Company Analysis Assignment
PRT 503
Jordan Green
Table of Contents
Executive Summary
3
Company Profile
4
Economic Issues
5
Revenue & Expenditure Summary
6
Assets and Liabilities Summary
7
Financial Analysis and Ratios
9
Future Trends
10
Appendix
11
Executive Summary
Foot Locker Inc. is the world’s leading retailer of athletically inspired footwear and
apparel. Headquartered in New York City, it operates approximately 3,500 athletic retail stores in
21 countries in North America, Europe and Australia under the brand names Foot Locker, Lady
Foot Locker, Kids Foot Locker, Footaction, Champs Sports and CCS.
In 2008, Foot Locker generated $5.24 billion in total revenue, a 3.7% decrease in sales
from 2007. Despite the decline in sales, Foot Locker remains far ahead of second place retailer
Finish Line by revenue, which reported $1.26 billion in 2008 sales. Foot Locker’s struggles have
continued through 2009 as same-store sales, a key gauge of retail performance, fell 12% in
second quarter 2009. For the entire fiscal year 2009, Foot Locker made $4.85 billion, down from
$5.24 billion the year before, while its net income was $48 million, up from $-80 million the year
before. After Foot Locker’s company-side operating margin fell to 6.6% in 2006, from 7.2% in
2005, the company began an initiative to improve efficiency and profitability by changing their
store base. This strategy comprised opening new stores, relocating existing stores to optimal
locations and closing down unproductive stores. During 2007, Foot Locker closed 157 stores and
in 2008 closed 208 stores.
Foot Locker’s approach to merchandising is to offer trendy brand name products.
Consequently, its five biggest vendors accounted for 80% of its products in 2009, with Nike
comprising 50% of all offerings. These ties to Nike and other vendors offer exclusive products
and experiences but also expose the company to significant risk from a pricing perspective.
Foot Locker prepared for a weak consumer spending environment, and focused on
implementing strategies designed to protect profitability, remain financially strong and improve
their competitive position.
Company Profile
Mission Statement:
“Be the leading global retailer of athletically inspired shoes and apparel.”
Objectives:
- Be the power merchandiser of athletic footwear and apparel with clearly-defined
brand banners.
- Develop a compelling apparel assortment.
- Make stores and internet sites exciting places to shop and buy.
- Aggressively pursue growth opportunities.
- Increase the productivity of all assets.
- Build on the industry leading retail team.
Company History:
- Top athletic shoe retailer Foot Locker, Inc., was known until 1998 as the Woolworth
Corporation and until 2001 as Venator Group Inc. Foot Locker is a multinational retailer of
athletic shoes with stores and support operations in North America, Europe, Australia, and Asia.
The company's holdings include the chains Foot Locker (and its Kids and Lady store concept
versions), Footaction USA, and Champs Sports. Since Woolworth's establishment in 1879, the
business has been involved in general merchandising; in its incarnation as Venator, however, the
company focused on the retailing of athletic footwear and apparel. In 2001 Venator renamed
itself after its best-performing specialty chain, the Foot Locker athletic footwear shops.
1879: Frank Woolworth opens his first "Great 5¢ Store" in Utica, New York.
1905: Woolworth incorporates his business as F.W. Woolworth & Co.
1912: F.W. Woolworth & Co. becomes the publicly traded F.W. Woolworth Co.; the company
moves into the Woolworth Building.
1926: Woolworth inaugurates its German operating subsidiary.
1960: Sales surpass the $1 billion mark.
1962: Woolworth's opens the first Woolco.
1965: The company purchases G.R. Kinney Corporation.
1972: Woolworth and Woolco are consolidated in one division.
1974: The Kinney shoe division opens the first Foot Locker stores.
1982: Kinney's Canadian operation starts Lady Foot Locker.
1993: Woolco's operations are sold to Wal-Mart.
1997: Woolworth's closes the last of its five-and-dime stores in the United States.
1999: Woolworth's changes its name to Venator Group.
2001: Company closes its Northern Reflections chain and renames itself Foot Locker Inc.
Economic Issues
Without a doubt, the difficult economic conditions in 2009 presented considerable
challenges for most retailers, Foot Locker included. In Foot Locker’s 2008 Annual Report, CEO
Matthew Serra, has recognized and informed shareholders regarding this threat by stating, “Any
significant declines in general economic conditions, public safety concerns or uncertainties
regarding future economic prospects that affect customer spending habits could have a material
adverse effect on customer purchases of our products. The financial result of U.S. businesses
reflects the impact of weak consumer spending. As money becomes tight in households, the first
products to be effected are those that are not essential to everyday living. This includes sporting
apparel, expensive basketball and football shoes, jerseys and backpacks. Since Foot Locker’s
product lines are not diversified with non-athletic offerings and the store is focused on midluxury brands like Nike and Adidas, it is more exposed to economic downturns than other
retailers such as Wal-Mart and Target. Reflecting these challenges, according to the Foot Locker
Annual Report, the worldwide sales for footlocker in 2009 declined to $4.9 billion from $5.2
billion in 2008 as well as a 6.4 sales decline over the course of the year.
Foot Locker also faces many risks is it pertains to the economy. Since Foot Locker
depends on companies such as Nike and Adidas, they are at the mercy of the athletic equipment
giants when negotiating purchasing contracts such as prices, distribution and promotion. Also, if
for some reason Nike or Adidas were unable to supply Foot Locker with products or was to end
their relationship with Foot Locker, the retailer would suffer significantly, as Nike alone accounts
for 64% of Foot Locker’s products.
NBA player such as Shaquille O’Neal and Stephon Marbury have started a new phase in
sponsorships by endorsing their own brand shoes at an extremely low price and are sold only at
stores such as Payless and K-Mart. While we are in a recession, even during one, there is no
question about whether people will buy shoes. The real question is whether consumers will
trade down to places like Wal-Mart. It’s also important to consider that the competition for
overall footwear is fierce. Companies such as Dick’s Sporting Goods and Finish Line sell the same
shoes as Foot Locker (Forbes.com). While Foot Locker clearly has dominated the market and will
likely continue to do so, all of the companies are fighting for every last customer.
It should be noted however, that Foot Locker prepared for a weak consumer spending
environment, and focused on implementing strategies designed to protect profitability, remain
financially strong and improve their competitive position.
Revenue & Expenditure Summary
The following graph shoes the revenue and expenditures, or expenses of Foot Locker Inc.
Both of these together help determine the net income of a company. The graph and figures
below show quarterly comparisons of revenue and expenditures. It should be noted that the
quarterly numbers, both revenue and expenditures are greater after closing the 2009 fiscal year
and opening the 2010 fiscal year. Most clothing or sporting goods stores see an increase in sales
during the holiday months. Foot Locker in particular sees an incredible jump in sales during the
months of November and December, which include the holidays of Christmas and Black Friday, in
which over 135 million people participate in the holiday shopping rush on one single day. A
stronger or weaker than normal holiday season can considerably help or hurt Foot Locker.
Unlike other retail companies, Foot Locker provides consumers with just as many warm
weather products (baseball, tennis shoes, etc.) as it does cold weather, so the company doesn’t
have a drastic increase in revenue during the holidays as other companies. It should be duly
noted that expenditures increase when revenues increase, and vice-versa. These expenditures
include merger integrations along with store closing costs. Foot locker closed 179 stores from
January of 2009 to January 2010, while only opening 38.
Foot Locker also made it a key objective to reduce their operating expenses. Their
combined selling, general and administrative expenses and occupancy costs were reduced by
approximately $100 million versus 2009 .
$1,400,000,000
$1,320,000,000
$1,325,000,000
$1,210,000,000
$1,200,000,000
$1,100,000,000
$1,000,000,000
$800,000,000
$635,000,000
$657,000,000
Revenues
Expendetures
$600,000,000
$478,000,000
$476,000,000
$400,000,000
$200,000,000
$0
Q3 FY 09
Q4 FY 09
Q1 FY 10
Q2 FY 10
Assets & Liabilities Summary
The following graph shows the assets and liabilities of Foot Locker Inc. over both a three
year period and a quarterly period. The balance sheet, which consists of assets, liabilities and
ownership equity, shows a “snapshot of a company’s financial condition.” Foot Locker is
currently the leading athletic footwear retailer in the United States in terms of sales as well as
most measures of profitability. Over the course of a year, not much change is shown between
assets and liabilities. Quarterly however, while Foot Locker’s liabilities have decreased nearly
$100 million in the last year, their assets have decreased nearly $400 million from 2008 to 2010.
This can be directly related to the fact that in the last two years, while Foot Locker has opened 38
stores worldwide, they have closed 179 stores. In response, the company has however begun an
initiative to improve efficiency and profitability by changing their store base. This strategy
comprised of opening a few new stores, but focused on closing down unproductive stores.
Historically, Foot Locker Inc. has relied heavily on dividends in creating value for
shareholders. In 2007, after finishing the year with $45 million in net income, Foot Locker still
paid $77 million in common stockholder dividends. The company currently has a 1.65% return on
average assets ratio compared to 0.82% last quarter.
$3,000,000,000
$2,600,000,000
$2,500,000,000
$2,600,000,000 $2,600,000,000
$2,500,000,000
$2,000,000,000
Assets
$1,500,000,000
Liabilities
$1,000,000,000
$605,000,000
$652,000,000
$646,000,000
Q1 FY 10
Q2 FY 10
$506,000,000
$500,000,000
$0
Q3 FY 09
Q4 FY 09
Quarterly
$3,500,000,000
$3,248,000,000
$2,877,000,000
$3,000,000,000
$2,816,000,000
$2,500,000,000
$2,000,000,000
Assets
$1,500,000,000
$1,000,000,000
Liabilities
$977,000,000
$953,000,000
$868,000,000
$500,000,000
$0
Feb. 2008
Jan. 2009
Yearly
Jan. 2010
Financial Analysis & Ratios
Current Ratio
The Current Ratio helps measure whether or not a company or firm has enough resources to pay its debts over a year
time. It compares the organizations current assets to its current liabilities
2007: Current Assets / Current Liabilities = Current Ratio
$2,064,000,000 / $977,000,000 = 2.11
2008: Current Assets / Current Liabilities = Current Ratio
$1,764,000,000 / $953,000,000 = 1.85
2009: Current Assets / Current Liabilities = Current Ratio
$1,772,000,000 / $868,000,000 = 2.04
Total Debt Ratio
The Debt Ratio financially indicates the percentage of a company’s assets that are provided via debt. The higher the
ratio, the greater risk will be associated with the company’s operation. High debt to assets ratio may indicate a lower borrowing
capacity of a company, which in turn will lower the firm’s financial flexibility.
2007: Total Debt Ratio = Total Assets – Total Equity / Total Assets
= $3,248,000,000 – $2,271,000,000 / $3,248,000,000 = .30
2008: Total Debt Ratio = Total Assets – Total Equity / Total Assets
= $2,877,000,000 - $1,924,000,000 / $2,877,000,000 = .33
2009: Total Debt Ratio = Total Assets – Total Equity / Total Assets
= $2,816,000,000 – $1,948,000,000 / $2,816,000,000 = .30
Receivables Turnover Ratio
This ratio measures the number of times, on average, receivables are collected during the period.
2007: Receivables Turnover = Sales / Accounts Receivable
$5,437,000,000 / $60,000,000 = 90.61
2008: Receivables Turnover = Sales / Accounts Receivable
$5,237,000,000 / $64,000,000 = 81.82
2009: Receivables Turnover = Sales / Accounts Receivable
$4,854,000,000 / $60,000,000 = 90.90
Days’ Sales in Receivables
This is a calculation used by a company used to estimate their average collection period. A lower number of days
indicates that the company collects its outstanding receivables quickly. It is considered an important tool in measuring liquidity.
2007: Days’ Sales in Receivables = 365 Days / Receivables Turnover
365 / 90.61 = 4.02 Days
2008: Days’ Sales in Receivables = 365 Days / Receivables Turnover
365 / 81.82 = 4.46 Days
2009: Days’ Sales in Receivables = 365 Days / Receivables Turnover
365 / 90.90 = 4.01 Days
Profit Margin
The profit margin refers to the measure of profitability, and is calculated by finding the net profit as a percentage of the
revenue. It is mostly used for internal competition and is an indicator of a company’s pricing strategies and how well it controls
costs.
2007: Profit Margin = Net Income / Sales
$490,000,000 / $5,437,000,000 = 9%
2008: Profit Margin = Net Income / Sales
$790,000,000 / $5,237,000,000 = 15%
2009: Profit Margin = Net Income / Sales
$470,000,000 / $4, 854,000,000 = 9%
Future Trends
The global sports apparel, equipment and footwear industry had a total market size of
$278.4 billion dollars at the end of 2009, 36% of which was controlled by the United States.
According to NetAdvantage (2009), the sports apparel and footwear industry is increasingly
moving towards globalization, especially in the footwear sector. For companies such as Foot
Locker to remain competitive in the future, a global strategy must be created and implemented.
Moving towards a more global strategy will not only result in reduced cost of goods sold and
other related as a percentage
Foot Locker has also done its part in trying to market and promote business with a new
demographic. In November of 2009, Foot Locker acquired Delia’s CCS business for $104.2 million.
CSS is a direct-to-consumer (internet and catalog) retailer of skateboarding apparel, footwear and
accessories, mailing approximately 18 million catalogs annually. This represents their continued
attempt to appeal to a younger target market, particular in the rapidly growing action and
extreme sports categories.
Foot Locker’s main competitor in the athletic footwear and apparel specialty retail market
is Finish Line, shoes $1.27 billion in 2007 sales significantly trailed Foot Locker’s $5.3 billion. Foot
Locker has also began to expand its business internationally, operating 3,500 athletic retail stores
in 21 countries. Based on annual reports and numerous articles by financial analysis, the
management of Foot Locker recognized that the global retail environment would be slowing and
took appropriate actions to reduce costs, manage inventory levels more conservatively and close
underproductive stores, in order to sustain positive cash flow from operations. As a result, Foot
Locker Inc.’s leading position in the athletic retail industry is intact and their balance sheet seems
to be very strong, with substantial cash and short term investments alongside minimal debt,
which put together, provides an incredible amount of financial flexibility for the future.
Appendix
Balance Sheet
Period Ending
Jan 30, 2010
Jan 31, 2009
Feb 2, 2008
Assets
Current Assets
Cash And Cash Equivalents
582,000
385,000
488,000
7,000
23,000
8,000
-
89,000
118,000
1,037,000
1,120,000
1,281,000
146,000
236,000
169,000
1,772,000
1,764,000
2,064,000
-
21,000
4,000
Property Plant and Equipment
387,000
432,000
521,000
Goodwill
145,000
144,000
266,000
Intangible Assets
99,000
113,000
96,000
Other Assets
51,000
66,000
45,000
Deferred Long Term Asset Charges
362,000
358,000
252,000
2,816,000
2,877,000
3,248,000
433,000
418,000
380,000
Short/Current Long Term Debt
-
-
-
Other Current Liabilities
-
131,000
121,000
Total Current Liabilities
433,000
418,000
501,000
Long Term Debt
138,000
142,000
253,000
Other Liabilities
297,000
393,000
208,000
Deferred Long Term Liability Charges
-
12,000
15,000
Minority Interest
-
-
-
Negative Goodwill
-
-
-
868,000
953,000
977,000
Total Stockholder Equity
1,948,000
1,924,000
2,271,000
Net Tangible Assets
$1,704,000
$1,667,000
$1,909,000
Short Term Investments
Net Receivables
Inventory
Other Current Assets
Total Current Assets
Long Term Investments
Total Assets
Liabilities
Current Liabilities
Accounts Payable
Total Liabilities
Income Statement
Period Ending
Jan 30, 2010
Jan 31, 2009
Feb 2, 2008
Total Revenue
4,854,000
5,237,000
5,437,000
Cost of Revenue
3,522,000
3,777,000
4,017,000
Gross Profit
1,332,000
1,460,000
1,420,000
-
-
-
1,096,000
1,166,000
1,176,000
Non Recurring
41,000
259,000
128,000
Others
112,000
130,000
166,000
-
-
-
Operating Expenses
Research Development
Selling General and Administrative
Total Operating Expenses
Operating Income or Loss
83,000
(95,000)
(50,000)
19,000
1,000
(100,000)
(49,000)
16,000
1,000
Income from Continuing Operations
Total Other Income/Expenses Net
Earnings Before Interest And Taxes
Interest Expense
73,000
-
Income Before Tax
73,000
(100,000)
(50,000)
Income Tax Expense
26,000
(21,000)
(99,000)
Minority Interest
Net Income From Continuing Ops
47,000
(79,000)
49,000
Cash Flow
Period Ending
Net Income
Jan 30, 2010
48,000
Jan 31, 2009
80,000
Feb 2, 2008
51,000
Operating Activities, Cash Flows Provided By or Used In
Depreciation
112,000
130,000
166,000
Adjustments To Net Income
49,000
225,000
3,000
-
-
-
Changes In Accounts Receivables
Changes In Liabilities
98,000
56,000
36,000
Changes In Inventories
111,000
128,000
55,000
Changes In Other Operating Activities
123,000
36,000
44,000
Total Cash Flow From Operating Activities
346,000
383,000
283,000
Investing Activities, Cash Flows Provided By or Used In
Capital Expenditures
89,000
146,000
148,000
Investments
16,000
20,000
263,000
Other Cash flows from Investing Activities
1,000
106,000
2,000
Total Cash Flows From Investing Activities
72,000
272,000
117,000
Financing Activities, Cash Flows Provided By or Used In
Dividends Paid
94,000
93,000
77,000
Sale Purchase of Stock
3,000
2,000
41,000
94,000
21,000
Net Borrowings
Other Cash Flows from Financing Activities
Total Cash Flows From Financing Activities
Effect Of Exchange Rate Changes
Change In Cash and Cash Equivalents
3,000
94,000
-
1,000
185,000
138,000
18,000
29,000
5,000
$197,000
$103,000
$267,000