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Foot Locker (FL) Closes atmos Buyout, Expansion Plan on Track

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Foot Locker, Inc. (FL - Free Report) is quite focused on improving its performance through operational and financial initiatives. This New York-based athletic retailer is steadily making prudent investments and undertaking strategic buyouts to attain sustainable growth. In early August, management had entered into agreements to acquire Eurostar, Inc. (WSS) for $750 million and Text Trading Company, K.K. (atmos) for $360 million.

On Nov 1, Foot Locker announced that it concluded the buyout of atmos, which is a Japan-based, digitally-led global retailer. The company also closed the buyout of WSS in September.

More on the atmos Buyout

We note that atmos is an exclusive in-house streetwear brand with premium sneakers and apparel, possessing a robust omni-channel platform. Post acquisition, atmos will retain its name with its unique identity and value proposition. Founded in 2000, atmos has a strong global store base operating under the atmos banner and atmos pink, its women's brand. In fiscal 2020, atmos generated revenues worth around $175 million, more than 60% of which came from the digital channels.

Through this acquisition, Foot Locker will be able to enhance its global footprint in the Asia-Pacific market and establish a critical entry point in Japan. Management is quite impressed with atmos' innovative offerings and the understanding of sneakerhead culture. Foot Locker looks forward to taking the atmos brand to its next growth phase. Hence, the acquisition of atmos is expected to bolster its global reach alongside expanding its premium and top-tier offerings.

Management had previously stated that it anticipates atmos to deliver sales growth in low-double digits, annually and EBITDA margins in the range of low-double digits to mid-teens in the coming five years. This buyout is likely to drive the company’s earnings per share in fiscal 2021. Per management, both the atmos and WSS transactions on a combined basis are expected to be accretive to earnings in the band of 44-48 cents a share for fiscal 2022.

Bottom Line

Foot Locker is constantly making solid efforts to boost digital capabilities and strengthen its product assortments. The company continues to invest in digital platforms, improve supply-chain efficiencies and effectively manage inventory. In addition, management’s commitment to develop power stores is quite encouraging.

Foot Locker’s strategic deals including partnership with NIKE (NKE - Free Report) to enhance its assortment and drive growth will keep yielding positive results. The company is progressing well with its FLX membership program too.

So far in the year, shares of this currently Zacks Rank #3 (Hold) stock have increased 15.4%, outperforming the industry’s 5.2% growth.

Key Picks in Retail

Boot Barn (BOOT - Free Report) delivered an earnings surprise of 35.3% in the last four quarters, on average. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Tilly’s (TLYS - Free Report) has a Zacks Rank of 1 and a long-term earnings growth rate of 10% at present.


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