On an otherwise up day for the Dow, shares of Foot Locker Inc. (FL) stumbled out of the gate today. What happened? Is this a red flag to sell—or a green light to buy? Let’s find out.
FL fell on Tuesday after President and CEO Ken Hicks announced that he will be retiring on December 1, 2014. Hicks will continue as Executive Chairman of the Board through May 2015; he will be succeeded by COO Richard Johnson, who has been with Foot Locker for 17 years.
FL shares pulled back on the news because Ken Hicks has left large shoes to fill. Since Hicks joined Foot Locker five years ago, the company has overhauled its store layouts and merchandising. Even so, Hicks is leaving Foot Locker in capable hands. Richard Johnson has led all of Foot Locker’s major businesses in the U.S. International and Direct to Customer segments, and management anticipates that this transition will go smoothly.
So many in the analyst community are recommending FL as a buy on the dip, and I agree. Foot Locker is due to report third-quarter results later this month, and the consensus estimate calls for 6% annual sales growth and 16.2% earnings growth. However, given the company’s strong track record of beating expectations (having posted an 18.5% earnings surprise in the most recent quarter), I believe it can do even better.
There are a few other reasons why Foot Locker is looking especially attractive right now. First, American consumers are embracing the “athleisure” trend. Women especially are eschewing traditional slacks and skirts for active wear like yoga pants and tennis shoes. So Foot Locker is working to grow its women’s business. The company is also looking to expand its footprint in Europe and the kids shoe market.
The stock also pays a decent 1.6% dividend, and we’ll likely see another dividend declared in the next few weeks.
The bottom line is that FL is a good blend of growth and value, and I expect plenty of further upside from here. If you look at the stock’s Portfolio Grader page, you’ll see that it earns As and Bs all down the line for its fundamentals, so FL is an A-rated Strong Buy.