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Foot Locker (FL) Posted Negative Earnings Surprise in Q1

Sumit Singh

Delay in income tax refunds broke the positive earnings surprise streak of Foot Locker, Inc. FL. This operator of athletic shoes and apparel retailer succumbed to a negative earnings surprise of 1.4% in the first quarter of fiscal 2017, after registering earnings beat in the preceding three quarters. The New York based company informed that the soft start witnessed in February was not fully offset by sturdy sales performance in March and April.

The company delivered quarterly earnings of $1.36 per share that fell short of the Zacks Consensus Estimate by a couple of cents and declined 2.2% year over year. Management in April had issued a cautious outlook and projected first quarter earnings to be equivalent to or marginally below last year's earnings or in the range of $1.36 to $1.39 per share.

Shares of this Zacks Rank #3 (Hold) company are down roughly 8% during pre-market trading hours. In the past three months, the stock has slipped 0.8% compared with the Zacks categorized Retail-Apparel/Shoe industry’s decline of 14.7%.

Total sales of $2,001 million were up 0.7% year over year but came below the Zacks Consensus Estimate of $2,022 million. Excluding the impact of foreign currency fluctuations, total sales increased 1.8%. Comparable-store sales (comps) rose 0.5% during the quarter. High-single digits comps growth registered in March and April failed to offset low-double digit decline experienced in the month of February.

Nevertheless, management is working on all aspects to attain mid-single digit earnings per share growth target for fiscal 2017 backed by effective implementation of operational and financial initiatives. We believe 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 contracted 100 basis points to 34% of sales. The selling, general and administrative expense rate rose 30 basis points to 18.5% during the quarter.

Foot Locker, Inc. Price, Consensus and EPS Surprise


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

Store Update

During the quarter under review, Foot Locker opened 30 new outlets, remodeled or relocated 61 outlets and shuttered 39 outlets. As of April 29, 2017, the company operated 3,354 outlets across 23 countries in North America, Australia, New Zealand and Europe. Apart from these, there are 62 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 $1,049 million, long-term debt and obligations under capital leases of $127 million, and shareholders’ equity of $2,822 million.

During the quarter, the company repurchased 546,000 shares worth $38 million and paid a quarterly dividend of 31 cents a share.

Key Picks

Investors may consider better-ranked stocks such as The Children's Place, Inc. PLCE flaunting a Zacks Rank #1 (Strong Buy), Best Buy Co., Inc. BBY and Burlington Stores, Inc. BURL both carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Children's Place delivered an average positive earnings surprise of 36.6% over the trailing four quarters and has a long-term earnings growth rate of 8%.

Best Buy delivered an average positive earnings surprise of 27.7% over the trailing four quarters and has a long-term earnings growth rate of 10.8%.

Burlington Stores delivered an average positive earnings surprise of 26.3% over the trailing four quarters and has a long-term earnings growth rate of 15.9%.

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