A month has gone by since the last earnings report for Foot Locker, Inc. (FL - Free Report) . Shares have lost about 26.1% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to the stock's next earnings release, or is it 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 Posted Negative Earnings Surprise in Q1
Delay in income tax refunds broke the positive earnings surprise streak of Foot Locker, Inc. This operator of athletic shoes and apparel retailer succumbed to a negative earnings surprise of 1.4% in the first quarter of fiscal 2017, after registering earnings beat in the preceding three quarters. The New York based company informed that the soft start witnessed in February was not fully offset by sturdy sales performance in March and April.
The company delivered quarterly earnings of $1.36 per share that fell short of the Zacks Consensus Estimate by a couple of cents and declined 2.2% year over year. Management in April had issued a cautious outlook and projected first quarter earnings to be equivalent to or marginally below last year's earnings or in the range of $1.36 to $1.39 per share.
Total sales of $2,001 million were up 0.7% year over year but came below the Zacks Consensus Estimate of $2,022 million. Excluding the impact of foreign currency fluctuations, total sales increased 1.8%. Comparable-store sales (comps) rose 0.5% during the quarter. High-single digits comps growth registered in March and April failed to offset low-double digit decline experienced in the month of February.
Nevertheless, management is working on all aspects to attain mid-single digit earnings per share growth target for fiscal 2017 backed by effective implementation of operational and financial initiatives. We believe by continually capitalizing on opportunities like children’s business, shop-in-shop expansion in collaboration with its vendors, store banner.com business, store refurbishment and enhancement of assortments, Foot Locker is likely to benefit in the long run. International expansion, especially in Europe, is another growth catalyst. Further, the company is enhancing its eCommerce platform.
Gross margin contracted 100 basis points to 34% of sales. The selling, general and administrative expense rate rose 30 basis points to 18.5% during the quarter.
Management now projects low single-digit growth in comparable sales with a relatively flat earnings year over year for the second quarter. However, Foot Locker remains optimistic to attain mid-single digit comparable sales growth in the second half of 2017. Management expects mid-single digits percentage increase in full-year earnings per share, excluding the 53rd week on the back of cost containment efforts and effective inventory management.
During the quarter under review, Foot Locker opened 30 new outlets, remodeled or relocated 61 outlets and shuttered 39 outlets. As of April 29, 2017, the company operated 3,354 outlets across 23 countries in North America, Australia, New Zealand and Europe. Apart from these, there are 62 franchised Foot Locker stores in South Korea and the Middle East. Germany has 15 franchised Runners Point stores.
Other Financial Details
Foot Locker ended the quarter with cash and cash equivalents of $1,049 million, long-term debt and obligations under capital leases of $127 million, and shareholders’ equity of $2,822 million.
During the quarter, the company repurchased 546,000 shares worth $38 million and paid a quarterly dividend of $0.31 per share. Management invested $75 million of capital to open and remodel or relocate stores.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month. There have been ten revisions lower for the current quarter. In the past month, the consensus estimate has shifted downward by 9.7% due to these changes.
At this time, Foot Locker's stock has a nice Growth Score of 'B', though it is lagging a lot on the momentum front with a 'D'. However, 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.
Our style scores indicate that the stock is more suitable for value investors than growth investors.
Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. Interestingly, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.