Step Up to This Sneaker Champ

03/17/2014 7:00 am EST

Focus: STOCKS

The stock of this sneaker seller soared after it easily beat Wall Street's expectations for fourth quarter profits, observes Geoffrey Seiler, editor of BullMarket.com.

Foot Locker (FL) reported a 19% increase in its Q4 profit to $121 million, or 81 cents per share, compared with $158 million, or 68 cents per share, in the year-earlier period. Sales grew by 4.6% to $1.79 billion against $1.71 billion a year ago.

For the full year, Foot Locker said it earned $429 million, or $2.85 per share, compared with $397 million, or $2.58 per share, a year ago. The previous fiscal year contained a 53rd sales week. Total sales grew 5.2% to $6.61 billion.

The company opened 84 new stores, remodeled or relocated 320 stores, and closed 140 stores during fiscal 2013. Including 193 Runners Point Group stores, it now operates 3,473 stores in 23 countries in North America, Europe, Australia, and New Zealand.

Breaking down some of the results, management said the broad trends it previously noted remained in force. Its direct-to-consumer business was its strongest growth segment, generating a 13% increase in comparative-store sales.

Foot Locker said it repurchased about 1.6 million shares of its common stock in Q4 and 6.4 million shares during the entire year. The company's board also voted to increase the company's quarterly dividend to 22 cents per share.

Foot Locker turned in the strong quarter that we anticipated, paced by its strength in basketball shoes. Same-store sales were solid throughout the quarter and the company's e-commerce channels performed well.

The company has been getting a nice sales lift from its store remodeling program and its plans touched 20% of its Foot Locker and 30% of its Champs stores this year. At Lady Foot Locker, it completed a merchandising shift last year, away from lifestyle apparel towards the fitness and performance area.

Strip-out the nearly $5 per share in net cash and the valuation stands at around 13 times the current-year EPS consensus of $3.12. We think the company has more levers to pull in its current turnaround, and we will boost our target from $47 to $54. Our "Buy" rating remains unchanged.

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