Foot Locker (FL) Gains From Digital Business Strength Amid Risks
Foot Locker, Inc. FL has been effectively managing inventory, improving supply chain efficiencies and reorganizing its corporate structure. The company remains focused on boosting customer experience, investing in long-term growth and driving productivity. In this regard, management is accelerating efforts, including greater diversification of merchandise and vendor mix, the rollout of the important growth banners and the advancement of omni-channel endeavors.
The company’s digital business has been performing well. It has been investing significantly to reinforce its digital presence and augment its direct-to-consumer operations. During the third quarter of fiscal 2023, the company’s digital sales penetration rate was 17%, up 150 basis points (bps) year over year, excluding East Bay, which closed last year.
FL has been enhancing its buy online and pickup in-store capabilities, as well as elevating its mobile app experience. It has been expanding its footprint at WSS, the company’s off-mall banner. For WSS, the company targets opening around 26 new stores in fiscal 2023.
The company is progressing well with the FLX membership program, which helps it serve customers efficiently. Its cost management actions are likely to have aided its margins amid the inflationary pressure. FL’s cost optimization program generated total savings of about $30 million in the third quarter.
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In the past three months, shares of this Zacks Rank #3 (Hold) company have increased 55.8% compared with the industry’s 11.1% growth.
However, Foot Locker continues to operate in a highly dynamic retail landscape. It witnessed softer-than-expected sales in the first nine months of the current fiscal year. Amid the uncertain demand environment and ongoing sales dynamics, the company expects sales to decline 8-8.5% in fiscal 2023 on a year-over-year basis. For fourth-quarter fiscal 2023, it anticipates sales to decline 2-4% and comparable sales to fall 7-9% year over year.
The company has been struggling with soft margins for a while now. In the third-quarter fiscal 2023, Foot Locker's gross margin rate dropped 470 bps from the prior-year quarter’s figure. Higher markdowns, occupancy deleverage and increased shrinkage caused a margin decline. For fiscal 2023, Foot Locker expects the gross margin to be in the range of 27.8-27.9%.
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Some better-ranked stocks are MINISO Group Holding Limited MNSO, Deckers Outdoor Corporation DECK and MarineMax HZO. While MINISO Group sports a Zacks Rank #1 (Strong Buy), Deckers Outdoor and MarineMax, each carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
MINISO Group operates as a retailer and wholesaler of lifestyle products. The Zacks Consensus Estimate for MNSO’s current financial-year earnings per share and sales suggests growth of 43.6% and 29.9%, respectively, from the corresponding year-ago reported figures.
Deckers Outdoor is a leading producer and brand manager of innovative, niche footwear and accessories. The Zacks Consensus Estimate for Deckers’ current fiscal-year earnings and sales indicates growth of 20.9% and 11.4%, respectively, from the previous year’s reported figures. DECK has a trailing four-quarter earnings surprise of 26.3% on average.
MarineMax is a recreational boat and yacht retailer and a superyacht services company. MarineMax’s earnings came in line with the Zacks Consensus Estimate in the last reported quarter. The Zacks Consensus Estimate for HZO’s current financial year sales suggests growth of 3.1% from the year-ago period’s figures.
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