Upturn Kicks in at Foot Locker

12/04/2013 8:00 am EST

Focus: STOCKS

Basketball footwear and apparel, particularly the Nike Jordan brand, have been very popular lately, helping drive sales for a sneaker and sporting goods retailer on our recommended list, notes Geoffrey Seiler, editor of BullMarket.com.

Foot Locker (FL) reported its Q3 results—posting a profit of $104 million, or 70 cents per share, down from $106 million, or 69 cents per share, last year when it had more shares. Adjusted EPS rose from 63 cents to 68 cents, topping the 66-cent consensus.

Meanwhile, revenue climbed 6.4% to $1.62 billion from $1.52 billion. Same-store sales increased 4.1%, on top of a 10.2% gain last year. The direct-to-customer business was the fastest-growing segment, with a comp gain of 13.7%.

Overall, Foot Locker turned in a strong quarter, going up against its toughest comps of the year, with both same-store sales and EPS coming in above expectations.

Just as importantly, inventory is in very good shape entering the holiday season. Remodeled stores have also been outperforming, which bodes well for the future.

Turning around the Women's side of the business remains a work in progress, but new formats and product transitions the company has been testing have, thus far, shown some good signs.

Trading at 12.5 times the next fiscal-year consensus of $3.07, and around 11 times ex-cash, Foot Locker remains a bargain in our view, especially given the progress of its turnaround. Our target goes from $42 to $47, and we maintain our Buy rating.

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