Foot Locker, under pressure amid turmoil in the activewear market and a strong shoe game from Amazon, is holding its own quite well and is undervalued as a result, according to recent analyst notes from Barclay’s and Morgan Stanley cited by Benzinga.
Even if the athletic shoe retailer’s growth flatlined, it would be worth more than what it’s trading at on Wall Street, according to Barclay’s, Benzinga reports.
Foot Locker is poised to "defend its industry position," Morgan Stanley analyst Jay Sole said in a note emailed to Retail Dive. Despite lowering its Foot Locker share target from $70 to $65, Morgan Stanley upgraded its rating from Equal Weight to Overweight but lowered its price target from $70 to $65.
Foot Locker claims that late tax refunds disrupted its best efforts to upgrade its stores and salvage slowing sales and traffic — and analysts have mostly bought that excuse, despite an encroaching challenge from Amazon in the athletic shoe market. Nike didn't help much when in June it confirmed it would establish direct sales via Amazon, threatening brick-and-mortar retailers.
Nevertheless, Foot Locker is the No. 1 seller of Nike brand shoes in the U.S., according to One Click Retail, and several analysts believe the retailer is up to the challenge. "Foot Locker is well positioned to grow sales, even as more players crowd into its sector," GlobalData Retail Managing Director Neil Saunders wrote in an email to Retail Dive in May. "The key to this success is the company's drive to ensure it remains a key destination for sporting, and sneaker, enthusiasts."
The company's Q1 same-store sales rose 0.5% as total sales rose 0.7%, to $2,001 million this year, compared with sales of $1,987 million in the prior-year period, the company said in May. The company in the quarter opened 30 new stores, remodeled or relocated 61 stores, and closed 39. As of April 29, the retailer operated 3,354 stores in 23 countries in North America, Europe, Australia and New Zealand. Additionally, 62 franchise locations were operating in the Middle East and South Korea, as well as 15 franchised Runners Point stores in Germany.
Luckily for Foot Locker, consumers still prefer to try on shoes in person. But Foot Locker has also been working to create the right mix of merchandise and store concepts, and its basic approach has worked well enough, at least at its flagship stores, especially when it comes to sales of Nike products. "Newer stores, especially those that integrate premium concepts like the House of Hoops department and Puma Labs section, are engaging and help to increase average transaction values as they encourage shoppers to trade up," Saunders said.
Overall, Saunders said the company is faring well online, especially when it comes to omnichannel efforts that do well at tying its stores to its website, but he warned that growing sales among women should be in focus. "Foot Locker has seen dramatic changes in how consumers use sports apparel and gear," he said. "With so many sports and apparel retailers getting in the athleisure game, it won’t do for Foot Locker to keep its Lady Foot Locker stores an afterthought."
The retailer reports its second quarter results Aug. 18.