Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

Good StocksThrift

Will Footlocker (FL) Die from Coronavirus?

The strangest pandemic stock of all could be Footlocker (FL). The iconic sneaker emporium’s share price rose from $38.09 on 2 January 2020 to $42.47 on 10 December 2020.

Strangely, Footlocker’s revenues are growing. Stockrow estimates Footlocker’s revenues grew by 9.01% in the quarter ending on 31 October 2020. That number fell from 17.08% in quarter ending on 31 July 2020.

In contrast, Footlocker’s revenue growth fell by -43.41% in the quarter ending on 30 April 2020. Those revenues fell by 2.24% in the quarter ending on 31 January 2020.

What does Footlocker’s Revenue Growth Show?

I think Footlocker’s revenue growth numbers could show one of two things. First, that some retailers; including Footlocker (NYSE: FL), are sound investments in normal times.

Thus Footlocker is an excellent company and a value investment that could recover fast if the economy rebounds. However, I think Footlocker will only recover if the economy recovers fast.

Second, the extent of coronavirus damage to the economy and retail is unknown. I think Footlocker’s revenue growth shows some analysts’ estimate of coronavirus is too high. Thus, sound retailers such as Footlocker could recover fast.

Unfortunately, Footlocker could collapse fast if coronavirus gets worse or popular assessments of the economic damage are too low. Historically, people overestimate the damage an economic crisis causes at the beginning of the downturn.

Footlocker is a Dangerous Speculative Investment

For instance, people panic and scream depression right after a stock market crash. In fact, most stock market crashes; such as the Black Monday Crash of 1987, did not trigger economic downturns.

Conversely, people often underestimate the economic damage as the crisis goes on. For example, many observers proclaimed a fast recovery after the Great Stock Market Crash of 1929. Instead, the economy slowly got worse and worse over the next few years.

Thus, we do not know where the economy is going. Consequently, I consider a brick and mortar retailer such as Footlocker (FL) a dangerous speculative investment in today’s markets.

To elaborate, Footlocker is a speculative investment because nobody knows if the traditional brick and mortar retail economy will recover. Frighteningly, economic indicators point in both directions.

Americans Still Shop In-Store

Frighteningly, in-store shopping on Thanksgiving Day 2020 was 55% lower than on Thanksgiving Day 2019, The Washington Post reports. Plus, the National Retail Federation estimates In-store shopping fell by 37% between Black Friday 2019 and Black Friday 2020.

Conversely, the drop in the number of in-store shoppers is smaller than most people assume. The National Retail Federation estimates 190 million Americans shopped in-store over Thanksgiving Weekend 2019. That number fell to 186 million in 2020.

I think the in-store shopper numbers show most Americans still shop in-store, which is good news for brands such as Footlocker. However, Americans still pend more online, Cyber Monday sales rose by 15% between 2019 and 2020, Adobe Analytics claims. Notably, Adobe Analytics’ Cyber Monday sales estimates match its forecast of 15% to 35% increases.

Thus, Americans still shop in-store. I think that indicates brick and more stores are still a viable business. In particular, some people still want to try on shoes and apparel in store which benefits Footlocker.

Is Footlocker Making Money?

Footlocker (NYSE: FL) still makes money. Footlocker reported a quarterly gross profit of $650 million and a quarterly operating income of $178 million on 31 October 2020.

Those numbers rose from $538 million and $69 million on 31 July 2020. Importantly, Footlocker’s quarterly revenues rose from $1.1176 billion on 30 April 2020 to $2.077 billion on 31 July 2020 to $2.106 billion on 31 October 2020.

However in 2020, Footlocker’s quarterly revenues fell from $2.221 billion on 31 January 2020 to $2.106 billion on 31 October 2020. Unfortunately, Stockrow does not report cash-flow numbers for the quarter ending on 31 October 2020

Footlocker reported a quarterly operating cash flow of $722 million and a quarterly ending cash flow of $363 million on 31 July 2020. Footlocker reported a negative quarterly operating cash flow of -$116 million on 30 April 2020.

Importantly, Footlocker reported a quarterly financing cash flow of -$332 million for the quarter ending on 31 July 2020. That means Footlocker paid $332 million in debt. Thus, unlike some retailers, Footlocker can pay its debts.

What Value Does Footlocker have?

Footlocker (FL) had some value in the form of $1.393 billion in cash and short-term investments on 31 October 2020. Footlocker reported $7.018 billion in total assets on Halloween Day 2020. The total assets rose from $6.912 billion on 31 July 2020 and $6.589 billion on 31 January 2020.

I think Footlocker is a growing company with some value. Consequently, I think Mr. Market fairly priced Footlocker at $42.84 on 9 December 2020.

I consider Footlocker a retail value investment because it will pay a 15₵ quarterly dividend on 29 January 2020. That dividend fell from 40₵ on 1 May 2020.

I think the dividend cut show Footlocker is an excellent company with a responsible management that spends less in bad times. If you are looking for a safe value investment in retail with a future, Footlocker is an interesting possibility.

Be careful with Footlocker, however, because there is no guarantee this company’s value can survive the coronavirus depression. In conclude Footlocker is a cheap value stock that presents serious risks.

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