Retail Stocks to Recover: Foot Locker
This footwear and athletic apparel seller surprised investors with its Q3 results on November 29. The stock immediately soared by more than 12.5% in a pre-market. Foot Locker reported much better earnings on a less-than-feared slide in revenue numbers YoY. Q3 2023 sales rose to $1.99 billion vs consensus estimates of $1.96 billion, compared to $1.86 in Q2 2023. The retailer's EPS was $1.27 on sales of $2.17 billion in the same season of 2022, and now it is $0.30, yet this is 38% above Wall Street analysts’ estimates of $0.22.
The company's management emphasized that heavier discounts helped kick off strong holiday sales among budget-conscious shoppers. Most of them looked for deals on brands like Nike and Adidas, which led to a 470-basis-point decline in quarterly margins, but provided better total earnings. Gross margin was 27.5%, down from 32% in the same quarter of 2022, while same-store sales declined by 8%. Store locations came to 2,607 at the end of the quarter, down by 187 over the last 12 months. So, uncertainty in further consumer behaviour is still here, yet bets on a robust sale-off season worked out. The company's own calculations revealed that more than 200 million people dug into deals during the five-day long Thanksgiving weekend.
It's logical that the company's stock lost more than 40% of its market value in 2023, yet a stronger recovery could also be projected. Foot Locker also expects its Q4 comparable sales to decline between 7% to 9%, compared with previous analysts' estimates of a 10.5% drop, according to LSEG data. The next Foot Locker's business goal is to reduce reliance on particular apparel makers including Nike, which currently supplies about 65% of Foot Locker's merchandise. The store chain is putting its own ad banners under focus to converse across supply and sales channels. Even with inventory levels flat or slightly down, compared to the prior year, a test of summer highs at $28 per share looks as a possible scenario due to the force of extended technical inertia of the price rebound.
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