FL Details

Foot Locker Inc (NYSE: FL) is a New York-based specialty athletic retailer. It holds a portfolio of brands that comprises Foot Locker, Kids Foot Locker, Champs Sports, Eastbay, atmos, WSS, Footaction, and Sidestep. The company has around 3,000 retail stores spread across 28 countries viz; North America, Europe, Asia, Australia, and New Zealand.

Healthy Performance in Q2FY21 (For the Second Quarter Ended 31 July 2021)

• The company has delivered healthy growth in net income to $430 million for the 13 weeks ended 31 July 2021, against a net income of $45 million in the PCP.
• Total sales grew by 9.5% to $2,275 million compared with sales of $2,077 million in the PCP. However, without considering the impact of foreign exchange rate fluctuations, the company reported a 7.3% growth in total sales in Q2FY21.
• While the comparable-store sales during the period increased by 6.9%.

Exhibit 1: Performance Trend

Source: Analysis by Kalkine Group

Recent Updates

As on 15 November 2021, the Board of Directors declared a quarterly cash dividend on the Company's common stock of $0.30 per share, which will be payable on January 28, 2022, as of record on January 14, 2022.

The company, on 1 November 2021, has completed the acquisition of atmos, a digitally led, premium, global retailer headquartered in Japan, through its subsidiaries for a consideration of $360 million. The acquisition of atmos will not only accelerate its global reach in the Asia-Pacific market but also provide the company with a critical entry point in Japan and scale.

Key Risks

The company is exposed to the risk of competitive intensity as the retail athletic footwear and apparel business is highly competitive. It procures a significant proportion of premium product from key suppliers. Any adverse development in the relationship with its key suppliers or failure to procure key products at competitive prices could hurt its financial health.

Outlook

The company’s financial position remained healthy with its total cash position, net of debt stood at $1,733 million as of 31 July 2021, up by $484 million compared to the PCP. Its capital allocation policy is largely inclined towards investing in growth opportunities along with returning cash to shareholders by way of quarterly dividend and share repurchase. Further, the company is on an investment mode as reflected from its $36 million investment in its store fleet, digital capabilities, supply chain, and other infrastructure during the second quarter of 2021.

Valuation Methodology: Price/Cash Flow Based Relative Valuation (Illustrative)

Stock Recommendation

FL has delivered year till date returns of ~23.37%. The stock is trading near the 52-week high, considering the 52-week low-high range for the stock at $36.94 - $66.71, respectively.

The stock has been valued using Price/Cash Flow multiple based relative valuation (on an illustrative basis) and the target price so arrived reflects a rise of low double-digit (in % terms). A slight discount has been applied to peer average Price/Cash Flow multiple (NTM basis) considering its low gross margin versus industry median.

Considering the aforementioned factors, we suggest investors to book profit on the stock and give a “Sell” recommendation on the stock at the close price of US$57.56 per share, as on 18^th November 2021.

Technical Price Chart

Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.  

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