Foot Locker Stock Looks Undervalued Gem: An Opportunity for Investors?

Foot Locker, Inc. FL is currently trading at a low price-to-sales (P/S) multiple, which is below the average of the Zacks Retail - Apparel and Shoes industry and Retail-Wholesale sector. With a forward 12-month P/S of 0.17, FL is priced lower than the industry average of 1.39 and the sector average of 1.47.FL Stock Looks Attractive From a Valuation StandpointImage Source: Zacks Investment ResearchThis makes FL stock undervalued relative to its industry peers, presenting an attractive opportunity for investors seeking exposure to the sector. Furthermore, Foot Locker’s  Value Score of A underscores its appeal as a potential investment. In the past month, FL stock has plunged 21.1% compared with the industry’s 11.5% decline. This underperformance may present a strategic entry point for investors evaluating potential upside.FL Stock Past Month PerformanceImage Source: Zacks Investment ResearchFL’s Lace Up Plan Drives Comparable Sales GrowthFoot Locker’s Lace Up Plan is driving strong sales growth, margin expansion, and digital acceleration. The company ended fiscal 2024 with multiple consecutive quarters of positive comparable sales growth, fueled by strong holiday performance. In the fourth quarter of fiscal 2024, comparable sales rose 2.6% year over year. The Foot Locker and Kids Foot Locker banners led the way, with Champs Sports also showing improvement. Gross margin improved 300 basis points to 29.6%, despite a promotional environment. This was fueled by a recovery in merchandise margin from the prior year’s higher promotions.FL’s Strategic Cost ManagementCost-saving efforts contributed to higher earnings and reinforced the company’s financial position, with significant free cash flow generation highlighting operational efficiency. Cost-saving initiatives delivered $35 million in the fiscal fourth quarter. Also, Foot Locker achieved $100 million in savings in fiscal 2024 as part of its $350 million cost-cutting initiative, surpassing its $90 million target. Reduced operational expenses and lower incentive costs helped improve overall efficiency. For fiscal 2025, Foot Locker expects gross margin expansion of 40-80 basis points, reaching 29.3-29.7%. This will be supported by stronger full-price selling, lower markdowns, and ongoing savings. Despite a dynamic consumer spending environment, the company is prioritizing high-return investments to ensure long-term growth.Strategic Initiatives & Favorable FY25 Outlook of FLThe store portfolio is being optimized, with 400+ store refreshes in fiscal 2024 and 300 more planned in 2025. The "Reimagined" store concept will expand significantly, with 80 new locations expected in fiscal 2025. These stores are expected to generate annual sales of $4-$5 million with 20% EBITDA margins and approximately 50% cash-on-cash returns, making them a highly attractive investment.Foot Locker’s digital transformation is delivering measurable outcomes, with global digital comparable sales increasing 12.4% in the fiscal fourth quarter. The introduction of the company’s new mobile app in the United States helped boost organic traffic, enhance conversion rates, and raise the average order value. Consequently, digital sales penetration grew 230 basis points year over year, reaching 21.8% of total sales, putting the company on track to achieve its fiscal 2026 goal of 25% e-commerce penetration.The relaunch of its FLX Rewards Program in mid-2024 boosted customer retention, reaching 49% of North American sales in the fiscal fourth quarter, nearly 30 percentage points higher than last year, ahead of its fiscal 2026 target. Membership grew significantly, adding 3.2 million new members in the quarter. The company plans to expand FLX to Europe in fiscal 2025 to further increase engagement and sales.Foot Locker anticipates fiscal 2025 comparable sales growth of 1-2.5%, marking its fourth consecutive year of positive comps. Adjusted EPS is projected at $1.35-$1.65, reflecting 10% growth at the midpoint relative to fiscal 2024’s $1.37 earnings per share. The company expects continued positive free cash flow, supported by disciplined inventory management and improved merchandise margins.Major Hurdles of Foot LockerFoot Locker is facing challenges in international markets, with sales dropping 7.6% in Asia-Pacific in the fiscal fourth quarter due to inflation and competition, and struggles in South Korea and its WSS banner in the United States. These issues may limit global growth. Additionally, its apparel segment continues to underperform, with mid-teen sales declines, lagging innovation, and stiff competition. The company also faces risks from currency fluctuations, which could hurt profitability and add uncertainty to its 2025 revenue outlook. During the fourth quarter, foreign currency fluctuations hurt total revenues by 110 basis points. Additionally, foreign currency headwinds are expected to negatively impact 2025 revenues by approximately 100 basis points, adding another layer of uncertainty to the company’s financial outlook. As a result, the company expects fiscal 2025 revenue guidance to be between a decline of 1% and growth of 0.5%.Final Thought on FLFoot Locker offers potential for investors due to its current undervaluation, strong digital growth, and strategic initiatives like cost-saving measures and store refreshes. The company’s focus on digital engagement and operational efficiency supports its long-term growth prospects. However, challenges in international markets, underperforming apparel sales, and currency fluctuations pose risks to its outlook. Investors should consider holding on to this Zacks Rank #3 (Hold) stock.Stocks to ConsiderSome better-ranked stocks are The Gap, Inc. GAP, Stitch Fix SFIX and G-III Apparel Group, Ltd. GIII.The Gap is a premier international specialty retailer offering a diverse range of clothing, accessories and personal care products. It sports a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.The Zacks Consensus Estimate for The Gap’s fiscal 2025 earnings and revenues indicates growth of 7.7% and 1.6%, respectively, from the fiscal 2024 reported levels. GAP delivered a trailing four-quarter average earnings surprise of 77.5%.Stitch Fix delivers customized shipments of apparel, shoes and accessories for women, men and kids. It currently has a Zacks Rank of 2.The Zacks Consensus Estimate for SFIX’s fiscal 2025 earnings implies growth of 64.7% from the year-ago actuals. SFIX delivered a trailing four-quarter average earnings surprise of 48.9%.G-III Apparel is a manufacturer, designer and distributor of apparel and accessories under licensed brands, owned brands and private label brands. It carries a Zacks Rank #2 at present.The Zacks Consensus Estimate for GIII’s fiscal 2025 earnings and revenues implies declines of 4.5% and 1.2%, respectively, from the year-ago actuals. GIII delivered a trailing four-quarter average earnings surprise of 117.8%.7 Best Stocks for the Next 30 DaysJust released: Experts distill 7 elite stocks from the current list of 220 Zacks Rank #1 Strong Buys. They deem these tickers "Most Likely for Early Price Pops."Since 1988, the full list has beaten the market more than 2X over with an average gain of +24.3% per year. So be sure to give these hand picked 7 your immediate attention. See them now >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Foot Locker, Inc. (FL): Free Stock Analysis Report The Gap, Inc. (GAP): Free Stock Analysis Report G-III Apparel Group, LTD. (GIII): Free Stock Analysis Report Stitch Fix, Inc. (SFIX): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks