Foot Locker Has Limited Downside

Summary

• Shares have failed to gain traction since their Q4 beat.
• We like what we see coming down the track.
• We may look at getting long here on elevated volatility.

We wrote about Foot Locker (NYSE:FL) back in January and stated that the firm's dividend was being helped by its growing earnings. Despite earnings beat in the fourth quarter by a full $0.05 per share, Foot Locker's share price has been in free-fall over the past week or so.

The share price currently stands at just over $30 a share, which means shares are trading with:

1. Earnings multiple of 6.7
2. Cash flow multiple of 4.4
3. Book multiple of 1.3
4. Sales multiple of 0.4

All of the above metrics (including the dividend where the yield has spiked above 5%) are far more attractive than the value averages we see in this industry. Furthermore, Foot Locker's 5-year average, when it comes to its dividend, comes at a mere 2.3%. Suffice it to say, these are exactly the type of setups we like to see with our potential value plays.

On the fourth quarter earnings call with CEO, Dick Johnson, it was encouraging to see how the firm's long-term vision is currently being played out. Johnson spoke of how the firm's membership program (FLX) is being rolled out at present in international markets. Generous loyalty programs through mobile and digital platforms should enable Foot Locker increase the amount of profit it makes from its regular customers. We will be looking to see how well FLX is doing in the US in the upcoming quarters, for example, this year.

Foot Locker is also, at present, rolling out its new-look website internationally but, more importantly, will open around 20 more Power Stores in 2020 in both the US and international markets. The key here is to make these stores as productive as possible to ensure that every square foot of the stores is being properly utilized by the firm.

The communication strategy "Lace

Analyst’s Disclosure:I/we have no positions in any stocks mentioned, but may initiate a long position in FL over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.