Why Foot Locker Shares Got Tripped Up Today

What happened

Shares of sportswear specialist Foot Locker (NYSE: FL) slipped 2.7% through 11:25 a.m. ET this morning despite reporting a sizable beat for its 2022 fourth quarter.

Heading into the quarter, analysts had predicted Foot Locker’s adjusted earnings would fall by more than two-thirds to $0.51 per share on sales of $2.2 billion. As it turned out, the company did $2.3 billion in sales — and adjusted earnings were $0.97 per share.


So what

That’s the good news. The bad news is that while Foot Locker’s earnings weren’t down quite as badly as Wall Street had expected, they were still down pretty significantly.

Fourth-quarter sales ticked 0.3% lower, dragged down by unfavorable foreign exchange, despite same-store sales (comps) growing 4.2%. According to management, “increased promotional activity across the industry” subtracted 290 basis points from gross profit margins on those sales, and they now sit at 30.2%. On the bottom line, per-share earnings based on generally accepted accounting principles (GAAP) simply collapsed, falling more than 80% to $0.20 per share — a much steeper decline than even the adjusted results would suggest.

Now what

And it seems that the bad news isn’t over just yet. Turning to guidance for the year ahead, management forecast declines in both comps and total sales this year, with each number falling somewhere between 3.5% and 5.5%.

On the plus side, Foot Locker seems to see promotional pressures easing, and gross profit margins recovering a bit (somewhere between 30.8% and 31% margins are expected). On the minus side, this has management forecasting adjusted earnings of only about $3.50 a share this year — nearly a dollar short of Wall Street’s $4.48 forecast.

Longer term, Foot Locker is still optimistic it will pull out of this slump eventually, predicting total sales growth of 5% to 6% from 2024 levels to 2026, with earnings growth in the low to mid-20s percentages. Still, that prediction seems to imply that sales will fall not only in 2023, but perhaps into 2024 as well, before they start growing again.

With a forecast like that, it’s no wonder investors are shrugging off today’s earnings beat and buckling down for worse times ahead.

10 stocks we like better than Foot Locker
When our award-winning analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

They just revealed what they believe are the ten best stocks for investors to buy right now… and Foot Locker wasn’t one of them! That’s right — they think these 10 stocks are even better buys.

See the 10 stocks

*Stock Advisor returns as of March 8, 2023

Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends Foot Locker. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Source link