It has been a reasonably volatile few weeks for sneaker and apparel retailer Foot Locker (NYSE:FL). Following its fourth-quarter earnings release on March 6, its stock tanked about 30%, initially plunging to around $24 per share before tumbling all the way in which right down to $22 per share over the next week or so. Nonetheless, Foot Locker stock has been on a gentle upswing since then.
On Wednesday, the shares popped one other 7%, moving as much as around $29 per share. Let’s see what has been occurring with Foot Locker to cause such volatility and check out to find out where it’ll go from here.
Earnings report was a mixed bag
The massive decline following the Q4 earnings report appeared to be a bit overdone, as Foot Locker actually beat estimates. Nonetheless, the outcomes weren’t great, as the corporate’s sales rose about 2% yr over yr to $2.38 billion while its income from operations plummeted 44% to only $33 million resulting from higher costs of sales and selling, general, and administrative expenses.
Foot Locker posted a net lack of $389 million, down from a $19 million net gain in the identical quarter a yr ago. Nonetheless, the web loss was resulting from a $555 million one-time expense related to a minority-investment impairment and partial settlement of pension-plan obligations. On an adjusted basis, the corporate’s net income was $36 million, although that was still down from $92 million in Q4 of 2022.
On a positive note, Foot Locker did reduce its inventory by 8.2% yr over yr, which is essential because lower inventory frees up extra space for newer, more profitable products and lowers the price of holding excess inventory.
Thus, while the corporate’s numbers weren’t great — they usually weren’t expected to be — its outlook disenchanted investors. Foot Locker called for sales growth in 2024 to be in a spread of down 1% to up 1% for 2024, store count down 4%, and adjusted earnings per share to be between $1.50 and $1.70. In that range, the adjusted EPS could be up barely from $1.42 in 2023 but still below analysts’ projections of $1.95.
Foot Locker also said that its goal of getting an EBIT (earnings before interest and taxes) margin of 8.5% to 9% has been pushed back two years to 2028. This probably disenchanted investors as well. The corporate projects a 2.8%-to-3.2% EBIT margin in fiscal 2024.
Outlook will not be all that bad
In the times and weeks that followed the earnings report, several analysts reported a more bullish view of Foot Locker after digesting the numbers. Evercore upgraded the stock to Outperform and raised its price goal to $32 per share from $28, citing expectations for higher sales growth within the second half of the yr. Evercore said Foot Locker shall be chasing demand with lower inventories, amongst other potential sales drivers, including a recent loyalty program, a recent digital app, and a refresh initiative.
Guggenheim also issued a Buy rating for Foot Locker with a price goal of $30, while Bank of America had a Neutral rating with a price goal of $27. Moreover, Citi and UBS each upgraded Foot Locker from Sell to Neutral.
Analysts at Citi said the corporate may benefit from Nike’s strategic shift toward growing its wholesale sales channels and moving away from its in-house digital sales push in recent times. That might send more Nike (NYSE:NKE) sales to Foot Locker.
Overall, the steep post-earnings drop appeared to be an overreaction to Foot Locker pushing back its EBIT margin goals. The corporate seems headed in the suitable direction, but it’ll probably be a protracted, slow climb. I wouldn’t expect any big moves as the value will likely hover around where it’s now. Nonetheless, investors will want to put it on their radar and look ahead to potential impacts from these catalysts mentioned above.