Foot Locker To Rebound Under Dick's? This Analyst Says It Could

Telsey Advisory Group analyst Cristina Fernandez maintained Foot Locker FL with a Market Perform and a $24 price target on Thursday.

The earnings release disclosed total sales down 4.6% Y/Y to $1.79 billion versus the analyst estimate of negative 3.8% to $1.80 billion and FactSet at negative 2.1% to $1.83 billion due to store closures, the shutdown of several European countries, and an FX headwind of 10 bps, as per Fernandez.

The analyst noted that the pressure on the comp was due to soft traffic and was greater in the European business (which was down 10.2%), a deceleration from +1.9% in the fourth quarter of 2024.

Also Read: Foot Locker Quarterly Sales Slip Following Acquisition Deal

• The international comp was down 8.5%.
• In North America, Foot Locker (-0.9%) and WSS (-4.6%) were dragged down performance and more than offset growth at Champs (+0.5%) and Kids Foot Locker (+3.4%).
• The operating margin of -0.1% reflected a Y/Y decline of ~150 bps and was in line with the analyst’s expectation.
• A gross margin decline of 40 bps to 28.4%, better than Fernandez at 28% and FactSet at 28.1%.

The company called out merchandise margin pressure of ~10 bps, likely on ongoing promotions, and occupancy deleverage of ~30 bps on the lower sales.

Given Dick’s Sporting Goods’ pending acquisition, Foot Locker did not host an earnings call or update its prior financial outlook, which consisted of EPS of $1.35-$1.65, sales growth of -1.0% to 0.5%, a comp of 1.0%- 2.5%, and an operating margin of 2.6%- 3.1%.

Fernandez noted the pending acquisition of Foot Locker by Dick’s Sporting Goods as a good outcome for shareholders and does not expect significant regulatory opposition.

While Foot Locker has made progress on its LaceUp plan in areas like repositioning its store base through closures, off-mall openings, and refreshes and remodels, the analyst says there is much more work to do, with 300 refreshes and 80 remodels planned for 2025 and more in 2026.

While the company invested in technology, such as new apps, and relaunched its loyalty program, Fernandez said there is room for improvement.

While investors have been skeptical of the transaction, the analyst said Foot Locker could benefit from stronger supply chain and e-commerce capabilities and an experienced leadership team with a track record of execution under Dick’s Sporting Goods’ ownership.

Over time, Fernandez noted Dick’s could generate greater savings through consolidation of operational functions, closing underperforming stores, divestitures of non-core banners, and adopting some of Dick’s best practices at Foot Locker, particularly as it relates to promotions, inventory management, and e-commerce. As per the analyst, these changes could allow Foot Locker to return to the 8.9% operating margin it generated in 2019 from ~2.3% in 2024.

Price Action: At the last check on Friday, FL shares were trading lower by 0.74% to $23.76.

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