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
Director
