Caught up in the coronavirus-fueled sell-off that has wreaked havoc on the stock market so far this year, shares of Foot Locker (NYSE:FL) are down 18% so far in 2020. The sneaker retailer's value has now been cut in half over the last three-year stretch as ongoing worry that e-commerce disruption -- specifically direct-to-consumer selling efforts from shoe manufacturers like Nike (NYSE:NKE) -- will hurt the shopping mall staple.

The fourth quarter of 2019 left shareholders feeling underwhelmed as well, but Foot Locker has a plan. Stable profitability means the company is able to invest to try and reignite growth, and a hefty dividend yield doesn't hurt either.

Three people in athletic wear running over a bridge.

Image source: Getty Images.

A ho-hum 2019 comes to an end

Between athleticwear-inspired clothing going mainstream and sneakerheads, global sales of sport shoes have been on a tear the last few years. It's thus disappointing that overall revenue at Foot Locker has been flat. 2019 ended up yielding more of the same. 

What started out as healthy top-line gains reversed course during the holiday shopping period. Total sales fell 2.2% to $2.22 billion, driven by a 1.6% decline in sales at existing stores (or "comps"). Full-year comps still managed a 2.2% increase thanks to an especially busy back-to-school period during the third quarter, but in the end the final report card was lackluster.  

Metric

12 Months Ended Nov. 2, 2019

12 Months Ended Nov. 4, 2018

Change

Revenue

$8.01 billion

$7.94 billion

0.8%

Gross profit margin

31.8%

31.8%

0 pp

SG&A expense

$1.65 billion

$1.61 billion

2.5%

Adjusted earnings per share

$4.93

$4.71

4.7%

Pp = percentage point. SG&A = selling, general, and admin. Data source: Foot Locker.  

Cheap for a reason, but maybe too cheap

There is an upshot to the 2019 numbers, though. Adjusted earnings still advanced nearly 5% thanks to Foot Locker's share repurchase program (which retired about 6% of the outstanding share count last year). Free cash flow (money left after cash operating and capital expenses are paid) also increased 16% in the last year and totaled $596 million. That supports the company's current dividend yield of 4.8% (which was just raised 5% to $1.60 per share per year), as well as the recent announcement that Foot Locker will be raising capital expenditures to $275 million in 2020 (compared with $187 million spent in 2019).

The higher rate of spending will go toward updating Foot Locker's stores, opening new ones in higher-growth markets (including into Foot Locker's investments aimed at nurturing sport and youth culture start-ups), and upgrading its U.S. supply chain and e-commerce initiatives. Management said it expects to get low single-digit comps growth and low to mid-single-digit earnings growth in 2020 as a result.

Paired with the dividend, Foot Locker stock looks like a real bargain. Granted, there is worry that Nike and other manufacturers are cutting the legs out from under its retail partners and that long-term third-party merchandisers won't be viable. For the time being, though, shares of this sneaker reseller are trading for just 7.3 times 12-month free cash flow.  

Growth is coming in at a trickle and disruption is a concern, but this high-yield consumer discretionary dividend stock looks too cheap to ignore.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.