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Foot Locker (FL) Gains From Digital Growth Amid Store Closures

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Despite store closures and other pandemic-related headwinds, Foot Locker, Inc. (FL - Free Report) has managed to stay afloat the turbulences in the retail space on the back of its sturdy e-commerce business as well as prudent operating strategies. Shares of this well-known athletic shoes as well as apparel products company have gained 45.1% in the past three months, compared with the industry’s rise of 26.3%. Let’s take a closer look at the factors at play.

Digital Strength Is Key Upside

Over the past few years, Foot Locker has been investing significantly to reinforce its digital presence. The company has been focusing on augmenting its e-commerce platform. Investments made in this regard have been yielding favorably. During the fourth quarter of fiscal 2020, the company continued to witness strength across its digital business. The business registered double-digit growth in the quarter, with strength across the board. In fact, it saw digital sales rise triple digits across the regions that were heavily affected by store closures. In Europe, COVID-related restrictions turned out to be a boon for digital growth and advancement of capabilities.

Foot Locker is on track to further bolster omni-channel strength by adding new functionalities. In this context, it has activated a Shop My Store feature on its website. Moreover, the company has added Apple Pay and Google Pay to its digital payment options for providing greater flexibility as well as convenience to customers.

Other Growth Strategies

Foot Locker has been effectively managing inventories, improving supply chain operations and reorganizing the corporate structure in order to attain greater productivity and efficiency. Apart from these, the company has been focusing on strengthening assortments. Markedly, its fourth-quarter fiscal 2020 performance was supported by a solid product pipeline, exciting holiday campaigns and healthy demand from customers. These aspects aided full price sell-through, healthier margins and higher inventory productivity. The company has also been focusing on bolstering business internationally. In this context, the company has been expanding footing in the Asia Pacific. Markedly, during the fourth quarter, the Asia-Pacific market was the company’s fastest-growing region globally.

Additionally, the company is progressing well with the FLX membership program, which inspires customers to remain within the Foot Locker portfolio of banners. At fourth quarter-end, FLX program members exceeded 17 million, globally. Apart from these, the company is on track with technology upgrades. In this regard, it is bolstering the point-of-sale system. It also launched a drop-ship pilot program with NIKE, Inc. (NKE - Free Report) to activate additional inventory on its website. Moreover, the company has revamped the operating structure in North America with four distinct regions, each having its own geo leader and customer experience team. Apart from these, the company plans to spend a major portion of the capital on its fleet of stores, including revamping and remodeling of the same.  We note that management has authorized a $275-million capital expenditures program for fiscal 2021.

Wrapping Up

Foot Locker has been grappling with pandemic-related store closures, especially across Europe and Canada. This along with inventory delay on congestion at domestic ports weighed upon the company’s top-line performance during the fourth quarter. Moreover, comparable-store sales declined 2.7% year over year owing to the pandemic-induced store closures and backlog at U.S. stores along with lower traffic in tourist markets. The company is currently operating with 10% of its store fleet shut down temporarily owing to COVID-related limitations. Apart from these, the company is apprehensive regarding rise in freight costs as well as personal protective equipment expenses in the first quarter.

Nevertheless, considering that the retail industry scenario has improved considerably from last year, Foot Locker’s operations are expected to revive. In fact the company witnessed sequential improvements in its business during the fourth quarter. Additionally, this Zacks Rank #3 (Hold) company’s strong digital wing alongside fruitful assortment management efforts keeps it well positioned for growth in the forthcoming periods.

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