Shares of Foot Locker were higher on Friday after its third-quarter earnings beat expectations. Earnings of $1.13 a share were three cents ahead of analysts’ estimates, while revenue of $1.88 billion was in-line with forecasts. Same-store sales increased 4.7% year-over-year, but were flat when compared to the second quarter. Inventory also rose by more than 2% year-over year. CFO Lauren Peters says that Foot Locker’s inventory is fresh and well positioned as we head into the holiday season.
In August I completed a short analysis explaining why Foot Locker is doing so well while its counterparts were struggling.
Q3 reports show no slowing down for the footwear company and I agree with how bullish everyone is on the chain. The question is why is FTL/FTA/EAS/CHAMPS doing so well? I have always stated that the company has aligned itself with Nike and that they have been in cahoots all of these years. I even went so far as to say that it was a conspiracy since FTL and Nike’s stock growth mirrored perfectly. That has changed and FTL has benefitted from something sneakerheads have yet to figure out: Diversity.
Footlocker has always assigned shelf space according to demand. However their use of tech in the last few years and an improved online experience (I actually did a video on how FTL was featured on Nike’s site)
has enabled Footlocker to project and use trends to shift the design and layout of the stores. A few weeks ago, right around the end of Q3 when the reports came in and discussed the increase in retro, casual and running, in particular the growth of adidas, I walked into Kids Footlocker and Footaction when they were opening and the store managers had completed shifted the sales wall. In the video above I talk about the conspiracy of Nike and Footlocker, but that was just a logical analysis. The fact is adidas, unlike fans of particular shoes, only has a loyalty to the market. The 100s of shoes on the walls were moved. Where Jordan Brand and Nike Running once dominated the walk in of the store, the wall was shifted to adidas who has dominated this past year.
On June 17th 2016 both Nike and Footlocker were joined at the hip and shares were both at 53/share. perfect alignment. The Q3 reports were dropped in October and that’s where the separation begins. Footlocker has roared back from a low of 53 to hit 71/share. Nike has dipped and is at 51 (although I say Nike will bounce back once investors realize the growth opportunity in DTC for Nike).
At the same time Footlocker increased wall space for New Balance, Puma and Asics. Nike Basketball is now located at the back of the store and Jordan is in the middle of the store. It’s this subtle attention to detail that other retailers have failed to do that allows FTL to kick ass. The next time you walk into your local Footlocker look at their wall and then compare it to Hibbett Sports, City Gear, Jimmy Jazz and Finish Line (actually Finish Line has been redesigning and there are more adidas posters and story telling in the store.) What you will notice is that these stores are still utilizing old merchandising information. Those stores are typically more urban so I understand the commitment to Nike and Jordan Brand (I also realize that Futures control the inventory of Nike shoes in these stores), but retailers like Jimmy Jazz and City Gear who have yet to diversify their product listings in detail and are more than likely not paying attention to Nike’s growth strategy are in serious trouble. A lot like Hibbett Sports could be entering The Sports Authority territory soon, but that’s another post. For right now, Footlocker is a buy and through this holiday season they are the only stores ready to support the shift in spending on athletic footwear and apparel.
PS: Man… watch the video until the end; I’m a doggone prophet!!!!