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Foot Locker (FL) Shines on Robust Demand, Strong Digital Sales

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The prolonged indoor stint last year had cast a pall on apparel and footwear shopping. Now that pandemic-led restrictions have eased, consumers’ interests in buying apparel products and accessories are returning to normal. Individuals are interested in revamping their wardrobes, as socializing and indulgence in outdoor activities are picking up pace. Well-known footwear and apparel products company, Foot Locker, Inc. (FL - Free Report) , has been benefiting from these trends. Strong demand across a range of categories has helped the company’s performance during second-quarter fiscal 2021. Also, sturdy digital operations, efforts to elevate brands as well as supply chain capacities have been supporting the company.

Foot Locker’s shares have gained 32.3% in the year-to-date period compared with the industry’s rise of 8.8%. That said, let’s take a closer look at the aspects aiding this Zacks Rank #1 (Strong Buy) company’s performance.

Favorable Market Conditions

During the second quarter, Foot Locker’s top line gained from strength across stores and digital channels, supported by a solid product pipeline and healthy demand from customers. The company witnessed solid performance across the women's and kids' footwear businesses as well as robust demand for apparel and accessories offerings. The company’s footwear business grew in low single digits, while both apparel and accessories businesses were up double digits. The company expects the product categories to keep performing well. It also continues to expect a more rational promotional backdrop, which is likely to keep supporting margins.

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Strong Digital Platform

Foot Locker’s digital business has been performing well. In the past few years, the company has been investing significantly to reinforce its digital presence. The company is on track to bolster omni-channel capabilities by adding new functionalities. In this context, the company activated a Shop My Store feature on its website. Moreover, the company 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. During second-quarter fiscal 2021, the company’s digital sales penetration rate was 20.1%, well above the 2019 levels and this trend is likely to continue.

Notable Growth Efforts

Foot Locker has been focusing on building operational and supply chain efficiencies. Prudent inventory management strategies and efforts to boost seasonal products are helping the company to meet customer demand effectively. During the second quarter, it gained from growth across brands like Crocs, UGG and Birkenstock along with an expanded balkanized offering in Vans and Converse. It has also informed about plans to launch its own brands, like Locker and Cozy. Along with growth in footwear business, the company’s apparel and accessories businesses have also been progressing well. Strategic partnerships and acquisitions are also helping the company boost offerings across categories. It recently agreed to acquire the U.S.-based footwear and apparel retailer Eurostar, Inc. (WSS) and Text Trading Company, K.K. (atmos). These buyouts are likely to be completed late in the third quarter of the current year.  

The company is on track with the conversion of its Footaction stores to other existing banner concepts. It is exploring off-mall retail formats opportunities and executing shop-in-shop spaces in collaboration with vendors. International expansion is another growth catalyst. We note that the company has been witnessing sturdy advancement in Asia Pacific. The company is also progressing well with the expansion of FLX membership program. At the end of the second quarter, FLX program members exceeded 25 million, globally. Apart from these, the company is progressing with its technology upgrades. It is bolstering the point-of-sale system and launched a drop-ship pilot program with NIKE, Inc. (NKE - Free Report) to activate additional inventory on its website.

Wrapping Up

Foot Locker’s prudent strategic initiatives keep it well placed for growth in the forthcoming periods. Given the strong performance in the first half of the year and expectations of consistent positive response from customers, the company is confident about delivering positive results in the back half of the year. For fiscal 2021, management is optimistic about delivering a low to mid-teen increase in comp sales.

3 Picks You Can’t Miss Out On

Tillys, Inc. (TLYS - Free Report) , flaunting a Zacks Rank #1 (Strong Buy), has a long-term earnings growth rate of 10%. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Childrens Place, Inc. (PLCE - Free Report) , also with a Zacks Rank #1, has a long-term earnings growth rate of 8%.

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