Foot Locker Looks Promising in the Near Term: Hold on to FL

Is Foot Locker, Inc. FL part of your portfolio? If yes, then hold on to the stock as it looks promising in the near term. The stock carries a Zacks Rank #3 (Hold) and has a long-term earnings growth rate of 11.8%.

The company’s stellar performance is backed by effective implementation of its operational and financial initiatives. Management believes that by continually exploiting opportunities like children’s business, shop-in-shop expansion in collaboration with its vendors, store banner.com business, store refurbishment and enhancement of assortments, the company can benefit in the long run. International expansion, especially in Europe, is another growth catalyst. The company is also focused on augmenting its E-commerce platform, growing direct-to-consumer operations, margin expansion and tapping underpenetrated markets.

Foot Locker appears compelling from the earnings perspective, as it continued with its positive earnings surprise streak for the tenth straight quarter. In the trailing four quarters, Foot Locker outperformed the Zacks Consensus Estimate by an average of 9.4%, including a positive surprise of 3.6% in the last concluded quarter.

Solid comparable-store sales growth and cost-containment efforts helped the company to post better-than-expected fourth-quarter fiscal 2015 results, wherein its earnings of $1.16 per share surpassed the Zacks Consensus Estimate of $1.12 and surged 16% from the prior-year quarter figure of $1.00.

Despite a 7.9% jump in comparable-store sales, Foot Locker’s total sales rose only 5% year over year to $2,007 million, as foreign currency headwinds hurt sales. Excluding the negative impact of foreign currency fluctuations, total sales increased 8.8%. The figure also came almost in line with the Zacks Consensus Estimate of $2,006 million.

Foot Locker generates a significant amount of net sales outside the U.S. Due to high exposure to international markets, the company remains prone to currency fluctuations. The weakening of foreign currencies against the U.S. dollar may require the company to either raise prices or reduce profit margins in locations outside the U.S. An increase in prices may have an adverse impact on the demand for Foot Locker’s products.

Nevertheless, management now projects a mid-single-digit increase in comparable sales in fiscal 2016. Foot Locker now anticipates an improvement of 10–30 basis points in gross margin. Also, it expects to attain double-digit growth in earnings per share for the fiscal year.

Stocks that Warrant a Look

Investors interested in the retail space may consider better-ranked stocks such as American Eagle Outfitters, Inc. AEO and Express Inc. EXPR, both flaunting a Zacks Rank #1 (Strong Buy), and Abercrombie & Fitch Co. ANF, carrying a Zacks Rank #2 (Buy).

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