Analyst Lorraine Hutchinson of Bank of America Securities reiterated a Hold rating on Foot Locker (FL – Research Report), with a price target of $27.00.
Lorraine Hutchinson’s rating is based on the juxtaposition of Foot Locker’s improved sales against the backdrop of significant ongoing investments needed for the company’s turnaround. Foot Locker’s adjusted fourth-quarter earnings surpassed expectations, with higher sales compensating for increased selling, general, and administrative expenses (SG&A) and a lower gross margin as management actively cleared inventory. However, sales performance demonstrated a decelerating trend within the quarter, and Hutchinson has adjusted future earnings per share (EPS) estimates downward to account for increased SG&A costs. This recalibration also led to a reduced price objective, while maintaining the same valuation multiple.
Furthermore, Hutchinson notes the ambitious guidance provided by Foot Locker’s management, which includes a notable second-half inflection point for the fiscal year 2024, with projected gains in comparable store sales and gross margin recovery. However, there is perceived risk associated with the margin recovery, especially as consumer behavior might be slow to adapt to lower promotions. Despite management’s initiatives, such as store remodels and investments in technology, which could propel sales, the report indicates a cautious outlook. This caution is compounded by the fact that Foot Locker’s management has extended the timeline for achieving its mid-term profit goals, underscoring the challenges ahead. Thus, a Hold rating reflects a balanced view of potential upsides against the risks and uncertainties of Foot Locker’s strategic investments and long-term profitability targets.
In another report released yesterday, Evercore ISI also maintained a Hold rating on the stock with a $28.00 price target.
FL’s price has also changed moderately for the past six months – from $18.880 to $24.240, which is a 28.39% increase.
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Foot Locker (FL) Company Description:
Foot Locker, Inc. engages in the retail of athletic shoes and apparel. It operates through the Athletic Stores and Direct-to-Customers segments. The Athletic Stores segment sells athletic footwear and apparel under the Foot Locker, Lady Foot Locker, SIX:02, Kids Foot Locker, Champs Sports, Footaction, Runners Point, and Sidestep brands. The Direct-to-Customers segment includes Footlocker.com, Inc., Eastbay, Inc., and international electronic commerce businesses. The company was founded on April 7, 1989 and is headquartered in New York, NY.
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