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Hit the Ground Running With Foot Locker

With its focus on (sometimes pricey) sneakers, athletic-apparel retailer Foot Locker (NYSE:FL) took a drubbing in the first half of 2020. FL stock swooned as the novel coronavirus kept consumers away from malls and other shopping centers.

Source: Roman Tiraspolsky /

Investors shouldn’t operate under the illusion that the retail sector’s woes are entirely in the past. The “reopening trade” hasn’t worked out as smoothly as some traders would have hoped for Foot Locker. Thus, FL stock still remains well below its pre-coronavirus peak.

However, value-focused investors might not necessarily consider that to be a bad thing. Plus,  it has a potential catalyst coming up in the form of its earnings announcement.

Specifically, the company is slated to report its second-quarter results on Aug. 21, although it had previously made a positive preannouncement of its Q2 results on Aug. 10. 

A Closer Look at FL Stock

Prior to the coronavirus crisis, Foot Locker was perfectly comfortable at the $40 level. Indeed, the debate about the stock by technical experts centered around whether $40 would prove to be support or resistance.

In hindsight, we now know that Foot Locker wouldn’t stay near that level after February. By early April, FL stock had touched its stomach-turning 52-week-low of $17.46.

A partial recovery then commenced, with the stock wandering but generally trending upwards over the next few months. Today FL stock is trading around $27 to $28.

Like world-class athletes, the bulls will need to clear the $30 and $35 hurdles with conviction. An uptick in trading volume, if it happens, would indicate that any gains are sustainable.

The Street Is Pessimistic

It’s always interesting to compare a company’s projections versus what the analysts expect. Who’s right, the company’s insiders or the outside experts?

In the case of Foot Locker and its Q2 earnings, analysts provided bearish forecasts prior to the company’s positive preannouncement. Specifically, analysts, on average, expected  a quarterly earnings loss of 40 cents per share, along with a decline in same-store sales of 23.6%.

That, in itself, isn’t too shocking. Foot Locker has always been known as a place to buy fancy sneakers at the mall. And neither malls nor fancy sneakers have been particularly lucrative during the pandemic.

Analysts at Stifel, led by Jim Duffy, provided a typically pessimistic outlook:

“Underwhelming response from the market, we believe, reflects indications that the consumer recovery has hit a glass ceiling in July and August… Further stimulus is needed to support consumer discretionary fundamentals through an unconventional back-to-school period and holiday.”

A Foot Locker Shocker

Apparently the recovery’s “glass ceiling” did not have a material impact on Foot Locker’s Q2 results (which cover the fiscal quarter that ended on Aug. 1).

In fact, the company’s comparable-store sales jumped roughly 18%. Moreover, Foot Locker expects its quarterly adjusted EPS to be in the range of 66 cents to 70 cents.

That was in stark contrast to analysts’ average estimate of a per-share loss of 52 cents. Thus, while analysts  had already planted their flag in the bearish camp, Foot Locker’s earnings pre-announcement showed that their pessimism was perhaps hasty and overstated.

And while the retail sector has struggled in 2020, the folks at Foot Locker have evidently witnessed foot traffic that perhaps the analysts didn’t anticipate. Its CEO, Richard Johnson, described what he’s seen, along with some catalysts:

“As we continued to reopen stores throughout the quarter, we saw a strong customer response to our assortments, which we believe was aided by pent-up demand and the effect of fiscal stimulus… This fueled our in-store sales and also drove continued momentum across our digital channels.”

Evidently the company’s insiders had a much stronger sense of day-to-day consumer trends than analysts. As insiders are seeing a release of pent-up demand and an increase in customers’ response to certain brand offerings, the folks at Foot Locker have insights that are invaluable to investors.

The Bottom Line

Given the company’s positive-leaning Q2 results, FL stock looks ready for a bull run.

As of this writing, David Moadel did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media,

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