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Foot Locker Plummets After the Release of 2nd-Quarter Results

Shares of Foot Locker Inc. (NYSE:FL) plummeted 18.91%, closing at $34 on Friday after missing consensus estimates on earnings for the second quarter ended Aug. 3 by 11 cents. It posted earnings per share of 55 cents, down 33.3% from the prior-year quarter.

Revenue was slightly 0.44% lower year over year at $1.77 billion due to unfavorable fluctuations in foreign currencies, falling $60 million short of expectations.

The New York-based footwear and accessories company noted 0.8% jump in comparable-store sales in the second quarter and a 10 basis points decline in gross margin to 30.1%.

The selling, general and administrative expenses rate climbed 90 basis points to 22.2%, and the operating margin rate went down 170 basis points to 4.6%. The SG&A expenses increased as a result of additional costs associated with strategic investments in infrastructure and digital capabilities.

"In addition to making meaningful investments in our stores and digital capabilities during the quarter, we maintained our disciplined approach to inventory management and are set-up to continue flowing fresh, exciting product offerings for the back-half of 2019," Executive Vice President and CFO Lauren Peters said. "We remain optimistic that we can deliver a mid-single digit comparable sales gain for the full year and high-single digit adjusted EPS growth."

For the full year, consensus is for earnings per share of $4.99, up 6% from the prior year, on revenue of $8.17 billion, up 3%.

The balance sheet of the company had $939 million in cash on hand and equivalents as of Aug. 3, down $11 million from the prior-year quarter, and $1.23 billion in merchandise inventories, down 2.2%. The long-term debt amounted to $123 million. Total equity was worth $2.51 billion.

In the second quarter Foot Locker operated 3,174 stores globally versus 3,276 stores operated in the second quarter ended Aug. 4, 2018.

During the quarter, Foot Locker spent $120 million in buying back 2.9 million shares of its own common stock and allocated $41 million to the payment of a 38-cent cash quarterly dividend per common share. The next quarterly dividend will be distributed on Nov. 1 to shareholders of record Oct. 18. The ex-dividend date is Oct. 17.

The payment produces a forward dividend yield of 3.63% versus the industry median of 2.83% as of Aug. 23.

Foot Locker closed at $34 per share on Friday for a market capitalization of $3.73 billion. The stock has fallen 31% over the 52 weeks through Aug. 23 to below the 200-, 100- and 50-day simple moving average lines.

The 52-week range is $33.85 to $68.

Wall Street recommends overweight with an average target price of $53.26.

Disclosure: I have no positions in any securities mentioned.

This article first appeared on GuruFocus.