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Why Is Foot Locker (FL) Down 10.5% Since Last Earnings Report?

A month has gone by since the last earnings report for Foot Locker (FL). Shares have lost about 10.5% 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 the most recent earnings report in order to get a better handle on the important drivers.

Foot Locker Q3 Earnings & Sales Top Estimates

Foot Locker, Inc. posted better-than-expected third-quarter fiscal 2018 results. Although the top line declined marginally, the bottom line managed to score high on a year-over-year basis, courtesy of lower cost of sales and share repurchase activity.

The New York-based retailer continued with its positive earnings surprise streak for the fifth straight quarter. This operator of athletic shoes and apparel retailer reported quarterly earnings of 95 cents a share that beat the Zacks Consensus Estimate of 92 cents and climbed 9.2% from the year-ago period.

The company generated total sales of $1,860 million that fell 0.5% year over year but came ahead of the Zacks Consensus Estimate of $1,846 million, marking the third successive quarter of beat. Excluding the effect of foreign currency fluctuations, total sales rose 0.4%. The 53rd week shift hurt sales by about $60 million during the reported quarter.

Meanwhile, comparable-store sales increased 2.9% during the quarter under review, faring much better than 0.5% growth witnessed in the preceding quarter. Comparable sales for footwear improved in low-single digit, while the same increased high-single digit in apparel. Comparable sales at accessories such as hats and socks were down double digits.

Gross margin expanded 60 basis points to 31.6% during the quarter, reflecting 80 basis points expansion in merchandise margin rate and 20 basis points deleverage in occupancy and buyers' compensation. SG&A expense rate increased 170 basis points to 21.4%.

Store Update

During the quarter under review, Foot Locker opened 10 new outlets, remodeled or relocated 13 outlets, and shuttered 20 outlets. As of Nov 3, 2018, the company operated 3,266 outlets across 26 countries in North America, Europe, Asia, Australia, and New Zealand. Apart from these, there are 108 franchised Foot Locker stores in the Middle East. Germany has 10 franchised Runners Point stores. During fiscal 2018, the company plans to open approximately 45 stores, relocate or remodel 124 stores and close about 140 stores.

Other Financial Details

Foot Locker ended the quarter with cash and cash equivalents of $748 million, long-term debt of $124 million, and shareholders' equity of $2,451 million. During the quarter, the company repurchased 2.2 million shares of worth $108 million and paid a quarterly dividend of $39 million. The company incurred capital expenditures of $38 million during the quarter under review and is expects to spend $210 million in fiscal 2018.

Outlook

Comparable sales during the fourth quarter are expected to be up low to mid-single digits. For fiscal 2018, management envisions the metric to be up in low single digit. Further, management anticipates double-digit increase in earnings per share for the fiscal year. On a 13-week comparative basis, gross margin is likely to improve 100-130 basis points during the final quarter, while SG&A expenses are expected to increase as a percentage of sales by 100-120 basis points.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

At this time, Foot Locker has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top 20% 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 upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Foot Locker has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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