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Foot Locker Highlights New Risk Factors After Acquisitions

Foot Locker (FL) is an American multinational sportswear and footwear retailer. It recently launched a womenswear brand called Cozi, which features a collection of products in the $35 to $50 price range.

Foot Locker’s earnings report shows revenue rose 3.9% year-over-year to $2.2 billion in Q3 2021, surpassing the consensus estimate of $2.1 billion. It posted adjusted EPS of $1.93, which rose from $1.21 in the same quarter last year and beat the consensus estimate of $1.34.

The company ended Q3 with $1.34 billion in cash and $560 million in debt. It plans to distribute a quarterly cash dividend of $0.30 per share on January 28 and has set January 13 as the ex-dividend date. Foot Locker stock currently offers a dividend yield of 2.38%.

Foot Locker has recently completed several acquisitions. It acquired athletic footwear and apparel retailer Eurostar for $750 million in cash. Eurostar operates as WSS and primarily serves customers in the U.S. West Coast region. It also acquired Japan-based retailer Atmos to expand its global footprint. Foot Locker expects the WSS and Atmos acquisitions to boost its 2022 EPS by $0.44 to $0.48.

With this in mind, we used TipRanks to take a look at the newly added risk factors for Foot Locker.

Risk Factors 

According to the new TipRanks Risk Factors tool, Foot Locker’s main risk category is Legal and Regulatory, representing 25% of the total 40 risks identified for the stock. Macro and Political and Finance and Corporate are the next two major risk categories, accounting for 23% and 18% of the total risks, respectively. The company recently updated its profile with three new risk factors across the various categories.

Foot Locker tells investors that it borrowed $400 million during Q3 through senior notes due in 2029. The company cautions that its business and financial condition may be adversely affected if it cannot generate sufficient cash flow to meet its debt service obligations. It further cautions that directing a substantial portion of future cash flow toward debt service payments would reduce the amount of cash available for working capital and may limit its ability to respond to business opportunities.

Foot Locker informs investors that it could face difficulties in integrating the businesses it has acquired. It mentions risks such as the diversion of management’s attention and failure to retain key personnel during the integration process. Therefore, the company cautions that it may not achieve the anticipated benefits of the acquisitions.

The company warns that President Joe Biden’s COVID-19 vaccine mandate for workplaces may result in labor challenges. It mentions a possible loss of critically-skilled personnel and challenges to hiring in the future. It cautions that such labor challenges could have a material adverse effect on its operations and financial condition.

The Legal and Regulatory risk factor’s sector average is 17%, compared to Foot Locker’s 25%. Foot Locker stock has gained about 3.7% year-to-date.

Analysts’ Take

Following Foot Locker’s Q3 earnings report, Wedbush analyst Tom Nikic maintained a Hold rating on Foot Locker stock but raised the price target to $55 from $51. Nikic’s new price target suggests 31.20% upside potential.

Consensus among analysts is a Moderate Buy based on 7 Buys, 8 Holds, and 1 Sell. The average Foot Locker price target of $64.38 implies 53.58% upside potential to current levels.

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