Foot Locker Becomes the Perfect Retailer

Foot Locker Inc.’s (NYSE: FL) shares rose 28% after it announced earnings, which was a partial counterbalance to a string of poor financial data from other retailers. Some argue that Foot Locker benefits because of its niche brick-and-mortar position. Others argue it is simply well run.

Foot Locker’s shares are still well short of their 52-week high, which means a great deal of skepticism about its future remains. The rally in its shares took them to $41, against a 52-week high of $79.43. At least it is not trading at or near its 52-week low, which is the case for retailers dumped either because their same-store sales in the third quarter were weak or are expected to be in the critical holiday quarter.

Foot Locker’s numbers were better than expected. The company posted:

Net income for the Company’s third quarter ended October 28, 2017 was $102 million, or $0.81 per share, compared with net income of $157 million, or $1.17 per share in the same period of 2016.

Third quarter comparable-store sales decreased 3.7 percent. Total sales decreased 0.8 percent, to $1,870 million this quarter, compared with sales of $1,886 million for the corresponding prior-year period

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In most contexts these numbers would be counted as poor. In the world of battered retail stocks, the fact that Foot Locker held the top line was impressive.

Foot Locker was not entirely alone when it comes to a better-than-expected quarter. Abercrombie & Fitch Co.’s (NYSE: ANF) numbers also were better than expected, and its shares rose 25% to $15.55, which is close to their 52-week high.

Foot Locker has several challenges that it has held at bay for the time being. Companies like Nike Inc. (NYSE: NKE) sell their products online, at a large number of retailers and on Amazon. The number of ways people can buy Nike apparel should pressure Foot Locker’s margins as it tries to compete on price. Management, however, appears to have stocked its stores with the right mix of products at the right price points. Otherwise, net income of $100 million would not have been possible.

Foot Locker has proven, at least for now, that a retailer does not have to be decimated by competition, either online or from other stores. Management gets at least one quarter to bask in the glow of results most retailers should envy.

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