Foot Locker: Any Change Is Positive

Jun.29.09 | About: Foot Locker, (FL)

So it looks like FL finally confirmed the speculation that started in April about Matt Serra retiring as CEO. I celebrated a birthday a week ago - let's just say it was a number between 35 and 40. FL is one of the few stocks in retail that you could have bought circa 1970 (in a 'diworsified form' as Woolworth/Venetor etc...). Had I been gifted a share way back then, my return would be a big fat goose egg. Yes, Foot Locker is the retail equivalent of Japan.

This company's management culture is one that strives for mediocrity - whether it knows it or not. In its best form, it succeeded in being slightly below average, but all along remained squarely on the investment community's 'least respected management team' list.

Come on McGough...give the guy a fair shake. Serra has only been at the helm since '00/'01, and should not be saddled with the mistakes of years past. Also, he saw the company through the recession and economic recovery in '01-'03, and generated decent returns in the ensuing years.

Agreed. I'll definitely give credit where it's due. But how much of this recovery came from management's efforts vs. a general economic rebound? I guess we'll never know. But what we do know is that the stock is DOWN 20% since he took control, and over the past 5 years, ROE has gone from 16% to -4%, and Return on Capital is off by 2/3 to 4%. My kids generated a better return on capital last weekend at their lemonade stand - in the rain.

My point here is that this team's credibility is SO low, that ANY change is positive. Not to mention bringing in Ken Hicks from JC Penney (NYSE:JCP) - formerly JCP's President and Chief Merchandising Officer. I can't make the call yet as to how effective he'll be. But what I can say is that the gent's resume is far better than a company the size of Foot Locker probably deserves.

This thing is officially in the zone where it will get a free pass on any bad news related to operations for a couple quarters, and the Street will only get more jazzed and imaginative as it concocts kool-aid around what the new CEO could do to unlock value.