Shares of Foot Locker (NYSE:FL) rallied sharply on Friday after the company posted a slight beat on non-GAAP EPS followed by guidance that was about in-line with expectations. In a reversal of fortunes, shares dropped 7% on Monday, even as the broader market rallied aggressively, as some analysts raised concerns about the Coronavirus and its impact on the company. Overall, I believe Q4 results were just adequate and guidance was underwhelming, but the company trades at a great price if even growth is relatively modest in the coming years. Let’s take a look at how the company performed, and why I like shares at the current price in spite of modest results.
Q4 Sales Drive a Record Year
Q4 sales at Foot Locker declined 2% y/y on a foreign exchange neutral basis and 2.2% on a reported basis to $2.22 billion, with same-store sales down 1.6% y/y. Management blamed a few issues for the Q4 weakness, primarily blaming the compressed Q4 holiday season as well as a promotional marketplace and overall softer apparel market, as well as a tough comparison. Q4 comps jumped 9.7% in Q4’2018, so the two-year stacked comp of 8.1% looks relatively strong, in my view. Interestingly, the stores held-up better than digital, with store comps down only 1% versus a decline of 4.3% from the online business. Nike (NKE) was the real driver of growth, with management also noting disappointing performance from adidas (OTCQX:ADDYY).
In total, sales hit a record $8 billion in 2019, up 0.8% y/y on a reported basis driven by a 2.2% comp gain. This 2.2% gain builds on the 2.7% comp gain in the year ago period, creating a healthy 2-year stack of 4.9%. For the full-year, gross margin was relatively stable, down about 7 basis points compared to 2018, hardly material enough to warrant mention.
