Analyst: Full Price Selling Is Significantly Improving At Foot Locker

Strong promotional activity may be waning at Foot Locker, Inc. FL.

The Analyst

Cowen's John Kernan on Monday maintained a Market Perform rating and raised his price target from $46 to $56.

The Thesis

Cowen’s channel checks are showing significantly improved full-price selling trends in North America, but concerns over long-term growth and margin structure prevent Kernan from upgrading the stock.

Kernan said Nike Inc NKE's product cycle inflected and the controversial "Just Do It" campaign headlined by Colin Kaepernick resonated strongly with 18-34 year old men and Nike consumers that spend $300 or more annually. The analyst also said there are positive early reads on the LeBron 16.

Nike makes up nearly 67 percent of all Foot Locker purchases.

Foot Locker bought too much inventory into a negative same-store sales trend heading into the second quarter of last year, leading to declining margins for the next three quarters.

Heading into the third quarter, Kernan said Foot Locker's channel has gotten cleaner, with sales versus inventory spread improving in each of the last four quarters; The greatest increases occurred in the last year.

Kernan raised his third-quarter EPS estimate from 93 cents to $1.00, ahead of consensus estimates. The analyst also assumes positive trends will carry forward into the fourth quarter.

Price Action

Foot Locker shares traded around $51.02 at time of publication.

Related Links:

What The Kaepernick Campaign Means For Nike

Retail Analyst: Foot Locker, Skechers And Steve Madden Poised To Run Higher

Photo credit: Raysonho @ Open Grid Scheduler / Grid Engine (Own work), via Wikimedia Commons