Will Foot Locker’s Investments Lead to a Q2 Rebound?

Market watchers are keeping a close eye on a potential second-quarter rebound for Foot Locker after the sneaker chain unexpectedly missed estimates three months ago.

Following several quarters of solid results, the New York-based company’s Q1 earnings report disappointed investors with profits of $172 million, or $1.52 per share, missing consensus bets of $1.60 per share.

It had also cut its outlook for the full year — expecting earnings in the high-single digits, compared with an initial forecast of double-digit gains, as well as buying back just 32,000 shares for $1.8 million during the quarter. (The firm announced a three-year $1.2 billion stock buyback program in February.)

In Q2, Wall Street predicts Foot Locker will post earnings per share of 67 cents on revenues of $1.83 billion — a forecasted decline of 10% and a gain of 2.5% respectively. Last week, Wedbush Securities analyst Christopher Svezia reiterated his outperform rating on the stock, pointing to a product pipeline of largely outperforming brands (including Nike, Puma and Vans) as well as clean inventory levels to support full-price sales.

“After a choppy start to the year, [Foot Locker] management should assert confidence in the story given strong consumer demand for its products, the loyalty rollout, planned moderation in SG&A pressure and resumption of share repurchase activity,” Svezia wrote, putting the company’s 12-month price target at $64.00. (As of 3:30 p.m. ET, Foot Locker’s stock was up 1.5% to $39.83.)

Since releasing first-quarter figures, the firm has opened its new digitally driven store concept in collaboration with sportswear giant Nike. The new “Power Store” in New York’s Washington Heights neighborhood — the third of its kind in the U.S. for the retailer, with outposts in Philadelphia and Detroit — is part of Foot Locker’s larger push to build closer connections with local communities.

The company also introduced its innovation and incubation initiative dubbed Greenhouse to help fuel emerging brands. Like many chains, Foot Locker is in the process of trimming its physical footprint, announcing plans to close 165 stores internationally this year on the heels of its blockbuster fourth-quarter earnings report.

During its investor day in March, the specialty athletic retailer revealed expectations to see sales per square foot in the range of $525 to $575 from 2019 to 2023, with high-single-digit net income margin rates and earnings before interest up low double digits.

Chairman and CEO Dick Johnson had also told investors at the time that the firm had recalibrated its previous five-year strategic objectives and is now focused on four imperatives: elevating customer experience; investing in long-term growth; driving productivity; and leveraging the power of its talent pool, made up of 40,000 employees in 27 countries.

“In all, [Foot Locker] is taking the right steps to engage the sneakerhead community,” added Svezia, “and poised to deliver on its outlook for full-year 2019.”

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