Foot Locker (FL) Stock Gains on Solid EPS View & Q2 Comps
Shares of Foot Locker, Inc. FL increased 7.8% during the trading session on Aug 10, following better-than-expected earnings per share (EPS) outlook for the second quarter of fiscal 2020. Impressive sales performance buoyed by pent-up demand and the fiscal stimulus effect resulted in surprise profits for the company. Apparently, management now envisions adjusted EPS in the range of 66-70 cents a share for the quarter ended Aug 1, whereas the Zacks Consensus Estimate currently stands at a loss of 56 cents. The company delivered adjusted EPS of 66 cents in the same quarter a year earlier.
Moreover, comparable-store sales jumped nearly 18% for second-quarter fiscal 2020. This is far better than the comparable-store sales increase of a mere 0.8% in the year-ago quarter and a decline of 42.8% during the first quarter of fiscal 2020. Including pre-tax charges of about $19 million associated with the winding down of the Runners Point banner and the restructuring of Eastbay, as well as costs of $18 million incurred for the social unrest, EPS is likely to fall in the band of 38-42 cents per share compared with 55 cents recorded in the year-ago period.
The athletic retailer further cited that significant sales coupled with disciplined cost management aided the company to revert to positive EPS despite gross margin being stressed by a channel mix shift and elevated promotional backdrop. Foot Locker's gross margin contracted significantly in fiscal first quarter on account of deleveraged occupancy and buyers’ compensation expenses and lower merchandise margin.
Amid the COVID-19 crisis, where many apparel and accessories retailers are struggling, Foot Locker experienced a huge customer response for its assortments as its stores started reopening. As pandemic uncertainties remain, along with its impact on back-to-school season, team-sports participation and government stimulus packages, management refrained itself from providing fiscal 2020 view. It withdrew the fiscal-year view in March.
Meanwhile, Foot Locker’s focus on development of supply chain, improvement of mobile and web platforms and expansion of data-analytics capabilities are worth mentioning. No wonder, this Zacks Rank #3 (Hold) company has been taking measures to strengthen its financial position amid the coronavirus outbreak while also focusing on restructuring activities. We believe that the company’s well-known brands, geographical diversification and sufficient liquidity bode well from a long-term perspective. This New York-based company’s shares have gained 20% over the past three months, while its industry has rallied 35.3%.
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