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Why Is Foot Locker (FL) Down 5.5% Since Last Earnings Report?

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A month has gone by since the last earnings report for Foot Locker (FL - Free Report) . Shares have lost about 5.5% 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 catalysts.

Foot Locker’s Q3 Earnings & Sales Top Estimates, Up Y/Y

Foot Locker came up with stellar third-quarter fiscal 2020 results, wherein the top and bottom lines outpaced the Zacks Consensus Estimate and grew year over year. Results benefited from strength in the company’s in-store and online assortments, coupled with resiliency in its brands. Despite a late back-to-school selling season, the company saw momentum as the quarter progressed owing to consumers' robust engagement.

Further, it did not provide outlook for fiscal 2020 due to the ongoing uncertainties. Moving ahead, management believes that it is well positioned to maneuver through the ongoing pandemic. The company also said that over 10% of its store fleet has been shut down temporarily owing to COVID-19-related limitations. However, it has been making proactive actions to offer a seamless experience this holiday season.

Q3 Details

The athletic shoes and apparel retailer posted adjusted earnings of $1.21 per share, which outshone the Zacks Consensus Estimate of 60 cents. The bottom line also rose 7.1% year over year.

On a GAAP basis, the company reported earnings of $2.52 a share compared with $1.16 recorded in the prior-year period.

Total sales of $2,106 million grew 9% year over year and came above the consensus estimate of $1,937 million. Excluding the foreign-currency fluctuation impact, total sales rose 7.7%. Moreover, comparable-store sales jumped 7.7% during the reported quarter.

Foot Locker's gross-margin rate contracted 120 basis points (bps) to 30.9% during the quarter. However, SG&A expense rate fell 120 bps to 20.1%.

Store Update

During the reported quarter, Foot Locker opened 27 outlets, remodeled or relocated 8 stores, and shuttered 95 including 70 Runners Point outlets. As of Oct 31, 2020, the company operated 3,032 stores across 27 countries in North America, Europe, Asia, Australia and New Zealand. Apart from these, there are 126 franchised Foot Locker stores in the Middle East.

Other Financial Details

The company ended fiscal third quarter with cash and cash equivalents of $1,393 million, debt of $131 million, and shareholders’ equity of $2,652 million. As of Oct 31, 2020, merchandise inventories were $1,193 million, down 8.5% from the prior-year period. On a constant-currency basis, inventory declined 9.3%.

Moreover, it bought back 308 thousand shares worth $10 million and paid dividends of $16 million during fiscal third quarter.

How Have Estimates Been Moving Since Then?

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

VGM Scores

At this time, Foot Locker has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, 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 trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Foot Locker has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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