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Kaushik Andra, Ishan Prasad, Shicheng Tang, Lingtao Zhou April 25, 2013.

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Presentation on theme: "Kaushik Andra, Ishan Prasad, Shicheng Tang, Lingtao Zhou April 25, 2013."— Presentation transcript:

1 Kaushik Andra, Ishan Prasad, Shicheng Tang, Lingtao Zhou April 25, 2013

2 Introduction Macroeconomic Review Industry Overview Company Overview Financial Analysis Valuation Recommendation

3 Founded in Headquartered in New York, NY Global Retailer of athletically inspired shoes and apparel Operates 3335 retail stores in 23 countries in North America, Europe, Australia, and New Zealand Source: Marketline

4 Marketplace Fairness Act moving through Senate Primarily affects small online retailers Retail Sales down in March but beat expectations for 1 st quarter May be explained by payroll tax effect Further sequestration cuts Source: Wall Street Journal

5 Growth in Asian markets slow as well, Japan trying to implement expansionary monetary policy European data continues to show mixed results, points to sluggish growth Austerity measures in Spain not particularly effective Source: New York Times

6 Foot Locker primarily operates in the retail athletic shoe wear and apparel industry Largest Players: Nike, Adidas, Finish Line, Dicks Sporting Goods Asia Pacific region forecasted to have highest growth during next 5 years

7 Bargaining Power of Buyers- High Consumers face low switching costs Bargaining Power of Suppliers- Moderate Suppliers starting to develop e-commerce presence Threat of Substitutes- Moderate Can use cross-training shoes for various purposes Barriers to Entry- Low Low initial investment to enter retail space Degree of Rivalry- High Emergence of online retailers in every business segment Overall Industry Attractiveness- Moderate

8 Highlighted by events such as FIFA World Cup 2014, and 2016 Olympics CAGR of 4.92% until 2017 Mainly correlated with global economic growth Heavily driven by consumer sentiment and confidence Foot Locker specifically affected mostly by U.S and European growth Source: Lucintel

9 Operates in two reportable segments Athletic Stores and Direct-to-Customers. Athletic Stores segment is one of the largest athletic footwear and apparel retailers in the world, whose formats include Foot Locker, Lady Foot Locker, Kids Foot Locker, Champs Sports, Footaction, and CCS. Direct-to-Customers segment includes Footlocker.com, Inc. and other affiliates, which sell to customers through their websites, mobile devices, etc. It operates websites for eastbay.com, ccs.com as well as those aligned with the brand names of its store banners Source: Foot Locker Inc Annual Report

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11 Sales increased 9.0% in 2012, as compared with 10.7% in Excluding the effect of currency fluctuation, it increased by 10.6% in 2012, as compared with 8.9% in Source: Foot Locker Inc Annual Report

12 Most divisions experienced strong increases compared with the prior year, led by Champs Sports and domestic Foot Locker. Foot Locker Europe had a modest comparable-store sales decline reflecting the macro conditions in that region. Introduced a new banner SIX:02 in November Source: Foot Locker Inc Annual Report

13 Sales increased 19.7% in 2012, as compared with 18.8% in The increase was majorly a result of strong sales performance for the companys store-banner websites (60%) as well as increased Eastbay sales. Source: Foot Locker Inc Annual Report

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15 Create a clear customer focus, to drive performance in core athletic banners. Make stores and internet sites more exciting, relevant places to shop and buy. Deliver exceptional growth in high-potential business segments. Aggressively pursue brand expansion opportunities Source: Foot Locker Inc Annual Report

16 Relationship with vendors (especially Nike) Highly Competitive Market Changes to labor regulations Exposure to economic/political conditions in other countries Fashion Changes Source: Foot Locker Inc Annual Report

17 Strengths Leading athletic footwear and apparel retailer in US. Wide selection of products focusing on different customers needs. Strong profitability and liquidity Weaknesses Sales highly correlated to Nikes performance. Reliance on relationship and performance of vendors. Opportunities Increasing online shopping. Growing demand for womens athletic footwear. Expansion into international markets Threats Highly competitive environment. Shift in fashion trends. Changes to labor regulations and increased wages. Source: Foot Locker Inc Annual Report

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19 Profitibility ROC17.00%12.99%8.39% ROE17.70%13.45%8.51% ROA12.40%9.35%5.92% Liquidity Current Ratio Quick Ratio Debt to Equity Working Capital Inventory Turnover A/P Turnover Source: Bloomberg

20 MetricValue Current Stock Price $32.34 Trailing P/E Forward P/E Dividend Yield 0.8 (2.5%) Market Cap 4.86B Source: Yahoo.com

21 Source: Yahoo

22 Source: Foot Locker Inc Annual Report

23 Foot Locker Inc. Enterprise Value /Price LTM 2014ELTM 2014E TBV EPS CompanySalesEBITDA EBITEPS LTMGrowth Foot Locker Inc.0.7x5.6x5.2x6.7x4.9x11.8x1.53x11% Comps Finish Line Inc.0.5x4.6x4.7x5.5xNA11.6x0.96x15% Genesco Inc.0.5x5.6x5.0x7.5x2.4x10.4x4.03x15% DSW Inc,1.1x8.7x8.1x10.5x19.6x18.0x6.73x14% Dick's Sporting Goods Inc.0.9x8.2x7.3x10.2x20.2x16.4x7.56x16% Dillard's Inc.0.7x5.6x5.4x8.4x 11.3x0.92x10% Mean0.8x6.5x6.1x8.4x 12.7x13.6x4.0414% Median0.7x5.6x5.4x8.4x 14.0x11.6x4.0315% Mean $ $ $ $ $ $38.01 $ Median $ $ $ $ $ $32.67 $ Mean $ Median $ Source: Bloomberg

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27 Strengths Strong Same-Store Sales Growth Good improvement in operating margins Excellent Dividend Record Revamp store layout to better suit customer shopping experience Concerns Consumer sentiment sluggish as global economy recovers High degree of rivalry within industry with the rise of online retailers Unclear plan of expansion into key global markets

28 Valuation Summary Current Stock Price: $32.34 Comparable Companies Valuation: $39.56 DCF Valuation: $26.95 Recommendation: WATCH LIST Place on RCMP Watch List Consider reviewing again in 12 months once U.S. and European economies show stronger consumer confidence


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