As Foot Locker, Inc. (FL) Falls, Are Shares Still Too Expensive? – NIKE, Inc. (NKE)

Although Foot Locker, Inc. (NYSE:FL), FootAction, Champs, and Eastbay are all performing well, Lady Foot Locker, Inc. (NYSE:FL) posted flat same-store sales growth. The company is working to figure out what to do to stabilize the business, but we think it the women’s athletic footwear market is much more difficult to navigate. Unlike men’s, which can rely on selling limited LeBron James or Michael Jordan models, Lady Foot Locker has to compete with Nordstrom, Finish Line, and direct-to-consumer distribution from Nike and Adidas. Women’s purchasing motives are a bit different, and frankly, there’s little reason for women to go to Lady Foot Locker compared to other businesses.

On the capital allocation front, Foot Locker, Inc. (NYSE:FL) boosted its quarterly dividend 11% to $0.20 per share—an annual yield of 2.4% at current levels. Management also boosted the share repurchase program to $600 million, so we believe earnings per share growth will look fairly strong in 2013, even if sales growth isn’t as robust. The company also plans to spend $220 million on capital expenditures, up from $163 million this year and above the firm’s target of $160 million average over the next five years. Free cash flow for the year was $253 million, so I’m a little disappointed to see a sharp increase in capital spending in 2013. However, the company plans to spend a significant amount on technology investments, which could help boost EBIT margins.

Going forward, the firm anticipates low-single digits same-store sales growth, and business has been a bit turbulent year-to-date. We believe the payroll tax, but mostly the slow cadence of tax refunds, can be blamed, and I think NIKE, Inc. (NYSE:NKE) and—for the first time in ages—Reebok have strong premium product releases planned for 2013, so I think Foot Locker, Inc. (NYSE:FL)’s business will be absolutely fine this year. However, basketball shoes are quite popular as a fashion trend, so if/when the trend subsides, Foot Locker will be the first company to feel the pain. Nevertheless, shares look fairly valued at this time, so I’m not interested in adding a position to the portfolio of Valuentum’s Best Ideas Newsletter.

The article As Foot Locker Falls, Are Shares Still Too Expensive? originally appeared on Fool.com and is written by RJ Towner.

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