Foot Locker, Inc. - US3448491049

Key Drivers of Performance

Footwear comps were a standout, growing 5.1% on strong demand for basketball and lifestyle products. The Nike All-Star Backpack and limited-edition Kobe 6 and Galaxy Foamposite sneakers generated significant buzz, driving traffic and sales. Apparel comps fell mid-teens, reflecting weaker consumer demand, while accessories comps grew high single-digits, supported by refreshed assortments. Digital sales rose 12.4%, benefiting from the new Foot Locker app and enhanced e-commerce capabilities. Foot Locker's FLX Rewards program captured 49% of sales in North America, ahead of the 2026 target, highlighting the effectiveness of loyalty initiatives. Store comps were up slightly, with Foot Locker and Kids Foot Locker leading the charge, while WSS comps declined, prompting management to consider selective store closures in underperforming markets.

Profitability and Margins

Gross margins expanded 300 basis points to 29.6%, driven by lower markdowns, optimized inventory levels, and strong full-price selling. SG&A expenses rose 5.2%, reflecting investments in digital transformation and customer experience initiatives. Despite these investments, the company maintained a strong balance sheet with $401 million in cash and $105 million in free cash flow. Management reaffirmed its commitment to a 60 basis point EBIT margin expansion over the next three years, with a focus on cost optimization and operational efficiency.

Outlook and Risks

For 2025, the company expects comps to grow 1-2.5%, with a focus on strategic initiatives, including store refreshes, digital enhancements, and loyalty program expansion. Margins are projected to expand 40-80 basis points, supported by continued cost savings and gross margin improvements. Capital expenditures will prioritize high-return projects, with a focus on store refreshes and digital infrastructure. While the company is optimistic about its ability to drive growth and profitability, risks remain, including macroeconomic uncertainty, consumer spending trends, and inventory management challenges. The company's ability to execute its Lace Up Plan will be critical to achieving its long-term goals.

Valuation and Key Metrics

At current levels, Foot Locker's stock is trading at a P/E ratio of 88.9, reflecting high investor expectations for growth. The price-to-sales ratio of 0.15 indicates a discount to peers, while the enterprise value-to-EBITDA of 11.34 suggests the market is pricing in moderate growth potential. The company's ROIC of 7% and ROE of 42% indicate solid capital allocation, but challenges remain in achieving consistent profitability. The company's ability to execute its strategic initiatives and deliver on its margin expansion targets will be key to driving stock performance in the coming quarters.

Conclusion

Foot Locker, Inc. demonstrated resilience in Q4 2024, with strong contributions from footwear and digital channels, despite challenges in apparel and macroeconomic uncertainty. Management's focus on its Lace Up Plan and cost-saving initiatives provides a clear path to margin improvement and long-term growth. While risks remain, particularly in consumer spending and inventory management, the company's strategic focus on store refreshes, digital transformation, and loyalty programs positions it well to capitalize on shifting consumer preferences. Investors should monitor execution against these initiatives, as well as progress in achieving its 2026 targets, to assess the company's ability to sustain growth and deliver value in the long term.