Friday, February 28, 2020

Will Foot Locker Stock Make a Comeback on 4Q Print?

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What’s happening: Foot Locker is slated to report its fourth-quarter results before the opening bell on Friday, February 28. The company’s shares have entered the oversold territory and may recover on positive results and an encouraging earnings call.

What happened: Foot Locker doesn’t have a convincing history of topping expectations. In fact, over the past two years, the sportswear and footwear retailer has beaten revenue estimates only 50% of the time.

During the previous earnings call, the company had projected flat same-store sales for the fourth quarter, citing weak trend in its apparel segment. Foot Locker has made downward revisions for both earnings and revenue over the last three months. The pressure on the company’s margins is expected to continue.

  • The consensus revenue estimate stands at $2.24 billion, representing a 1.3% year-over-year decline.
  • The estimate for earnings is $1.58 per share, with 1.3% growth from the same quarter in the previous year.

Why it matters: The mall-based retailer has been undertaking initiatives to improve its operations and develop its supply chain in the US. Foot Locker is making huge investments to expand its digital capabilities and remodel its existing stores. The company is investing heavily in its community-based power stores globally and improving its mobile and web platforms. While analysts believe these investments are largely in the right direction, the payoffs will be felt only in the longer run. Meanwhile, these investments are driving costs higher and exerting pressure on the retailer’s margins. Foot Locker’s capital expenditure is likely to increase from $187 million in fiscal 2019 to $275 million in the current fiscal year.

Foot Locker is up against strong competition from other major retailers. Weak mall traffic and currency fluctuations could also have a meaningful impact on the company’s fourth-quarter performance.

Investors are also worried about the coronavirus impact on Foot Locker, since its supply of footwear is dependent mostly on China, where factories have been under a lockdown following the virus outbreak. On the other hand, demand could take a hit, as the company’s power stores are largely based in cities with high tourism, and people have curtailed travel due to coronavirus fears.

Despite these challenges, Foot locker’s heavy investments in different verticals of its business could drive strong growth in the future. The retailer also has bright prospects as it expands globally.

How the stock has performed so far: Shares of Foot Locker have typically been highly volatile. The retailer’s stock has declined 41% over the past year and has lost 12% this month. This week, the shares have been trading almost 50% lower than their 52-week high of $68.00. While this could represent a good buying opportunity, investors seem to be waiting for more confirmation of the company’s performance.

What to watch: The New York-based company is expected to provide details of its capital allocation plan as well as how its supplies could be impacted by the coronavirus in the near term. Investors would also be keeping an eye on the company’s projections.

The Markets Today

     

Investors will be watching German markets today, with stocks continuing this week’s downward momentum.​

Context: German stocks closed lower on Thursday as new virus cases increased outside China, including the first case in the US from an unidentified source.

Details: With the WHO’s announcement of more coronavirus cases outside the borders of China for the first time, markets slumped again on Thursday.

The German 30 index closed 3.2% lower after a rise in infections further fuelled investor concerns of a global slowdown. The US CDC (Centers for Disease Control and Prevention) announced that a patient in California was tested positive, despite not having travelled outside the country. President Donald Trump announced that Vice President Mike Pence will lead coronavirus response efforts.

The number of coronavirus cases surged around 50% in just 24 hours to 650 in Italy, with various European countries announcing new cases. China announced 327 new cases and 44 more deaths.

Shares of Germany's largest airline Lufthansa tumbled after the airline announced a plan to cut its costs by offering unpaid holidays to its employees. Although Bayer announced a 3.5% rise in group sales for fiscal 2019 and 141.4% net income growth, its shares declined by more than 4% due to overall market weakness.

On the economic data front, the Eurozone’s economic sentiment increased to 103.5 in February, from 102.6 in January, while consumer confidence rose to -6.6, from a previous reading of -8.1.

The EUR/USD pair was trading at 1.1001, up slightly by 0.03%.

Why it matters: After a dismal performance in Thursday’s session, all eyes are on the bunch of economic data scheduled for release today, including unemployment rate, import prices and inflation rate. Strong data readings are likely to provide some relief to investors.

What to watch: The seasonally adjusted number of unemployed persons, which fell by 2,000 in January, is expected to rise by 3,000 in February. The index of import prices is likely to increase in January, after a 0.7% decline in December. Germany’s unemployment rate is expected to remain unchanged at 5% in February. Analysts expect consumer prices to increase 0.3% for February, from a 0.6% decline in January.

Other Markets: Most European indices closed lower on Thursday, with the UK 100, German 30 and French 40 down 3.49%, 3.19% and 3.32%, respectively.

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What else to watch today

     

Turkey’s GDP and balance of trade, UK’s nationwide housing prices, French GDP growth rate, consumer price index and producer prices, Spain's current account, Italy’s inflation rate, Indian bank loan growth, foreign exchange reserves and GDP annual growth rate, Brazil’s unemployment rate, Mexico’s balance of trade, Canada’s GDP growth rate, producer prices and government budget value as well as the US personal income, goods trade balance, wholesale inventories, Chicago PMI, University of Michigan’s consumer sentiment index and Baker Hughes crude oil rigs.