(c) 2009 
Dow Jones & Company, Inc. Reproduced with permission of copyright owner. Further reproduction or distribution is prohibited without permission.Foot Locker, the nation's largest retailer of athletic footwear, is poised to seize victory from the jaws of de feet.
The New York-based chain, with 3,641 mostly mall-based stores, has suffered declining same-store sales for more than three years, amid a fashion shift toward casual shoes and away from sneakers. Management has responded by cutting costs, culling inventory, closing underperforming stores and bolstering the company's balance sheet.
As a result, Foot Locker could be off to a running start once the economy starts to improve.
Shareholders could reap the rewards, as well. Although Foot Locker (FL) has been selling for around $10 (up from an intraday low of $3.65 in November), the stock could rise to around $15 as the outlook for retailers brightens.
"If a favorable cycle for athletic footwear and apparel is developing, as Foot Locker's management implies, shares would have the potential to perform better than the stock market generally, and perhaps move up more than 50% in price over the next 12 months," says Bernard Sosnick, an analyst at Gilford Securities in New York.
As Nike's main retail outlet for basketball shoes, Foot Locker has the right merchandise. The company operates three store chains targeting boys and young men, plus Lady Foot Locker and an e-commerce Web site, Eastbay. International sales contribute 25% of revenue.
Analysts expect Foot Locker to earn $113 million, or 72 cents a share, in the fiscal year ending Jan. 31, 2010, and $127 million, or 81 cents, for fiscal 2011. That's up from 67 cents a share from operations in fiscal 2009. Longer term, growth in annual earnings per share could average 13%, if the company keeps fine-tuning its operations.
So far, Foot Locker has focused on weeding out poorly performing products, cutting store hours and negotiating lower rents at many malls. It is closing underperforming stores after overexpanding in the late 1990s. Management has reduced store count by 259 units in the past five years. "We know how to control the controllables," says Matthew Serra, who will step down as CEO in August. Succeeding him as CEO is former J.C. Penney executive Ken Hicks.
Although Foot Locker is taking the right steps to regain its footing, obstacles remain. Predicting fashion trends is tricky, and relying on Nike for a large percentage of sales poses risks.
But fans think Mr. Hicks could hit the ground running. For shareholders, it is time to lace up, too.
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For more stories, see barrons.com
Credit: By Christopher C. Williams
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