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Are Foot Locker's Efforts Enough to Keep it on Growth Path?

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Foot Locker, Inc. (FL - Free Report) looks good on the back of its solid growth drivers, strong brand recognition and better-than-expected third-quarter fiscal 2017 results. Also, a VGM Score of A and long-term earnings growth rate of 5% highlights the stock’s inherent potential.

Shares of the company have surged a whopping 58.8% in the last three months, substantially outperforming the Retail-Apparel/Shoe industry’s growth of 27.1%. Notably, the industry ranks amongst the top 22% (57 of 256) of all Zacks industries.

Much of this share price momentum can be attributable to the company’s third-quarter results where both top and bottom lines outpaced the Zacks Consensus Estimate, following a dismal show in the preceding two quarters.

Furthermore, this New York-based apparel and shoe retailer is trying to improve its performance through its operational and financial initiatives. Management believes that by continually exploiting opportunities like kids’ and women’s business, shop-in-shop expansion in collaboration with its vendors, store business, store refurbishment and enhancement of assortments, the company is likely to benefit in the long run. International expansion, especially in Europe, is another growth catalyst.

This Zacks Rank #3 (Hold) company is also focusing on augmenting its e-commerce platform, growing direct-to-consumer operations, margin expansion and tapping underpenetrated markets. Additionally, it is effectively managing inventory, improving supply chain infrastructure and rationalizing store fleet. The company’s brand portfolio and shareholder-friendly moves remain noteworthy.

Deterrents to Overcome

At one end where the aforementioned factors raises optimism, on the other end dwindling top and bottom line results raise concerns. Definitely, challenging retail landscape and changing consumer spending pattern are making operating environment tough.

In the third quarter of fiscal 2017, earnings per share plunged 23% year over year, following a decline of 34% and 2.2% in the second and first quarter, respectively. Total sales also decreased 0.8%, albeit at a lower rate than 4.4% witnessed in the preceding quarter. Consequently, management envisions earnings per share to decline in the range of 15-25% in the fourth quarter, excluding the benefit of 12 cents a share from 53rd week.

Moreover, comparable-store sales (comps) fell 3.7% in the fiscal third quarter, following a decline of 6% in the preceding quarter. Though the rate of comps decline has decelerated from the second quarter, it is now anticipated to be in the band of 2-4% during the fiscal fourth quarter. Margins are also expected to remain under pressure as gross margin is anticipated to contract in the range of 220-240 basis points in the final quarter due to higher markdowns.

Looking for Bright Spots in the Retail Sector?

Some better-ranked stocks in the same industry include Zumiez Inc. (ZUMZ - Free Report) , Shoe Carnival, Inc. (SCVL - Free Report) and The Buckle, Inc. (BKE - Free Report) , all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Zumiez with a long-term earnings growth rate of 18% has pulled off an average positive earnings surprise of 22.2% in the trailing four quarters.

Shoe Carnival with a long-term earnings growth rate of 12% has pulled off an average positive earnings surprise of 20.8% in the trailing four quarters.

Buckle has delivered an average positive earnings surprise of 3.8% in the last four quarters.

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