Foot Locker Delivers Q3 Earnings Beat But Stock Posts Marginal Gains

Foot Locker delivered solid Q3 2016 earnings but CEO comments on their latest product, piled pressure on the company’s stock. Is it time to trade?

On Friday, before the bell, Foot Locker released its earnings report for the third quarter of fiscal 2016, which delivered top line beats. Despite this, the stock failed to rally after the company’s CEO commented on the slow uptake of its latest product in the market.

The athletic apparel retailer reported earnings of $1.13 per share, beating consensus estimates of $1.10 per share. Revenue came in at $1.88 billion during the quarter, matching Wall Street expectations. Compared to the same period a year ago, earnings per share grew 13%, while revenues were up 5.1 percent.

 

Same Store Sales

Foot Locker stores have been really impressive in recent years, resulting in higher gross margins. During the quarter, same store sales increased 4.7% year over year. In Q3 fiscal 2014, gross margin was 33.2%, and this has risen to 33.9% in Q3 fiscal 2016. This has led to an additional $66 million in gross profit. On a currency neutral basis, inventory increased 2.2% year over year, and CFO Lauren Peters particularly pointed out that the stock is fresh and the company is well positioned heading into the important festive selling period.

Curry Shoes

Foot Locker showed strength across the board during the third quarter, with sales of major brands all posting impressive growth.

But it was comments made on Under Armour’s popular Curry brand of shoes that made investors a little anxious. Curry 2.0 and Curry 2.5 shoes have been performing well, but the latest Curry 3.0 suffered a weak launch and a slow uptake. Curry is the leading brand in Foot Locker stores, and investor concern after the CEO comments were justified. But the company also assured investors that it is still early days and Under Armour is committed to expanding its footwear offering.

Stock Performance

Comments made by Foot Locker’s CEO Richard Johnson weighed down on the company’s stock, which initially tumbled 3%, but later reversed all losses to end the day 0.60% higher at $71.78. The stock has been trading with waning bullish momentum and close to its 12-month high of $72.60. A retracement was impending and the market took advantage of Johnson’s comments to send the stock lower in intraday trading on Friday. Still, Foot Locker delivered excellent fundamentals and bullish momentum may kick in after the bearish pressure proves unsustainable. The company has a price to earnings ratio of 17.79, a beta of 0.59 and an attractive dividend yield 1.53%. Year to date, the stock has risen 10.28% and all is set for an impressive rally as we head into the company’s important selling period - the holiday season.


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