Foot Locker, Inc. (NYSE:FL)

CAPS Rating: 3 out of 5

A retailer of athletic footwear and apparel, through its subsidiaries, operates in two reportable segments - Athletic Stores and Direct-to-Customers.

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Player Avatar NetscribeRetail (93.52) Submitted: 5/8/2007 8:23:37 AM : Underperform Start Price: $18.40 FL Score: -165.54

The growth story of Footlocker (FL) seems to have come to a halt in the rewarding footwear industry .The mall based athletic retailer with operations worldwide is facing resistance in pushing its sales in the past few years. Owing to the cutthroat competition, company has experienced decline in its store-traffic levels, which has especially paralyzed its athletic offerings. Company’s European operations also took a sales beating owing to its inability to follow the fashion trends. Further, demand for low-prices Fusion category shoes in Europe is adding pressures to the margins.

Newly, the bid for Genesco, a U.S based clothing, footwear and hat retailer could have changed the retailer’s fortunes. However, the transaction has met with a failure. The deal with Genesco could have benefited FL in the future considering the matching business interests and the geographical presence of the former. To add to the woes, Nike, one of the company’s prime vendors has plans to venture in the retail business, which could threat FL’s core business.

Moreover, FL’s apparel business in U.S and Europe has been below par and going forward, there are no concrete action plans to drive that business. Looking ahead, company plans to expand its franchisee business in Dubai by opening 10 to 15 stores in 2007.However; the franchisee business is still in a nascent stage and does not contribute much to the overall sales. Albeit, it is too early to ascertain the success, the only ray of hope is the ‘Foot quarter’ store. FL plans to open these stores in 2007. However, management expects flat earnings growth in fiscal 2007 considering no major initiatives in the year. Looking at these factors, FL does not guarantee splendid returns from the prevailing price levels.

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