For Immediate Release
Chicago, IL – March 20, 2019 – Zacks Equity Research Foot Locker (FL - Free Report) as the Bull of the Day, Urban Outfitters, Inc. (URBN - Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on FedEx (FDX - Free Report) and United Parcel Service (UPS).
Here is a synopsis of all four stocks:
Bull of the Day:
Shares of Foot Locker have climbed 14% this year to outpace the S&P 500 and its industry’s 9% average climb. The sneaker-focused sporting goods retailer is also coming off a better-than-expected quarter and looks poised to expand its bottom line as it invests in the future of its industry.
Foot Locker saw its comparable-store sales, which includes existing stores and its website, surge 9.7%. This blew away Wall Street’s 4.5% estimate. More specifically, physical same-store sales popped 5.7%, while online sales skyrocketed roughly 30%. This strength was important for Foot Locker during the vital holiday shopping period and helped shake off concerns that sportswear giants such as Nike and Adidas’ direct-to-consumer push in the Amazon age would hurt FL.
Investors should note that some of the strength came on the back of consumers’ willingness to spend more money on sneakers. In fact, average selling prices jumped by a double-digit percent to help offset a low-single-digit decline in traffic. Yet, executives noted that Foot Locker’s traffic outpaced overall mall traffic.
The New York-based company announced in early February a $100 million minority investment in secondary sneaker market firm GOAT Group. Foot Locker’s investment comes as the sneaker market continues to explode. For instance, luxury fashion e-commerce company Farfetch purchased Stadium Goods for $250 million late last year in an effort to capture a portion of this quickly growing market.
Foot Locker’s core customers are digital natives that range from 12- to 25-year-olds. This means FL must adapt with the times and cater to its tech-savvy “sneakerhead” consumers. The company currently boasts 9.7 million followers on quickly expanding Instagram—where brands are built and people shop—to top the likes of Under Armour’s 7 million and blow away Dicks Sporting Goods.
Foot Locker has also invested millions in children's lifestyle brand Super Heroic, women's luxury activewear brand Carbon38, and footwear design academy Pensole. Plus, late last month, FL invested in subscription-based clothing service Rockets of Awesome, which is akin to Stitch Fix for kids.
Clearly, Foot Locker is looking to the future in order to grow in a quickly changing retail landscape. As we mentioned at the top, shares of FL have climbed 14% so far this year and are now up 39% over the last 12 months. This crushes the Retail-Apparel/Shoe Market’s 14% average decline and easily tops the S&P 500’s 5% growth. Investors will also notice that FL stock has been able to return to growth, while its industry and the likes of Nordstrom and Dick’s have failed to regain traction.
Looking ahead, FL’s first-quarter fiscal 2019 revenue is projected to pop 3.42% to reach $2.09 billion, based on our current Zacks Consensus Estimate. This would top last quarter’s 2.8% top-line expansion, which topped analyst expectations. For the full year, the retailer’s revenue is expected to jump over 4% to reach $8.26 billion. Once again this would easily beat 2018’s 2% revenue growth.
At the bottom end of the income statement, Foot Locker’s adjusted Q1 earnings are projected to jump 12.4% to reach $1.63 a share. The company is expected to see its bottom-line expand by 9.3% in the second quarter, with 9.6% EPS expansion expected for the full-year year. Peeking even further ahead, FL’s adjusted fiscal 2020 earnings are projected to jump 8.5% above our current-year estimate.
Investors should also note that the company’s earnings estimate revision activity has trended almost completely in the right direction recently, highlighted by the positive movement for 2019 and 2020.
Bear of the Day:
Shares of Urban Outfitters, Inc. have plummeted 30% over the last six months and its earnings estimate revision activity has tumbled in the wrong direction, especially in the near-term, on the back of lower-than-expected Q1 guidance. The company also operates in a quickly-changing portion of the already fickle fashion industry, which has made owning URBN stock relatively difficult over the past decade.
Urban Outfitters operates a somewhat sizable brand portfolio that includes Anthropologie, Free People, its namesake segment, as well as a food and beverage unit called the Vetri Family. The company saw its full-year fiscal 2019 revenue jump 9.2% to reach $3.95 billion. More specially, the Urban Outfitters division jumped over 10%, with Anthropologie up roughly 8%, and Free People up nearly 11%. Meanwhile, full-year food and beverage sales dipped marginally.
Despite this strong growth over the last year, URBN stock has hardly performed well—down 18%. Some of this might be blamed on larger industry trends that have impacted the likes of Macy's, JC Penney, Victoria's Secret owner L Brands, and others. With that said, Urban Outfitters’ price chart over the last 10 years shows us that URBN stock has swung pretty violently, even compared to its industry’s volatility.
As we mentioned at the top, shares of Urban have tumbled 30% in the past six months, which is worse than its industry’s 20% average decline. URBN stock closed regular trading Tuesday at $29.59 a share. This represented a roughly 44% downturn to its 52-week high of $52.50 per share.
Outlook & Earnings Trends
Urban Outfitters’ management earlier this month provided subdued first quarter fiscal 2020 guidance on the company’s conference call with analysts. The company said that its sales started out the year weaker than it had anticipated. This prompted URBN executives to call for its retail segment’s comparable sales to come in flat or decline by low single digits in Q1. “If comp sales do come in low-single digit negative, we believe URBN's gross margin rate for the first quarter could decline by approximately 150 basis points,” CFO Frank Conforti said on its earnings call.
“The decline in gross profit margin could be due to higher markdown rates in order to keep inventory current and allow for necessary new receipts.”
With that said, our current Zacks Consensus Estimate calls for the company’s first-quarter revenue to come in flat at $855.75 million. Jumping ahead, the firm’s fiscal 2020 revenue is projected to jump 2.72% to reach $4.06 billion. This would clearly come in below 2019’s 9.2% top-line expansion.
At the other end of the income statement, URBN’s adjusted quarterly earnings are projected to sink 31.6% to reach $0.26 per share. Furthermore, the company’s second-quarter EPS figure is expected to slip by 3.6%. Maybe more importantly, Urban Outfitters’ earnings estimate revision activity has trended almost completely in the wrong direction recently. The company’s Q1 estimate fell $0.14 from $0.40 per share to its current $0.26 over the last 90 days, while its full-year estimate sunk 12% from $2.93 a share to $2.60.
FedEx (FDX - Free Report) Misses 3rd Straight Quarter, Lowers Guidance
Global logistics and delivery major FedEx has reported fiscal Q3 2019 results after the closing bell this afternoon. The Zacks Rank #4 (Sell)-ranked company came in below consensus estimates on both top and bottom lines, reporting $3.03 per share on $17.0 billion in quarterly revenues, compared with $3.10 per share and $17.64 billion expected. Shares in late trading fell on the news, currently down more than 4% in late trading.
Clearly, delivery and logistics on a global scale is being hampered by economic slowdowns in Asia (particularly China) and the European Union (EU). Weaker global trade growth has also led the company to lower guidance for both fiscal Q4 (now $4.58 - 5.38 per share expected) and full-year 2019 ($15.10 - 15.90 expected), putting the previous Zacks estimates at or near the very highest end of this range.
This marks the second time FedEx has slashed guidance, and the company is now trailing rival United Parcel Service in terms of performance. It's also the third quarter in a row FedEx has missed the Zacks consensus, as well as the sixth quarter in the last 10. Heavy exposure to the EU relative to its main competitors may be the difference here. FedEx's conference call is scheduled for 5:30 pm ET.
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