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Module 4-Foot Locker, Inc.

Module 4-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 4-Foot Locker, Inc.

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  1. Module 4-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. Calculating return on NEA (RNEA) • RNEA is the rate of return on capital invested in enterprise activities • Calculated as: • RNEA=(EPAT/Sales) X (Sales/Avg.(NEA)) • Which Equals: • RNEA=EPM X EATO • Or profit generated by each dollar of sales times sales generated by each dollar of NEA

  6. Necessary Information for forecasting

  7. Foot Locker Sales Growth • Percent increase in sales year-to-year for past 3 years • Sales growth has been inconsistent due to change in consumer confidence after the recession

  8. Industry Sales Growth Choose 8% growth as a relative industry average expectation

  9. Foot Locker Calculation of Enterprise Profit Margin (EPM) • EPM=EPAT/Sales • EPM has consistently grown for past three years

  10. Industry EPM

  11. Calculation of EPM from sales • EPM from sales excludes impairment charges, financial statement translation, and actuarial gains and losses because their future values cannot be predicted • No significant change from normal EPM Choose 7.5% in line with Foot Locker, Inc. and industry performance

  12. Calculation of Enterprise Asset Turnover (EATO) • EATO=Sales/avg(NEA) • EATO increases consistently over the three years due to increasing sales and fairly stable NEA Choose 3.95 EATO for comparison due to expected slight increase in EATO

  13. Industry EATO

  14. Assumptions • Sales Growth Rate: 8% • Enterprise profit margin (EPM): 7.5% • Enterprise asset turnover (EATO): 3.95

  15. 5-year forecasts for Sales, EPAT and NEA • Using assumptions on previous slide these forecasts were made for the next 5 years • Sales=8% growth from prior year • EPAT=Forecasted sales X 7.5% EPM assumption • NEA=Forecasted sales X 3.95 EATO assumption

  16. Conclusions • Sales growth will stabilize around 8% due to the increased consumer confidence and increase in consumer disposable income • EPM will continue its modest growth due to increased demand in goods driving prices higher with limited cost increases for Foot Locker, inc. to acquire goods • EATO will increase because of increased sales with nominal increases in investment in enterprise assets due to possible store closings

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