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Foot Locker a Solid Bet for 2019 on Operational Strength

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Foot Locker, Inc. (FL - Free Report) is one of the widely recognized names in the athletic footwear and apparel industry. The company boasts a strong portfolio of leading brands under a variety of store banners that aids it to target specific markets and efficiently cater to consumer demand. The company is certainly trying to improve performance through its operational and financial initiatives and this makes it a solid pick for 2019.

The company is effectively managing inventory, investing in digital platforms and improving supply chain efficiencies. The company’s digital endeavors comprise improvement of mobile and web platforms, implementation of new point-of-sale software worldwide, and expansion of data analytics capabilities. The company also entered into a partnership with Nike for a pop-up store called Sneakeasy.

Further, management believes that by continually capitalizing on opportunities like kids’ and women’s business, shop-in-shop expansion in collaboration with its vendors, store business, store refurbishment and enhancement of assortments, Foot Locker is likely to benefit. Surely, the company has taken initiatives such as better price, omni-channel capabilities and unique products to stay competitive.

However, higher digital marketing investments and constant store remodeling and refurbishments add to costs. This may strain margins in the short run. Nonetheless, we believe it is better to face short-term impediments to attain long-term goals. The company's long-term financial goals include attaining sales of $10 billion, sales per gross square foot of $600, operating margin of 12.5%, net income margin of 8.5%, and return on invested capital of 17%.

We note that in spite of headwinds, Foot Locker has managed to pull off a decent score so far in a year when compared with the Zacks Retail - Apparel And Shoes industry as well as the Retail-Wholesale sector. Shares of this Zacks Rank #2 (Buy) company have gained nearly 4% in the said period, against the industry’s decline of 25.7%. Notably, the overall sector also witnessed a fall of 8.4%. Meanwhile, the Zacks Consensus Estimate of earnings for the current and next financial year has increased by 4 cents and 7 cents to $4.50 and $4.87, respectively, over the past 60 days.

Clearly, you can see from above-mentioned factors that there are plenty of reasons to be optimistic about the stock going into 2019.

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