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1Q17 Earnings Overview: Why Foot Locker Stock Plunged 17%

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1Q17 Earnings Overview: Why Foot Locker Stock Plunged 17% PART 4 OF 5

Foot Locker Stock Penalized after Weak 1Q17 Results

Foot Locker stock tumbles 17% after weak 1Q17 results

Foot Locker’s (FL) stock price moved south after posting lower-than-expected first quarter results. The stock price plunged 16.6% to close at $58.72 on Friday, May 19, 2017. The company now sits at a year-to-date (or YTD) loss of around 17% and trades 35% below its 52-week high price.

Foot Locker Stock Penalized after Weak 1Q17 Results

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As we have discussed in this series, the stock price decline was driven by the company’s 1Q17 earnings and revenue misses.

Competitors’ performance

Most of the apparel and accessories sector has been in the red this year. The seven-company S&P 500 Apparel and Accessories Index is down 4% YTD.

Specialty athletic retailers DSW (DSW) and Dick’s Sporting Goods (DKS) are down 23.2% and 22.8%, respectively. Sportswear manufacturers Under Armour (UAA) and Lululemon Athletica (LULU) have lost 34% and 24%, respectively. However, Nike (NKE), which is also FL’s largest vendor, is up 2% YTD.

What to expect now

Wall Street made a host of target price revisions, mostly downwards, after Foot Locker reported its first quarter results. Despite the revisions, analysts on average expect Foot Locker’s stock price to touch $74.52 in the next 12 months. This target indicates an upside potential of 27%. Competitors DSW and DKS have similar upsides of 28% and 20%, respectively.

We’ll discuss Wall Street’s view on the company in the next section.

Valuations

FL is trading at a one-year forward PE (price-to-earnings) ratio of 11x versus a three-year average of 14.5x. DSW and DKS also trade at similar valuations of 12x and 11x, respectively. Nike (NKE) and Lululemon Athletica (LULU) are more expensive and trade at 21x each.

Investors looking for exposure to FL could consider the First Trust Consumer Discretionary AlphaDEX Fund (FXD), which invests 0.85% of its portfolio in the company.

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