On Monday, Piper Sandler adjusted its outlook on Foot Locker (NYSE:NYSE:FL), reducing the price target from $30.00 to $28.00, while keeping a Neutral rating on the stock. With the stock currently trading at $25.37 and analyst targets ranging from $17 to $34, investors should note that InvestingPro analysis suggests the stock is currently fairly valued.
The company is set to report earnings in just two days, on December 4th. The firm highlighted several factors influencing the retailer's financial model. Due to the shift of an August week from the third quarter of 2024 (3Q24) to the second quarter (2Q24), a 3-point difference in comparable store sales (comps) is anticipated for 3Q24.
Additionally, the comparison with the previous year's 53rd week, which contributed approximately $100 million in sales, is expected to result in a larger sales to comps spread in the fourth quarter of 2024 (4Q24), estimated at 5 points.
Piper Sandler has revised its gross margin estimate for Foot Locker in 3Q24 up to 30.3%, aligning it more closely with consensus estimates. This adjustment comes as Foot Locker is expected to lap a near 400 basis point decline in merchandise margin from the previous year, and year-over-year promotions have decreased (with up to 30% off sales versus up to 40% off in the previous October). It was noted that Nike (NYSE:NKE) may be subsidizing November's up to 40% off Nike and Jordan sale.
During the Black Friday period, Foot Locker's promotions were similar to the previous year, offering up to 50% off, but this increased to up to 60% off on Friday. The Cyber Monday sale, which also featured discounts of up to 60%, commenced earlier than in the past, likely in response to the shorter holiday season.
The sentiment around Foot Locker is described as mixed. While the stock has underperformed year-to-date with a -19.26% return and is not considered overly expensive, trading at approximately 14 times the 2025 price-to-earnings ratio and an EV/EBITDA of 14.52x, there is still a significant short interest in the stock, representing 11% of the float. InvestingPro data reveals that six analysts have recently revised their earnings estimates downward, suggesting continued caution in the near term. Concerns are raised that a shortfall in 3Q24 comparable store sales, even with a margin beat, would be seen negatively. The third quarter's calendar launch schedule was considered a challenge, whereas the fourth quarter, particularly November, is expected to offer a more favorable environment that could potentially drive an acceleration in comps.
For deeper insights into Foot Locker's financial health and future prospects, InvestingPro subscribers can access the comprehensive Pro Research Report, which includes detailed analysis of the company's operational metrics, valuation multiples, and growth potential among 1,400+ top stocks.
In other recent news, Foot Locker has been the subject of several significant developments. The company's shares have been upgraded to Hold by Williams Trading, citing a diversified product mix as a strength. The sports retailer also reported 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, Foot Locker revised its gross margin forecast for the full fiscal year 2024 downward due to increased promotional activities.
Analysts from companies such as Telsey Advisory Group, Evercore ISI, and Needham have provided various ratings and price targets for Foot Locker. Telsey maintained a Market Perform rating, Evercore ISI reduced its price target but kept an Outperform rating, while Needham initiated coverage with a Buy rating. These assessments are seen as key indicators of the company's near-term prospects.
In addition to financial developments, Foot Locker has announced a multi-year partnership with the Chicago Bulls, aimed at enhancing fan engagement through community events and exclusive content.
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