Foot Locker (FL) Enhances Shareholder Returns, Hikes Dividend

Foot Locker, Inc. (NYSE:FL) is focused on boosting investor sentiment through several growth initiatives and shareholder-friendly moves. To this end, the company announced a 5% hike in its quarterly cash dividend to 40 cents per share ($1.60 annually). The new dividend is payable on May 1, 2020 to shareholders on record as of Apr 17. Notably, this marks the company’s 10th straight year of dividend increase.

We appreciate Foot Locker’s efforts to enhance long-term shareholder value. Markedly, dividend hikes not only boost shareholder returns but also raise market value of the stock. Through this strategy, companies try to win investors and persuade them to either buy or hold the scrip instead of selling it.

Foot Locker’s share repurchases are opportunistic and made when the company sees value. During third-quarter fiscal 2019, management recognized opportunity and bought back nearly 4.6 million shares worth $178 million. In the first three quarters of fiscal 2019, it repurchased 7.5 million shares for about $300 million. Encouragingly, the company returned $425 million via dividends and share buybacks in the first nine months of fiscal 2019.

Simultaneously, the company’s board of directors approved a $275-million capital expenditure plan for fiscal 2020, targeting to deliver organic growth across its business. Management informed that it spent roughly $187 million in fiscal 2019.

Planned investment for next fiscal signifies higher spending toward community-based power stores in markets worldwide, apart from investments to enhance core stores. Through this spending, the company will continue focusing on digital advancement and enhancement of its U.S. supply chain.

Foot Locker’s primary focus is developing digital competencies and supply chain. Its digital endeavors comprise improvement of mobile and web platforms, implementation of new point-of-sale software worldwide, and expansion of data analytics capabilities. Apart from these, the company plans to spend a major portion of the capital on its fleet of stores, including revamping and remodeling of the same. Further, it is exploring off-mall retail formats opportunities and executing shop-in-shop spaces in collaboration with vendors.

Wrapping Up

We note that this New York-based company’s shares have lost 3.9% against the industry’s 8.9% growth in the past three months.

The stock was hit by management’s soft view for the fourth quarter of fiscal 2019, issued during third-quarter earnings call. Management projected fourth-quarter comparable-store sales to be relatively flat, which indicates soft trends in its apparel business and the challenging comparison to year-ago quarter’s 9.7% increase. Moreover, fourth-quarter gross margin is likely to witness contraction of 10-30 basis points.

Nevertheless, we expect the aforementioned dividend-hike announcement to please investors and provide a cushion to this Zacks Rank #3 (Hold) stock.

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