Foot Locker's (FL) growth engines in international and digital commerce are key to hitting its bullish guidance figures.
Shares of the retailer have risen by double digits as the market appears to have endorsed the plan so far, helping the stock surge in the face of a recently bearish retail environment. Foot Locker stock was up 15.3% to $53.15 as of 3 p.m. ET on Wednesday.
In the current environment that is clouded by the potential for Amazon (AMZN) , e-commerce sales are key to any retailer. This is especially the case for Foot Locker as it contends with its chief vendor, Nike (NKE) , pushing into digital sales and away from the partnership that has sustained Foot Locker. About one third of Nike's sales are online as of its last SEC filing.
Fortunately for Foot Locker, the concerns about Nike and Amazon appear to have been overdone so far, as Nike's stalled transition to digital has not stopped Foot Locker's gains.
Digital comp sales were up 5.9% year over year, helping promote the comp sales growth that has been highlighted by market watchers. Overall direct to consumer sales made up 14.5% of total sales for the quarter, an increase from 13.8% last year.
"We contend the FL customer has high expectations for a seamless digital and buying and merchandising experience," Susquehanna analyst Sam Poser wrote in a research note on Wednesday. "We believe the digital investments FL is making are a critical component to connecting with customers, breeding loyalty to the brand, and ultimately driving same store sales."
Poser set a "Buy" rating for the stock, declaring that "strategic investments, particularly in digital, are beginning to bear fruit."
The digital growth contribution has carried over to the company's important initiative to expand into East Asia which included the announcement of its first digital entry to mainland China. The expansion has been pivotal amidst what Johnson has called a "challenge" in European markets.
"We also launched our digital channels in Singapore and Hong Kong in early November and made an initial digital entry into Mainland China with the limited offering through team," CEO Richard Johnson noted. "We are excited about the growth opportunities in each of these markets and channels."
The company also expanded in Malaysia and noted positive results from the company's "Power Stores", which are stores that incorporate numerous digital aspects to the in-store experience.
According a Statista report, the sneaker market in Malaysia is set to grow by approximately 10.2% per annum as Malaysian consumers purchasing power increases and the popularity of sports shoes grows, reflecting a growing demand for sports shoes across Asia.
"There is a strong and vibrant sneaker culture with a passion for athletic footwear and apparel [in Asia]," he explained. "We believe [recently gained market insights] will lift the market not only for us, but our brand partners too and drive a high level of customer engagement."
The issue with the expansionary moves is that they are expensive and will squeeze margins.
Morgan Stanley analyst Lauren Cassell pointed to this problem in issuing her "Sell" rating for the stock.
"Bigger picture, margins continue to fall," Cassel wrote. "We fear EBIT margins will continue to face pressure," Cassel said. "Our estimated -100 bps 2018 EBIT margin declines just the beginning."
The margin pressure could also be impacted by even higher tariffs coming into play in January amidst the Sino-American trade war. Such increases would pressure the company's expansion into China, potentially turning a tailwind into a headwind.
While taking a bearish outlook for her 12-month price target, she noted that "it is absolutely the right decision" to invest, particularly in digital sales, for the long term.
The question of whether to jump on the stock will depend on if investors are looking to run a sprint or a marathon.