This Retailer Is the Key to the Growing Footwear Industry

Foot Locker's great quarterly numbers and strategic moves make it an interesting pick.

Apr 14, 2014 at 9:49AM

A rising health consciousness in society has not only created opportunities for the food industry but also the footwear industry. Now people consider athletic shoes to be a necessity rather than a luxury. Therefore, athletic-footwear players such as Foot Locker (NYSE:FL) are enjoying the benefits.

Foot Locker has become very popular among customers and is witnessing great demand for its products. It reported fourth-quarter numbers that beat analysts' expectations, enabling its stock price to move north.

A great quarter
Revenue at Foot Locker grew 4.6% to $1.79 billion, driven by higher demand for products. Also, the addition of 84 new store outlets contributed to the increase. However, it was not only the new stores which added to the top line--the retailer also witnessed higher sales at its existing stores. Same-store sales for the quarter surged 5.3%.

Higher demand for Foot Locker's products, especially basketball products, boosted results. The company's focus on the children's segment and the expansion of shop-in-shop locations also fueled results. Also, it has been remodeling stores to make them more attractive to customers. A total of 320 stores were remodeled during fiscal year 2013. Adjusted earnings jumped 28% year over year to $0.82 per share, indicating the company managed its costs well.

Key advantage to be considered
One of the biggest advantages for Foot Locker has been its partnership with footwear manufacturer Nike (NYSE:NKE). Nike has been performing well and is experiencing growing popularity. Nike's growth was evident when it posted second- quarter results wherein the top line jumped 8% and earnings rose 4%. The company's innovative products enable it to lure lots of customers.

Moreover, it continually strives to provide better offerings to make customers' lives easier. For example, the launch of Nike+ FuelBand and Flyknit technology proved to be quite successful. Also, the company's cost-management efforts led to a gross margin expansion of 140 basis points. Nike's stature in the footwear market has helped Foot Locker since the former's products comprise two-thirds of Foot Locker's total revenue.

Peer comparison
In addition to Foot Locker, industry peers are also doing well. The Finish Line (NASDAQ:FINL) is similarly making numerous efforts to grow. Its third-quarter sales grew by a whopping 23% as the company strengthened its digital business, which includes websites as well as mobile apps. Finish Line also entered into a partnership with Macy's to keep its products in the department store's locations. This will increase the footwear retailer's exposure to customers who would otherwise not visit its stores. However, this introduced additional costs to the company.

Also, Finish Line expanded its running-shoes segment by acquiring Running Spot. However, this move does not seem to be very interesting since demand for basketball products has been on the rise. On the other hand, Foot Locker has been concentrating on the growing basketball business.

Future plans
Foot Locker has some plans for the future that should help the company to grow further. Firstly, it plans to expand its footprint in Europe, where demand for its products is on the rise. Also, the company earmarked $220 million for capital expenditures this year which includes technological investments. The footwear retailer has been restructuring its stores and plans to continue to do so.

Moreover, Foot Locker will be focusing on its women's segment and the e-commerce business in the months to come. The online business has been a point of focus for most retailers since people find it easier to order products online and get products delivered at their doorstep.

My take
Foot Locker looks interesting because of its impressive numbers, as well as growing demand for Nike products. Moreover, its expansion strategies for Europe, the women's segment, and the online business should be fruitful. Also, store remodelings and technological investments will make the retailer more attractive. Since demand for athletic footwear is growing, this footwear company is worth a bet.

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Pratik Thacker has no position in any stocks mentioned. The Motley Fool recommends Nike. The Motley Fool owns shares of Nike. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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