I have already looked at Foot Locker Inc here and now have researched the shoe retailer further. And I mostly liked what I saw. This are my additional notes as pros and cons:
Of course not everything is clear in the future: I am a bit concerned that their profitability will go down in a “reverse to the mean” manner – maybe their success will attract competitors and copycats. On the other handit seems like they have some fanbase (link, german)
Eddy Elfenbein today wrote this:
One area of concern for the economy and the market is consumer spending. This week, several retail stocks fell sharply after Macy’s and Nordstrom reported disappointing sales … The online retailing giant seems to gobble up everything in its path. This week, Amazon broke $700 per share.
I see eCommerce as threat to them but people mostly buying shoes in stores because they want them to fit. At least that’s the case with me (and I am buying online lot). Nevertheless this is clearly something to have an eye on in the future.
They have a strong Cash Flow, low debt and net cash. And they have grown nicely (Sales & Sales per Gross Square Foot ) in the past few years. The management have definitely done a lot of things right in the past.
I looked at their 2011 annual report (wich includes the numbers from 2007 till 2011) and they got quite passable through the financial crisis. Revenues were down but I think that’s O.K. – they recovered quickly.
As seen on Insider Monkey:
…Foot Locker also received a boost of confidence from the hedge fund community as a whole, as 35 of the funds followed by Insider Monkey held a position in the company at the end of 2015, up from 25 registered a quarter earlier. Foot Locker, Inc. (NYSE:FL) has a market cap of $8.62 billion and pays an annual dividend of $1.02 per share, the equivalent of a 1.78% dividend yield….
…Billionaire Ken Griffin is also bullish on Foot Locker, Inc. (NYSE:FL), with his fund Citadel Investment Group having reported a massive increase in its Foot Locker holding over the fourth quarter, to 2.75 million shares.
Some more fun with numbers:
I looked at their debt situation to define a discount rate: Morningstar Debt/Bonds overview FL
They have a year 2022 – 8.5% bond outstanding which is currently trading at 4.93% yield to maturity. I assumed a 6.5% discount rate for the equity.
I calculated with the assumed sell price for the year 2020 which I see at 107,85$ (of course things could turn out quite different). I discounted this price with a rate of 6,5% and came up with a “net present value” of about 82$. (note: this calculation does not include or consider dividends).
Considering the stock is now somewhere around 60 US$, this produces a 30% upside. So I bought a small amount.
The buy in Portfolio context:
As the market has rallied (or at least not crashed) for about 7 years and I defiantly want to have enough cash arround. So I bought just a small position for my portfolio. I am willing to add to the Position if the price will decline while the business-outlook stays the same. This Investment case needs at least some modest growth to turn out well.
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