Why a Slew of Coronavirus-Plagued Retailers Are Suddenly Impressing Wall Street

Retailers whose sales have been battered by COVID-19 closures have one secret weapon this earnings season: the element of surprise.

Foot Locker’s stock jumped as much as 23% after the company signaled a rosier-than-expected outlook for the second quarter on Monday. While investors were prepared for dismal results, the retailer said that comparable store sales rose by about 18% in the three months ended August 1. Earnings were also expected to be 38 cents to 42 cents per share, compared with the 66 cents per share loss forecast by analysts.

Foot Locker is due to report earnings on August 21, but the preliminary announcement has already encouraged more bullish views on competitors such as Dick’s Sporting Goods. It follows similar beats by footwear players Capri Holdings, Under Armour, VF Corp and Wolverine World Wide, all of which saw revenue plummet due to the pandemic but still handily topped Wall Street’s forecasts for the most recent quarter. Hibbett Sports, too, gave a business update late last month that forecast same-store sales growth of 70%, compared with the consensus estimate of 15.7%.

With Dick’s Sporting Goods scheduled to report second-quarter earnings on August 26, Susquehanna Financial Group analysts lead by Sam Poser raised their estimates and price targets for DKS stock in a note Monday, calling Foot Locker’s pre-announcement a “prequel” for “very strong second quarter results.”

“We anticipate Q2 2020 results will be much stronger than Street expectations particularly due to increased demand for high-ticket (albeit low-margin) hardlines product (e.g., bikes, exercise/golf/fishing equipment), which checks indicate continue to sell out,” wrote Poser.

The note also pointed to tailwinds for the business stemming from Modell’s bankruptcy, a successful rollout of curbside pickup — a sign of its “best-in-class omnichannel capabilities” — and a fleet of off-mall stores that are less vulnerable to consumers’ ongoing avoidance of indoor shopping centers.

The latter may be especially encouraging given Foot Locker’s apparent success, since the sneaker chain is comparatively more reliant on mall traffic.

“As we continued to reopen stores throughout the quarter, we saw a strong customer response to our assortments, which we believe was aided by pent-up demand and the effect of fiscal stimulus,” said Foot Locker CEO Richard Johnson in a statement. “This fueled our in-store sales and also drove continued momentum across our digital channels.”

Despite the ongoing uncertainties around the U.S. economy, a second fiscal stimulus check and when millions of Americans will return back to work, it appears that Wall Street’s initial pessimism around these stocks is, for now at least, working in their favor.

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