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Bear of the Day: Foot Locker (FL)

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Headquartered in New York City, Foot Locker (FL - Free Report) is a retailer of athletic shoes and apparel. They operate 3,363 retail stores in 23 countries in North America, Australia, New Zealand and Europe.

Weak Results and Guidance Reflect Rising Challenges

The company reported disappointing results for the second straight quarter. Their earnings of 62 cents per share were substantially below the Zacks Consensus Estimate of 90 cents and down 34% year over year. Total sales were down 4.4% year over year and also short of the Zacks Consensus Estimate.

“While we believe our position in the market for premium sneakers remains very strong and our customers continue to look to us for compelling new athletic footwear and apparel styles,” said the CEO, “sales of some recent top styles fell well short of our expectations and impacted this quarter’s results.

“We believe these industry dynamics will persist through 2017, and we expect comparable sales to be down three to four percent over the remainder of the year.”

Shares plunged almost 28% after the report and are now down about 49% this year.

Falling Estimates

Analysts have slashed their estimates for the company after weak guidance.  Zacks Consensus Estimates for the current and next fiscal year have fallen to $3.95 per share and $3.77 per share from $5.09 and $5.41 respectively, before the report.

The Bottom Line

In addition to disappointing mall traffic, the retail space is going through a shift toward online shopping. With tightening labor markets, wage pressure has also started hurting retailers. Further, sporting goods industry has become extremely competitive, resulting in rising promotions which are hurting margins.

Fast changing trends and consumer preferences are also hurting many retailers.

Further, the industry “Retail - Apparel and Shoes” is currently ranked 175 out of 265 Zacks industries (bottom 34%) and while “Retail and Wholesale “sector is ranked 16 out of 16, suggesting potential underperformance in the short-to-medium term.

It would be better for investors to stay away from this stock and instead look at Children’s Place (PLCE) which is currently ranked Zacks Rank #2 (Buy).

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