FL: We Like It Here

With FINL’s Q1 results already preannounced, quarter-to-date sales will be one of the key takeaways from Friday’s call. Weekly footwear trends, after adjusting for a typical margin of outperformance in the athletic channel, suggest that June is tracking up +10%-11%. We think this translates to comps of +8.5% at FL and +7.5% at FINL quarter-to-date – both well above current expectations. In addition to our call to be long NKE into the print, we like FL here.

Consider the following:

  • FL is back to the level where it was headed into Q1 results when European and 1H performance concerns were heightened against tougher comps and demand uncertainty. With the Q1 river card out of the way reflecting solid results highlighted by sales coming in better than expected and Europe turning positive, we’re seeing similarly favorable results thus far in Q2 after which compares only get easier.
  • May footwear sales in the Athletic Specialty channel came in up +10% following +8% in April. Given an average 4-5pt margin of outperformance in the athletic channel over aggregate industry trends, weekly industry sales suggest June-to-date is tracking up +10%-11%. When taking into account the offset of apparel underperformance (and international in the case of FL), this suggests comps are tracking at +8.5% at FL and +7.5% at FINL quarter-to-date.
  • In looking at category performance, basketball is outperforming – a trend that we think has continued through June. With greater exposure here relative to FINL, we expect FL is tracking ahead of the quarter-to-date comp update we’ll get on FINL’s call Friday.
  • Through the first three weeks of May, FL highlighted that Europe had turned positive (up +LSD vs. –MSD in Q1), which is a stark contrast to most other retailers with exposure to Europe mitigating further weakness in a region that accounts for ~24% of sales. While we admittedly don’t have great visibility into how June is shaping up, there are two factors to consider re Europe, 1) early indications suggest trends are stable if not turning positive, and 2) compares here are also getting more favorable.
  • It’s tough to ignore the fact that FL is trading at 10x our F13 EPS estimate of $2.81 – a discount last seen back in ’08. This name has typically traded at 12x-16x EPS multiple. With earnings growth in our model at 35% this year and 14% over each of the next two years, we like this entry point on a story that now has less risk than a month ago when we last saw this price.

While FINL is at a level that reflects a heavy market discount for management’s ability to execute on what we view as conservative numbers, we think FL is a more attractive play here over the intermediate-term.

Here are a couple of our prior notes on FL:

FL: 1Q12 Report Card (5/21/12)


FL: A Much Needed Beat (5/15/12)


FL: Second Act: Roadmap Intact (3/7/12)

Casey Flavin



FL: We Like It Here - FW Channel May 12


FL: We Like It Here - FW Category May 12





7 Tweets Summing Up What You Need to Know About Today's GDP Report

"There's a tremendous opportunity to educate people in our profession on how GDP is stated and projected," Hedgeye CEO Keith McCullough wrote today. Here's everything you need to know about today's GDP report.

read more

Cartoon of the Day: Crash Test Bear

In the past six months, U.S. stock indices are up between +12% and +18%.

read more

GOLD: A Deep Dive on What’s Next with a Top Commodities Strategist

“If you saved in gold over the past 20 to 25 years rather than any currency anywhere in the world, gold has outperformed all these currencies,” says Stefan Wieler, Vice President of Goldmoney in this edition of Real Conversations.

read more

Exact Sciences Up +24% This Week... What's Next? | $EXAS

We remain long Exact Sciences in the Hedgeye Healthcare Position Monitor.

read more

Inside the Atlanta Fed's Flawed GDP Tracker

"The Atlanta Fed’s GDPNowcast model, while useful at amalgamating investor consensus on one singular GDP estimate for any given quarter, is certainly not the end-all-be-all of forecasting U.S. GDP," writes Hedgeye Senior Macro analyst Darius Dale.

read more

Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

read more

People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

read more

UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

read more

Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

read more

Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

read more

An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

read more

Got Process? Zero Hedge Sells Fear, Not Truth

Fear sells. Always has. Look no further than Zero Hedge.

read more