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Foot Locker (FL) Gains on Strong Merchandise, Digital Growth

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Despite operating challenges stemming from the pandemic, Foot Locker, Inc. (FL - Free Report) has continued to remain triumphant on the back of strong merchandise offerings. This is helping the company boost store sales, as witnessed during first-quarter fiscal 2021. Apart from this, the company’s digital business has been performing well and supporting its direct-to-consumer (“DTC”) channel. Markedly, shares of this Zacks Rank #2 (Buy) company have surged 51.1% in the past six months compared with the industry’s rise of 31.3%. That said, let’s take a closer look at the factors supporting the performance of this well-known athletic shoes and apparel retailer. 

Strong Offerings Aid Growth in Stores

Foot Locker’s sales growth during the first quarter was mainly driven by strength in the company’s stores. The company witnessed favorable response from customers for its merchandise offerings. In fact, management highlighted that the company continued to witness strong demand for athleisure and fitness products. The company plans to continue investing in boosting store fleet, including revamping and remodeling of the same. Markedly, the company will be converting nearly one-third of its Footaction stores to other existing banner concepts. Such initiatives will help the company focus on its iconic banners. Further, it is exploring off-mall retail formats opportunities and executing shop-in-shop spaces in collaboration with vendors.

Strong Digital Channel

We note that Foot Locker has been actively investing toward reinforcing its digital presence. During first-quarter fiscal 2021, the company’s digital business increased 43% on a comparable basis and contributed 25% to total sales. The company is on track to bolster omni-channel capabilities by adding new functionalities. In this context, it activated a Shop My Store feature on its website. Moreover, Foot Locker added Apple Pay and Google Pay to digital payment options for providing greater flexibility as well as convenience to customers. Apart from these, the company is enhancing buy online and pickup in-store capabilities as well as elevating its mobile app experience. Markedly, the DTC channel continued to exhibit strength during the first quarter, registering 47% sales growth on strong omni- channel offerings.

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Other Strategic Growth Endeavors

Foot Locker is focusing on bolstering business internationally. In this context, the company is expanding footing in the Asia Pacific. It is effectively managing inventories and improving supply chain operations to attain greater productivity and efficiency. Apart from these, it is engaged in strengthening assortments.

The company is also progressing well with the FLX membership program, which inspires customers to remain within the Foot Locker portfolio of banners. At the end of the first quarter, FLX program members exceeded 20 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.

Wrapping Up

Given the strong start to fiscal 2021 and backed by assumptions of continued recovery from the pandemic, the company expects total sales to increase at a low double-digit to low teens rate in fiscal 2021, year on year. Further, it expects gross margin to expand, largely reflecting a more rational promotional environment.

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