Analyzing Foot Locker’s capital expenditure policies
Over the last five years, Foot Locker’s (FL) capex (capital expenditure) has risen as the company has focused on growth (IWF) initiatives. Chief among them are store (FXD) remodels, buildouts of new stores (XRT), IT (information technology), CRM (customer relationship management) systems, e-commerce, and the company’s planned relocation of its corporate headquarters in New York City.
Foot Locker’s capex was $228 million in fiscal 2016. In fiscal 2015, it was only $190 million. Of the $228 million, the bulk was spent on 100 new stores and remodels of 209 existing stores (IYC). That compares to more than 300 remodels and relocations and 86 new openings in fiscal 2015.
As part of its plan to reach $10 billion in sales by fiscal 2021, Foot Locker has embarked on an aggressive store remodel program. At the end of fiscal 2016, around 30% of its Foot Locker and Champs Sports stores and 20% of its stores in the Footaction fleet in the United States (IVV) had been remodeled.
The company is also busy either converting existing Lady Foot Locker stores into the new women’s format SIX:02 or closing down Lady Foot Locker stores.
The outlook for Foot Locker
For fiscal 2017, Foot Locker has budgeted $292 million for capex. This includes $216 million earmarked for 90 new store openings as well as relocations and remodels of more than 250 existing stores.
Banners that the retailer is most likely to open include Foot Locker, Kids Foot Locker, and SIX:02. The balance of the capex will go to upgrading IT systems and e-commerce sites and the planned relocation of its New York City headquarters.
Despite plans to modernize, rationalize, and expand its store footprint, Foot Locker’s capex as a percentage of sales has historically been lower than other sporting goods retailers. The metric worked out to 3.1% in fiscal 2016.
In contrast, capital expenditures for Dick’s Sporting Goods (DKS), DSW (DSW), Finish Line (FINL), and Cabela’s (CAB) were 5.1%, 4.0%, 3.5%, and 10.3% of their sales, respectively, in their last fiscal years.