Can you feel the ground moving beneath your feet? Shares of Foot Locker, Inc. (NYSE:FL) skyrocket nearly 25% today after the sportswear chain delivered third quarter financial results that crushed Wall Street’s expectations in an upside surprise. The shake, rattle and roll generated by this morning’s earnings report impressed, and in some cases silenced, some big bears.
However, Piper Jaffray analyst Erinn Murphy remains on the sidelines as longer-term visibility in promotional environment and traffic is still somewhat blurry.
Murphy wrote, “While shares are up ~25% today, not a tremendous amount has changed from our perspective. Comps were down 3.7% vs guidance of (4%)-(3%) and EPS exceeded expectations with restructuring cost alignments ushered in earlier than we anticipated and $0.03 from repurchases. While ASPs were up in quarter (mix driven), promotional activity was aggressive leading to GM down almost 300 bps and missed expectations. In addition, units were down HSD and store traffic was down MSD. Further, mgmt omitted discussing FY19 although they did speak to some incremental investment plans. We struggle to see material amount of SG&A leverage from here balancing an already lean structure with higher investments. In the absence of FY19 guidance, we believe fundamental buyers will take a wait and see approach.”
Murphy reiterates a Neutral rating on Foot Locker shares, and slightly lifts her price target to $36 (from $35), which implies a downside of 9% from current levels. (To watch Murphy’s track record, click here)
Wall Street believes Murphy is smart to play it safe when it comes to the retail giant’s prospects ahead. Out of 16 analysts polled by TipRanks in the past 3 months, 11 are sidelined on Foot Locker stock, while 5 are bullish. With a 4% upside potential, the stock’s consensus target price stands at $41.92.