Foot Locker Inc - Fundamental Investment Idea

Qualitative Concerns

• Nike, roughly 65% of sales, continues to invest heavily  in ecommerce and direct to consumer initiatives. The  company’s app is growing rapidly and Nike looks to  double direct to consumer revenues in the future.
• Nike is not the only supplier shifting sales into their  own channel with Under Armour and Adidas doing the  same.
• Foot Locker has multiple locations in many malls and  significant exposure to lower tier malls.

Fundamental Concerns:

• While the inventory drawdown has been a positive, lower inventory and dramatically lower purchase obligations could indicate weaker future revenues.
• Long term gross and EBITDA margins are weakening with e-commerce trends only increasing.
• SSS show little sign of improvement, only growing in the margin dilutive direct to consumer business.
• Valuation well above Finish Line acquisition and a large  premium to itself historically.