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Foot Locker Takes Quite a Hammering: Down 30% in 3 Months

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The sporting goods industry seems to be in doldrums, as customers are jumping on the dot-com bandwagon, leaving lesser options for brick-and-mortar retailers. Consequently, the sporting goods space has grown extremely competitive and promotional, thus creating pressure on margins. While most retailers are trying all means to enhance omni-channel capabilities, competition from online retailers remains a major threat. Challenging retail landscape and changing consumer spending pattern are making operating environment tough, and Foot Locker, Inc. (FL - Free Report) falls victim of the same. However, management is not sitting idle and trying all means to lift the company’s performance.

Shares of Foot Locker have plunged a little of over 30% in the past three months, wider than the industry’s decline of 4.5%. We have tried to ascertain major reasons that can be held responsible for this Zacks Rank #5 (Sell) stock’s dismal show in the bourses. We also note that the Zacks Consensus Estimate of $3.95 and $3.80 for fiscal 2017 and 2018 has declined by 22.5% and 30%, respectively, in the past 60 days. Moreover, the same has slumped34.4% to 80 cents for the third quarter.

Foot Locker Continues to Grapple with Soft Top-Line Performance

After registering a meager growth of 0.7% in the first quarter of fiscal 2017, total sales declined 4.4% during the second quarter. Meanwhile, comparable-store sales fell 6% during the second quarter, following an increase of 0.5% in the preceding quarter. These numbers are in sharp contrast to the company’s performance in fiscal 2016. During the first, second, third and fourth quarters of last fiscal total sales increased 3.7%, 5%, 5.1% and 5.3%, respectively. Maintaining the same chronological order comparable-store sales rose 2.9%, 4.7%, 4.7% and 5%, respectively.

Bottom Line Fell Short of the Estimate

Foot Locker, the athletic shoes and apparel retailer, continued with dismal performance in fiscal 2017 posting second straight quarter of earnings miss, when it reported second-quarter results. The quarterly earnings of 62 cents a share fell short of the Zacks Consensus Estimate of 90 cents and plummeted 34% year over year after declining 2.2% in the preceding quarter. The results in the quarter were impacted by soft performance of “some recent top styles” and lack of innovative fresh products in the market.

Bleak Outlook

Management anticipates comparable sales to decline in the range of 3-4% in remaining part of fiscal 2017. Foot Locker expects adjusted earnings per share to decline in the band of 20-30% (excluding a benefit of 12 cents from 53rd week) during the second half of 2017. Management envisions gross margin to contract in the range of 230-250 basis points in the third quarter and between 150 and 170 basis points in the final quarter on a 13-week basis. SG&A as a percentage of sales is likely to be up 70-100 basis points in both the third and fourth quarters.

Bottom Line

Nevertheless, Foot Locker is trying to improve performance through operational and financial initiatives. The company is also focusing on augmenting e-commerce platform, growing direct-to-consumer operations, rationalizing store fleet and improving supply chain infrastructure. However, these will take time to reap benefits. Well for the time being you can shift your focus on these better-ranked retail stocks.

G-III Apparel Group, Ltd. (GIII - Free Report) delivered an average positive earnings surprise of 3.5% in the trailing four quarters and has a long-term earnings growth rate of 15% with a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

PVH Corp. (PVH - Free Report) delivered an average positive earnings surprise of 3.6% in the trailing four quarters and has a long-term earnings growth rate of 13.1% with a Zacks Rank #2 (Buy).

The Children's Place, Inc. (PLCE - Free Report) delivered an average positive earnings surprise of 16.3% in the trailing four quarters and has a long-term earnings growth rate of 9% with a Zacks Rank #2.

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