Susquehanna analyst Sam Poser does not need to tip-toe into this one… he’s all in. Foot Locker (FL) third-quarter earnings were so good, that he urges investors to buy the stock, which is up a whopping 14%. It’s not difficult to guess Poser reiterates a Positive rating for the stock with a price target of $64, which implies a potential upside of 39% upside. (To watch Poser’s track record, click here)
“The beat and raise is evidence that FL’s operational discipline and strategic investments, particularly in digital, are beginning to bear fruit. Inventory levels are clean and momentum across all geographies is improving or continuing. We believe FL is positioned well heading into 4Q18 and beyond,” Poser said.
But before we move onto Q4, let’s examine Q3. FL reported better-than-expected top-line and bottom-line results. EPS was $0.95, which came in ahead of the consensus estimates of $0.92. Revenue of $1.860 billion also beat out consensus estimate of $1.850 billion.
Poser suggests the Basketball category is slowly beginning to turn profits after being down and that headwinds from Nike’s intentional pullback in the Jordan business are beginning to fade and should dissipate during the fourth quarter. Running and casual footwear remain strong.
“Exceptionally clean inventory (~11.5 forward WOS) and better flow of product from the brands are helping to drive both SSS and merchandise margin,” Poser said. “We believe the 3Q18 results represent the beginning of a positive transformation that will further take shape in 4Q18 and into FY19 due to the following: 1) timely flow of key items, reflecting the short attention span of FL’s core customers, from the major brands; and 2) a new digital ecosystem including a new CRM system and enhanced loyalty program that should drive improved customer engagement and translate into improved SSS. We contend the FL customer has high expectations for a seamless digital and B&M experience. We believe the digital investments FL is making are a critical component to connecting with customers, breeding loyalty to the brand…”
If we step back and look at the bigger picture, we can see that overall the stock has a ‘Moderate Buy’ analyst consensus rating. Out of 18 analysts who’ve trampled their feet all over Footlocker stock, 11 are bullish, six remain sidelined, while only one is bearish. The consensus price target stands at $59.06, which implies a potential upside of about 12% from current levels. (See FL’s price targets and analyst ratings on TipRanks)