Foot Locker's Diversified Business Model Makes It A Buy

Foot Locker, Inc. (NYSE: FL) reported solid Q3 results, with strong comp numbers. The performance was “a testament to the company's more diversified/evolved operating model,” as Foot Locker continues to adjust its assortment by category, brand and channel, Brean Capital’s Eric Tracy said in a report. He maintains a Buy rating on the company, while raising the price target from $77 to $78.

Foot Locker reported its Q3 EPS at $1.13, ahead of Brean Capital’s and the consensus estimate of $1.10. Comp growth came in at a solid 4.7 percent, beating Brean Capital’s estimate of 4.0 percent.

Model To Continue to Deliver

Foot Locker is increasingly diversifying its operating model, which “serves to limit over-reliance on any one category/brand,” Tracy mentioned.

Management re-affirmed the FY 2016 guidance for comps at mid-single-digit growth and EPS at double-digits.

Tracy considers the target as achievable, given the company’s flexibility in “allocations by style (lifestyle/ retro), vendors (adidas AG (ADR) (OTC: ADDYY), Under Armour Inc (NYSE: UA) to a lesser degree), and channel that allows FL to participate more fully in hottest trends.”

Foot Locker would achieve the target despite the multi-year comps and a slower innovation pipeline at Nike Inc (NYSE: NKE), which currently constitutes about 70 percent of mix, the analyst said, adding that the company’s lean inventories and disciplined expense management would also contribute.

Image Credit: By Dwight Burdette (Own work) [CC BY 3.0], via Wikimedia Commons

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