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Module 7-Foot Locker, Inc.

Module 7-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

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Module 7-Foot Locker, Inc.

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  1. Module 7-Foot Locker, Inc. Taylor Blaney

  2. 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

  3. 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

  4. Foot Locker in the Industry • Market share-11.2% • No threat of acquisition • Reasons for growth • Recent consumer confidence has lead to growth in shoe sales • Exclusive contracts with suppliers • Growing Online Retail • Adolescent Demographic • Largest buyer of basketball shoes in U.S.

  5. Residual Enterprise Income Model • Model derived from the free cash flows model to introduce NEA and EPAT into valuation outside of free cash flows • REI= the residual earnings in excess of the expected return on net enterprise assets

  6. Residual Enterprise Income Model • The model is used by bringing together the current book value of net enterprise assets and future residual enterprise income • To compute we use REI over the horizon period and another calculation for REI as a continuing value

  7. Formula for Foot Locker, Inc. • Using this formula Foot Locker, Inc. to calculate enterprise value

  8. Calculation • 1506+(471-.1064*1506)/(1+ .1064) • +(478-.1064*1589)/(1+.1064)^2 • +(485-.1064*1612)/(1+.1064)^3 • +(492-.1064*1637)/(1+.1064)^4 • +(499-.1064*1661)/(1+.1064)^5 • +1/((1.1064)^5)*[(499-1.1064*1661)*1.015)/(.1064-.015) • =4839

  9. Residual Income Model • Now reformulate the model to mirror the DCF model • Use WACC calculated from module 6 and plug into the model • Enterprise value of residual income model and DCF model should be equal

  10. Residual Income Model

  11. DCF Model After Regression

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