In order to play sports, people all over the world need the same commodity: sneakers. In order to play the value game on Wall Street, investors need a commodity that's often in short supply: patience.

In both cases, players can get their game on at Foot Locker ( FL).

The world's leading athletic-footwear retailer hit a rough patch in 2005 amid a marketwide slump in Europe, where Foot Locker derives 25% of its sales. Its shares slipped more than 14% for the year.

Now, the stock looks cheap, and Foot Locker's long process of shifting its real estate around to improve its business continues. Its domestic business is chugging along. Its balance sheet and cash flows continue to improve. For anyone willing to stick it out through the downturn in Europe, the price is right to own the dominant force in the world's $17 billion sneaker market.

"People have gotten bored with Foot Locker because there is no immediate catalyst to drive up the stock, but it's very safe and cheap without a lot of operational risk," says Kenneth Shubin Stein, a hedge fund manager with Spencer Capital Management. "It's highly probable that this is going to be a more profitable company. It's just a matter of time. They have to negotiate their leases as they come up, but they can't do them all in one year. They've been at it for a couple years, and it'll take a few more years."

About three years ago, Foot Locker began relocating, remodeling and closing U.S. stores in earnest. It had amassed a number of large-format stores housing multiple concepts, but the locations worked poorly. So the company backtracked.

"When you open up stores and commit yourself to real estate, and it turns out it was a bad decision, it's a hard situation to get out of," says Shubin Stein. "You either have to negotiate out of your leases, or wait for them to expire. It's a long, difficult process."

Foot Locker's "real estate rationalization" program has been no exception. When it began, the company set a goal of improving its consolidated occupancy cost rate by 200 basis points over several years. In the last two years it completed more than 1,200 real estate negotiations, representing around 30% of its entire store fleet. During that period, the company said on a recent conference call, its occupancy cost rate improved 40 basis points.

In the U.S., the rate improved by 90 basis points, but results were dragged down by Europe, where its occupancy expense rate increased more than 100 basis points in the midst of declining same-store sales.

"Overall, we are encouraged by the progress we have made with our real estate initiatives during the past two years," Foot Locker's chief financial officer, Robert McHugh, told analysts on the call. "However, we did not make as much progress towards the achievement of this objective as we had hoped, due to the unanticipated difficult environment in Europe.

McHugh said the company now plans to reduce its occupancy expense rate by another 150 basis points over the next several years. "Therefore, while we remain committed to our original 200-basis point reduction goal, we currently expect that the achievement of this objective will take longer to accomplish than we initially planned," he said.

In 2006, the company plans to add 175 new stores -- 80% of which will be in the U.S. -- and close 110 underperforming locations. As a result, its total store count in each of its various formats will increase for the first time in seven years. In total, it has about 4,000 stores in 20 countries.

As a result of the heavily promotional market in Europe, where Foot Locker stores are struggling under the weight of excess inventories, the company's operating margins declined last year, for the first time this decade, to 7.2% from 7.3% in 2004. Still, its operating margins were closer to 6% when the real estate transformation began, and Shubin Stein says they can go as high as 9% to 10% in the years ahead as progress continues (his firm owns shares of Foot Locker).

"I think Europe will continue to be tough for the next 12 months," said Matthew Serra, Foot Locker's chairman and chief executive, at the recent Bank of America Consumer Conference in New York. "It's not going to be a disaster, but it's going to be tough. I foresee another quarter or two of cleaning out excess inventories."

Despite the problems in Europe, the company still produced 3.9% same-store sales growth for its holiday quarter as U.S. demand for high-end sneakers from the likes of Nike ( NKE) and Adidas stayed strong. Foot Locker earned $96 million, or 61 cents a share, up from the $89 million, or 57 cents a share, it earned for the year-ago period. Excluding certain items, it earned 55 cents a share, meeting Wall Street's expectations.

"We think Foot Locker's healthy domestic business, solid balance sheet and free cash flow should provide limited downside from its current share price ," said JPMorgan analyst Robert Samuels in a research note after the quarterly results. "In addition, we think that the company's European operation may be beginning to bottom out and this summer's World Cup in Germany may help to stabilize this business."

While investors wait for a turnaround in Europe to boost the company's income statement, its balance sheet continues to strengthen. It ended the year with $600 million in cash, leaving it with $261 million net of debt. That marked an improvement of $134 million over 2004. It used strong cash flows in 2005 to reinvest $163 million in capital expenditures, pay down $35 million in long-term debt, contribute $26 million to its pension fund, pay out $49 million in dividends and repurchase 1.6 million shares of its stock.

Meanwhile, at around $24, shares of Foot Locker trade under 13 times Wall Street's earnings estimates for the retailer through 2007. Historically, the company has traded at 16 times earnings. Matrix Investment Research notes that its cost of capital on an economic basis is higher than its returns on capital, but it still rates the stock buy based on its "very low" valuation.

"When you get a chance to buy a company at this price that's this large and that's a leader in its space with many different store concepts in markets all over the world, the upside outweighs the downside," says Shubin Stein. "You just have to give it time."