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Non-Tech : Just For Feet (FEET)
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To: Mark T. Heath who wrote (278)8/5/1997 12:33:00 AM
From: Walter High   of 750
 
Mark:

I suspected a problem with same store sales when I talked with the CFO and the only thing he would say about the quarter was that it was going to be really tough matching the same store sales of last year's second quarter. Although last year's were outrageously good at 30%, I had a feeling that there was more to what he was saying. Turns out that was the case since they only did 4% this time.

When same store sales show that low of an increase, it puts the entire burden of growth on opening new stores. That can only go on so long, and the percentage must fall by virtue of the increasing base (i.e., opening 25 stores when you already have 25 is a 100% increase; opening 25 when you already have 100 is only a 25% increase). This brings into question FEET's ability to grow at 30%+ for the next five years, because the store base will have to grow at least 25% each year if same store sales are contributing 5% or less to the increase.

I think this one will play neutrally and FEET may hang around $20 a share for the next quarter. If same store sales are low again, FEET may end up with a market multiple of only 15 (and possibly lower if the general market goes into a funk). We would have to lower our sights and look for 15 times earnings rather than the hoped-for 30% or more. It would then take $2.00 or more in earnings to get a $30.00 stock price.

Anyone else see this differently?

Walter High
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