Foot Locker (NYSE:FL) has been on a roll ever since it posted better-than-expected third-quarter results. The global footwear market is expected to be worth $195 billion by the end of 2015 and Foot Locker seems to be making the most of it. The company is also trying to maintain its competitive edge against the likes of Brown Shoe (NYSE:CAL) and DSW (NYSE:DSW), and being the largest of the three in terms of store count internationally does help its prospects.
Foot Locker's strong performance and prospects
Foot Locker operates around 3,510 stores spread across the U.S., Canada, Europe, Australia, and New Zealand. During the previous quarter, it opened 28 new stores, remodeled or relocated 118 stores, and shuttered 13 stores.
In its third quarter, Foot Locker reported same-store sales, or comps, growth of 4.1%. This was despite weak traffic, which was more than offset by the increase in average selling prices of its merchandise. On the back of strong comps gain, the company reported revenue increase of 6.4% year over year to $1.62 billion , comfortably beating the consensus estimate of $1.59 billion. While revenue increased 6.4%, inventory increased 6% in comparison from the year-ago period. This suggests that Foot Locker's inventory is moving at a good pace and the company isn't suffering from markdowns that usually accompany inventory buildup.
During the quarter, Foot Locker repurchased approximately 2 million shares worth $67 million. Robust top-line growth, lower share count as a result of share repurchases, and cost efficiencies resulted in a 7.9% increase in earnings as compared to last year. Earnings came in at $0.68 per share and beat the consensus estimate.
The third quarter was the 15th consecutive quarter of sales and EPS growth, both on a GAAP and a non-GAAP basis. This implies that Foot Locker is able to steer clear of negative sentiments surrounding the retail sector in general and is managing to brave macro-economic headwinds. Going forward, the company is confident of delivering on its full-year guidance of mid-single-digit comparable sales gain and double-digit percentage increase in earnings per share.
Peers' moves -- Brown Shoe and DSW
However, Foot Locker needs to be watchful of competitors. Brown Shoe, for example, has shown the strongest year-to-date share price gain of around 44% on the back of strong results. In the first nine months of fiscal 2013, the company delivered $0.27 more in earnings versus the comparable period in 2012.
Brown Shoe reported a comps gain of 4.9% while its wholesale business jumped 4.5%. In addition, back-to-school same-store sales were also up 5.6% versus the comparable period in the previous year. The specialty retail business was, however, a drag on numbers as it declined 7.8% to $57.9 million. However, being less than 8% of the company's revenue, this shouldn't be a cause of worry as long as the remaining business is doing well.
Brown Shoe's newest brand, Vince, continues to see good consumer interest according to management, although they didn't quantify the extent. Going forward, by 2014, the company aims to double the number of doors for this brand, and this can be a big growth driver.
In comparison, DSW's third quarter was a mixed bag. The company reported 6.8% year over year growth to $633 million . Comps declined marginally by 0.7% versus an increase of 6.3% in the prior-year quarter and this would have been even worse if the traffic would not have picked up toward the end of the quarter.
However, due to top-line growth and effective control on inventory, earnings grew 14% versus the same quarter a year ago to $0.58 per share. This was in line with the consensus estimate. DSW opened 16 new outlets, including two small format stores during the quarter. DSW operated 393 outlets in 42 states, the District of Columbia and Puerto Rico as at the end of third quarter.
Going forward, the company expects adjusted earnings between $1.80 and $1.90 per share for fiscal 2013, and comps are expected to remain flat. DSW also forecasts adjusted sales growth of 4% to 5% for fiscal 2013.
All in all, Brown Shoe's aim of doubling its store count looks like the biggest threat to Foot Locker. But from an investment point of view, I believe Foot Locker would be a more sensible choice. Foot Locker's trailing P/E of 15 is very cheap when compared to DSW's trailing P/E of 34. Also, Foot Locker's dividend yield of 2% is double that of DSW's 1%. Additionally, Foot Locker's presence across various geographies and a large store count are strong advantages that should help the company perform even better in the long run.
Fool contributor Neeta Seth has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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.