Energized by continued increases in profitability over the last eight quarters and by an excellent fourth quarter in its latest financial year, Ken Hicks, who became chairman, president and chief executive of Foot Locker two years ago, outlined plans to reach $7.6 billion in revenues by 2016, up from $5.52 billion in 2011. No acquisitions are envisaged, but the management will keep an eye for any interesting opportunities.
Outlined at a meeting with investors in New York a few days ago, the new business plan would involve annual compound sales growth of 6 percent, partly fuelled by the net addition of between 60 and 70 new stores each year and by expansion in the women's, children's and team sports categories. Apparel is seen contributing just over 30 percent of sales in four years' time, up from the present rate of 23.6 percent.
Sales per square foot are projected to grow to $500 in four years' time, compared with $400 last year and an anticipated level of $406 in 2012. Inventory turns would improve to 3.0 per year from a current rate of 2.5 times, with better personnel training and merchandise flow. The gross margin should increase by one percentage point, thanks to more localized assortments at a granular level and a differentiated brand and merchandise mix in terms of customer targets.
Foot Locker wants to reach an operating margin (Ebit) of 11.0 percent by 2016, up from 7.9 percent now, and a net margin of 7.0 percent. Earnings per share are projected to grow by 13.5 percent annually. Under a previous business plan, Foot Locker had planned to reach sales per square foot of $400 and an Ebit margin of 8 percent by 2014.
Building up on a global network of 3,369 doors at the end of January, the net addition of new stores should get going as of 2012, after a clean-up of underperforming locations carried out in the last few years. In the current year, Foot Locker plans to open 82 new doors, and shut down 75, resulting in a net increase of just seven units. In the past year, Foot Locker opened a total of 70 new stores under different banners, but it closed 127 doors and relocated 182 others.
Many of the new store openings envisaged for the next years will take place in Europe, particularly in the eastern part of the continent and in other under-penetrated markets. Foot Locker is open for franchising deals in some of these countries, contrary to past practice. The chain now has only 34 franchised stores in the Middle East and South Korea.
It is testing the viability of its Foot Locker Kids concept in Europe, with two stores already opened in Amsterdam and Rome and five more in the pipeline for later this year. Some of the growth in Europe will come from increasing reliance on e-commerce, which should come to represent 10 percent of sales globally by 2016, up from around 5 percent at present.
With a mid-single-digit increase in same-store sales, Europe was a relatively weak spot in Foot Locker's performance during its fourth quarter ended on Jan. 28, due to unfavorable weather conditions and the poor economic climate. Globally, however, Foot Locker stores enjoyed a 7.5 percent increase in same-store sales during the period, accelerating to a double-digit rate in February everywhere except in Europe, where up to 100 stores had to be closed down at times because of storms.
The group's total revenues improved by 7.9 percent to $1,392 million in the quarter, or by 8.2 percent in local currencies. E-commerce performed the best with a 16 percent increase. Apparel and accessories were the strongest product categories. Net income grew by 37.7 percent in the quarter to $84 million, excluding extraordinary charges.
For the full financial year, sales grew by 11.4 percent to $5,623 million, and they were up by 9.7 percent in local currencies and by 9.8 percent on a comparable store basis. Net income rose to $278 million from $169 million in the prior year, and it should grow by a double digit in 2012, aided by an improvement in gross margins of 0.3 to 0.4 percentage points.
