As Foot Locker (NYSE:FL) stock tumbles nearly 30% in a single day, investors might wonder if the corporate is collapsing. That’s not the case in any respect, as Foot Locker’s still-fresh financial data actually beat Wall Street’s expectations.
Yet, earnings beats aren’t all the time enough to quell investors’ concerns. Indeed, it seems that panic selling is afoot for Foot Locker stock, and it won’t be easy for the corporate to realize traction in the approaching 12 months.
Profitable? It is dependent upon the way you measure
Traders bid up the value of Foot Locker stock within the weeks prior to the corporate’s fourth-quarter earnings report, perhaps in anticipation of positive top- and bottom-line results. Because it seems, they were right in some ways, but they still lost money.
Before starting on a fiscal-data marathon, we must always warm up with a note about Foot Locker’s inventory. A product oversupply has been an ongoing issue for retailers generally, so a list reduction is definitely excellent news when it occurs.
Thus, investors ought to be glad to learn that as of Feb. 3, Foot Locker’s merchandise inventories were down 8.2% 12 months over 12 months (in comparison with the tip of the fourth quarter of 2022). Thus, not less than we are able to conclude that Foot Locker has been in a position to move sneakers off of its shelves despite the inflationary pressures.
Not all the news is positive though. In Q4 of 2023, Foot Locker’s same-store sales decreased 0.7%. Amongst other contributing aspects, the corporate blamed “consumer softness,” so perhaps the American consumer isn’t as resilient as some pundits appear to suggest.
Turning to traditional top-line metrics, Foot Locker’s total sales increased 2% to $2.38 billion, which isn’t a terrible result but isn’t anything to jot down home about. Still, this result exceeded Wall Street’s consensus estimate by nearly $100 million.
As for Foot Locker’s fourth-quarter earnings per share (EPS), it’s a bit complicated. The corporate disclosed that its diluted loss per share was $4.13, which looks like a dreadful result in comparison to Foot Locker’s earnings of 20 cents per share within the year-earlier quarter.
However, using non-GAAP measurements, Foot Locker earned 38 cents per share within the fourth quarter. Thus, not less than the corporate can claim per-share profitability from that standpoint.
Nevertheless, this result also represents a pointy decline versus the non-GAAP earnings of 97 cents per share that Foot Locker reported within the year-earlier quarter. Nevertheless, the corporate did surpass Wall Street’s Q4 2023 consensus forecast of 32 cents per share in earnings under non-GAAP measurements.
Hence, like I said, it’s complicated. At the tip of the day, investors can decide to see the glass as half-empty or half-full for Foot Locker. Apparently though, investors generally took a glass-half-empty view as Foot Locker stock tumbled 30% after the corporate published its quarterly press release.
The associated fee of “strategic investments”
Sometimes you’ve got to spend money to earn cash. At the least, that appears to be the philosophy of Mary Dillon, president and CEO of Foot Locker.
“To further construct on our progress, we’re leaning into strategic investments in digital, store experience, loyalty and brand-building in 2024,” Dillon announced in Foot Locker’s Q4 2023 press release.
This might sound perfectly wonderful, but there are drawbacks to all these “strategic investments.” In any case, spending large sums of capital could dent Foot Locker’s bottom line in the approaching quarters.
To place some numbers to this idea, Foot Locker provided full-year 2024 non-GAAP earnings guidance of $1.50 to $1.70 per share. This guidance range fell in need of the analysts’ consensus estimate of $1.93 per share.
BTIG analyst Janine Stichter summed up the market’s concerns, stating, “I believe it’s all within the context of the go-forward outlook… the challenge is basically the go-forward outlook, which got here in significantly below consensus.”
Presumably, it is a primary reason that investors decided to dump their Foot Locker shares. Besides, Foot Locker’s shareholders won’t be willing to attend for the corporate to stage a turnaround.
“[A] lot of that improvement that they’re expecting is basically within the back half of 2024, so we’re not getting any immediate improvement,” Stichter clarified.
Short-term stock traders aren’t known for being extremely patient, so the rout in Foot Locker stock is sensible on this context. Going forward, Foot Locker has the unenviable task of turning its “strategic investments” into near-term profits. Until/unless this happens, the market is prone to proceed discarding Foot Locker stock like an old, worn-out pair of sneakers.