Foot Locker is a leading global athletic footwear and apparel retailer, which caters to the sneaker enthusiast.
Foot Locker provides the best selection of premium products for a wide variety of activities, including basketball, running, and training. Foot Locker's 1,835 stores are located in 23 countries including 1,015 in the United States, Puerto Rico, Virgin Islands, and Guam, 126 in Canada, 603 in Europe, and a combined 91 in Australia and New Zealand.
The price target - $79/share (current price $71.63/share – potential upside of 10%).
Sales
• Offers an array of well renowned brands and not limited to just one brand;
• Brand exclusivity – meaning that brands will have products which are sold only in footlocker stores;
• International presence – we expect to see further capital investment in increasing retail space/stores and winning over market share;
• Store restructuring/remodelling to help increase sales;
• Online sales continue to grow – 11% of sales at the moment and expect to increase by double digits of the next three years;
• Build up in demand for sport products as consumers become more health conscious;
• Focus on women in sport which is also picking up. The company targeting women with the scope of increasing market share;
• Kids section also seeing continued growth as sports is being given more importance;
• Global sales driven by European expansion (25% of sales).
Margins
• Operating margins increases year-on-year, currently at 12.7% (year end-January). We expect to margins to continue to improve as the company has a lot of room to growth online as well as new pockets in the markets to continue growing (women in sport and kids section)
Cash
• Solid balance sheet with over $945mln cash allowing the company to continue to invest in increasing the top line by expanding further
Dividend
• Indicative gross yield of 1.64%
• Share repurchase program a possibility due to strong cash position
We believe Foot Locker should form part of a well-diversified portfolio for multiple reasons. The first (and most important) reason is that we still expect to see margin expansion, something which is not so obvious for many other US companies which have seen their margins peak in 2015.
Other reasons included a company which is quickly adaptable to changes in fashion and offers a wide array of brands (not just limited to one). Add to that a strong balance sheet and cash position which could be used to invest for further growth and/or payout of shareholder via increased dividends or share buybacks.
This article was issued by Kristian Camenzuli, Investment Manager at Calamatta Cuschieri. For more information visit, www.cc.com.mt. The information, view and opinions provided in this article is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri Investment Services Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.