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Foot Locker Is Still Cheap, But Footwear Is Still Challenged

Mar. 05, 2018 6:48 AM ETFoot Locker, Inc. (FL)2 Comments
Detroit Bear profile picture
Detroit Bear


  • Shares of Foot Locker fell nearly 13% after the company reported lackluster earnings in Q4.
  • This was completely expected, but I think the market was spooked by a lack of high conviction growth guidance.
  • Nevertheless, capital allocation is excellent.
  • I think the stock looks cheap, but return timing will be hard to predict.

Foot Locker (NYSE:FL) posted Q4 results late last week that went about as expected, though both revenue and top-line results fell slightly short of expectations. Though the market somewhat panicked, sending shares down nearly 13%. I am not sure what exactly the market was thinking, but the quarterly results and guidance were not really unexpected. In fact, I believe shares remain undervalued, and I would consider adding shares after the dust settles in the high-$30 range, as I believe shares have upside to $55-63. Let’s take a look at quarterly performance in addition to what Foot Locker and I are seeing in the footwear marketplace, respectively.

Full-Year Earnings Remain Historically Strong

For full-year 2017, Foot Locker earned about $3.99 per share, down from last year’s $4.82 per share, but still quite strong relative to historical standards. In fact, $3.99, which includes a $0.12 hit for the extra week in the retail calendar year, is above every year in company history and still higher than FY16. Put into perspective, unless this decline materially accelerates, Foot Locker’s earnings are in pretty good shape.

From a revenue perspective, comps were pretty poor in Q4, with same-store sales down 3.7% y/y. In-store comps were down 5.1% y/y, which was partially offset by a 5.1% gain from online sales. For the quarter, sales were up 4.6% y/y to $2.2 billion thanks to the extra week. In total, sales were about flat for the year, down about $79 million on a base of $7.76 billion, when adjusted for the extra week. Full-year comps were down about 3.1% y/y.

With comps falling, gross margin declined 230 basis points y/y to 31.4% of sales. This isn’t bad considering the other poor quarters we saw in 2017, including a Q2 that saw gross margin decline below 30%. For the full-year, gross margin was 31.6% of sales. Again, this

This article was written by

Detroit Bear profile picture
A bear out in the woods.

Analyst’s Disclosure: I am/we are long FL, UA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (2)

Kama4h profile picture
hope so :-)
rodolfoavalos1 profile picture
It might get worse before it gets better..
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