Is Foot Locker Hitting Its Stride?

Nothing invigorates shoe enthusiasts more than the latest and greatest from the Air Jordan series, created by shoe giant Nike (NYSE: NKE  ) . Likewise, nothing invigorates Foot Locker (NYSE: FL  ) shareholders more than when their company reports a greater-than-anticipated fourth-quarter profit.

Shareholders may literally be dancing in the streets today after Foot Locker reported a hefty jump in profit on the back of a 7.3% jump in same-store sales. Revenue for the fourth quarter rose 5%, to $1.39 billion, while adjusted earnings came in $0.03 ahead of consensus figures at $0.39. Does this mean Foot Locker is ready to walk all over the competition? It sure looks that way.

Foot Locker CEO Ken Hicks attributed the successful quarter to strong comparable same-store sales and gross margin expansion, which is exactly what bulls would like to hear. It's important to note that Foot Locker closed a net 74 stores this past year, yet revenue, margins, and profits all rose. Foot Locker is finally realizing that it needs to get rid of its dead assets and focus on its most profitable locations.

Foot Locker is also putting shareholders first when implementing its growth strategy. The company repurchased 3.2 million shares during the course of the year and paid out $93 million in dividends to shareholders. Its board also approved a 10% increase to the yearly dividend beginning next quarter, which would give Foot Locker a handsome 3.4% yield based on yesterday's closing price. Compare this to peers Finish Line (Nasdaq: FINL  ) , which pays out a 1.2% annual dividend or even Collective Brands (NYSE: PSS  ) , which has no dividend whatsoever, and you can see why the long-term money may be heading in Foot Locker's direction. Even shoe giant Nike comes in at just a 1.4% yield.

Two of the biggest concerns for any retailer are rising inventory levels and the right product mix. Based on Foot Locker's 7.3% jump in same-store sales, it's probably safe to assume it has the latter down. Inventory levels crept higher by 2.1% year over year, but on closer inspection this increase seems perfectly in line with its growth strategy and doesn't appear to be a concern.

Foot Locker took its lumps in stride in 2009 and appears to have done a marvelous job at adapting to meet its customers' needs. Earnings, margins, and dividends are rising, and its stronger cash flow from operations has yielded a net cash position that's $108 million higher than at this period last year.

About the only worry I have going forward is whether Foot Locker set the year-over-year comparisons too high with its superb fiscal 2010 -- but only time will tell if that's the case.

What's your take on Foot Locker? Share your thoughts in the comments section below and consider adding these stocks and your own personal portfolio to My Watchlist.

Fool contributor Sean Williams does not own shares in any companies mentioned in this article. He has always been more of a boot guy, since he fears exercise as if it were the plague. You can follow him on CAPS under the screen name TMFUltraLong. Nike is a Motley Fool Stock Advisor selection. 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 which puts its best foot forward.


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