. Per-share earnings in the first quarter ending May 3 jumped 22% to $1.11 a share, beating analyst views.

Same-store sales in the quarter advanced 7.6%, while total revenue was up 14% to nearly $1.9 billion, also above views.

Slam-Dunk Sales

Foot Locker's customers are going especially wild for colorful basketball shoes, the fastest growing category in the athletic footwear market.

Nike ( NKE )-branded footwear, including the hot-selling Jordan basketball brand, accounts for about 60% of Foot Locker's sales, analysts say.

New York-based Foot Locker carries a number of other footwear brands with sneaker offerings, including Adidas, Reebok,Under Armour ( UA ) and Puma.

Nike and the Nike-affiliate Jordan Brand are the top two basketball brands in the U.S., with Jordan No. 1, according to the NPD Group.

The research firm reported that U.S. basketball footwear sales jumped 21% in the 12 months ending in April, making the category the fastest growing in athletic footwear. The next most popular basketball brands were Germany-based Adidas and its affiliate Reebok.

Deutsche Bank Securities estimates that basketball footwear makes up 40% to 50% of Foot Locker's product mix.

"Think about all those fancy sneakers, whether running shoes or basketball shoes from Nike or Adidas or whoever. That is why Foot Locker has been outperforming most of its peers," said Svezia.

Foot Locker competes withFinish Line ( FINL ) and to a lesser extentDick's Sporting Goods ( DKS ) and Sports Authority, among others.

The company's core customer, Svezia said, "is looking for what's next and what's hot -- and having it in stock."

Basketball is especially "critical" for Foot Locker, Svezia said, adding that the category comes with "some of the highest prices in footwear," at $125 to $250 a pair.

Foot Locker's ties with Nike and other brands include brand shop-within-shops such as House of Hoops, Yardline, Fly Zone and Jordan 23 on the Nike side plus Adi Collective and Originals shops for Adidas. As of May 3, the firm boasted 1,041 Foot Locker stores in the U.S., 604 in Europe, 128 in Canada and 92 in the Asia-Pacific region. It also operated 345 Kids Foot Locker stores and 241 Lady Foot Lockers, plus 544 Champs Sports and 276 Footaction locations.

Sneakers have also been fueling sales at Kids Foot Locker, which has shown mid-teen to 20% growth the past few quarters, said Deutsche Bank analyst Paul Trussell in a June 13 research note.

That suggests the "sneaker culture is no fad and likely here to stay for years to come," he wrote, "as feet grow."

In a recent phone interview, analyst Sam Poser of Sterne Agee said he expects the largely mall-based Foot Locker to continue to benefit from the "very strong sneaker trend" through at least mid-2016 "as a lot of brands continue to innovate and build up to the (Summer) Olympics."

"Foot Locker has done a great job over the years positioning itself in basketball," Poser said in a June 11 report on Foot Locker, which came with a buy rating.

"Arguably, Foot Locker globally owns mind share for basketball retail," he wrote.

Basketball Beyond Borders

According to Poser, Nike's launch this spring of the Air Jordan 6 "Carmine" basketball shoe logged $44 million in sales in the first eight days it was out. He cited data from SportScanInfo.

Foot Locker's management has told analysts that passion for basketball is even spreading to soccer-obsessed Europe. They expect that newfound passion to trickle down to basketball footwear sales over time. The company did not respond to an interview request.

Foot Locker sales in Europe have been strong, thanks in part to sales of select Nike brands, analysts say.

More Stores Planned

The company is eyeing expansion in Europe. Last year's acquisition of German athletic retail chain Runners Point Group gives it more than 200 Runners Point stores and a related e-commerce site.

Foot Locker also plans to expand its children's business through new Kids Foot Locker stores and additional space in Foot Locker locations.

But Foot Locker's women's and apparel businesses have been sore spots. Apparel fell to 23% of sales last year from as much as 30% a decade ago, Trussell noted.

The company aims to get apparel back to that level in part through the sale of more premium branded products. Apparel has been doing better in stores that have been part of the firm's ongoing remodeling program, he said.

On the women's side, Foot Locker is testing a fitness concept called Six:02, which carries yoga pants, work-out wear and other related apparel.

Six:02 now has nine stores open and an e-commerce site. Many more stores could roll out as early as next year, Trussell predicted.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.




This article appears in: Investing , Investing Ideas

Referenced Stocks: FL , NKE , UA , FINL , DKS

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