One thing about teenagers: Most of them don't get hung up on
stuff like recessions and unemployment.
Those are for parents to worry about, along with 10,000 other
unimportant things, like when their kids are going to clean up
their rooms or stop moping around or quit fiddling with their
cellphones for hours on end.
Honestly, who cares if the U.S. economy staggers along and
Europe is strangling on its own debt? There's still enough cash
to spend on a pair of $250 basketball shoes, right?
You bet there is, if recent trends atFoot Locker (
) and other athletic apparel retailers are any indication.
"Athletic footwear is experiencing the best conditions in 15
years with new products that have been introduced, designs that
have caught the fancy of consumers and the willingness of
consumers to buy premium footwear at prices not reached before,
like $250 and $260 a pair," said Bernard Sosnick, an analyst at
One of the beneficiaries of this trend is Foot Locker, a
retailer of athletic shoes and other gear.
Foot Locker's retail operation includes its chain of namesake
stores as well as the Lady Foot Locker, Kids Foot Locker, Champs
Sports, Footaction and CCS chains.
It operates more than 3,300 stores in 23 countries in North
America, Europe, Australia and New Zealand. Another 36 Foot
Locker franchised stores are located in the Middle East and South
Most of the company's stores are based in malls. It also has a
direct-to-consumer business that includes CCS and
In addition to footwear, Foot Locker stores sell athletic
apparel, accessories and equipment. But its lineup of brand-name
shoes from suppliers such as Adidas,Under Armour (
) andNike (
) have driven much of its recent financial gains.
The company has run off seven straight quarters of
double-digit or better EPS growth. Same-store sales have risen in
mid- to high-single digits for several quarters and are expected
to do the same through the end of the year.
Meanwhile, Foot Locker's stock price set a record high of 34
on July 19. Shares are up more than 35% since the beginning of
These gains have come even as Foot Locker's two biggest
markets, the U.S. and Europe, have struggled under the weight of
either high unemployment, economic uncertainty or spiraling
"In every recession, there are 'affordable' luxuries, and for
many consumers, those luxuries are premium running and basketball
shoes," Sosnick said. "Foot Locker continues to see strong sales
of popular items like the (Michael) Jordan brand, which teenagers
The company also has broadened its selection of running shoes,
which Sosnick says are "red hot" in terms of consumer demand.
Analysts expect the strong demand for high-end athletic shoes
to continue. In a report following Foot Locker's first-quarter
results, Citigroup analyst Kate McShane noted that Foot Locker is
about to enter its fourth year of "strong growth" in the footwear
"Management is viewing the momentum as a trend rather than a
cycle," she wrote. "This is based on the fact that demographic
trends are changing as more baby boomers look for comfortable
shoes and more Millennials dress down in the workplace. Further,
vendor innovation has been very strong, which continues to drive
Many analysts credit Foot Locker's recent success to
turnaround efforts engineered by Chief Executive Ken Hicks, who
took over the post about three years ago following four years as
a senior executive atJ.C. Penney (
When Hicks joined Foot Locker, the company was in the midst of
a slump that saw its sales decline three years running and its
earnings fall in two of those years.
The last couple years have been much better for Foot Locker.
Earnings in 2010 more than doubled from the prior year, while
sales grew 4%. Last year, annual profit rose 65% and sales gained
Analyst Sosnick says Hicks has "revitalized" the company.
"He added more running shoes so Foot Locker could benefit from
the heavy demand," Sosnick said. "He also has helped
differentiate the chains so they are not so much alike anymore.
For example, Foot Locker caters to people who are interested in
the technical aspects of the shoes and apparel, while Foot Action
caters to a much more urban style."
Strength in several footwear categories, including basketball
shoes, retro training footwear and lightweight running shoes,
drove Foot Locker's growth during its first quarter.
The company posted earnings of 83 cents a share for the
quarter. That was up 38% from the prior year and 9 cents above
Revenue gained 9% to $1.6 billion, also above estimates.
Same-store sales climbed 9.7%.
Gross margin increased 130 basis points from a year earlier.
Citigroup's McShane expects margins to keep getting bigger in
"Ongoing margin improvement will be driven by improvement in
apparel margins and improved allocation systems," she noted.
Analysts polled by Thomson Reuters expect Foot Locker's annual
profit to rise 31% this year and 11% next year.