Bear of the Day: Foot Locker, Inc. (FL)

Mar 28, 2024

Foot Locker, Inc. (FL Quick QuoteFL - Free Report) stock tumbled again after its earnings and guidance disappointed Wall Street on August 23.

The footwear retailer is facing near-term headwinds as consumers pull back on spending on goods such as expensive sneakers, alongside other issues. Foot Locker’s current troubles even caused the company to pause its dividend beyond its recently approved October payout.

What’s Going On?

Foot Locker is a shoe retailer that aims to ‘unlock the “inner sneakerhead” in all of us.’ The company currently has roughly 2,600 stores across 26 countries under the Foot Locker brand as well as Kids Foot Locker, Champs Sports, atmos, and WSS.

Foot Locker has grown within the broader sneaker revolution that’s developed alongside the rise of Nike, its Jordan Brand, and other popular and trendy shoemakers.

Foot Locker is actively reshaping its business to move away from its huge dependence on Nike ((NKE Quick QuoteNKE - Free Report) ) as the footwear and apparel titan moves toward its own direct-to-consumer businesses. Nike is still very important to Foot Locker and it is doing all it can to have the best relationship possible with NKE.

Foot Locker is also attempting to navigate the changing retail landscape that’s seen malls fade and e-commerce rise. FL currently faces many direct competitors in the sneaker space that were born and raised in the digital commerce age.

Image Source: Zacks Investment Research

Foot Locker’s 2022 revenue dipped 2% against a tough-to-compete against year. Meanwhile, its adjusted earnings fell by around 30%. The company fell short of our Q1 EPS estimates and it missed by 20% on the bottom line when it reported its second quarter results on August 23. FL’s Q2 comparable-store sales fell by 9.4%, “driven by ongoing consumer softness, changing vendor mix, and the repositioning of Champs Sports.”

Foot Lock’s downbeat guidance has pushed its FY23 earnings consensus down by 28% and its FY24 outlook 20% lower. FL’s most accurate/most recent EPS estimates also came in below the newly downbeat consensus. Zacks estimates call for the company’s adjusted earnings to fall another 70% this year on 9% lower sales.

Image Source: Zacks Investment Research

Bottom Line

Foot Locker’s overall downbeat earnings outlook helps it land a Zacks Rank #5 (Strong Sell) right now. The company also said when it reported its results that it is pausing its quarterly cash dividend beyond its recently approved October payout to “ensure that we have the flexibility to continue to fund our strategic investments appropriately.”

Foot Locker stock is down 50% YTD and 40% over the past decade. The sharp downturn has it trading way below its 50-week and 200-week moving averages. All that said, investors might want to stay away from FL and avoid possibly attempting to catch a falling knife.