Foot Locker's Enhanced Product Offerings Boost Sales, But Analyst Warns of H2 Challenges

Foot Locker, Inc. FL shares are diving today after it released second-quarter results.

The company reported a second-quarter adjusted EPS loss of 5 cents, beating the analyst consensus estimate of a 7-cent loss and sales of $1.896 billion, beating the street view of $1.888 billion.

The company reiterated fiscal 2024 sales change of (1%)-1%, or $8.072 billion to $8.236 billion vs. the consensus of $8.130 billion and adjusted EPS guidance of $1.50-$1.70 versus the $1.54 consensus.

J.P.Morgan analyst Matthew R. Boss reiterated the Underweight rating on the stock.

The analyst writes that July comps rose mid-single digits, slightly outperforming June, which was also up mid-single digits compared to May’s low single-digit decline.

Boss further adds that same-store sales improved alongside reduced markdowns, driven by Foot Locker’s enhanced product offerings, stronger marketing, and better store experiences.

Additionally, the analyst says that increased in-store productivity from a new workforce management tool and the relaunch of the FLX rewards program boosted loyalty penetration to 24% of net sales, compared to 22% last year.

The analyst writes that for the second half of the year, same-store sales are implied to be up 2.5%, vs. 2.6% growth in the second quarter and 0.4% in the first half of 2024. This equates to a -1.9% two-year stack, improving from the -8.9% seen in the first half.

The analyst adds that the implied gross margin is expected to expand by 360 basis points year-over-year in H2, reaching the midpoint of FY24 guidance of 29.5-29.7%, compared to a 50 bps increase in the quarter and a 40 bps decline in the first half of 2024.

Investors can gain exposure to the stock via Tidal Trust II YieldMax Ultra Option Income Strategy ETF ULTY and SPDR S&P Retail ETF XRT.

Price Action: FL shares are down 10.5% at $29.36 at the last check Wednesday.

Photo by Sorbis via Shutterstock

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