The shares of FootLocker (NYSE: FL) faced selling pressure on Tuesday after Paul Lejuez, an analyst at Citi, downgraded the sportswear retailer’s stock to sell from hold, citing high inventories in a difficult business environment. The analyst argues that FootLocker, in an attempt to clear inventories by year-end, would opt for a short-term reduction in margin. The stock of FootLocker ended Tuesday’s trading at $
According to Lejuez, the athletic footwear company is adopting a more promotional strategy this autumn, influenced by a difficult macroeconomic scenario and elevated stock on hand.
In response to the complex economic conditions, Paul Lejuez predicts that Foot Locker will prioritize addressing inventory challenges, potentially leading to a short-term relinquishment of profit margins. Notably, the analyst highlights that the New York-based company encounters external challenges, particularly its substantial reliance on Nike (NKE) goods, which account for 64% of its sales.
Lejuez expects FootLocker to post Q3 earnings of $0.10 per share, versus consensus estimates of $0.23 per share. The gloomy forecast stems from a lower-than-expected performance in comparable sales, projected at -11% as opposed to the Wall Street forecasts of -10%, and a more substantial decline in gross margin, projected at -510 basis points compared with the Street estimates of -460 basis points.
The analyst also forecasts Q4 earnings of $0.16 per share, far lower than consensus estimates of $0.33. Again, this weak estimate is based on sluggish sales and profit margins. Paul Lejuez additionally mentioned that accomplishing a turnaround in FY 2024 presents challenges due to the complexities of the macroeconomic environment.
Based on the aforesaid facts and Lejuez’s earnings forecast, while downgrading the stock, Citi maintained a price target of $18, implying a likely 22.50% downside from yesterday’s closing price. Interestingly, the company is scheduled to report its 3Q 24 earnings before the market opens today (Wednesday).
The rating downgrade is expected to keep the stock of FootLocker range-bound with a slight bearish bias in the near term.
The historical price chart indicates that the stock of FootLocker is gaining ground after consolidating at $22 levels. The next resistance is anticipated to be near $26. Additionally, the stock is trading above its 50-day moving average, while the stochastic indicator is in the bullish zone. Therefore, we anticipate the stock of FootLocker to remain in an uptrend in the near term.
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