Foot Locker (FL) Summary

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Foot Locker (FL)

Key Statistics

Enterprise Value = $4.587 billion

Operating Income = $836 million

EV/Operating Income = 5.48x

Earnings Yield = 10%

Price/Revenue = .69x

Debt/Equity = .05%

Debt/EBITDA = .126x

The Company

Foot Locker is known to everyone that has ever been in a mall. They are a physical retailer and operate primarily in malls selling sneakers. They also sell footwear directly to customers.

Sentiment

Market sentiment against the stock is extremely negative. Year to date the stock is down 42.42%. This is even after a monstrous 28% gain on November 17th after delivering an earnings surprise. The extreme sentiment against the stock is due to the fact that it is a retailer and most of its locations are in malls. The sharp change in sentiment has been rapid. As recently as May 2017, the stock was hitting all-time highs.

My take

The sentiment against mall retail has been extreme and the popular perception is that Amazon is going to dominate everything. Overall, I think this is overblown. 90% of all retail sales still occur in a store. E-sales have been increasing at a steady pace of about 1% a year since the year 2000. The trend hasn’t changed. This means that in 10 years, 80% of all retail sales will still occur in a store. The popular sentiment has driven retail stocks down to depths not seen since the Great Recession and the ridiculous multiples given to Amazon shows that the market sentiment is now at extreme levels.

Not only will people continue to shop in stores for the customer experience, they will continue to shop in apparel stores like Foot Locker because they want to try the apparel on.  Sneakers from different manufacturers aren’t consistent and most people want to try the shoe on in the store.

The company consistently produces ample free cash flow each year and they have been using the proceeds to grow the business and return capital to shareholders. Common shares have declined by 9% in the last five years as the company consistently repurchases shares. Additionally, the dividend yield is 3.04%. The company’s balance sheet is also extremely strong, with extremely low debt levels.

Foot Locker also possesses an important strategic relationship with Nike, which remains the leader in sneaker brands. This is a situation where bad sentiment has caused investors to throw the baby out with the bathwater.

PLEASE NOTE: The information provided on this site is not financial advice and it is for informational and discussion purposes only. Do your own homework. Full disclosure: my current holdings.  Read the full disclaimer.

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