Why Is Foot Locker (FL) Down 15.9% Since Last Earnings Report?
A month has gone by since the last earnings report for Foot Locker (FL). Shares have lost about 15.9% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Foot Locker due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Foot Locker Q2 Loss Narrower Than Expected, Margin View Down
Foot Locker posted second-quarter fiscal 2024 results, with both the bottom and top lines surpassing the Zacks Consensus Estimate. Also, revenues increased while earnings declined from the year-ago quarter. The company lowered its margin guidance due to heightened promotional pressure.
More on Foot Locker’s Q2 Financial Results
The athletic shoes and apparel retailer posted an adjusted loss of 5 cents per share, which is narrower than the Zacks Consensus Estimate of an adjusted loss of 8 cents per share. However, the figure declined from adjusted earnings per share of 4 cents in the prior-year quarter.
Total revenues of $1,896 million increased 1.9% from the year-ago period. Excluding the impacts of foreign-currency fluctuations, total sales increased 2.5%. Revenues surpassed the Zacks Consensus Estimate of $1,883 million. However, a non-recurring expense related to the launch of the enhanced FLX Rewards Program in the United States decreased sales by $11 million.
Comparable sales increased 2.6% year over year, driven by 5.2% comps growth in global Foot Locker and Kids Foot Locker sales.
Insight Into FL’s Margins
FL's gross margin rate increased 50 basis points (bps). Excluding the non-recurring FLX Rewards Program impact, the gross margin improved 90 bps due to its lower markdown levels and occupancy leverage.
The selling, general and administrative (SG&A) expenses, as a percentage of sales, increased 130 bps from the prior-year period. This increase was due to investments in technology and brand-building, along with higher inflation. However, it was partially offset by savings from the cost-optimization program and ongoing expense discipline.
Foot Locker Provides Q2 Store Update
In the fiscal second quarter, the company inaugurated five stores and closed 31 stores. Additionally, during this period, it remodeled or relocated 14 stores and modernized 67 stores to adhere to its latest design standards, integrating essential aspects of its current brand specifications.
As of Aug. 3, 2024, FL managed 2,464 stores across 26 countries in North America, Europe, Asia, Australia and New Zealand. Moreover, 213 franchised stores were operational in the Middle East and Asia.
FL’s Financial Snapshot: Cash, Debt and Equity Overview
The company ended the fiscal second quarter with cash and cash equivalents of $291 million. Long-term debt and obligations under finance leases amounted to $440 million and shareholders’ equity totaled $2,897 million. As of Aug. 3, 2024, merchandise inventories were $1,648 million, down 10% from the year-earlier quarter.
What Lies Forward for Foot Locker?
For fiscal 2024, management expects sales to grow 1% to decline 1%, including a 1% headwind from the lapping of an extra week in 2023. The company expects comps to increase in the band of 1-3% year over year. Licensing revenues are likely to be $17 million.
The gross margin is anticipated to be 29.5-29.7% compared with the prior estimated range of 29.8-30% due to promotional pressure in international and WSS. Management expects EBIT margin to be in the band of 2.8-3.2%. The SG&A rate is anticipated to be in the range of 24.1-24.3% compared with the earlier expected 24.4-24.6%, due to ongoing investment spending.
Foot Locker envisions adjusted earnings per share to be in the range of $1.50-$1.70. Management predicts an adjusted CapEx of $330 million, including $55 million in technology investment reflected in operating cash flows.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month.
The consensus estimate has shifted -26.24% due to these changes.
VGM Scores
Currently, Foot Locker has a great Growth Score of A, though it is lagging a bit on the Momentum Score front 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 A. 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 is part of the Zacks Retail - Apparel and Shoes industry. Over the past month, Tapestry (TPR), a stock from the same industry, has gained 16%. The company reported its results for the quarter ended June 2024 more than a month ago.
Tapestry reported revenues of $1.59 billion in the last reported quarter, representing a year-over-year change of -1.8%. EPS of $0.92 for the same period compares with $0.95 a year ago.
For the current quarter, Tapestry is expected to post earnings of $0.95 per share, indicating a change of +2.2% from the year-ago quarter. The Zacks Consensus Estimate has changed +0.6% over the last 30 days.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Tapestry. Also, the stock has a VGM Score of A.
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Foot Locker, Inc. (FL) : Free Stock Analysis Report
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