Foot Locker (FL +0.00%) is back to setting sales records. Its fiscal 2021 first quarter showed a huge spike over last year's pandemic-influenced period and also surpassed a strong 2019 performance.
And the retailing chain is generating stronger earnings and cash flow, thanks to consumers' robust demand for products in the premium athleisure niche.
Let's take a closer look at Foot Locker's latest growth metrics and find out why management is predicting fast sales growth -- and expanding profitability -- for the rest of 2021.
Image source: Getty Images.
1. Growth is everywhere
Every part of Foot Locker's business expanded compared to a year ago when nearly half of its store base was closed due to COVID-19 restrictions. But the standout categories were apparel and accessories, which more than doubled. Its core footwear business grew 70% too with strength from rising store traffic and high demand in its e-commerce segment.
Foot Locker said in a conference call with investors that all of its geographic categories were booming at the start of 2021, and consumers showed interest in just about every major franchise, from Nike's Max Air to Birkenstock, UGG, and Crocs. That success was more impressive given the industry challenges that pressured results, they said. "Our comp sales increased 80.3% in spite of store closures in Europe and Canada and supply chain pressures in the U.S. and [Europe]," CFO Andrew Page explained.
2. A favorable pricing environment
That favorable demand environment meant that Foot Locker didn't have to use promotions to keep its inventory moving. Yes, sales tilted toward apparel and accessories, which aren't as profitable as footwear. And costs jumped in areas like freight and labor. The chain lost some efficiency too by selling more products online rather than at its physical stores.
Yet Foot Locker still logged a 34.8% gross profit margin, compared to 33.2% two years ago and 23.0% in the depths of the pandemic. Executives see that positive pricing environment continuing through the rest of the year, even if profit margin gains are a bit more muted than investors saw this past quarter.
3. Lace up for more portfolio changes
Foot Locker is still planning to close more locations than it opens in 2021 as it pivots away from mall-based stores. The attractive growth opportunities right now include athleisure apparel and accessories, e-commerce (including through partnerships with Nike), and providing a platform for shoppers to experience the flood of innovative releases on the way from Nike, Adidas, UGG, Vans, and dozens of other footwear brands. "There's a lot coming to market to keep our consumers engaged," Executive VP Andrew Gray said.
Investors are right to respond to that good news by pushing Foot Locker stock higher -- shares are up over 56% year to date as of this writing. The company needs to shed some underperforming assets in the next year or so, including some real estate leases that have become even less attractive due to pandemic-related shifts in shopping trends. Its business would be vulnerable to an economic pullback too.
But the chain quickly returned to setting sales records and has a good shot at producing higher profit margins over the next few years as it connects leading athleisure brands with their customers. That's a valuable service for all parties involved, and it should be a sturdy enough platform to support a sustainable business for Foot Locker post-COVID-19.
