Analyst: Hurricanes, Delayed Launches Set Foot Locker Up For A Weak Q3

Foot Locker, Inc. FL reports earnings Friday before the open and the Wall Street is expecting an 80-cent EPS. 

The Analyst

Canaccord Genuity's Camilo Lyon reiterated a Hold rating for Foot Locker and decreased the price target from $39 to $36.

The Thesis

Canaccord Genuity is lowering estimates for Foot Locker's comparable same-store sales and EPS going into the earnings event due t the impact of hurricanes, weak basketball trends and a promotional environment in the U.S. and Europe. (See Lyon's track record here.) 

Hurricanes in Florida, Texas and Puerto Rico have likely hurt comparable same-store sales by 100-200 bps, but there was also some impact from disrupted receipts and Under Armour Inc's UAA delayed launch of the Curry 4, the analyst said. 

Canaccord is forecasting gross margin contraction of 313 bps due to occupancy deleveraging and persistent promotions, and Lyon said he expects the trend to continue into the year end and potentially the first half of 2018.

Foot Locker will not return positive comparable same-store sales until mid-2018, Lyon said. 

The footwear chain has some positive catalysts, but they are not strong enough to offset a slowdown, Lyon said. Strength is found in Foot Locker's running segment, in basketball platforms like Paul George and Kyrie Irving and in smaller brands like Puma and Vans, he said. 

The Price Action

The stock is trading more than 2 percent higher Thursday, but it has been a massive underperformer since May 2017, dropping almost 60 percent since hitting a high that month.

Related Links: 

Are Foot Locker And Finish Line's Problems All Nike's Fault?

Was The Foot Locker Sell-Off Overdone?