|Shares Out. (in M):||0||P/E|
|Market Cap (in M):||3,430||P/FCF|
|Net Debt (in M):||0||EBIT||0||0|
|Subject||margins vs. FINL|
|Entry||08/17/2005 12:28 PM|
|you think FL margins can exceed FINL?|
|Entry||08/17/2005 04:41 PM|
|what are the steps in managements plan to get EBIT margins to 10% - for past 10 years they have averaged 4.5% (median 5.3%) with an all time high of 8.8% in 1997 and low of -1.7% in 1999|
|Subject||Margins and Competition|
|Entry||08/18/2005 08:51 AM|
On an LTM basis FINL had a 31.7% Gross margin versus FL’s 30.5%
We believe FL’s leading position in the market place and with suppliers would imply that they would get pricing and terms at least as good as FINL thus being able to achieve at least a 31.5% GM as well. With the NIKE feud in the past we see GM marching upward.
A 100 BP improvement on GM puts FL at the 8.4% EBIT margin, and then further leverage from real estate rationalization and scale will lead to the other incremental margin improvements ultimately getting to the target 10% EBIT levels.
The real estate rationalization plan includes closing underperforming stores, renegotiating leases and closing the large footprint stores and returning to single concept ones.
The product at FL is having a wide selection of shoes that are always in stock when you want them. Lots have argued that Wal-Mart would get access to Nike, but we think Nike is smart enough to know that such an action would decimate their brand, or at they very least the marquee product.
At the end of the day Nike is a brand, as are most other pieces of high-end athletic footwear and part of building that brand means promoting it through select retail channels. We don’t worry about Wal-mart, Target, DSW or the like because Footlocker is ultimately competing for a different customer.
Recently, Nike decided to pull their product from Sears. Here’s a link to an article concerning the topic.
Dick’s is a major competitor but there’s plenty of room for more than one player. When a customer goes to Footlocker, or one of the 6 concepts, they know what to expect both in terms of quality and breadth of selection- that’s why they come.
The recent dispute with Nike sheds some light on how important FL is to them (and vice-versa).
Unlike most other mall based retailers Footlocker takes little fashion risk. If Reebok hits the ‘in’ shoe instead of Nike in a given year, it is easy to change product mix. With Footlocker you’re buying a superior distribution channel that is valued by both the supplier (Nike, Reebok etc) and the customer- that’s a combination that is both rare and valuable.
|Entry||08/18/2005 12:20 PM|
|I don't necessarily disagree with what you write. I am just not sure the FL business is a structurally 10% margin business. It is true that ewvents have shown that NKE needs FL, but the vendor base is still very concentrated. Also, the margin story, in part driven by the real estate has been hanging around for a while now. A lot of the bad leases have been rolling off already. I think Europe is a key to this story|
|Subject||Footaction's impact on margins|
|Entry||08/18/2005 02:32 PM|
|The real estate story has been kicking around, because it takes time to accomplish. FL's margin expansion the past couple of years has been solid, and is obscured by Footaction's having a 50bp negative impact on the margins in 2004. Europe is important for sure, but the execution here on the margin front has been solid.|
|Entry||08/19/2005 11:35 AM|
Full year EBIT margins should hit 8% this year
10% EBIT is 2-4 years away depending on host of things but definitely within reach
Inventory levels were up but will be cleaned up by the end of the year
Entered Greece and Switzerland this year
Cash marched up slightly to $360 mm
Renegotiated real estate is 200bps better than the company average on the non-rationalized assets- still 150 BPS opportunity over the next ‘few’ years
Gross margin pressure in Europe
US biz is on fire.
Tax rate for the quarter was 38% (up slightly from 36.5% guidance)
|Subject||cheap at this price?|
|Entry||08/16/2007 02:55 PM|
|Any thoughts on FL at these prices? At $14.95, and assuming 3.3% EBIT margins in 2007 and 6.5% in 2008 (roughly 10 year average), you are getting the business at 4.8x 2008 EV/EBIT, or roughly 12.9% aftertax FCF yield on 2008 numbers assuming cash build.|
Sure, there could be some rough sledding in the next year or two if the swing from athletic shoes to brown shoes continues, a la the late 1990's, but this is starting to look pretty cheap on normalized basis.
Wonder if Serna will buy back at these prices. But hey, why buy your own company at 8x FCF when you could buy a competitor at twice the price?