Foot Locker shares rally on Q2 print, CEO change

The news shaping the markets today

Russia is looking to put Ukrainian soldiers, who were captured during the siege of Mariupol, on trial on Ukraine’s Independence Day, August 24. However, the safe-haven US dollar index traded almost flat this morning.

The People’s Bank of China reduced its key loan prime rates at its latest fixing, announcing the second rate cut this year. The news exerted pressure on the CNY/USD forex pair.

Italy recorded a current account deficit of €1.112 billion in June, compared to a surplus of €5.037 billion in the same period last year. Despite this, the EUR/USD pair remained almost flat in forex trading this morning.

The Eurozone’s current account surplus shrank to €3.2 billion in June, from €27.6 billion in the year-earlier month, sending the STOXX Europe 600 index lower on Friday.

Switzerland’s industrial output rose by 5.1% year-over-year in the second quarter, compared to a 7.5% increase in the prior three-month period. This being the weakest growth in country’s industrial output since the first quarter 2021 exerting slight pressure on the CHF/USD forex pair.

What’s happening: Shares of Foot Locker surged on Friday after the company reported stronger-than-expected earnings for its second quarter.

What happened: Although Foot Locker trimmed its guidance for the year, the stock recorded its steepest spike in around five years.

Investor sentiment was lifted by several analysts upgrading their ratings for the footwear retailer, following the announcement of a new CEO.

How were the results: The specialty athletic retailer reported a decline in revenues for the second quarter, slightly missing market views.

• Sales declined by 9.2% year-over-year to $2.065 billion, falling short of the consensus estimate of $2.07 billion.
• Adjusted earnings came in at $1.10 per share, down 50% from the year-ago quarter, but surpassing Street expectations of 80 cents per share.

Why it matters: Nike sales represents around 75% of Foot Locker’s annual sales. However, Nike has been shifting its focus towards direct-to-consumer sales, looking to gain more control over its global supply chain. As a result of it, Foot Locker warned in February that Nike could account for about 60% of its overall sales during the current year.

Foot Locker’s comparable store sales fell 10.3% in the second quarter, while gross margins shrank 340 basis points, with selling, general and administrative expenses increasing 0.4% year-over-year to $452 million.

The company announced the departure of its the current CEO Richard Johnson and named Mary N. Dillon, former CEO of Ulta Beauty, as his replacement, effective September 1, 2022.

Foot Locker projected a 6%-7% decline in sales, versus its earlier forecast of 4%-6%, for fiscal 2022. Management also reduced its earnings guidance for the year to $4.25-$4.45 per share, from the previous forecast of $4.25-$4.60 per share.

Several analysts raised their ratings for Foot Locker on Friday. BofA Securities upgraded Foot Locker from Underperform to Neutral, while raising the price target from $28 to $43. Analysts at BofA Securities supported the move to replace the current CEO with Mary Dillon. They said in a note, “She is a highly respected consumer executive who most recently was CEO of Ulta Beauty for 8 years through June 2021. While at the helm at Ulta, Dillon engineered a best-in-class loyalty program, revenue increased at a 16% CAGR, and the stock tripled.”

Citigroup upgraded the stock from Sell to Neutral and increased the price target from $25 to $38, while JPMorgan upgraded Foot Locker from Underweight to Neutral.

How shares responded: Foot Locker’s shares jumped 20% to close at $38.39 on Friday. The stock has lost around 7% over the past six months.

What to watch: Investors will keep an eye on Dillon’s new initiatives at the company as well as further developments around Nike’s allocation.

The markets today

The Canadian dollar will be in focus today ahead of new housing price data from the country.

Context: The Canadian dollar moved lower on Friday, falling to a one-month low versus the US dollar.

Details: Traders shorted the loonie on Friday as the demand for safe-haven options supported the US dollar. However, a surge in crude oil prices limited the overall decline in the CAD/USD forex pair.

The US dollar index, which tracks the greenback’s performance versus a basket of major rivals, gained 0.58% to 108.10 on Friday.

The price of crude oil, one of Canada’s major exports, rose for the third day in a row. WTI crude oil prices added 0.3% to settle at $90.77 per barrel on Friday.

“The renewed climb in oil prices is likely contributing to loonie resilience here, while BoC hawkishness continues to provide underlying support to the Canadian currency,” analyst Erik Nelson of Wells Fargo said in a note.

Investor sentiment was also supported by economic data. Canada’s retail sales grew 1.1% from a month ago in June, easily surpassing preliminary estimates. However, a preliminary reading suggested retail sales may contract by 2% in July.

The CAD/USD pair shed 0.37% to settle at 1.2996 on Friday, after hitting its lowest level since July 18 at 1.3009. Although the Canadian dollar fell around 1.7% for the week, the decline was much smaller than the losses recorded by other G10 currencies.

The S&P/TSX Composite index declined to the 20,111 level on Friday, tracking the decline in the US equity markets.

What to watch: Traders await the release of the new housing price index from Canada. The country’s new home prices had risen by 0.2% in June and are expected to rise another 0.1% in July.

Other Markets: European trading indices closed mostly lower on Friday, with the DAX 40, CAC 40 and STOXX Europe 600 down by 1.12%, 0.94% and 0.77%, respectively, and the FTSE 100 higher by 0.11%.

Support & resistances for today

Market snapshot

What else to watch today

Turkey’s tourist arrivals, government debt and total motor vehicles production, Canada’s new housing price index, US Chicago Fed National Activity Index, Brazil’s federal tax revenue, as well as Argentina’s balance of trade.