Foot Locker (NYSE:FL) Merchandising Strategies Working

Foot Locker (NYSE:FL) outperformed even optimistic expectations in the third quarter, with FBR saying the merchandising strategies of the company have been wildly successful.

FBR said, "We knew the potential for nice upside to 3Q was likely, but results surpassed even our/market bullish expectations as a better-than-expected comp, gross margin and SG&A leverage supported the material beat. Clearly merchandise strategies are working, allowing FL to more fully participate in the ongoing strong athletic footwear cycle (centered on running and training) which is getting a boost from the emerging basketball trend (40%-50% of FL mix tied to basketball). Better mix (initiatives to drive profitability in apparel), tight inventory controls and greater leverage of occupancy (supported by closing underperforming doors and more favorable lease terms) appear to be catalyzing gross margin gains, while cost saving initiatives and greater leverage of fixed costs further support an enhancing margin structure. Taken together, our thesis in the name, focused on turning comps positive and re-leveraging of the operating model, appears to be playing out nicely. A building cash position ($3.46/shr), 5% dividend yield and 6% FCF yield add to the story."

Foot Locker closed Friday at $18.35, gaining $1.91, or 11.62 percent.