Foot Locker (NYSE:FL) shares surged nearly 9% in the pre-market session today after the specialty athletic retailer announced a better-than-anticipated set of third-quarter results. While revenue declined by 8.6% year-over-year to $1.99 billion, the figure still exceeded estimates by $39 million. In addition, EPS of $0.30 fared better than analysts’ expectations by $0.09. The company also narrowed its outlook for the full year on the back of a strong Thanksgiving weekend.
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During the quarter, comparable-store sales declined by 8%, primarily due to a changing vendor mix, the repositioning of Champs Sports, and weak consumer trends. Further, its gross margin contracted by 470 basis points due to higher markdowns and occupancy deleverage.
At the same time, a 100 basis point increase in selling, general, and administrative expenses as a percentage of sales resulted in the company’s net income declining to $28 million from $121 million in the year-ago period.
Despite these challenges, Foot Locker has narrowed its financial outlook thanks to a strong Thanksgiving weekend and positive momentum from strategic initiatives. For Fiscal Year 2023, sales are expected to decline by 8% to 8.5%, compared to the prior outlook of an 8% to 9% decrease. EPS for the year is seen hovering between $1.30 and $1.40 versus the prior outlook of $1.30 to $1.50.
For the upcoming quarter, sales are anticipated to decline by 2% to 4%, with EPS expected to land between $0.26 and $0.36. Comparable sales in Q4 are seen decreasing by 7% to 9%. Additionally, the company has announced that it will enter the Indian market in 2024. It has teamed up with Indian retailers Metro Brands and Nykaa Fashion for the strategic move.
Is FL a Good Stock to Buy?
Overall, the Street has a Hold consensus rating on Foot Locker. The average FL price target of $18.64 implies a 21.8% potential downside in the stock. That’s on top of a nearly 38% decline in the company’s shares over the past year.
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