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Bull of the Day: Foot Locker (FL)

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Foot Locker (FL) is a Zacks #1 (Strong Buy) that is a popular retailer of athletic shoes and apparel. In addition to its traditional stores that span 27 countries, the company operates websites and mobile apps.

The company blew away expectations last quarter, but the stock has traded sideways in a volatile manner. Investors are waiting for the next catalyst and the approaching quarter could be just that.

About the Company

Foot Locker operates almost 3000 stores and has over 15,000 full time employees. It is headquartered in New York, NY and the company’s roots go all the way back to 1879.

The company has a market cap of about $6 Billion and has Zacks Style Scores of “B” in Momentum and “A” in Value. The stock pays a dividend of 1.3% and has Forward PE is 11.

Some of the Foot Locker brands include Lady Foot Locker, Kids Foot Locker, Champs Sports, Eastbay, Footaction, Runners Point, and Sidestep

Q1 Earnings

In late May, Foot Locker reported a 71% EPS surprise to the upside. The company also beat on the top line, seeing $2.15 billion v the 1.92 billion expected. Same Store Sales were up +80% year over year, but that number is skewed by the COVID lockdowns. Still, they saw a +2.4% in increase in SSS from 2019.

Foot Locker also announced that they opened 12 new stores, remodeled or relocated 15 and closed 58 stores. With that, the company had a small shift in strategy and will convert approximately one third of its Footaction stores into other existing banner concepts over the course of the year to focus growth on its iconic banners.The Company will also close the majority of the remaining Footaction stores as leases expire over the next two years. Management believes this strategy will better position the company to serve its consumers in a post-COVID marketplace.

The earnings beat was the fourth straight and the seventh beat over the last eight quarters. The company next reports August 20th and estimates are ticking higher over most timeframes.

Foot Locker, Inc. Price and EPS Surprise

Foot Locker, Inc. Price and EPS Surprise
Foot Locker, Inc. Price and EPS Surprise

Foot Locker, Inc. price-eps-surprise | Foot Locker, Inc. Quote

Estimates

Over the last 60 days, estimates have surged higher. For the current quarter, we have seen estimate raised by 56%, from $0.66 to $1.03. For the current year, we have seen a 20% move higher in that same time frame.

In addition to estimates, some analysts have taken their price targets higher since earnings. One being Telsey advisory, who lifted to $64 from $60. Jeffries was also recently out with an $80 target after the Nike earnings report.

The Nike Effect and Back to School

Nike recently reported a monster quarter, beating the bottom line by 82%. The beat and guide helped the stock to all-time highs, where it is currently trading. Investors should pay attention to NKE in relation to FL as Nike is Foot Locker's biggest brand partner. Foot Locker is also one of Nike’s biggest wholesalers and actually mentioned FL as a premium preferred partner during their conference call.

Nike said that the EPS beat was driven due to strong consumer demand, an element Foot Locker will need if they want to impress this quarter.

Looking forward, the back-to-school season will be getting kick started just before the company reports. August into September is fully expected to be hot as schools get back to normal in person learning. With that, investors should expect some commentary after earnings on how the back-to-school season is going.

The Technicals

The stock has had a big run this year, up about 50% already in 2021. Since the last earnings report, the stock has traded in a 10-point range, breaking above and below the 50-day MA. This has created a choppy and frustrating environment for traders and investors alike.

The stock could continue to chop around until a catalyst, like earnings, comes out. Long-term bulls can look to the 200-day MA at $50.50 to buy. However, they may not get that if markets stay strong into the August earnings report.

Looking to the upside, 2021 highs of 66.85 are within reach and could bring the $70 level if breached. From there, all-time highs of $79.43 would be the ultimate goal for the bulls.

Bottom Line

Earnings momentum will continue for the sector as Nike showed a couple weeks ago. As we head into the big earnings report in August, expect more choppy action. However, if the company does impress on EPS, value investors might miss a great opportunity for a larger move to all-time highs.


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