By Chuck Carlson, The DRIP Investor

There’s a nice turnaround story building at Foot Locker (FL), the specialty athletic retailer that operates approximately 3,400 stores in 22 countries.

Solid operating momentum, a cash-heavy balance sheet, and an attractive yield of nearly 3% are just a few of the attractions of these shares.

After struggling in 2007, 2008, and 2009, the company has put together five solid quarters of better-than-expected​ profit growth.

The stock has responded to the operational improvement, with these shares moving to their highest level since 2006 before pulling back to their current price.

While these shares have demonstrated above-average volatility in the past, I like the direction of the company and the stock and view these shares an attractive play for more aggressive investors.

Same-store sales in the second quarter rose nearly 12% and were up more than 7% in the third quarter. Foot Locker has been pruning under-performing outlets.

Total stores operated have declined nearly 6% over the last two years. Running fewer, more profitable stores has increased the firm’s efficiency in terms of capital use. That, in turn, has boosted the financial position.

At the end of the fiscal third quarter, the firm had $698 million in cash assets, or roughly $4.50 per share, and $136 million in long-term debt.

The strengthened financial position has been used to buy back stock. The firm has repurchased some $97 million worth of its stock this year as part of a $250 million share repurchase program.

The cash-heavy financial position, coupled with the improved earnings, generated a 10% dividend increase earlier this year, and I wouldn’t be surprised to see a similar increase sometime in 2012.

To be sure, specialty retailing stocks are not without their risks. The faddish nature of fashion can impact demand for even athletic shoes and apparel.

Foot Locker trades at less than 13 times fiscal 2012 ending January profit estimate of $1.72 per share. And when you wash out the cash holdings, the multiple dips to less than 11 times.

While those aren’t bargain-basement valuations, they are quite reasonable given the company’s sales and earnings momentum.

The yield of nearly 3% provides added appeal and is a nice complement to the above-average capital- gains potential I see for these shares over the next 12 months.

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