Kaushik Andra, Ishan Prasad, Shicheng Tang,
Lingtao Zhou
April 25, 2013
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Introduction
Macroeconomic Review
Industry Overview
Company Overview
Financial Analysis
Valuation
Recommendation
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Founded in 1974- Headquartered in New
York, NY
Global Retailer of athletically inspired shoes
and apparel
Operates 3335 retail stores in 23 countries in
North America, Europe, Australia, and New
Zealand
Source: Marketline
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Marketplace Fairness Act moving through
Senate
◦ Primarily affects small online retailers

Retail Sales down in March but beat
expectations for 1st quarter
◦ May be explained by payroll tax effect
◦ Further sequestration cuts
Source: Wall Street
Journal
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Growth in Asian markets slow as well, Japan
trying to implement expansionary monetary
policy
European data continues to show mixed
results, points to sluggish growth
◦ Austerity measures in Spain not particularly
effective
Source: New York Times
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Foot Locker primarily operates in the retail
athletic shoe wear and apparel industry
Largest Players: Nike, Adidas, Finish Line,
Dick’s Sporting Goods
Asia Pacific region forecasted to have highest
growth during next 5 years
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Bargaining Power of Buyers- High
◦ Consumers face low switching costs
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Bargaining Power of Suppliers- Moderate
◦ Suppliers starting to develop e-commerce presence
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Threat of Substitutes- Moderate
◦ Can use cross-training shoes for various purposes
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Barriers to Entry- Low
◦ Low initial investment to enter retail space
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Degree of Rivalry- High
◦ Emergence of online retailers in every business segment
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Overall Industry Attractiveness- Moderate
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Highlighted by events such as FIFA World Cup
2014, and 2016 Olympics
◦ CAGR of 4.92% until 2017
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Mainly correlated with global economic
growth
◦ Heavily driven by consumer sentiment and
confidence
◦ Foot Locker specifically affected mostly by U.S and
European growth
Source: Lucintel
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Operates in two reportable segments — Athletic Stores
and Direct-to-Customers.
Athletic Stores segment is one of the largest athletic
footwear and apparel retailers in the world, whose
formats include Foot Locker, Lady Foot Locker, Kids
Foot Locker, Champs Sports, Footaction, and CCS.
Direct-to-Customers segment includes Footlocker.com,
Inc. and other affiliates, which sell to customers
through their websites, mobile devices, etc. It operates
websites for eastbay.com, ccs.com as well as those
aligned with the brand names of its store banners
Source: Foot Locker Inc. 2012 Annual Report
1200
1000
800
January 2012
February 2013
600
400
200
0
Foot
Locker US
Foot
Locker
Europe
Champs
Sports
January 2012
1118
561
534
331
292
February 2013
1072
590
539
303
283
Foot
Locker
Canada
Foot
Locker
Asia Pacific
291
129
91
305
129
92
Lady Foot
Kids Foot
Footaction
Locker
Locker
Source: Foot Locker Inc. 2012 Annual Report
• Sales increased 9.0% in 2012, as compared with 10.7%
in 2011.
• Excluding the effect of currency fluctuation, it increased
by 10.6% in 2012, as compared with 8.9% in 2011.
Source: Foot Locker Inc. 2012 Annual Report
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Most divisions experienced strong increases compared
with the prior year, led by Champs Sports and domestic
Foot Locker.
Foot Locker Europe had a modest comparable-store
sales decline reflecting the macro conditions in that
region.
Introduced a new banner SIX:02 in November 2012.
Source: Foot Locker Inc. 2012 Annual Report
Sales increased 19.7% in 2012, as compared with 18.8% in
2011.
The increase was majorly a result of strong sales performance for the
company’s store-banner websites (60%) as well as increased Eastbay
sales.
Source: Foot Locker Inc. 2012 Annual Report
By Segment
6000
By Geographic Area
5000
5568
5110
4617
4000
Athletic
Stores
4000
3000
Direct-toCustomers
2000
3959
3568
3500
Sales(million)
Sales (million)
5000
4495
4500
United States
3000
2500
International
2000
1500
1481
1664
1687
1000
1000
432
513
614
500
0
0
2010
2011
2012
2010
2011
2012
Source: Foot Locker Inc. 2012 Annual Report
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Create a clear customer focus, to drive
performance in core athletic banners.
Make stores and internet sites more exciting,
relevant places to shop and buy.
Deliver exceptional growth in high-potential
business segments.
Aggressively pursue brand expansion opportunities
Source: Foot Locker Inc. 2012 Annual Report
Relationship with
vendors
(especially Nike)
Highly
Competitive
Market
Exposure to
economic/political
conditions in other
countries
Changes to
labor
regulations
Fashion
Changes
Source: Foot Locker Inc. 2012 Annual Report
Strengths
•Leading athletic footwear and
apparel retailer in US.
•Wide selection of products
focusing on different
customers’ needs.
Weaknesses
•Sales highly correlated to
Nike’s performance.
•Reliance on relationship and
performance of vendors.
•Strong profitability and
liquidity
Opportunities
•Increasing online shopping.
•Growing demand for women’s
athletic footwear.
•Expansion into international
markets
Threats
•Highly competitive
environment.
•Shift in fashion trends.
•Changes to labor regulations
and increased wages.
Source: Foot Locker Inc. 2012 Annual Report
Sales(in million)
Sales per gross square foot
7000
500
6000
5000
4000
5049
5623
6182
400
300
3000
360
406
443
200
2000
100
1000
0
0
2010
2011
2012
2010
EBIT margin
3
10.00%
2.5
9.90%
7.80%
6.00%
4.00%
1
2.00%
0.5
0.00%
0
2011
2.58
2
1.8
1.5
5.30%
2010
2012
Diluted EPS
12.00%
8.00%
2011
2012
1.07
2010
2011
Source: Foot Locker Inc. 2012 Annual Report
2012
2012-2013
Profitibility
ROC
ROE
ROA
2011-2012
2010-2011
17.00%
17.70%
12.40%
12.99%
13.45%
9.35%
8.39%
8.51%
5.92%
Liquidity
Current Ratio
Quick Ratio
Debt to Equity
3.70
1.50
5.60
3.79
1.55
6.4
3.96
1.42
6.77
Working Capital
Inventory Turnover
A/P Turnover
3.70
15.78
3.6
16.57
3.37
16.23
Source: Bloomberg
Metric
Value
Current
Stock
Price
$32.34
Trailing
P/E
12.53
Forward
P/E
10.43
Dividend
Yield
0.8 (2.5%)
Market
Cap
4.86B
Source: Yahoo.com
Source: Yahoo
Source: Foot Locker Inc. 2012 Annual Report
Foot Locker Inc.
LTM
Company
Enterprise Value /
LTM
2014E
LTM
LTM
Price
2014E
TBV
EPS
LTM
Growth
Sales
EBITDA
EBITDA
EBIT
EPS
EPS
Foot Locker Inc.
0.7x
5.6x
5.2x
6.7x
4.9x
11.8x
1.53x
11%
Comps
Finish Line Inc.
Genesco Inc.
DSW Inc,
Dick's Sporting Goods Inc.
Dillard's Inc.
0.5x
0.5x
1.1x
0.9x
0.7x
4.6x
5.6x
8.7x
8.2x
5.6x
4.7x
5.0x
8.1x
7.3x
5.4x
5.5x
7.5x
10.5x
10.2x
8.4x
NA
2.4x
19.6x
20.2x
8.4x
11.6x
10.4x
18.0x
16.4x
11.3x
0.96x
4.03x
6.73x
7.56x
0.92x
15%
15%
14%
16%
10%
Mean
Median
0.8x
0.7x
6.5x
5.6x
6.1x
5.4x
8.4x
8.4x
12.7x
14.0x
13.6x
11.6x
Mean
Median
$ 36.49
$ 32.82
$ 35.53
$ 39.29
$38.01
$32.67
Mean
Median
$ 37.52
$ 33.09
$ 37.75
$ 33.83
$ 40.15
$ 40.01
4.04
4.03
14%
15%
$ 52.55
$ 52.42
$ 39.56
$ 37.51
Source: Bloomberg
Source: Bloomberg
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Strengths
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Strong Same-Store Sales Growth
Good improvement in operating margins
Excellent Dividend Record
Revamp store layout to better suit customer shopping
experience
Concerns
◦ Consumer sentiment sluggish as global economy
recovers
◦ High degree of rivalry within industry with the rise of
online retailers
◦ Unclear plan of expansion into key global markets
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Valuation Summary
◦ Current Stock Price: $32.34
◦ Comparable Companies Valuation: $39.56
◦ DCF Valuation: $26.95
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Recommendation: WATCH LIST
◦ Place on RCMP Watch List
◦ Consider reviewing again in 12 months once U.S.
and European economies show stronger consumer
confidence