Updated: Sep 9, 2021
Disclaimer: I hold some shares in Foot Locker
Foot locker recently took a big 6.47% fall to the downside, shocking many investors, yet the fundamentals seem as though they hardly warrant it, so lets take a quick look at Foot Lockers fundamentals and what I like about them. One of my favourite qualities of Foot Lockers financials is their stability. Not only are they seeing near consistent growth in revenue at a steady rate, but gross Profits have also seen very little impact or variance over the last 10 years, neither has their SGA when compared to profits. All of these can be signs of a company in control of its competitive landscape.
In terms of debt, Foot Locker currently have no long term debt and only a small amount of short term debt, at very manageable levels. Previous debt levels for the last 10 years have also been very low. In terms of growth, we still see Foot Locker growing its cash flows, Return on invested capital and earnings. This is a well established business, with stability in its market and still growing to boot.
In terms of EPS we saw some weakness last year due to the pandemic, but since then EPS shot sky high. So the question arises, will earnings continue to grow looking forward or will they decline? Well the short answer is we are unlikely to see anything as high as the previously seen EPS of $9.75. But wait, doesn't that mean Foot Locker's price will fall as a result? Well actually Foot Lockers price never seems to have priced in those higher earnings. We saw Foot Locker hit a high of $66.51 in May. Since they reported earnings on the 20th August, the share price rose sharply before taking a downward trend dropping below its 19th August closing price.
Going forward, Foot Locker is expected to report $7.00 - $7.15 in EPS for the full year and $8.54 for 2022 based of analyst estimates. At those numbers, it would appear Foot Locker is largely under valued. So although future earnings look lower than their previous 12 months, the fact of the matter is that future earnings are still estimated to come in a lot higher than any year in the last 10 years, meaning future earnings of $7-$8 per share certainly look like they are going unrecognised. The bottom line for Foot Locker in my opinion, is that they have very durable financials, but are very much in the firing line of the current economic impacts, with Delta and supply & worker shortages. Management and analysts seem confident however on Foot Lockers trajectory and so unless we see an update downgrading their guidance, I think when market fears start to fall, Foot Locker's share price could rise significantly towards $84.
Disclaimer: All views expressed in this blog are that of the author and do not constitute investment or financial advice. Any predictions or guidance in this blog are not to be taken as advice. Readers are encouraged to conduct their own research and due diligence. No guarantees can be made to the accuracy of any data given in this blog, and readers should check the company's investor relations website for the most up to date financial statements.