Rising travel in summer and increased interest in daily workouts have allowed footwear companies to perform well in the second quarter. Launching new products and increasing online presence should drive the industry’s growth. The global footwear market is expected to grow at a 5.9% CAGR to reach $508.23 billion by 2027.
Shares of Foot Locker, Inc. (FL), which is engaged in the retail of athletic footwear, apparel, accessories, equipment, and team licensed merchandise, have soared more than 30% over the past month on the news of its CEO change and the company’s earnings beat in the second quarter.
However, another player in the footwear space, The Buckle, Inc. (BKE), has gained 10% over the past month. BKE operates as a retailer of casual apparel, footwear, and accessories for young men and women.
While FL is a clear winner based on the past month’s performance, is it a better buy than BKE now? Let’s find out.
Recent Financial Results
For the fiscal 2022 first quarter ended July 30, 2022, FL’s sales decreased 9.2% year-over-year to $2.07 billion. The company’s non-GAAP pre-tax income came in at $149 million, rising 50.8% from the prior-year period.
Its non-GAAP net income came in at $105 million, representing a 52.5% rise from the prior-year period. FL’s non-GAAP EPS came in at $1.10, indicating a 47.4% year-over-year improvement. It had $386 million in cash and cash equivalents as of July 30, 2022.
BKE’s net sales for its fiscal 2022 first quarter ended July 30, 2022, increased 2.3% year-over-year to $301.98 million. The company’s gross profit came in at $145.37 million, indicating a 2.6% rise from the prior-year period. However, its income from operations came in at $65.71 million for the quarter, down 3.2% from the year-ago period.
While its net income decreased 2.5% year-over-year to $50.14 million, its EPS fell 2.9% to $1.01. The company had cash and cash equivalents of $266.73 million as of July 30, 2022.
Past and Expected Financial Performance
Over the past three years, FL’s net income has declined at a CAGR of 2.1%, and its revenue has grown at a 3.2% CAGR. FL’s EPS is expected to decline 43.7% year-over-year in fiscal 2022, ending January 31, 2023, and 3.4% in fiscal 2023. The company’s revenue is expected to grow 6.7% year-over-year in fiscal 2022 and 2.5% in fiscal 2023.
Over the past three years, BKE’s net income and revenue have increased at CAGRs of 39.3% and 14%. Analysts expect FL’s EPS to decline 1.4% in fiscal 2022, ending January 31, 2023, and rise 6.9% in fiscal 2023. The company’s revenue is expected to grow 4.1% year-over-year in fiscal 2022 and 3.8% in fiscal 2023.
In terms of forward EV/EBITDA, FL is currently trading at 7.75x, 71.8% higher than BKE’s 4.51x. In terms of non-GAAP P/E, BKE’s 6.58x compares with FL’s 8.35x.
FL’s trailing-12-month revenue is 6.7 times that of BKE’s. However, BKE is more profitable, with a 59.6% gross profit margin versus FL’s 33.2%.
Furthermore, BKE’s net income margin and ROE of 19.2% and 58.1% compare with FL’s 5.6% and 14.8%, respectively.
While BKE has an overall B grade, which translates to Buy in our proprietary POWR Ratings system, FL has an overall C grade, equating to Neutral. The POWR Ratings are calculated by considering 118 distinct factors, each weighted to an optimal degree.
Both FL and BKE have a C grade for Momentum, which reflects their mixed-price performance over the past year.
BKE has been graded an A for Quality, consistent with its higher-than-industry profitability ratios. BKE’s 13% trailing-12-month levered free cash flow is 540% higher than the 2% industry average. FL’s D grade for Quality is in sync with its negative trailing-12-month levered free cash flow growth.
Beyond what we have stated above, our POWR Ratings system has graded BKE and FL for Growth, Value, Sentiment, and Stability. Get all BKE ratings here. Also, click here to see the additional POWR Ratings for FL.
While FL has gained significantly over the past month primarily on investors’ optimism over its CEO change, BKE appears to be a better buy based on its lower valuation and higher profitability.
Our research shows that the odds of success increase if one invests in stocks with an overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the Fashion & Luxury industry, and here for those in the Athletics & Recreation industry.
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FL shares were trading at $37.96 per share on Thursday afternoon, up $1.47 (+4.03%). Year-to-date, FL has declined -9.74%, versus a -11.02% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market. More...
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