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Foot Locker (FL) Up 30% in 3 Months, Gains on Digital Growth

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Zacks Equity Research
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Despite challenges induced by the pandemic in the retail landscape, few companies such as Foot Locker, Inc. FL have managed to stay afloat on strong digital operations. Additionally, this well-known athletic shoes as well as apparel products company has been gaining from strong brand strategies and supply chain initiatives. Shares of the company have gained 30.1% in the past three months compared with the industry’s rise of 14.4%.

Digital Business is a Key Catalyst

Foot Locker has been focusing on augmenting its e-commerce platform. Investments made in this regard have been yielding favorably. During the fourth quarter of fiscal 2020, the company continued to witness strength across its digital business. The business registered double-digit growth in the quarter with strength across the board. In fact, it saw digital sales rise triple digits across the regions that were heavily affected by store closures. In Europe, COVID-related restrictions turned out to be a boon for digital growth and advancement of capabilities.

Foot Locker is on track to further bolster omni-channel strength by adding new functionalities. In this context, it has activated a Shop My Store feature on its website. Moreover, the company added Apple Pay and Google Pay to its digital payment options for providing greater flexibility as well as convenience to customers.

Other Business Focus Areas

Foot Locker has been focusing on bolstering business internationally. In this context, the company is expanding footing in the Asia Pacific. During the fourth quarter, the Asia-Pacific market was the company’s fastest-growing region globally. Moreover, its direct-to-consumer channel has continued to remain robust. The company is also focusing on effectively managing inventories and improving supply chain operations to attain greater productivity and efficiency. Apart from these, the company is focusing on strengthening assortments. Markedly, its fourth-quarter fiscal 2020 performance was supported by a solid product pipeline, exciting holiday campaigns and healthy demand from customers. These aspects aided full price sell-through, healthier margins and higher inventory productivity.

The company is also progressing well with the FLX membership program, which inspires customers to remain within the Foot Locker portfolio of banners. At fourth quarter-end, FLX program members exceeded 17 million, globally. Apart from these, the company is on track with technology upgrades. In this regard, it is bolstering the point-of-sale system. It also launched a drop-ship pilot program with NIKE, Inc. NKE to activate additional inventory on its website. Moreover, the company revamped the operating structure in North America with four distinct regions, each having its own geo leader and customer experience team. Apart from these, the company plans to spend a major portion of the capital on its fleet of stores, including revamping and remodeling of the same.

Wrapping Up

Pandemic-related store closures, especially across Europe and Canada along with inventory delay on congestion at domestic ports put pressure on the company’s top-line performance during the fourth quarter. Moreover, comparable-store sales declined 2.7% year over year due to the pandemic-induced store closures and backlog at U.S. stores along with lower traffic in tourist markets.

Nevertheless, the retail landscape is gradually reviving owing to the roll-out of vaccines. This is likely to drive Foot Locker’s business operations. In fact, the company witnessed sequential improvements in its business during the fourth quarter. Additionally, this Zacks Rank #3 (Hold) company’s strong digital wing along with prudent product and inventory management strategies keeps it well positioned for growth in the forthcoming periods.

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