On Friday, Needham initiated coverage on Foot Locker (NYSE:FL) with a Buy rating and set a price target of $27.00. The firm sees Foot Locker as a promising earnings recovery story heading into 2025. The optimism is based on several factors, including an improved relationship with Nike (NYSE:NKE) and the growth of non-Nike brands. Additionally, the company's recent investments in selling, general, and administrative expenses (SG&A) are expected to pay off, alongside a rebound in merchandise margins.
The analyst noted that despite a current slowdown after the back-to-school season, there is an anticipation of a pickup in sales post-Thanksgiving. This forecast aligns with a recent consumer survey indicating a high interest in sneakers for the upcoming holiday season. The survey suggests that consumer demand for Foot Locker's products remains strong, which could translate into positive performance for the retailer in the near term.
Foot Locker experienced significant margin and earnings challenges in 2022 and 2023, but the firm believes these issues are being addressed effectively. The company's strategic moves, particularly the strengthened relationship with Nike, are expected to drive a fundamental improvement in the coming years.
The analyst's coverage comes at a time when the retail industry is gearing up for the critical holiday shopping period. Foot Locker's potential to capitalize on the high consumer interest in sneakers could be a key factor in the company's performance during this quarter and beyond.
In summary, Needham's coverage initiation of Foot Locker with a Buy rating and a $27.00 price target reflects a positive outlook on the company's financial recovery and growth prospects. The analyst's comments underline the expected benefits from partnerships, brand momentum, and operational investments that could shape Foot Locker's trajectory as it moves into 2025.
In other recent news, Foot Locker has been at the center of several significant developments. Citi has maintained a Neutral rating on Foot Locker, forecasting a third-quarter earnings per share (EPS) beat of $0.46, surpassing the consensus estimate of $0.42. This optimism is rooted in stronger-than-expected comparable sales and lower selling, general, and administrative costs.
Barclays (LON:BARC) has also reiterated an Overweight rating on Foot Locker shares, indicating confidence in the company's LaceUp Plan, aimed at driving a turnaround. However, Baird has reduced its price target for Foot Locker from $35.00 to $27.00, maintaining a Neutral stance due to concerns over the retailer's short-term prospects.
Foot Locker's recent earnings report showed a slight beat in sales, EBIT, and EPS for the second quarter of 2024, largely due to robust comparable store sales in North America and the EMEA region. However, the company has revised its gross margin forecast for the full fiscal year 2024 downward due to increased promotional activities.
In partnership news, Foot Locker has announced a multi-year partnership with the Chicago Bulls, aimed at enhancing fan engagement through community events and exclusive content. The company is also undergoing strategic changes, including winding down operations in South Korea and parts of Europe, relocating its headquarters to St. Petersburg, Florida, and expanding its "Reimagined" store concept.
In legal developments, the U.S. Securities and Exchange Commission has charged a former senior director at Foot Locker with insider trading. These are recent events that have shaped the company's trajectory.
InvestingPro Insights
Adding to Needham's optimistic outlook on Foot Locker (NYSE:FL), recent data from InvestingPro provides additional context to the company's financial situation and market performance. Despite the challenges faced in 2022 and 2023, InvestingPro Tips indicate that net income is expected to grow this year, aligning with Needham's view of an earnings recovery story. This projection is further supported by analysts' predictions that the company will return to profitability this year.
However, investors should note that Foot Locker's stock price has fallen significantly over the last three months, with InvestingPro data showing a 31.89% decline in the 3-month price total return. This recent performance may present a potential entry point for investors who share Needham's bullish outlook.
The company's price-to-book ratio of 0.74 suggests that the stock may be undervalued relative to its book value, which could be attractive to value-oriented investors. Additionally, Foot Locker's liquid assets exceed short-term obligations, indicating a solid short-term financial position as the company navigates its recovery.
For those interested in a more comprehensive analysis, InvestingPro offers 5 additional tips for Foot Locker, providing deeper insights into the company's financial health and market position.
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