When was the last time you’ve been to one of these stores? Talk about absurdity. More than 80% of the real estate is dedicated to stuff no one wants or buys. They sell all different types of NBA gear and cheesy Nike shirts with infantile slogans on them. Their sneakers are overpriced, wholly dependent upon Nike. For the most part, Footlocker has ignored Underarmour.
Essentially, Footlocker is a proxy for the NBA. I know ratings were up this year. But that was only because of the Warriors magical season. The overarching trend for ratings is lower. The attendance growth is lackluster and unimpressive, given the immense media dedicated to this sport.
Back in April, I posted this quick note about FL being a short. I’ve been meaning to complete my research on it, but have been too busy as of late.
This company caters to an urban audience, whose median incomes have gone nowhere over the past decade. However, the price for their ridiculous, made in a Vietnamese Thai sweatshop, sneakers have soared. Some of these rubber shits sell for upwards of $200 now. It doesn’t take a genius to figure out this dichotomy between price point and target customer is unsustainable.
Since 2012, the market has assigned a very premium valuation to FL, more than 40% higher than historical averages. Yet, looking at today’s earnings, growth is slowing.
Reports Q1 (Apr) earnings of $1.39 per share, excluding non-recurring items, in-line with the Capital IQ Consensus of $1.39; revenues rose 3.7% year/year to $1.99 bln vs the $2 bln Capital IQ Consensus.
First quarter comparable-store sales increased 2.9 percent. Company’s gross margin rate remained stable year-over-year at 35.0% of sales.
“We are focused on productivity as we work to drive top line sales, and we remain confident that we can achieve a mid-single digit comparable sales gain and a double-digit earnings per share increase for 2016.” (FY16 EPS Capital IQ consensus +10.7% YoY).
Revenue growth stands at 3.7%. They are tethered to the hip to a sport that has lost momentum and is in decline. Their main product has inflated in price to the point that it attracts criminal activity and in some cases murder. Demographically, the company is fucked, based on wage malaise and sneaker inflation. The majority of their real estate is dedicated to selling jackass Jerseys and NBA paraphernalia.
Just based off historical metrics, this stock should be 40% lower. But the problems at FL are much deeper than valuation. They’re tethered to a sport in decline, one that might look very bleak 10 years hence. I have no position in FL and only enjoy, as an avocation, to see it trade lower.
NOTE: This is a mall based retailer, which is a huge negative unto itself, due to drastically declining foot traffic and sales at these brick and mortar relics.
UPDATE: During FL’s conference call they revealed Q1 basketball comps were down mid single digits.
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Since Jordan retired in 98 have watched maybe a total of 1/2 of a game.
I was set to disagree but I’m coming around and my logic is this: The growth is slow because basketball arenas are smaller. So…they need to build newer/bigger ones. If football and baseball franchises are dumping huge money into new stadiums, then why aren’t nba franchises?
Larger NBA arenas are unnecessary. I’ve been a Knicks season ticket holder for the past 6-7 years and yes, they have sucked over much of this time, but selling them in the resale market has been difficult for most games whereby the price has been below face value. A greater supply of seats is unnecessary because they generate more revenue by raising the prices of existing seats to suckers like me Note: I’m not renewing next season.
I’m Lakers seats have been harder to sell the last few years too. I really depends how good your team is.
Hockey
Exactly. 🙂
The real problem is declining finger strength and fine motor circles: the current generation under twenty texts so much that they cannot tie shoe laces. Further, their parents are too distracted to teach them how, or even care. And LO – Vietnamese Thai sweatshops? Work is done at bayonet-point, fueled by weak broth, with Cream of Sum Yun Guy reserved for weekends and holidays, when work hours are reduced to 14 hours per day.
Fly,
The NBA signed a new TV deal worth $25 BILLION DOLLARS over 9 years, with ESPN and Turner Sports which kicks in next season.
So you’re saying ESPN and Turner made a grave mistake? NBA has great generational players right now in Lebron, Steph, KD, Westbrook, etc.
I disagree, I think the NBA is in a great spot. If you want a sport that struggles with young people, it’s baseball. You won’t see any people age 24-35 at baseball stadiums and MLB has known about this problem for a while.
NBA has some upside but that won’t translate into success at FL. They are often mall based with high rents and sell what is essentially a commodity, only differentiated by a tall black man’s initials and some bright colors. Much of their inventory has no appeal to anyone. I buy the XXL t-shirts there when they are on sale…4 for $20.
Can’t make a living on that.
I get his $FL short thesis, but I don’t agree with him on the NBA short. The star power is strong in the NBA and that will carry it.
I’m with you, NON Solo. FL may be fucked, but the NBA is in fine shape. Baseball is not. MLB’s slow pace is a turnoff to the youth of today, with their .08 second attention spans. As baseball continues to decline, it will be embraced by the anti-establishment, with bearded hipsters swilling locally sourced craft cocktails and artisanal non-GMO cheeses from the abandoned luxury boxes.
Regarding FL, most of their wares are available at flea markets for quite a discount. Of course, these are the non-licensed versions produced in Chinese sweatshops, but that is of no concern to the stagnantly-waged target demographic.
The NBA is in wretched shape. They draw small crowds and are wholly reliant upon teevee. Go do some GOOG searches. Aside from this season, RATINGS WERE AN ABOMINATION.
Plus anyway, Mexicans don’t like bball. Demographics are quickly moving away from this sport.
I actually was thinking the same thing (re demographics+hispanic). Does that mean soccer will finally become mainstream-popular in the US?
mlb nhl nba
2016 864946 527274 535471
2011 910007 513670 519561
2006 943133 508627 526711
2001 901360 496765 501764
Hit enter by accident. Anyway
Col 2: mlb attendance for 30 teams, from ESPN
Col 3: nhl attendance for 30 teams, from ESPN
Col 4: nba attendance for 30 teams, from ESPN
Conclusion: Americans are realizing what I figured out years ago: baseball sucks
(PS 2015 NBA attendance: 534267, so it’s not just the Warriors record-breaking season)
I was a big fan but I don’t watch now. I can’t place my finger on the reason why, but something’s not working for me.
Feel the same way skull. I look at Lebron and Curry and think who gives a shitz.
Fuck I boycotted NBA cus yet another destruction of the Clippers in the first round of playoffs. I been a clipper fan since lamar odam was drafted by the clippers. I hate the warriors and le brain dead. so not much interest in NBA. but in the long run I would long NBA and short NFL. NBA is way more efficient for participants and spectators and will grow internationally as a core school sport around world. why? cus you dont kneed stadiums and grass. Female participation will continue to grow in NBA. mom will not let girls nor boys get concussions so NFL and its white elephant stadiums are toast in the long run. Peak NFL has past.
Say what you want.
Chuck bennett is backing coin his short position in FL
If you guys payed attention. Or payed for the PPT you would already know
Regards
Chuck Bennett
+1 for “rubber shits”
I never watch NBA games anymore. What’s the point? If anything, you only need to tune in to the last 5 minutes of the game to see if there is anything exciting going on. In fact, I think they should make the games only 5 minutes and pay the players about 10 times less.
Have you considered, the Rap/Hip-Hop, Gangster variable? Or is that negligible?
Soccer is the future
FIFA is criminal. say no to white elephant stadiums. feed starving people so they dont refugee into your neiborhood, instead of building stadiums for fun.
Follow the Millennials.
On FootLocker and sneakers:
1) I very much doubt that the readers of iBC are part of the target demographic, so sample bias should be expected.
2) Branded Sneakers have alwasy been triple-digit expensive ever since His Airness first appeared on the scene. Never understood how the urban youth could afford them.
3) FL has low debt, so not in any real danger of bankruptcy
4) consistant (albeit slow growing) sales and net income, “25th Consecutive Quarter of Sales and Profit Increase” (year over year), again no falshign red sign
5) At a historically-high-but-not-overall-high PE of ~14, there are much richer targets for me personally. I’d buy at $45, short at $70, and couldn’t care much in between.
BTN
I beg to differ. Those fucking sneakers are out of range for these punk kids who are robbing one another for. It is the parents who are buying them, at the mall, a place that is dying.
The PE is fine, if the E stands the test. The p/s and p/b are completely out of whack by historical metrics. Moreover, the company is wholly reliant upon a single shoe: the Air Jordan’s.
God forbid Jordan ever commits a crime, that franchise will fucking sink FL.
It’s a short, imo.
I hear you about Jordan.
To be honest, I’m surprised that earnings have held up for the last 6 years, so maybe they have a good management team. I would have thought the earnings would have tanked a whiel ago. Either way, I’m not buying the shoes or the stock