What Happened?
Shares of footwear and apparel retailer Foot Locker (NYSE:FL) fell 17.3% in the pre-market session after the company reported disappointing third-quarter results: Revenue and EPS in the quarter fell below Wall Street's expectations. The company observed softer consumer spending trends following the peak Back-to-School period in August. Compounding the issue, a more aggressive promotional environment likely weakened its pricing power, adding pressure to margins. Its full-year EPS guidance also missed significantly. Overall, this was a weaker quarter.
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What The Market Is Telling Us
Foot Locker’s shares are extremely volatile and have had 30 moves greater than 5% over the last year. But moves this big are rare even for Foot Locker and indicate this news significantly impacted the market’s perception of the business.
The biggest move we wrote about over the last year was 6 months ago when the stock gained 28.2% on the news that the company reported first-quarter results that blew past analysts' EPS expectations. While Comparable sales decreased, this was mostly driven by the continued repositioning of the Champs Sports banner. Core banners strengthened as Global Foot Locker and Kids Foot Locker comparable sales increased 1.1%. Inventory levels improved, with merchandise inventories down 5.6%, indicating a better handle on stock management, which should potentially mitigate the risk of future markdowns. Guidance was likewise solid as its full-year earnings guidance exceeded Wall Street's estimates. In line with the company's retail strategy, Foot Locker plans to open four more locations this year, which could be a sign that the growth and turnaround strategy are working as planned. Zooming out, we think this was a fantastic quarter that should have shareholders cheering.
Foot Locker is down 28.1% since the beginning of the year, and at $22.20 per share, it is trading 36.8% below its 52-week high of $35.15 from February 2024. Investors who bought $1,000 worth of Foot Locker’s shares 5 years ago would now be looking at an investment worth $565.89.
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