Foot Locker (FL) shares were up 8% in early trading on Friday on news of better than expected earnings. Beating the Wall Street consensus numbers on EPS and sales this quarter gave a particularly robust boost of confidence to Foot Locker investors because retail sales have been weak across the board this winter. Many other retail companies have blamed harsh weather for lower customer turnouts and fewer sales. As of February 1, 2014 Foot Locker operates 3,473 stores and many of them are located within shopping malls. The fact that Foot Locker was able to beat the Street’s expectations amid a challenging retail sales environment and reduced mall traffic is particularly impressive.
The information below is derived from data submitted to the Estimize.com platform by a set of Buy Side and Independent analyst contributors.
This quarter, Foot Locker reported 82c EPS and $1.791B revenue. Meanwhile, the consensus from Wall Street was forecasting 75c EPS and $1.775B, while contributing analysts on the Estimize.com platform were expecting $1.763B revenue. In this case, the Estimize community took a more pessimistic view of Foot Locker going into the report. Over the previous 7 quarters displayed on the table above, the Estimize community was more accurate than Wall Street in forecasting Foot Locker’s EPS and revenue 4 and 5 times, respectively. Incidentally, the forecast from Estimize happened to be less accurate than Wall Street this quarter, but that’s not really the point of Estimize in the first place.
By tapping into a wider range of contributors including hedge-fund analysts, asset managers, independent research shops, students, and non professional investors Estimize has created a data set that is up to 69.5% more accurate than Wall Street, but more importantly, it does a better job of representing the market’s actual expectations.
By creating a dataset that includes more analysts and more pieces of the financial world pie, Estimize has created a data set that can be better used to predict stock movements in response to earnings releases. Independent academic research from Rice University has shown that stocks move in response to earnings with higher correlation to the Estimize community expectations rather than the Wall Street consensus.
In this case, the Estimize community likely took note of the weak retail sales environment and set their expectations lower than the Street’s accordingly. Beating the Street’s estimate by 7c EPS and 0.88% on revenue is nice, but it looks even better when you consider that Foot Locker beat the market’s expectations as represented by the Estimize community consensus on revenue by 1.55%. This larger magnitude could be one piece of evidence used to explain why the stock jumped 8% this morning.
An even more interesting case occurs when there is a discrepancy between the Street and Estimize about whether or not any given earnings report is a beat or miss. Quantitative research has shown that more often than not, the Estimize consensus offers a better benchmark for understand which way the stock price will move.