Investor Alert

New York Markets After Hours

The Ratings Game Archives | Email alerts

Aug. 11, 2020, 3:37 p.m. EDT

Foot Locker got a Q2 boost from government stimulus but Q3 could be a different story, analysts say

Foot Locker stock jumped more than 7% after the upbeat outlook

new
Watchlist Relevance
LEARN MORE

Want to see how this story relates to your watchlist?

Just add items to create a watchlist now:

  • X
    Foot Locker Inc. (FL)
  • X
    Hibbett Sports Inc. (HIBB)

or Cancel Already have a watchlist? Log In

By Tonya Garcia, MarketWatch


Getty Images
Foot Locker could see spending slow as government stimulus money dries up

Foot Locker Inc. shares jumped 7.8% in Monday trading after the athletic retailer said it expected better-than-expected fiscal second-quarter earnings, but analysts are concerned that once the government stimulus funds dry up, so will demand.

For the second quarter ending August 1, Foot Locker /zigman2/quotes/204092533/composite FL -3.77% expects same-store sales to rise 18%. Earnings per share are expected to be 38 cents to 42 cents, and adjusted EPS is expected to be 66 cents to 70 cents.

The FactSet consensus was for a same-store sales decline of 23.6% and a loss of 40 cents per share.

“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,” said Richard Johnson, chief executive of Foot Locker, in a statement.

Foot Locker is scheduled to report fiscal second-quarter earnings on August 21.

See: Versace parent Capri Holdings and Ralph Lauren slump as luxury sales takes a hit during pandemic

“While encouraged to see Foot Locker take advantage of a better near-term environment, the results directionally do not appear surprising given several tailwinds during May-to-June (pent-up demand, fiscal stimulus) which were well documented by others (Hibbett Sports/NPD Group) and seem likely to prove temporary,” wrote Baird analysts led by Jonathan Komp.

/zigman2/quotes/204092533/composite FL 34.44, -1.35, -3.77%

Hibbett Sports Inc. /zigman2/quotes/201173500/composite HIBB -3.15% gave a business update in July that shows second-quarter same-store sales on track for a 70% same-store sales increase.

Still, Baird analysts note a recent slowdown in sales at major retailers and brands, including Foot Locker, after a strong June and early July.

“We also are uncertain at this stage of how potential executive actions cutting the weekly federal unemployment payout to $400/week from $600/week previously and providing the option for a temporary payroll tax holiday through year-end (likely less impactful than Cares Act checks) may impact overall spending, with [Foot Locker] in our view highly sensitive to discretionary spending conditions,” Baird wrote.

Baird rates Foot Locker stock neutral with a $29 price target, up from $24.

A Stifel report also shows that athletic spending is likely tied to government stimulus over the coming months, with sports and lifestyle stocks remaining “largely rangebound” after reporting their most recent earnings.

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

See: The back-to-school season will be a ‘dud’ one analysts says, but the NRF is forecasting a record breaker

For the near-term, Stifel analysts favor names including Nike Inc. /zigman2/quotes/203439053/composite NKE -1.13%  , Lululemon Athletica Inc. /zigman2/quotes/204011506/composite LULU +0.27%  , Crocs Inc. /zigman2/quotes/201458716/composite CROX +0.65% and Yeti Holdings Inc. /zigman2/quotes/206430919/composite YETI +1.30%

Raymond James analysts are more upbeat about Foot Locker’s preannouncement.

“Consumer demand is hot right now and not just in the United States due to brand strength in Nike’s basketball/running sneakers (Air Force One and Air Jordans), growing usage athleisure and comfort apparel, pent-up demand from deferred spending in March and April, stimulus checks, and other competitors remaining closed,” wrote Matthew McClintock.

“We believe Foot Locker should be the dominant beneficiary of Nike’s decision to focus on a few global key retail partners and the COVID-19 pandemic likely accelerated Nike and Foot Locker’s partnership.” 

Raymond James rates Foot Locker stock outperform with a $35 price target, up from $30.

Foot Locker stock is down 22% for the year to date while the Consumer Discretionary Select Sector SPDR ETF /zigman2/quotes/200844504/composite XLY -1.44% is up 13.5% and the S&P 500 index /zigman2/quotes/210599714/realtime SPX -1.16% has gained 3.7% for the period.

/zigman2/quotes/204092533/composite
US : U.S.: NYSE
$ 34.44
-1.35 -3.77%
Volume: 3.07M
Sept. 21, 2020 4:00p
P/E Ratio
18.32
Dividend Yield
1.74%
Market Cap
$3.74 billion
Rev. per Employee
$161,332
loading...
/zigman2/quotes/201173500/composite
US : U.S.: Nasdaq
$ 38.77
-1.26 -3.15%
Volume: 469,473
Sept. 21, 2020 4:00p
P/E Ratio
20.18
Dividend Yield
N/A
Market Cap
$662.24 million
Rev. per Employee
$109,639
loading...
/zigman2/quotes/203439053/composite
US : U.S.: NYSE
$ 113.37
-1.29 -1.13%
Volume: 7.99M
Sept. 21, 2020 4:00p
P/E Ratio
71.78
Dividend Yield
0.86%
Market Cap
$178.85 billion
Rev. per Employee
$529,466
loading...
/zigman2/quotes/204011506/composite
US : U.S.: Nasdaq
$ 295.56
+0.80 +0.27%
Volume: 2.25M
Sept. 21, 2020 4:00p
P/E Ratio
71.70
Dividend Yield
N/A
Market Cap
$38.41 billion
Rev. per Employee
$227,587
loading...
/zigman2/quotes/201458716/composite
US : U.S.: Nasdaq
$ 42.04
+0.27 +0.65%
Volume: 1.09M
Sept. 21, 2020 4:00p
P/E Ratio
23.55
Dividend Yield
N/A
Market Cap
$2.82 billion
Rev. per Employee
$278,955
loading...
/zigman2/quotes/206430919/composite
US : U.S.: NYSE
$ 45.19
+0.58 +1.30%
Volume: 1.82M
Sept. 21, 2020 4:00p
P/E Ratio
57.87
Dividend Yield
N/A
Market Cap
$3.88 billion
Rev. per Employee
$1.20M
loading...
/zigman2/quotes/200844504/composite
US : U.S.: NYSE Arca
$ 141.51
-2.07 -1.44%
Volume: 4.17M
Sept. 21, 2020 4:00p
loading...
/zigman2/quotes/210599714/realtime
US : S&P US
3,281.06
-38.41 -1.16%
Volume: 2.94B
Sept. 21, 2020 4:16p
loading...

Tonya Garcia is a MarketWatch reporter covering retail and consumer-oriented companies. You can follow her on Twitter @tgarcianyc. She is based in New York.

This Story has 0 Comments
Be the first to comment
More News In
Industries

Story Conversation

Commenting FAQs »
Link to MarketWatch's Slice.