Experts Shrug Off Foot Locker’s Soft Start to 2017

Nike Sportswear Foot Locker Times Square
The Nike Sportswear section of the new Foot Locker store in Times Square.
Courtesy of Foot Locker.

Despite announcing that it experienced a slow start to its first quarter, Foot Locker Inc. remains in market watchers’ good graces.

The specialty athletic retailer said today that a delay in income tax refund checks — a major Q1 catalyst for many retailers — will likely result in lower-than-expected first-quarter earnings.

The company currently expects earnings, for the quarter ending April 29, to be equal to or slightly below last year’s earnings, or $1.36 to $1.39 per share. That range misses market watchers’ bet for EPS of $1.47. Meanwhile, comparable store sales are expected to increase at a low-single-digit percentage rate versus prior guidance, for a rise at the low end of mid-single digits. The consensus same-store sales estimate was a 2.7 percent rise.

Although the company saw some stronger gains in sales later in the quarter, as income tax refunds were issued, Foot Locker chairman and CEO Richard Johnson said it wasn’t enough to offset the tough start.

We believe the delay in the issuance of the vast majority of income tax refund checks until after the NBA All-Star Game significantly affected our February comparable store sales, which were down low double digits,” Johnson said. “March sales rebounded well, up high single digits; however, the strength we experienced once income tax refund checks started flowing into our customers’ hands did not fully offset the slow start to the quarter.”

Still, Johnson said the firm and its multiple banners — including Champs, Footaction and Six:02 — “are now having a strong Easter selling period, with April comparable sales likely up low double digits.”

Foot Locker said it continues to expect a double-digit EPS increase and a mid-single-digit comparable store sales increase in the remaining three quarters. However, the sluggish first quarter will result in a revised full-year EPS increase in the mid-single digits.

Susquehanna Financial Group LLLP analyst Sam Poser and Canaccord Genuity Inc. analyst Camilo Lyon remained upbeat on the firm despite the downward-revised guidance.

Today’s negative preannouncement does not come as a big surprise to us,” Lyon writes. “In fact, we view it as a positive, since it clearly reflects a short-term macro headwind that has now passed. More importantly, the comp rebound in March and April points to the fact that consumer appetite for athletic footwear has not faded and Foot Locker’s assortment remains strong.”

Poser, meanwhile, reiterated its buy rating on Foot Locker’s stock, citing similar upsides.

[A] slow start in February does not change positive outlook for Foot Locker,” Poser writes. “We would be aggressively buying on any weakness due to the respective high-single-digits and low-double-digits increase of same-store sales in both March and April, which highlight the ongoing strength of most all of the company’s banners.”

Foot Locker competitor The Finish Line Inc. also said, during its Q4 conference call, that the Internal Revenue Services’ delay in sending income tax refunds had a negative impact on its financial performance.

As of 11:10 a.m., Foot Locker’s shares were up 4.3 percent, to $75.70.