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Takeaway: With a reacceleration in Oct-to-date sales and significantly stronger results in September, we are taking up our numbers for $FL & $FINL.

Concerns over slowing growth in the athletic specialty channel as reflected by weekly footwear figures has been overstated in recent weeks. The latest read on monthly sales by channel confirm that the Athletic Specialty channel significantly outperformed our expectations. Coupled with a reacceleration in October-to-date sales, we’re taking up our numbers for FL and FINL.


It’s important to keep these weekly figures in perspective because they represent sales in aggregate across ALL channels representing Athletic Specialty/Sporting Goods (~60% of sample), Shoe Chains (~20% of sample), and Dept/National Chain Stores (~20% of sample). As seen in the chart below, the continued underperformance in the other channels cause weekly sales to significantly understate performance in the Athletic Specialty channel. Such was the case in September, but to an even greater magnitude than usual due to considerable weakness in the Dept/National Chain Store channel.

  • Following a strong August (+9.2%), we were modeling September sales up +2% given weekly sales came in up +0.3% and reflecting the typical adjustment for athletic specialty channel outperformance.
  • September actually came in up +7.6% significantly better than we had estimated
  • Oct-to-date weekly sales are tracking +3.3% sequentially stronger than Sept by 3pts.
  • Based on the reacceleration in October sales reflecting several new basketball launches, we are modeling October sales in the athletic specialty channel to be running up +9%.
  • In addition, we’ve seen a modest reacceleration in apparel sales month-to-date as well.
  • In looking at FL’s 3Q, it’s important to note sales contribution by month which are front-end loaded to August (~42%) compared to September (~35%) and October (~23%).
  • As such, we have good visibility on how domestic sales are shaping up easing concerns of incremental weakness in what has been one of the strongest multi-year trends in retail.

All in, we’re taking our FL comp for quarter up to +9.5% from +7.5% and EPS to $0.59 vs. $0.54E and remain 3% and 7% above consensus estimates for this year and next at $2.52 and $2.90. We are modeling a +8% comp for FINL and EPS of $0.12 vs. $0.11E (we have SG&A a bit higher) and are +6% and +8% Street estimates with EPS of $1.78 and $2.05 in (Feb) FY13 and FY14 respectively.


We remain positive on both stocks. Given relative underperformance of FINL due to investor concern over the potential of incremental costs related to Macy’s (we see as a shift in timing, but not dollars), we favor FINL over FL at these prices. We are also incrementally more positive on NKE, which is one of our top ideas.


FL/FINL: Stealth Strength in Athletic Specialty FW - MoFWChan

 

FL/FINL: Stealth Strength in Athletic Specialty FW - FL Comps

 

FL/FINL: Stealth Strength in Athletic Specialty FW - FINL Commps

 

FL/FINL: Stealth Strength in Athletic Specialty FW - FW Mo YY Cat