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Foot Locker (FL) Q3 Earnings Likely to Decline: Here's Why

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Foot Locker, Inc. (FL - Free Report) is slated to release third-quarter fiscal 2017 results on Nov 17. Well the obvious question that comes to mind is will this retailer of athletic shoes and apparel will be able to deliver a positive earnings surprise in the quarter to be reported.

In the trailing four quarters, the company missed the Zacks Consensus Estimate by an average of 6.6%. Let’s see how things are shaping up prior to this announcement.

What to Expect?

The Zacks Consensus Estimate for the third quarter has been stable in the past 30 days and is currently pegged at 80 cents. This shows a sharp decline from earnings of $1.13 per share reported in the year-ago period. Analysts polled by Zacks expect revenues of $1,844 million, down from $1,886 million generated in the prior-year quarter.

Factors at Play

Challenging retail landscape and changing consumer spending pattern have resulted in a tough operating environment for Foot Locker. In fact, the company’s dismal top line and comparable-store sales performance concerns investors. Following meagre growth of 0.7% in the first quarter of fiscal 2017, total sales declined 4.4% in the second quarter. Meanwhile, comparable-store sales fell 6% in the second quarter, following an increase of 0.5% in the preceding quarter.

Management envisions adjusted earnings per share decline of 20-30% (excluding a benefit of 12 cents from 53rd week) for the second half of 2017. In the second quarter of fiscal 2017, earnings plunged 34% year over year. Foot Locker had projected gross margin contraction in the range of 230-250 basis points (bps) for the third quarter. Gross margin contracted 340 basis points in the second quarter, after shrinking 100 bps in the first.

Nevertheless, we believe that building robust capabilities in direct-to-customer unit, augmenting e-commerce platform, rationalizing store fleet and improving supply chain infrastructure may provide cushion to the stock. Continuous exploitation of opportunities such as shop-in-shop expansion, store banner.com business, store refurbishment and enhancement of assortments also bode well. International expansion, especially in Europe, is another growth catalyst.

Foot Locker, Inc. Price, Consensus and EPS Surprise

 

Foot Locker, Inc. Price, Consensus and EPS Surprise | Foot Locker, Inc. Quote

What the Zacks Model Unveils?

Our proven model does not conclusively show that Foot Locker is likely to beat earnings this quarter. This is because a stock needs to have both — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Foot Locker has an Earnings ESP of -0.48% and a Zacks Rank #3. Thus making surprise prediction difficult.

Stocks With Favorable Combination

Here are three companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Burlington Stores, Inc. (BURL - Free Report) has an Earnings ESP of +1.27% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Best Buy Co., Inc. (BBY - Free Report) has an Earnings ESP of +0.35% and a Zacks Rank #3.

Wal-Mart Stores, Inc. (WMT - Free Report) has an Earnings ESP of +0.96% and a Zacks Rank #3.

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