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Foot Locker, Inc. (FL), a global retailer of athletic shoes and apparel, has big plans for the next two years. This article focuses on the company's remodels, its new retail sales concept- SIX:02, its online capabilities, and valuation of company shares.

Foot Locker's focus this year is on store remodeling. By year's end, the company expects to complete remodels of 10% of its Foot Locker stores and 15% of its Champs Sports stores. At the end of the second quarter, Foot Locker had already completed more than 150 store remodels. Management tends to be conservative about the remodels, leading the company to first test remodels in a few select locations for an extended period of time before remodeling its remaining stores. These changes are intended to boost sales per square foot and enhance the look and feel of the stores. In addition, remodeling helps Foot Locker keep pace with changing customer tastes and preferences, particularly with regard to product placement and display of product choices.

The company is also testing SIX:02, its newest retail concept which features top brands of fitness apparel and athletic footwear for women. Three SIX:02 stores were opened by the company in the fourth quarter of 2012, and the company plans to open another four of these new stores before the holidays, three of which will be in Florida and the other in Texas. The SIX:02 website was launched this month. The company introduced its new SIX:02 retail store concept to reposition itself in sales of women's athletic footwear and apparel. The new concept especially focuses on the needs of performance-oriented customers. The Lady Foot Locker concept has been the worst performer among the company's domestic concepts. But according to Foot Locker's Chief Operating Officer, Richard A. Johnson, the SIX:02 stores are performing well when compared with the Lady Foot Locker chain. He said: "Our current remodeled Lady Foot Locker stores and the SIX:02 stores are significantly outperforming the rest of the Lady Foot Locker chain, which overall showed some improvement in Q2, with a low-single-digit comp loss compared with a high-single-digit comp loss in Q1."

Management is careful about every step it takes, as it tries to sustain growth while also paving the way for future company growth.

Online Presence

The company is also focusing on improving its online capabilities to enhance customer experience and competitiveness. The company CEO and Chairman Kenneth C. Hicks said: "We have invested in a variety of ways to offer our inventory in order to better serve our customers. We've long had a stock locator process that allows product to be shipped to the customer from another store or warehouse if it isn't available in the store they happen to be in. Now we'll have buy online, reserve in-store; buy online, ship from store; buy online, pay in-store; and quite a few other variations."

Providing a variety of options to buy will improve customer experience and satisfaction, which will eventually improve sales and the company's brand image. Foot Locker's retail space does not add much value to the product directly, but what it does is add value surrounding the product, making the customer's buying experience unique and more satisfactory. In my view, providing a variety of buying options - enabling customers to buy in the store, online, and both (with many options) - offers customers the convenience they desire.

Valuation

The price-to-book ratio of Foot Locker stock is 2.04, which is well below the industry average of 5.44, representing a huge undervaluation. Foot Locker's price-to-earnings ratio is 12.12, while the industry average is 21.72, which is also a sufficient undervaluation to enter into a long-term position in to the share, after considering the company's initiatives discussed above.

Foot Locker's remodeling, its new SIX:02 retail concept, and its enhanced online capabilities will start being reflected in the company's earnings from the end of this year. Full-time earnings of the Runners Point Group, the purchase of which was completed one month ago, will be reflecting in the earnings of Foot Locker from the third quarter of this year onward. I expect that all of the company's sales initiatives will positively affect the company's earnings, especially as its online capabilities help the company reach more customers - more customers mean more sales. At the current market price, the company's shares look more attractive and rewarding to enter into a long-term position.

Source: Is Foot Locker's Growth Sustainable?