After Impressive Earnings, Foot Locker is in Need of a Kick Start
Foot Locker stock gapped up after a stronger than expected earnings report. However, supply chain concerns are preventing FL stock from pushing past a...
Foot Locker (NYSE:FL) stock gapped up after a stronger than expected earnings report. However, bullish investors are undoubtedly frustrated at the company’s inability to push higher. As of this writing, FL stock is making another run at a level of resistance.
The company has benefited from a growing digital business and solid inventory practices. But with news that supply chain difficulties may impact inventory for the holiday season, it’s unclear if retail investors will be successful at boosting the stock higher.
And, like all retailers, the company couldn’t discount impacts to its business due to the Delta variant of Covid-19. Plus, the company is likely to be impacted by Nike (NYSE:NKE) suspending its manufacturing in Vietnam due to a Covid-19 breakout.
On that note, however, it has been the company’s policy to issue forward guidance in terms of annual, not quarterly, figures. One would expect that if the company were to experience disruptions to its brick-and-mortar operations it would occur in this next quarter.
Score One For the Middleman
I’ll admit to being surprised by the strength of Foot Locker’s earnings report. The company credited Nike sales as having a large impact on its quarterly results. And that’s where my surprise comes in.
The Covid-19 pandemic accelerated a shift towards e-commerce that has been building for a long time. There’s no question that consumers were ordering fitness gear, including footwear, during the pandemic. But the fact that they would go through Foot Locker rather than shopping directly online with Nike is a feather in the company’s cap.
Furthermore, this is not just a recent phenomenon. The $2.28 billion reported by Foot Locker was the fifth straight quarter of increasing revenue. And the company also made it five straight quarters of positive earnings with three quarters of growing earnings.
Growth Through Acquisition
One of the catalysts for Foot Locker’s future growth is expected to come from its acquisition of WSS and atmos. On the earnings call, Foot Locker’s management team cited their reasoning for each acquisition.
In the case of WSS, it’s the company’s strong scalable business model that includes off-mall locations. Plus, the company has a focus on the Hispanic consumer. Foot Locker is projecting approximately $1 billion in sales over the next five years. As a reference point, WSS delivered $425 million in sales in fiscal 2020.
The acquisition of atmos gives Foot Locker a premium brand to add to its roster. Atmos fits Foot Locker’s shift to an omnichannel model with over 60% of its revenue coming from digitial channels. And the company has a strong social media presence that Foot Locker can tap into.
In management’s own words, these two brands “will be accretive to Foot Locker’s earnings for fiscal 2021. We anticipate that accretion on an annualized basis will be in the range of $0.44 to $0.48 in 2022.”
The Dividend is Rising
In August 2020, Foot Locker slashed its dividend by more than 50%. That wasn’t surprising. What has been a pleasant surprise for income investors is that the company has increased its dividend by 100% in the last year. And while it’s still at a five-year low, the trend is very favorable.
Analysts Remain Bullish on FL Stock
According to MarketBeat data on Foot Locker, In the last seven days, six analyst firms have boosted their price targets for FL stock. Each new price target is above the consensus average. When multiple analysts raise their price targets for a stock before or after an earnings report, they are giving investors a buy signal.
The Bottom Line on FL Stock
For a moment, Foot Locker’s earnings report was lifting all sporting goods stocks. It remains to be seen if that will be a trend that holds. For now, investors need to weigh whether short-term headwinds should prevent them from taking a position in FL stock.
With a rising dividend and a bullish outlook by the analysts, Foot Locker looks like one to put on the watch list. However, I might wait to get a confirmed push past its current level of resistance before taking a long position, particularly since volume remains low after a surge on earnings day.