Module 3-Foot Locker, Inc.

Taylor Blaney

Sporting Goods Stores Industry Overview

◦ Sporting goods stores sell sporting equipment typically from outside goods manufacturers

◦ Goods in the industry range from camping equipment to basketball hoops to shoes

◦ Annual Revenue for the sporting goods industry is over $42 billion and annual growth is steady around 2.5%-3.5% however the number of companies is slowly declining

Foot Locker Overview Global retailer of athletic shoes and apparel Located primarily in North America, Europe,

Australia, and New Zealand Largest retailer of athletic shoes in the U.S. Nearly $6.2 billion in sales in 2012 (73%

within U.S.) Develops few products, mostly supplied by a

few top-end product manufacturers Operate in two ways:

◦ Athletic Stores◦ Direct to Customers

Foot Locker in the Industry Market share-11.2% No threat of acquisition Consumer confidence leading to growth in

shoe sales Exclusive Contracts Growing Online Retail New Technology Adolescent Demographic

◦ Largest buyer of basketball shoes in U.S.

Current stock price: $37.47 Market Cap: 5.5 billion Shares outstanding: 166,909,000 Last Years Sales: $6,182,000,000 Last Year Net Income: $397,000,000

Foot Locker in the market

Information needed to compute multiples:

General Information

Foot Locker Hibbet Sports Cabelas Finish Line

Enterprise Value $ 2,847,193,480.74 $ 7,922,578,945.20

Equity Value $ 2,268,508,480.74 $ 4,697,063,305.20

EPAT $ 400,150,000.00 $ 72,688,000.00 $ 179,084,000.00

Net Income $ 397,000,000.00 $ 72,582,000.00 $ 173,513,000.00 $ 69,181,000.00

NFL $ 671,360,000.00 $ ( 578,685,000.00 ) $ (3,225,515,640.00) $ 198,114,700.00

Common Shares Outstanding 166,909,000 37,846,321 70,053,144 48,193,000

Sales $ 6,182,000,000.00 $ 818,700,000.00 $ 2,778,903,000.00 $ 1,443,365,000.00

NFL is the amount of financial assets less the financial liabilities that a company has in a given year, Foot Locker, Inc. and Finish Line have NFA’s

Foot Locker, Inc.’s NFL:

Net Financial Liabilities-NFL

Accounts 2012 2011 2012Assets

Cash and Cash Equivalents

756.36 738.54 595.02

Short-Term Investments 48 0 0

Liabilities

Long-Term Debt 133 135 137

TOTAL (Assets-Liabilities) 671.36 603.54 458.02

Estimating value using a NEA multiple

Foot Locker Hibbett Sports CabelasEnterprise Value -$ 2,847,193,480.74$ 7,922,578,945.20$ NEA 1,705,640,000.00$ 181,442,000.00$ 4,601,494,640.00$ Common Shares Outstanding 166,909,000 37,846,321 70,053,144 NEA market multiple 8.71 15.69 1.72 Enterprise Value 14,850,812,436.61$ Equity Value 15,522,172,436.61$ Equity Value per share 93.00$

• Market multiple derived using Net Enterprise Assets• Multiple values stock at nearly 3 times current

market price

Estimating value using a EPAT multiple

Foot Locker Hibbett Sports CabelasEnterprise Value 2,847,193,480.74$ 7,922,578,945.20$ EPAT 400,150,000.00$ 72,688,000.00$ 179,084,000.00$ Common Shares Outstanding 166,909,000 37,846,321 70,053,144 EPAT Market Multiple 41.70 39.17 44.24 Enterprise Value 16,688,159,583.76$ Equity Value 17,359,519,583.76$ Equity Value Per Share 104.01$

• Market multiple derived using enterprise profits after tax• Multiple values stock at more than 3 times current market

price

Estimating value using a Net Income multiple

Foot Locker Hibbett Sports Cabelas Finish LineEquity Value 2,268,508,480.74$ 4,697,063,305.20$ 1,224,102,200.00$ Net Income 397,000,000.00$ 72,582,000.00$ 173,513,000.00$ 69,181,000.00$ Common Shares Outstanding 166,909,000 37,846,321 70,053,144 48,193,000 Net Income Market Multiple 25.34 31.25 27.07 17.69 Equity Value 10,059,847,845.95$ Equity Value per share 60.27$

• Market multiple derived using net income• Multiple values stock at slightly less than 2 times market

price• Net incomes and equity values for comparable companies

varied significantly

Estimating value using a sales multiple

Foot Locker Hibbett Sports Cabelas Finish LineEnterprise Value 2,847,193,480.74$ 7,922,578,945.20$ 1,025,987,500.00$ Sales 6,182,000,000.00$ 818,700,000.00$ 2,778,903,000.00$ 1,443,365,000.00$ Common Shares Outstanding 166,909,000 37,846,321 70,053,144 48,193,000 Sales Market Multiple 2.35 3.48 2.85 0.71 Enterprise Value 14,506,072,056.00$ Equity Value 15,177,432,056.00$ Equity Value per Share 90.93$

• Market multiple derived using sales multiple• As retailers we believed that sales was a good industry

specific multiple• Most sporting good stores have few assets and liabilities,

sales tie directly to inventory which is the only other industry specific indicator

• Multiple values stock at nearly 3 times current market price

Foot Locker, Inc. Balance Sheet

Foot Locker, Inc. Statement of Operations

Multiples indicate that Foot Locker, Inc. stock is significantly under valued

Recommend buying stock in Foot Locker, inc.

Issues:◦ Companies may not have been comparable due

to size differences◦ Unlikely that the market would be so far off on

share price when all financial data is available to the public

◦ Many issues with using market multiples to value companies

Conclusions