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Foot Locker (FL) Up 1.8% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Foot Locker (FL - Free Report) . Shares have added about 1.8% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Foot Locker due for a pullback? 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 Q4 Earnings & Sales Beat Estimates

Foot Locker, Inc. posted better-than-expected fourth-quarter fiscal 2018 results. Both the top and the bottom-line increased year over year. Management also hinted at mid-single digit comparable sales growth and double-digit increase in earnings per share during fiscal 2019. Surely, these are well perceived by investors.

Moving on, this was the sixth straight quarter of a positive earnings surprise for this New York-based retailer. This operator of athletic shoes and apparel retailer reported quarterly earnings of $1.56 per share that beat the Zacks Consensus Estimate of $1.37 and climbed 23.8% from the year-ago quarter, courtesy of higher net sales and share repurchase activity.

The company generated total sales of $2,272 million that grew 2.8% year over year and also beat the Zacks Consensus Estimate of $2,166 million, marking the fourth successive quarter of a beat. Excluding the effect of foreign currency fluctuations, total sales rose 4.2%.

Meanwhile, comparable-store sales increased 9.7% during the quarter under review, faring much better than 2.9% growth witnessed in the preceding quarter. The company registered posted comparable sales increase of 5.7% at its stores, while digital channels witnessed 29.7% comparable sales gain. DTC business increased to 19.1% of total sales during the quarter, up from 16.1% in the year-ago period.

Gross margin expanded 160 basis points to 32.4% during the quarter, reflecting 80 basis points expansion in merchandise margin rate and 80 basis points leverage on relatively fixed buyer and occupancy expenses. SG&A expense rate increased 70 basis points to 19.9%.

Management expects gross margin to expand in the band of 20-40 basis points during fiscal 2019 due to leverage of buyer and occupancy cost. SG&A expenses are expected to increase as a percentage of sales by 40-60 basis points due to investments in digital capabilities.

Store Update

In the fourth quarter, Foot Locker opened 11 new outlets, remodeled or relocated 33 stores, and shuttered 56. As of Feb 2, 2019, the company operated 3,221 outlets across 27 countries in North America, Europe, Asia, Australia and New Zealand. Apart from these, there are 112 franchised Foot Locker stores in the Middle East. Germany has 10 franchised Runners Point stores. During fiscal 2019, the company plans to open approximately 80 new stores (with over a dozen new power stores), relocate or remodel 190 stores and close about 165 stores.

Other Financial Details

Foot Locker ended the quarter with cash and cash equivalents of $891 million, long-term debt of $124 million, and shareholders’ equity of $2,506 million. Further, management invested $187 million in its fleet of stores, digital platforms, logistics capabilities and other infrastructure. The company had earlier revealed a capital expenditure program of $275 million for fiscal 2019.

During the quarter, the company repurchased 1.2 million shares of worth $62 million. In fiscal 2018, the company bought back 7.89 million shares for $375 million. The company has returned $533 million to stockholders via share repurchases and dividends.

Recently, the company raised its quarterly dividend by 10% to 38 cents. This marks the company’s ninth successive quarter of dividend hike. Moreover, the company’s board announced a new three-year share buyback program worth $1.2 billion.


 

How Have Estimates Been Moving Since Then?

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

VGM Scores

At this time, Foot Locker has a subpar Growth Score of D, a grade with the same score on the momentum front. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. 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. It comes with little surprise Foot Locker has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.


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