2017 was a bad year for shareholders of Foot Locker (NYSE:FL) and Dick's Sporting Goods (NYSE:DKS). Though retail sales overall grew by more than 4% during the year, traditional brick-and-mortar stores struggled, and these two were no exception. Both made progress in updating their business models for the modern era, though, and could fare better going forward.

FL Chart

Data by YCharts.

Athletic shoes are a hot commodity

Athletic wear has been on a hot streak over the last few years, and much of that is attributable to the athleisure movement. Foot Locker was a beneficiary, but the trend reversed course for the company as other apparel companies started selling athletic wear, also.

Add to that the disruption in retail caused by internet sellers like Amazon, and the shoe company saw a down year. Excluding fluctuations in foreign-currency rates, sales decreased 0.5%, comparable-store sales decreased 3.1%, and gross profit margin on merchandise fell 2.3%.

The interior of a Foot Locker store. Shoes are on the shelves, and apparel is on display in the center of the store.

Image source: Foot Locker.

The good news is that Foot Locker remained profitable overall and invested heavily in online sales promotions throughout the year. The company broadened its lineup of activewear, which included an investment in small but fast-growing women's clothing brand Carbon38. By mid-2018, management sees sales and gross margins beginning to rebound. The bottom line, which took a 55% hit in 2017, is also expected to recover in the double digits.

An improving sales outlook is the key driver, but Foot Locker also is planning to use a lower tax rate from the recent Tax Cuts and Job Act to repurchase shares. As an added bonus, the company also pays a 3.2% annual dividend yield at the current stock price.

Dick's notched sales, EPS increases

Dick's Sporting Goods has been in the headlines lately as it ended the sale of assault-style rifles at its Field & Stream stores in the wake of the Parkland, Fla., shooting and said it would not sell guns to those under 21.

The exterior of a Dick's Sporting Goods location, as viewed from the parking lot. A grand opening banner hangs below the company's logo.

Image source: Dick's Sporting Goods.

How that stance will affect business remains to be seen, but most of Dick's sales come from athletic wear and outdoor gear, so a negative impact is expected to be minimal. However, much like Foot Locker, comparable-store sales decreased in 2017 by 0.3% and gross margin on merchandise fell 0.9% because of disruption from online retailers. Unlike Foot Locker, though, total sales and earnings per share increased 8.4% and 17.6%, respectively.

The increase mostly is due to consolidation in the general sporting-goods industry. Several competitors like The Sports Authority and Sports Chalet went bankrupt during the last couple of years, and Dick's assumed control of some of the vacated locations. Nevertheless, while the company expects to continue growing its store count slowly and promoting its online store, earnings per share are expected to be flat in 2018 compared with 2017 as a result of another slight decrease in comparable sales. 

And the winner is...

Though Dick's Sporting Goods has continued growing and is the better value using last year's profit figures, Foot Locker management's optimism about a rebound in sales in 2018 and a share repurchase plan paint a better picture for the stock in the year ahead.

Metric

Foot Locker 

Dick's Sporting Goods 

Trailing P/E

19.9

11.7

Forward P/E (based on 2018 estimates)

9.2

11.1*

Dividend yield

3.2%

2.8%

Data sources: Yahoo! Finance and company quarterly earnings reports. *Based on the midpoint of management's earnings-per-share guidance of $2.80 to $3.00 for 2018. P/E = price to earnings ratio.

Both stocks have a lot to gain if their sales improve. However, based on 2018 expectations and a better dividend yield, Foot Locker looks like the better buy right now.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Nicholas Rossolillo owns shares of Dick's Sporting Goods. The Motley Fool owns shares of and recommends Amazon. The Motley Fool has a disclosure policy.