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FL

Foot Locker NYSE:FL Stock Report

Last Price

US$33.96

Market Cap

US$3.2b

7D

-10.0%

1Y

-31.1%

Updated

27 Sep, 2022

Data

Company Financials +
FL fundamental analysis
Snowflake Score
Valuation2/6
Future Growth0/6
Past Performance1/6
Financial Health5/6
Dividends4/6

FL Stock Overview

Foot Locker, Inc., through its subsidiaries, operates as an athletic footwear and apparel retailer.

Foot Locker, Inc. Competitors

Price History & Performance

Summary of all time highs, changes and price drops for Foot Locker
Historical stock prices
Current Share PriceUS$33.96
52 Week HighUS$57.76
52 Week LowUS$23.85
Beta1.2
1 Month Change-7.59%
3 Month Change26.20%
1 Year Change-31.13%
3 Year Change-18.97%
5 Year Change-1.22%
Change since IPO2.91%

Recent News & Updates

Sep 09

Foot Locker: A Potential Value Trap

Summary Despite poor earnings, the markets cheered on Foot Locker as the nomination of a new executive spurred positive investment sentiments. We believe that the market is overexuberant with the executive change as there are more secular challenges and existing problems with the company's strategy. We believe Foot Locker's valuation has been adequately priced in by the markets on a peer comp, dividend, and share buyback basis. Thus, there is little room for the stock to grow and more volatility in the company's strategy at least before 2023. We have seen a meteoric rise in Foot Locker's (FL) share price after the release of Q2 earnings. FL managed to surpass low analysts' expectations in terms of EPS but fell short of a more realistic revenue target marginally. Coincidentally, the company announced the retirement of its long-term chief, Richard Johnson, of the helms of one of the leading athletic footwear and apparel retailers worldwide. Replacing him as the President and Chief Executive Officer is the 35-year veteran of leading consumer-driven businesses, Mary Dillon. We think that despite the cheap trading multiples that FL possesses, the company is not a buy at this level as the company still faces secular challenges as reflected in its latest earnings call and existing strategy. We also believe that Dillon's success would not be replicated in FL as compared to her previous ventures and that the market is over-exuberant about the thesis of a turnaround fairy-tale. Secular Challenges After the company's announcement of succession on the same day as the earnings report was released, Wall Street seems positive about what Dillion could bring to the table, as the stock price rose amidst the red inks we spotted. We continue to believe that FL faces secular challenges as a mall-based retailer and would require some time to replace Nike's (NKE) diminishing allocation to third-party retailers. This could be seen in a decline of comparable-store sales (comps) by 10.3% year-over-year during the quarter. This does not sit well with investors of any retail business as the metric is used to gauge the organic growth of the company. Despite revealing that non-Nike sales in their core business recorded high single-digit growths, it would take a few quarters for FL to rebalance their product assortment to stock up more of Adidas, Puma, New Balance, and the remaining top 20 vendor's product lines. Furthermore, the outstanding performance in 2021 that was led by COVID fiscal stimulus would not be applicable in the subsequent quarters to come, especially in North America and Europe. In a more positive light, the comps in the APAC region were up 17.7% year-over-year during this quarter as Australia phased out its zero-COVID strategy and parts of Asia such as Israel, Saudi Arabia, and the UAE benefited from reduced travel restrictions in 2022, allowing for FL's retail stores to operate. However, this temporary boost in comps is likely to end at most after Q4 FY22 as most APAC countries lifted most generalised public health restrictions and allowed for international travel, reverting the economy back to the norm. FL's Operating Margins (Capital IQ) Another secular issue lies in its operations, and for that, we have to look at its SG&A margin. For Q2, it was deleveraged by 200 bps at 21.9%, particularly driven by labour wage inflation. For the past few quarters, the company is pulling gross margins above 30% but its SG&A is approximately 20% on average, revealing a major profitability issue as the net income margin decreases for 2 consecutive quarters. The issue lies with its overhead cost. For the past 5 years, the company has been increasing its total number of employees, where it could have utilised its cash flow to build out an e-commerce network with functioning distribution nodes to streamline the sales of sneakers and apparel to consumers. With the rise of e-commerce, there is no need for stores to have that many sales assistants to help consumers with their purchases anymore. Furthermore, in such a bearish economy, FL should seize the opportunity to reduce the number of staff and SG&A costs, pivoting the company into the digital space. Problems with its Existing Strategy Diversification of Merchandise and Vendor Mix Despite having multiple partnerships and exclusive access to product lines, the truth is that FL is underpenetrated in most of its brands apart from Nike, and it is likely to remain that way for the foreseeable future. The news of Nike cutting back on the shoes that FL could sell saw the company pivoting towards a stronger partnership with its rival, Adidas. Perhaps Nike knew that a direct-to-consumer approach would see their profit margins increase, as they need not give a cut to major retailers in times of higher supply chain costs and inflationary pressures. We think that the partnership between Adidas and FL would continue to remain strong as Adidas looks to dethrone Nike, the most valuable sportswear and athleisure brand. Since the management guided that no single vendor will represent more than 55% of FL's purchases by Q4 2022, the impact of reduced allocations from Nike would be felt in the last quarter of this fiscal year as the company actively repositions its product assortment from there. While we do acknowledge that non-Nike sales have been growing y-o-y in both fiscal quarters, it will be challenging to keep up with the growth in these brands (i.e., Converse, Vans, New Balance, Crocs, Brooks, ASICS, Puma and more) as marketing campaigns and great storytelling through exclusive products and concepts could only introduce that much hype to relatively obscure brands compared to Nike. Thus, onboarding and diversifying more merchandise from different vendors might not fill the void left by Nike's reduced presence, translating to a decline or stagnation in sales figures. Share Repurchase Plan For the past decade, FL has been consistently decreasing its number of outstanding shares as part of its long-term share repurchase plan. However, with the Biden administration rolling out a 1% excise tax on the purchase of its own shares, the company will be less likely to authorise a huge sum for the subsequent repurchase of its shares in 2023 when the law takes effect. To illustrate the financial impact it may cause, FL repurchased 1.4 million shares of its common stock for $40 million and paid $38 million in dividends. A 1% excise tax would mean an additional $400,000 in a financial quarter being paid to the federal government instead of the pockets of stockholders in the form of dividends. Although dividends would be subjected to double taxation, individual investors should be concerned about the company increasing dividend payments just to keep stockholders holding the stock due to lucrative yields. We believe that most companies that pay high amounts of dividends relative to their net income are usually not high-growth leaders as companies with more growth potential would have a better use for their dollars (eg: R&D, capital expansion, and/or mergers and acquisitions (M&A). In the case of FL, the retail company is definitely not one of high growth after looking at their comparative sales declining 10.3% in Q2 and 1.9% in Q1 this year. The only prudent way that it should spend its net income would be only on the expansion of stores and M&A of brands or companies. FL's Dividend per Share in USD$ (Capital IQ) In other words, dividend payments are not guaranteed and are subject to management decisions. As discretionary spending on goods and services continues to decline, we believe that the dividend per share for FL could have much room to decline back to FY21, when its stores are beginning to open up across the world as pandemic restrictions relaxed. This conservative estimate likely mirrors the potential sales as the company moves into tighter fiscal management of its finances. Overexuberance after Executive Change The arrival of Mary Dillon spurred investors to consider a potential appreciation of share price in the same fashion as Ulta Beauty (ULTA). Highlighting her time in her previous firm, she managed to engineer a best-in-class loyalty program that saw the stock more than quadrupled in price, giving shareholders an ROI of 16.6%. On top of that, her time at previous appointments in McDonald's Corp. (MCD) and PepsiCo (PEP) allowed her to display strong operational experience and most notably, shareholder value creation. Investors may think that her deep consumer marketing and digital transformation expertise is exactly what FL needs to turn itself around. We are here to think otherwise. We think that her expertise in the beauty industry is not transferable to the fashion industry, where it would require someone who understands streetwear and sneakers, with a keen eye for spotting trends and securing exclusive launches. This would allow the company to onboard successful products that would sell out, reducing inventory turnaround time and increasing sales. We believe that this is something that would take more than just a loyalty program and targeted consumer marketing to accomplish. Perhaps her digital transformation expertise could come in useful to pivot the company into the digital space. Thus, the exuberance in the announcement of her arrival saw the stock price shoot up over 20% after dismal earnings are definitely unwarranted and illogical in our opinion. We believe that the company should be trading closer to its long-term fundamentals instead. Peer Comps FL's Peer Comps (Capital IQ) Among its peers, we have selected those that are distributors of multiple apparel brands that are similar to the business model of FL. Since the growth of these businesses heavily relies on opening more stores to increase sales, we decided to look at both their revenues and EBITDA to gauge where FL stands. Based on the median figures of the peer comps, FL is priced fairly on an EV/Total Revenue basis with its peers. However, it lags behind when comparing EV/EBITDA, further illustrating the point made about high SG&A margins and an inefficient mode of operation in the secular challenges discussed above. FL's Peer Comps (Capital IQ) Clearly, we can also interpret from the diagram above that the sales of only sporting apparel and sneakers are not as profitable as a more diversified product mix. FL is 100 bps behind the median figure for gross margins and LTM net income compared to its peers. However, on a slightly positive note, FL is better positioned in a persistent rate hike climate compared to its peers as its debt-to-capital ratio comes in way lower than its peers. This would mean that there could be still ample room for FL to issue more notes to raise more capital now for any expansion plans under new leadership. Valuation On top of the secular and macroeconomic headwinds covered above, the general consensus towards FL is still a hold with limited upsides based on the analysts' stock price targets. FL Price-to-sales Peer Comps (Capital IQ ) To sense-check the figures, we compare FL's price-to-sales ((PS)) figures to its peers. Despite trading at a ridiculously low PS, we find that it is relatively close to its peers. This means that the general sentiment of this industry is more or less priced in, with little or close to no margin of safety. Author's Spreadsheet Calculations (Capital IQ ) As the company continues to remain at half of its 2021 peak, we believe that the only way to increase shareholder value would be to continue buying back shares when it is cheap. Although the management guided that they would be repurchasing lesser of the company's stock, FL ended the quarter with $386 million in cash and $600 million undrawn on its credit facility. After considering their $455 million in debt, we assumed that the company continues to pay out quarterly $38 million in dividends as it did previously and continues to spend $50 million in share repurchases (which is the average of the previous few quarters, factoring in the current macroeconomic condition and management guidance). Assuming constant revenue and earnings, the company would return $176 million to shareholders, which would translate to an approximate 5% upside in its stock fundamental value by the end of 2022. Stockholders with a longer investment horizon would need to brace themselves for little to no growth for this year, apart from a massive earnings beat and increase in FCF which is unlikely to materialise until Q1 2023. Risks We have basically covered many concerns above but the biggest risk for us in valuing this company would be its strategy, which inherently is the most unpredictable among all of their concerns. Recently, FL secured a long-term deal with another sportswear merchandising and retail superpower, Fanatics, which will see the latter fulfilling FL's online orders and access to a portion of their sporting inventory. We think that such partnerships beyond footwear would positively impact FL in the time to come. However, we noticed that FL's strategy of opening more community and Power stores could be too aggressive, after opening or converting 100 of such stores out of its target of 300 globally by 2024.

Sep 06
A Look At The Intrinsic Value Of Foot Locker, Inc. (NYSE:FL)

A Look At The Intrinsic Value Of Foot Locker, Inc. (NYSE:FL)

Today we will run through one way of estimating the intrinsic value of Foot Locker, Inc. ( NYSE:FL ) by taking the...

Aug 22
Footlocker (NYSE: FL): Long Term Potential, but Sentiment may Weigh on Stock Price in the Medium Term

Footlocker (NYSE: FL): Long Term Potential, but Sentiment may Weigh on Stock Price in the Medium Term

Foot Locker’s (NYSE: FL) share price surged as much as 24% on Friday after the company released its second-quarter results. While revenue was in-line with consensus estimates, EPS were 25% higher than expected. In addition, the company announced the appointment of Mary Dillon as CEO. At least five analysts have already raised their price targets, and the valuation appears reasonable at first glance.

Shareholder Returns

FLUS Specialty RetailUS Market
7D-10.0%-4.8%-5.8%
1Y-31.1%-37.3%-22.1%

Return vs Industry: FL exceeded the US Specialty Retail industry which returned -40% over the past year.

Return vs Market: FL underperformed the US Market which returned -23.7% over the past year.

Price Volatility

Is FL's price volatile compared to industry and market?
FL volatility
FL Average Weekly Movement8.4%
Specialty Retail Industry Average Movement7.9%
Market Average Movement6.9%
10% most volatile stocks in US Market15.7%
10% least volatile stocks in US Market2.8%

Stable Share Price: FL is not significantly more volatile than the rest of US stocks over the past 3 months, typically moving +/- 8% a week.

Volatility Over Time: FL's weekly volatility (8%) has been stable over the past year.

About the Company

FoundedEmployeesCEOWebsite
187933,244Mary Dillonhttps://www.footlocker-inc.com

Foot Locker, Inc., through its subsidiaries, operates as an athletic footwear and apparel retailer. The company engages in the retail of athletic footwear, apparel, accessories, equipment, and team licensed merchandise under the Foot Locker, Lady Foot Locker, Kids Foot Locker, Champs Sports, Eastbay, atmos, WSS, Footaction, and Sidestep brand names. As of January 29, 2022, it operated 2,858 retail stores in 28 countries across the United States, Canada, Europe, Australia, New Zealand, and Asia; and 142 franchised Foot Locker stores located in the Middle East and Asia.

Foot Locker, Inc. Fundamentals Summary

How do Foot Locker's earnings and revenue compare to its market cap?
FL fundamental statistics
Market CapUS$3.17b
Earnings (TTM)US$488.00m
Revenue (TTM)US$8.77b

6.5x

P/E Ratio

0.4x

P/S Ratio

Earnings & Revenue

Key profitability statistics from the latest earnings report
FL income statement (TTM)
RevenueUS$8.77b
Cost of RevenueUS$5.85b
Gross ProfitUS$2.92b
Other ExpensesUS$2.43b
EarningsUS$488.00m

Last Reported Earnings

Jul 30, 2022

Next Earnings Date

n/a

Earnings per share (EPS)5.23
Gross Margin33.32%
Net Profit Margin5.56%
Debt/Equity Ratio14.0%

How did FL perform over the long term?

See historical performance and comparison

Dividends

4.7%

Current Dividend Yield

28%

Payout Ratio

Does FL pay a reliable dividends?

See FL dividend history and benchmarks
When do you need to buy FL by to receive an upcoming dividend?
Foot Locker dividend dates
Ex Dividend DateOct 13 2022
Dividend Pay DateOct 28 2022
Days until Ex dividend14 days
Days until Dividend pay date29 days

Does FL pay a reliable dividends?

See FL dividend history and benchmarks