Foot Locker, Inc. FL reported a third quarter earnings beat on Friday, but a sales miss sent shares plunging.
The Analyst and Rating
Cowen analyst John Kernan reiterated a Market Perform rating but lowered his price target from $47 to $45.
The Thesis
The footwear retailer reported impressive comp growth of +5.7% year-over-year, and up from +0.8% in the second quarter.
Kernan says comp growth came largely from Nike Inc NKE and Adidas AG (ADR) ADDYY innovation, but the company will face tougher comparisons heading into next year.
Foot Locker management said it expects fourth quarter comps to be in the low single digit range and added that moving forward, the company will provide comps and EPS guidance on an annually instead of on a quarterly basis.
Kernan said management attributed the comp guidance reduction to declining apparel and a shift in the Yeezy launch schedule, which was pulled forward to earlier in the year compared to last year.
The analyst said apparel was negatively affected by a shift away from fashion sportswear and logo, potentially a negative sign for Hanesbrands Inc. HBI Champion, a brand that has enjoyed success at Foot Locker in recent months.
Foot Locker will face a difficult +9.7% comp comparison in the fourth quarter, which was driven by a +22% increase in the e-commerce channel, said Kernan.
A positive take away from Foot Locker’s quarter was a return to growth in the basketball category however, driven by a strong Jordan business, robust Air Force 1 and Air Max demand, a good sign for Nike, said Kernan.
The analyst also said Adidas’ NMD and Puma SE PMMAF RS-X are performing well at Foot Locker.
Price Action
Foot Locker shares were down 2.90% on Friday, closing at $40.25.
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