Will Foot Locker Do It Again In Q3?

In the face of macroeconomic and, now, geopolitical pressures, footwear-and-apparel analysts have been placing their confidence in the athletic and casual-athletic footwear space.

Besides the popular brands that have been dominating the sector — Nike, Adidas, Converse, Skechers, Under Armour — faith in the leading athletic-footwear-and-apparel, Foot Locker Inc., has been at an all-time high.

But, will Foot Locker continue to display immunity to market pressures when it reports Q3 this week?

Citi Research analyst Kate McShane noted that the retailer has already seen some stock pullback — more than 20 percent — since October when its peers began showing disappointing earnings for the third quarter.

While unseasonable weather, inventory issues and sliding consumer-demand were to blame for lower-than-expected earnings from Skechers USA Inc., Under Armour Inc,, Wolverine World Wide Inc. and others, McShane expects resilience from Foot Locker in the third quarter.

We believe Foot Locker is relatively better positioned versus the industry on inventories, and we estimate 80 percent of Foot Locker’s business is not impacted by weather,” McShane wrote. “In addition, Foot Locker’s comp is likely benefiting from ongoing remodels, while weaker competitors like Finish Line are likely donating share.”

Canaccord Genuity Inc. analyst Camilo Lyon also noted the recent pressure on Foot Locker’s stock but recommends that investors use the weakness as a buying opportunity “as we believe [Foot Locker’s] earnings report on Friday will reinforce our view that it is a standout operator.”

“We believe Foot Locker’s Q3 footwear trends were solid, with retro Jordan driving gains in basketball and Roshe, Hurache, and Adidas Superstars driving casual running,” Lyon wrote. “We believe elements of Nike signature [collections] were in high demand too, particularly Kyrie and Kobe. That said, we suspect Lebron signature product has slowed to some degree, likely due to lack of significant innovation in the Lebron 13 versus previous versions.”

Another concern weighing on Foot Locker’s shares ahead of Q3, has been predictions of slowing momentum in basketball.

However, Sterne Agee CRT analyst Sam Poser said Foot Locker has enough strength in other categories — namely, running and casual — to withstand a basketball slowdown.

Foot Locker is ambivalent as to what it sells, as long as it has the cool shoes for its customers,” Poser wrote. “We do recognize that the basketball business is very important, but Foot Locker is taking the lead across numerous categories.”

Lyon said he expects year-over-year comp gains of 7.5 percent and raised his Q3 earnings per share estimates to 98 cents.

McShane also forecasts EPS of 98 cents, or 18 percent growth year-over-year, on higher comps and gross margins.

McShane, Poser and Lyon each maintain a buy rating on the Foot Locker’s stock.

Q3 earnings are scheduled for release on Nov. 20.

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