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What's Next for Foot Locker & Why Lululemon Looks Like a Buy Before Earnings

Benjamin Rains

 

Welcome to the latest episode of the Full-Court Finance podcast from Zacks Investment Research where Associate Stock Strategist Ben Rains breaks down Foot Locker’s FL first quarter fiscal 2019 financial results that caused a huge one-day selloff. The episode then dives into why Lululemon LULU stock looks like a buy heading into its anticipated Q1 earnings release later this week.

Foot Locker reported its first-quarter fiscal 2019 financial results on Friday, May 24. Shares of FL tumbled 16% at the opening bell after the company reported lower-than-projected Q1 revenues and adjusted earnings. The sneaker retailer also saw its comparable sales come in below Wall Street estimates despite solid year over year growth.

Worse yet, Foot Locker executives provided lower full-year earnings guidance. Investors should also note that companies such as Nike NKE, Adidas AG ADDYY, JCPenney JCP, and many more footwear brands and retailers wrote an open letter on May 20 to President Trump urging him to reconsider his tariffs on shoes made in China. “The proposed additional tariff of 25 percent on footwear would be catastrophic for our consumers, our companies, and the American economy as a whole,” the Footwear Distributors & Retailers of America wrote.

The shoe industry as a whole has slowly moved production away from China in recent years because of rising wages and trade policies, among other reasons. China itself has also become a significant growth market for many firms, but it is worth monitoring the impact of the escalating U.S.-China trade war.

Moving on, Lululemon is currently a Zacks Rank #2 (Buy) heading into its projected first-quarter earnings release on Thursday, May 30. The yoga apparel giant has expanded in menswear, outerwear, what it calls “Office/Travel/Commute,” and much more recently in an effort to compete not only against Canada Goose GOOS, V.F. Corporation’s VFC The North Face, Columbia Sportswear COLM, but also the likes of the Gap GPS and Macy’s M.

Company management laid out in late April a five-year growth plan called the “Power Of Three.” Lululemon expects to double its men’s revenues by 2023 as it takes on Nike, Adidas, Puma, and Under Armour UAA. On top of that, LULU hopes to more than double its digital revenues during this stretch. This is something Wall Street will closely watch in the Amazon AMZN age that has seen giants such as Target TGT roll out more compelling digital offerings in an effort to keep up. Plus, Lululemon plans to quadruple its international revenues, which includes a big push in China.

As a reminder, if you feel that we missed something, or if you have any topic suggestions, shoot us an email at podcast@zacks.com. Make sure to check out all of our other audio content at zacks.com/podcasts, and remember to subscribe and leave us a rating wherever you listen to your podcasts.

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Amazon.com, Inc. (AMZN) : Free Stock Analysis Report
 
Foot Locker, Inc. (FL) : Free Stock Analysis Report
 
Canada Goose Holdings Inc. (GOOS) : Free Stock Analysis Report
 
The Gap, Inc. (GPS) : Free Stock Analysis Report
 
lululemon athletica inc. (LULU) : Free Stock Analysis Report
 
Target Corporation (TGT) : Free Stock Analysis Report
 
J. C. Penney Company, Inc. (JCP) : Free Stock Analysis Report
 
Macy's, Inc. (M) : Free Stock Analysis Report
 
Adidas AG (ADDYY) : Free Stock Analysis Report
 
NIKE, Inc. (NKE) : Free Stock Analysis Report
 
V.F. Corporation (VFC) : Free Stock Analysis Report
 
Under Armour, Inc. (UAA) : Free Stock Analysis Report
 
Columbia Sportswear Company (COLM) : Free Stock Analysis Report
 
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