Analyzing Foot Locker’s Historical Capital Returns Performance



Foot Locker’s above-average returns on capital investments

As we’ve already seen, Foot Locker (FL) is stepping up its capital spending by enhancing store ambiance, making digital investments, entering new markets, and spending on customer-facing initiatives. The company has earned above-average returns on its capital investments over the past five years.

Its key returns metrics such as ROE (return on equity), ROIC (return on invested capital), and ROA (return on assets) have steadily risen, as you can see in the graph below.

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Return comparisons with peers

Foot Locker’s ROA has increased from 5.9% in fiscal 2011 to 14.7% in fiscal 2016. That compares to ROA of 9.5% for Dick’s Sporting Goods (DKS), 8% for DSW (DSW), 2.6% for Finish Line (FINL), and 2.4% for Cabela’s (CAB).

Foot Locker’s ROIC was 20.6% in 2015 compared to 11.2% for the S&P 500 Consumer Discretionary Select Sector SPDR ETF (XLY) (FXD) in 2015. FL’s ROIC has risen from 13% in 2011 to 20.6% in 2015. In contrast, the index’s ROIC has fallen from 12.5% in 2011 to 11.2% in 2015. Foot Locker has outperformed the index in each of the years in the intervening period.

Return boosters

Foot Locker’s higher capital efficiency metrics have been largely due to profitability improvements at the operating cost level. We saw this in Part 13 of this series. Capital productivity has been increasing over the years, largely spurred by higher sales growth (IWP) at existing stores in the United States (IVE) and abroad.

Foot Locker is aiming to increase its ROIC more in the next five years through profitability margin enhancements. We’ll look in more detail at the company’s outlook, including management goals, in Parts 19–21 of this series.

In the next part, we’ll take a close look at other elements of Foot Locker’s shareholder returns.


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