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Why Is Foot Locker (FL) Up 16% Since Last Earnings Report?

It has been about a month since the last earnings report for Foot Locker (FL). Shares have added about 16% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Foot Locker due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Foot Locker's Q3 Earnings Beat, Sales Decrease Y/Y

Foot Locker posted third-quarter fiscal 2023 results, wherein the top and the bottom line surpassed the Zacks Consensus Estimate. However, both metrics fell year on year.

The athletic shoes and apparel retailer posted adjusted earnings of 30 cents per share, which surpassed the consensus estimate of earnings of 23 cents per share. The bottom line decreased from adjusted earnings per share of $1.27 in the prior-year quarter.

Total sales of $1,986 million beat the Zacks Consensus Estimate of $1,965 million. However, the metric declined 8.6% from the year-ago reported period. Excluding the foreign-currency fluctuation impact, total sales fell by 10%.

Comparable-store sales (comps) fell 8% due to persistent consumer softness, changing vendor mix and the adverse impact of the repositioning of Champs Sports.

An Insight into Margins

Foot Locker's gross margin rate in the reported quarter dropped 470 basis
points (bps) from the prior-year quarter’s figure. Higher markdowns, occupancy deleverage and increased shrink caused a margin decline.

The selling, general and administrative (SG&A) expenses increased 100 bps as a percentage of sales from the prior year, with savings from the cost optimization more than offset by underlying deleveraged sales, inflation, and investments in front-line wages and technology. We had anticipated SG&A expenses to expand by 150 bps.

Store Update

During the fiscal third quarter, Foot Locker opened 22 stores and remodeled or relocated 36 outlets while closing 14 stores.

As of Oct 28, 2023, Foot Locker operated 2,607 stores across 26 countries in North America, Europe, Asia, Australia and New Zealand. Also, FL had 190 franchised stores operating in the Middle East and Asia.

Other Financial Details

Foot Locker ended the fiscal third quarter with cash and cash equivalents of $187 million. Long-term debt and obligations under finance leases amounted to $443 million and shareholders’ equity summed at $3,205 million. As of Oct 28, 2023, merchandise inventories were $249 million, down 46.6% from the year-earlier quarter’s end level.

During the reported quarter, management paid a quarterly dividend of 40 cents per share, valuing $38 million. We note that the company has paused the quarterly cash dividends to boost the balance sheet flexibility to drive long-term growth. It did not repurchase shares in the quarter.

Outlook

For fiscal 2023, management expects the sales to decline 8-8.5%, including 1% from the extra week and the comps to fall 8.5-9% year over year. This is comparable with the earlier view of sales and comps declining 8-9% and 9-10%, respectively. Licensing revenues are likely to be $15 million for the current fiscal year.

The gross margin is anticipated to be in the range of 27.8-27.9% compared with the prior view of 27.8-28%. The SG&A rate is forecast to be 22.8-22.9%, up from the earlier view of 22.7-22.9%.

The company envisions fiscal 2023 adjusted earnings per share of $1.30-$1.40, versus $1.30-$1.50 predicted earlier. The earnings guidance includes 11 cents a share from the extra week. Management predicts adjusted CapEx at $275 million for fiscal 2023 compared with the earlier estimate of $290 million.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

The consensus estimate has shifted -5.23% due to these changes.

VGM Scores

Currently, Foot Locker has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Foot Locker has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

Foot Locker belongs to the Zacks Retail - Apparel and Shoes industry. Another stock from the same industry, Hibbett (HIBB), has gained 16.4% over the past month. More than a month has passed since the company reported results for the quarter ended October 2023.

Hibbett reported revenues of $431.92 million in the last reported quarter, representing a year-over-year change of -0.3%. EPS of $2.05 for the same period compares with $1.94 a year ago.

Hibbett is expected to post earnings of $2.53 per share for the current quarter, representing a year-over-year change of -13.1%. Over the last 30 days, the Zacks Consensus Estimate has changed -0.8%.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #1 (Strong Buy) for Hibbett. Also, the stock has a VGM Score of B.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Foot Locker, Inc. (FL) : Free Stock Analysis Report

Hibbett, Inc. (HIBB) : Free Stock Analysis Report

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