Why Specialty Athletic Retailer Foot Locker's Shares Are Surging Today

Specialty athletic retailer Foot Locker Inc FL shares are gaining after reporting its third-quarter FY23 earnings results.

FL reported a third-quarter FY23 sales decline of 8.6% year-on-year to $1.99 billion, beating the analyst consensus estimate of $1.97 billion. Adjusted EPS of $0.30 beat the consensus estimate of $0.25.

Comparable store sales decreased by 8% versus last year, driven by ongoing consumer softness, changing vendor mix, and a 3% negative impact from the repositioning of Champs Sports.

The gross margin contracted 470 basis points, driven by higher markdowns as well as occupancy deleverage and higher shrink.

Selling, general and administrative expenses fell 4.5% Y/Y to $446 million. The operating margin was 2.4%, and operating income for the quarter declined 70% to $47 million.

The company held $187 million in cash and equivalents as of October 28, 2023. Merchandise inventories were $1.9 billion, a 10.5% Y/Y increase.

As of October 28, 2023, the company operated 2,607 stores in 26 countries. In Q3, Foot Locker opened 22 new stores, remodeled, or relocated 36 stores, and closed 14 stores.

Outlook: Foot Locker updated FY23 comparable sales guidance from down 9%-10% to down 8.5%-9%.

FL updated FY23 sales guidance from down 8%-9% to down 8%-8.5%. FL revised FY23 gross margin guidance from 27.8%-28.0% to 27.8%-27.9%.

FL trimmed the top end of its Adjusted EPS outlook, revising the outlook from $1.30-$1.50 to $1.30-$1.40, versus the consensus of $1.28.

FL sees Q4 sales decline of 2%-4%, comparable sales change of down 7%-9%, and Adjusted EPS of $0.26-$0.36 (estimate: $0.32).

Price Action: FL shares are trading higher by 21% at $28.86 on the last check Wednesday.

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