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Non-Tech : Just For Feet (FEET)
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To: Don Dorsey who wrote (460)12/29/1997 12:31:00 AM
From: Walter High  Read Replies (1) of 750
 
Don:

No question that the company has continued to advance earnings year-to-year. Remember, though, this is a company that pays no dividend, so when people buy the stock, they are betting that they can sell it higher than they bought it since they cannot expect any dividend checks.

The earnings growth comes in two forms: (1) increases in same store sales (assuming that costs do not advance at a faster rate), and (2) bringing new stores online at a profit. In the past both (1) and (2) have contributed to FEET's earnings growth. In the past year, same store sales have slowed considerably (note the decreased in same store sales increases from 30+% to 3-5%). Also in the past year, new stores have taken a hit because of the costs associated with the mall-based store acquisitions.

There is a limit to how long FEET can continue to build new stores and each year the increase in the earnings contribution is less. For example, adding 25 stores to increase total stores from 50 to 75 is a 50% gain. Adding 25 stores to increase total stores from 200 to 225 is a 12.5% gain. So growth slows inevitably. That leaves the long-term burden for profit generation on the increase in same store sales. With the shoe market looking downward right now, the prospects for same store sales growth are not good.

FEET has to prove to the market that it can make the mall-based stores profitable and that same store sales won't go negative. Until that can be determined, the stock price is likely to stay well below 20.

My two cents worth,

Walter High
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