Why Foot Locker (FL) Stock Is Trading Up Today

Radek Strnad /
2024/05/30 11:32 am EDT

What Happened:

Shares of footwear and apparel retailer Foot Locker (NYSE:FL) jumped 28.2% in the morning session after the company reported first-quarter results that blew past analysts' EPS expectations. While Comparable sales decreased, this was mostly driven by the continued repositioning of the Champs Sports banner. Core banners strengthened as Global Foot Locker and Kids Foot Locker comparable sales increased 1.1%. Inventory levels improved, with merchandise inventories down 5.6%, indicating a better handle on stock management, which should potentially mitigate the risk of future markdowns. 

Guidance was likewise solid as its full-year earnings guidance exceeded Wall Street's estimates. In line with the company's retail strategy, Footlocker plans to open four more locations this year, which could be a sign that the growth and turnaround strategy are working as planned. Zooming out, we think this was a fantastic quarter that should have shareholders cheering.

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What is the market telling us:

Foot Locker's shares are somewhat volatile and over the last year have had 28 moves greater than 5%. But moves this big are very rare even for Foot Locker and that is indicating to us that this news had a significant impact on the market's perception of the business. 

The biggest move we wrote about over the last year was 3 months ago, when the stock dropped 24.2% on the news that the company provided a full-year earnings forecast that missed analysts' expectations by a large amount. Gross margin also declined. In addition, the company continued to close some of its stores, reducing its footprint. 

On the other hand, revenue and EPS outperformed Wall Street's estimates. Looking ahead, the company extended the timeline for achieving some of its long-term profitability goals, adding, "We maintain conviction in the longer-term earnings potential that our Lace Up plan will generate and reiterate the 8.5-9% EBIT margin target communicated at our March 2023 Investor Day. Given our lower starting point exiting 2023, we expect a two-year delay in achieving that goal and now see reaching that target by 2028." Overall, it was a weaker quarter for Footlocker, with the weaker guidance likely to raise concerns among investors.

Foot Locker is down 10.6% since the beginning of the year, and at $27.56 per share it is trading 21.6% below its 52-week high of $35.15 from February 2024. Investors who bought $1,000 worth of Foot Locker's shares 5 years ago would now be looking at an investment worth $677.31.

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