Foot Locker's Path to Recovery - Analysts Adjust Forecasts Amid Uncertain Road to Long-Term Growth

On Wednesday, Specialty athletic retailer Foot Locker Inc FL reported fourth-quarter FY23 sales growth of 2% year-on-year to $2.38 billion, beating the analyst consensus estimate of $2.28 billion. 

Adjusted EPS of $0.38 beat the analyst consensus of $0.32. Several analysts reacted to the results and updated their opinion.

Morgan Stanley analyst Alex Straton reiterated an Equal-weight rating on the shares and lowered the price target from $28 to $26.

The fourth-quarter results beat a low bar, & brought a challenging year to a close. Revenue outperformance & inventory management stand out, but gross margin disappoints, with EPS upside mostly a function of add-backs, said the analyst.

According to the analyst, elongated timeline to L-T target achievability is also a downside surprise on the print, & likely degrades market confidence in plan execution.

The analyst continues to struggle with a timeline & path to improved fundamentals, especially following '23 challenges & an uninspiring initial 2024 outlook.

Piper Sandler analyst Abbie Zvejnieks reiterated an Overweight rating on the shares and lowered the price target from $37 to $31.

Unfortunately, the EPS guide is also heavily back-half weighted, which obviously does not drive investor confidence due to front-end SG&A investments, some continued promotional pressure in the first quarter, and a $0.10 impact on the second quarter due to the roll-out of a new loyalty program, noted the analyst.

Also, FL pushed out 2026 EBIT margin goals to 2028, which the analyst expected needed to be done, and the company did not resume the dividend. 

The analyst is disappointed that a solid increase in gross profit dollars is not expected to flow through to the bottom line, but investments should position the business for healthier long term growth and profitability.

Guggenheim analyst Robert Drbul reiterated a Buy rating on the shares and lowered the price target from $35 to $30.

FL made progress against its $350 million cost savings program in 2023, achieving about $135 million, as the analyst expects the company to make ongoing progress in 2024.

While the analyst is disappointed by the muted outlook, recognized the need for significant investments in the business across digital, store experience, loyalty, and brand building.

While the analyst expects a longer timeline of traction on FL’s Lace Up Plan initiatives, the analyst believes that recent data supports early signs of progress on its digital and diversification efforts.

Telsey Advisory Group analyst Cristina Fernandez downgraded the rating from Outperform to Market Perform and lowered the price target from $38 to $28.

Given that Foot Locker has not grown revenues at this stronger pace since 2016 (excluding in 2021 driven by the pandemic boom), skepticism is likely to remain high near-term until there is more evidence that accelerated growth and market share gains are possible, said the analyst.

Given the more muted operating margin and EPS outlook for 2024, the analyst is moving to the sidelines until there is more evidence that a stronger operating margin and EPS recovery can materialize in 2025 and beyond.

Price Action: FL shares are trading higher by 1.86% at $24.69 on the last check Thursday.

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