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Why Is Foot Locker (FL) Down 20% Since Last Earnings Report?

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A month has gone by since the last earnings report for Foot Locker (FL - Free Report) . Shares have lost about 20% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Foot Locker due for a breakout? 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 drivers.

Foot Locker Misses Q1 Earnings Estimates, Trims View

Foot Locker, Inc. posted lower-than-expected first-quarter results and trimmed fiscal 2019 earnings view. Management now anticipates high-single digit increase in earnings per share for the fiscal year, down from the earlier projection of double-digit growth due to slower pace of share repurchase activity.

This operator of athletic shoes and apparel retailer reported adjusted earnings of $1.53 per share that missed the Zacks Consensus Estimate of $1.61. However, the bottom line climbed 5.5% from the year-ago quarter, courtesy of higher net sales and share repurchase activity.

The company generated total sales of $2,078 million that grew 2.6% year over year but fell short of the Zacks Consensus Estimate of $2,107 million, after four successive quarter of beat. Excluding the effect of foreign currency fluctuations, total sales rose 4.7%.

Meanwhile, comparable-store sales increased 4.6% during the quarter under review. Management had earlier forecast mid-single digit comparable sales growth for fiscal 2019. The company registered comparable sales increase of 2.9% at its stores, while direct to customer channel sales surged 14.8%. DTC business increased to 15.4% of total sales during the quarter, up from 13.9% in the year-ago period.

Foot Locker's gross margin rate expanded 30 basis points to 33.2% during the quarter under review. We note that SG&A expense rate deleveraged 100 basis points to 20% due to strategic investments in digital capabilities and infrastructure. Management had earlier projected gross margin to expand in the band of 20-40 basis points and SG&A expenses rate to increase by 40-60 basis points during fiscal 2019.

For the second quarter, Foot Locker expects a low to mid single-digit gain in comparable sales. Gross margin is projected to be flat to down 20 basis points, while SG&A expenses rate is likely to increase 80-100 basis points in the second quarter.

Store Update

During the quarter, Foot Locker opened 14 new outlets (including two power stores), remodeled or relocated 13 stores, and shuttered 34. As of May 4, 2019, the company operated 3,201 outlets across 27 countries in North America, Europe, Asia, Australia and New Zealand. Apart from these, there are 119 franchised Foot Locker stores in the Middle East. Germany has 10 franchised Runners Point stores.

Other Financial Details

Foot Locker ended the quarter with cash and cash equivalents of $1,126 million, long-term debt of $123 million, and shareholders’ equity of $2,607 million. During the quarter, the company repurchased 32,100 shares of worth $1.8 million. Management incurred capital expenditure of $45 million during the quarter.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -17.96% due to these changes.

VGM Scores

At this time, Foot Locker has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. 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 A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Foot Locker has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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