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Foot Locker (FL) Up 5.8% Since Earnings Report: Can It Continue?

Zacks Equity Research

A month has gone by since the last earnings report for Foot Locker, Inc. FL. Shares have added about 5.8% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to the stock’s next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Foot Locker Posts Positive Earnings Surprise in Q4

Foot Locker posted positive earnings surprise for the third straight quarter, as it reported fourth-quarter fiscal 2016 results. After outperforming the Zacks Consensus Estimate by 3.3% and 1.8% in the second and third quarters, respectively, this operator of athletic shoes and apparel retailer again surpassed the estimate by 4.6%. We noted that in the trailing four quarters (including the quarter under review) the company beat the Zacks Consensus Estimate by an average of 2.2%.

The company delivered quarterly earnings of $1.37 per share that outpaced the Zacks Consensus Estimate of $1.31 and jumped 18.1% year over year. Including one-time items, earnings came in at $1.42, up significantly from $1.14 delivered in the year-ago period.

On the other hand, total sales of $2,113 million were up 5.3% year over year and came almost in line with the Zacks Consensus Estimate. Excluding the impact of foreign currency fluctuations, total sales increased 6.1%. Comparable-store sales rose 5% during the quarter. Direct-to-customer segment witnessed sturdy performance with comparable sales gain of 11.3%.

The year-over-year growth in both the top and bottom-line was backed by effective implementation of the company’s operational and financial initiatives. Management believes that by continually capitalizing on opportunities like children’s business, shop-in-shop expansion in collaboration with its vendors, store banner.com business, store refurbishment and enhancement of assortments, Foot Locker is likely to benefit in the long run. International expansion, especially in Europe, is another growth catalyst. Further, the company is enhancing its eCommerce platform.

Gross margin expanded 10 basis points to 33.7% of sales. The selling, general and administrative expense (SG&A) rate contracted 60 basis points to 18.7% during the quarter.

Despite sluggish sales environment, management projects mid-single digit increase in comparable sales and anticipates double-digit growth in earnings per share in fiscal 2017. This year includes a 53rd week, which is expected to augment fourth quarter and fiscal 2017 results by $0.12 per share. For fiscal 2017, Foot Locker envisions gross margin to be flat to marginally up.

Store Update

During the quarter under review, Foot Locker opened 20 new outlets, remodeled or relocated 59 outlets and shuttered 51 outlets. In fiscal 2017, the company plans to open 90 stores and shutter about 100 outlets.

As of Jan 28, 2017, the company operated 3,363 outlets across 23 countries in North America, Australia, New Zealand and Europe. Apart from these, there are 59 franchised Foot Locker stores in South Korea and the Middle East. Germany has 15 franchised Runners Point stores.

Other Financial Details

Foot Locker ended the quarter with cash and cash equivalents of $1,046 million, long-term debt and obligations under capital leases of $127 million, and shareholders’ equity of $2,710 million.

During the quarter, the company repurchased 1.1 million shares worth $80 million and paid a quarterly dividend of $0.275 per share.

The company recently raised its quarterly dividend by approximately 13% to $0.31 (or $1.24 annually) from $0.275 per share (or $1.10 annually). The Board also approved a fresh share buyback program for three years, under which the company can repurchase shares worth $1.2 billion, replacing the earlier program of $1 billion.

In fiscal 2016, management incurred capital expenditures of approximately $284 million. For fiscal 2017, the board of directors has sanctioned $277 million capital expenditure program. Foot Locker stated that it will keep on spending capital to enhance its foot print in major cities globally, remodeling existing store fleet, building robust capabilities in direct-to-customer unit and upgrading technology as well as supply chain infrastructure.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend in fresh estimates. There have been five downward revisions for the current quarter compared to two upward.

Foot Locker, Inc. Price and Consensus

 

Foot Locker, Inc. Price and Consensus | Foot Locker, Inc. Quote

VGM Scores

At this time, Foot Locker's stock has a strong Growth Score of 'A', though it is lagging a lot on the momentum front with a 'D'. However, the stock was allocated a grade of 'A' on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of 'A'. If you aren't focused on one strategy, this score is the one you should be interested in.

Zacks' style scores indicate that the company's stock is suitable for value and growth investors.

Outlook

Estimates have been broadly trending downward for the stock. The magnitude of these revisions also indicates a downward shift. Notably, the stock has a Zacks Rank #2 (Buy). We are looking for above average return from the stock in the next few months.


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