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What's Next for Foot Locker & Why Lululemon Looks Like a Buy Before Earnings

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Welcome to the latest episode of the Full-Court Finance podcast from Zacks Investment Research where Associate Stock Strategist Ben Rains breaks down Foot Locker’s (FL - Free Report) first quarter fiscal 2019 financial results that caused a huge one-day selloff. The episode then dives into why Lululemon (LULU - Free Report) stock looks like a buy heading into its anticipated Q1 earnings release later this week.

Foot Locker reported its first-quarter fiscal 2019 financial results on Friday, May 24. Shares of FL tumbled 16% at the opening bell after the company reported lower-than-projected Q1 revenues and adjusted earnings. The sneaker retailer also saw its comparable sales come in below Wall Street estimates despite solid year over year growth.

Worse yet, Foot Locker executives provided lower full-year earnings guidance. Investors should also note that companies such as Nike (NKE - Free Report) , Adidas AG (ADDYY - Free Report) , JCPenney (JCP - Free Report) , and many more footwear brands and retailers wrote an open letter on May 20 to President Trump urging him to reconsider his tariffs on shoes made in China. “The proposed additional tariff of 25 percent on footwear would be catastrophic for our consumers, our companies, and the American economy as a whole,” the Footwear Distributors & Retailers of America wrote.

The shoe industry as a whole has slowly moved production away from China in recent years because of rising wages and trade policies, among other reasons. China itself has also become a significant growth market for many firms, but it is worth monitoring the impact of the escalating U.S.-China trade war.

Moving on, Lululemon is currently a Zacks Rank #2 (Buy) heading into its projected first-quarter earnings release on Thursday, May 30. The yoga apparel giant has expanded in menswear, outerwear, what it calls “Office/Travel/Commute,” and much more recently in an effort to compete not only against Canada Goose (GOOS - Free Report) , V.F. Corporation’s (VFC - Free Report) The North Face, Columbia Sportswear COLM, but also the likes of the Gap (GPS - Free Report) and Macy’s (M - Free Report) .

Company management laid out in late April a five-year growth plan called the “Power Of Three.” Lululemon expects to double its men’s revenues by 2023 as it takes on Nike, Adidas, Puma, and Under Armour (UAA - Free Report) . On top of that, LULU hopes to more than double its digital revenues during this stretch. This is something Wall Street will closely watch in the Amazon (AMZN - Free Report) age that has seen giants such as Target (TGT - Free Report) roll out more compelling digital offerings in an effort to keep up. Plus, Lululemon plans to quadruple its international revenues, which includes a big push in China.

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