Telsey Advisory Group has adjusted its outlook for Foot Locker (NYSE: NYSE:FL), increasing the stock's price target to $30.00 from $27.00, while maintaining a Market Perform rating.
The firm's analysis highlighted Foot Locker's recent turnaround, marked by a return to positive comparable store sales (comp) in the second quarter of 2024, after experiencing five quarters of negative comps.
The rebound is attributed to Foot Locker's diversified brand portfolio, which includes growing brands such as adidas, asics, Hoka, New Balance, and On. Additionally, cleaner inventory levels have led to fewer promotions within the US market.
The analyst noted that despite Foot Locker's better sales and slight earnings per share (EPS) beat in the second quarter, the company did not revise its full-year EPS guidance upward. The stock's subsequent 10% drop was seen as a reaction to this decision.
The firm's cautious stance is based on the retailer's history of missing its initial EPS guidance by a significant margin last year and the ongoing uncertainty in consumer spending patterns.
Telsey's revised 12-month price target is based on a price-to-earnings (P/E) multiple of 13 times, up from the previous 11 times, applied to the firm's adjusted 2025 EPS estimate of $2.30, a decrease from the earlier estimate of $2.45. The increase in the P/E multiple reflects the improved sales trend and aligns with Foot Locker's historical five- and ten-year average fiscal year one P/E multiples.
The report suggests that while the current sales improvements are promising, the firm would like to see continued comp growth and more robust operating margin expansion in 2025 before adopting a more positive stance on Foot Locker's stock.
In other recent news, Foot Locker has reported significant developments in its Q2 2024 financial results and strategic changes. The company posted a 2.6% rise in comparable store sales and a gross margin expansion to 27.6%. Despite these positive figures, Foot Locker is undergoing a series of strategic changes, including winding down operations in South Korea and some European countries, and relocating its headquarters to St. Petersburg, Florida.
The company is also working on expanding its "Reimagined" store concept and enhancing its digital presence, aiming to reach a 25% e-commerce penetration by 2026. Foot Locker's full-year non-GAAP EPS guidance remains at $1.50 to $1.70, with comps expected to be +1% to +3%. The company plans to open 30 new stores and close 140 in 2024, shifting towards off-mall locations.
InvestingPro Insights
Following Telsey Advisory Group's outlook adjustment for Foot Locker (NYSE:FL), InvestingPro data provides additional context to the retailer's financial landscape. With a market capitalization of $2.79 billion and a challenging P/E ratio of -8.44, Foot Locker's valuation reflects some investor skepticism. Despite this, the company's revenue stands strong at $8.15 billion over the last twelve months as of Q2 2025, with a modest quarterly revenue growth of 1.93%. This underscores the company's resilience in generating sales amidst a turbulent retail environment.
InvestingPro Tips suggest a mixed picture: while analysts expect net income growth this year, there's also a consensus of earnings revisions trending downwards for the upcoming period. This dichotomy may indicate that while the company is navigating through headwinds, its efforts to maintain profitability are recognized. Importantly, Foot Locker has upheld its dividend payments for 21 consecutive years, a testament to its commitment to shareholder returns, and its liquid assets surpass short-term obligations, hinting at financial stability.
For investors tracking performance metrics, the stock's strong return over the last three months of 30.77% stands out, suggesting a rebound in investor confidence. However, it's worth noting that the stock has taken a hit over the last week, with a price total return of -10.65%, reflecting the market's immediate reaction to recent events. For a deeper dive into Foot Locker's financials and additional InvestingPro Tips, interested readers can explore further at https://www.investing.com/pro/FL, where 11 more tips are available, providing a comprehensive analysis to guide investment decisions.
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