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Foot Locker Stock Falls on Comparable Sales, Earnings Miss in Q1

An unexpected first-quarter miss brought Foot Locker stock down more than 16 percent in early trading Friday, after the retailer released its first financial report of FY19 prior to market open.

In a Nutshell: As Foot Locker competitors, like Shoe Carnival, blame a poor start to the year on delayed tax refunds and a cold, wet start to the spring, the retailer’s first financial report of the year showed a similar weakness, leading to its stock’s precipitous fall.

Meanwhile, Foot Locker continues to follow through on its plan to increase supply chain and CRM investment on the strength of a solid bottom line and a cash surplus. During the quarter, Foot Locker said its SG&A expenses increased by a percentage point, from 19 percent to 20 percent, as a result of “strategic investments the company is making in its digital capabilities and infrastructure.”

Foot Locker also closed 20 stores during the quarter, following along with its plan to close 165 stores in 2019. Dating back to Q4 of FY18, Foot Locker has closed 46 stores while opening 25 new locations, losing just 0.6 percent of its stores in the process.

Sales: First quarter sales totaled $2.08 billion, an increase of 2.6 percent over the $2.03 billion earned in the first quarter last year but below the $2.11 billion expected by analysts. Comparable store sales increased by 4.6 percent, although that number was also below the growth rate many expected.

Canaccord Genuity predicted comparable store sales would reach 6 percent, slightly higher than the consensus of 5.7 percent, and said they believed any softness in Foot Locker stock would only make it more desirable.

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“We see the recent pullback in the shares as a buying opportunity as we believe a strong product assortment from Nike and Jordan drove mid-single digits Q1 comps despite buyside expectations that appear to have become too negatively skewed in suggesting comps could be flat to up modestly,” Canaccord Genuity analyst, Camilo Lyon, said in an email to Sourcing Journal.

Foot Locker appeared to agree with Lyon’s long-term assessment, sticking to its previous FY19 outlook of mid-single digit growth in comparable sales. A possible explanation for this optimism could be that Foot Locker believes the upcoming back-to-school selection from Nike and Adidas is particularly strong, a notion suggested by Shoe Carnival CEO and president, Cliff Sifford, during his company’s Q1 conference call.

Earnings: Foot Locker pulled in earnings of $1.52 per share in the first quarter on net income of $172 million, compared to the $165 million in net income and $1.38 EPS earned over Q1 of last year. This was below the $1.61 analysts expected, however, representing the challenges the retailer faced throughout the quarter.

As a result, Foot Locker lowered its earnings outlook for FY19 from a double-digit increase to a high-single-digit gain instead.

CEO’s Take: Richard Johnson, Foot Locker’s president and CEO, touted his firm’s plan to improve its infrastructure and customer experience with investments in flagships, power stores, new digital experiences, augmented reality and its new Greenhouse startup incubator program.

“We started the year with great energy, innovative products, and exciting customer events, leading to solid top-line growth in the first quarter with strong performance across our regions, banners, channels, and categories,” Johnson said. “Based on the momentum we have underway, we feel confident that the updated strategic imperatives we introduced at our Investor Day in March position us to deliver on our long-term goals.”