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Foot Locker

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Foot Locker, Inc. (FL - Free Report) recently reported its tenth straight quarter with a positive earnings surprise, sending all 11 earnings estimates for this fiscal year higher in the past 30 days. In addition, this well-known Zacks #1 Rank (Strong Buy) athletic retailer pays a dividend that yields a smart 2.1% annually.

Solid Third Quarter Results

On November 16, Foot Locker reported fiscal third quarter adjusted earnings of 63 cents per share, surpassing the Zacks Consensus Estimate by 16.7% and last year’s earnings by 47%. Results were driven by impressive top-line growth and solid expense management.

Total sales rose 9.3% to $1.52 billion year over year, driven by a solid comparable store sales increase of 10.2%. Sales comfortably beat the Zacks Consensus Estimate of $1.47 billion.

Gross margins expanded 60 basis points to 33.1%, due to sales growth and effective leverage of fixed occupancy and buying costs.

Dividend and Share Repurchases

In addition to the impressive earnings growth, Foot Locker pays a regular quarterly dividend of 18 cents per share, representing an annual dividend yield of 2.1%. The company has raised the payout twice since early 2011, including a 9% increase in February this year.

Foot Locker has plenty of cash. Net of debt, its cash position increased $158 million at the end of the quarter from the prior year. Moreover, the company repurchased 841 thousand shares in the quarter worth $29.7 million, as part of its $400 million share repurchase program announced earlier this year.

For the fourth quarter, management expects comps to reach the upper end of its previous guidance for a mid single-digit increase, gaining from an extra week in the quarter. Furthermore, gross margin is expected to expand about 50 basis points.

Earnings Momentum Jumps

The strong quarterly report drove all 11 estimates for fiscal 2012 higher in the past 30 days, sending the Zacks Consensus Estimate up by 4.1% to $2.55. Meanwhile, the Zacks Consensus Estimate for fiscal 2013 has moved up the same percentage to $2.81, as 11 of 12 estimates were boosted. These outlooks suggest year-over-year growth of 40.2% and 10.2%, respectively.

Very Attractive Valuation

Foot Locker currently trades at a forward price-to-equity (P/E) of 13.67x, reflecting a 10.0% discount to the peer group average of 15.18x. The stock is also attractive on a price-to-sales basis with shares trading at 0.88x, a 7.4% discount to the peer group average of 0.95x.

The stock trades at a discount of 5.7% on a price-to-book basis. The PEG ratio is 0.96, a 4% discount to the benchmark of 1 for a fairly priced stock. Overall, the stock is cheap at current levels and may be attractive for the bulls.

Chart Echoing Strength

The chart shows that consensus estimates have been trending significantly higher since 2011, as the company has delivered 10 straight positive earnings surprises. The uptrend in 2012 and 2013 earnings estimates should encourage investors as the stock is likely to follow the trend. Also, the stock price has been consistently below the earnings estimates, reflecting that the stock is still undervalued.

Based in New York, Foot Locker is a leading retailer of athletic shoes and apparel and operates through two segments: Athletic Stores and Direct-to-Consumer. Athletic Stores is a leading footwear and apparel retailer that operates through Foot Locker, Footaction, Lady Foot Locker, Kids Foot Locker, Champs Sports, and CCS retail stores. The Direct-to-Consumer channel operates through the websites, Eastbay, and

The company operated 3,367 stores at the end of October 27, 2012 in 23 countries in North America, Europe, Australia, and New Zealand. The company has a market cap of $5.26 billion.

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