Foot Locker: Why the Outlook Is Dim for 3Q17
Foot Locker’s performance
Foot Locker (FL) is scheduled to report its 3Q17 results on November 17, 2017. The expectations are low after it posted disappointing results in 2Q17. Its revenue fell 4.4% YoY (year-over-year) and missed consensus estimates by $100 million.
For the third quarter ending October 28, 2017, Wall Street projected a 2.8% fall in total sales to $1.83 million. Foot Locker fell short of consensus expectations in the first two quarters of the current fiscal year.
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The catch with Foot Locker is that the company only sells athletic gear. As a result, it isn’t involved in the early development of the products it sells. The company’s performance depends on vendor partners’ product innovation.
Foot Locker’s sales comps in 2Q17 fell 6% primarily due to “the limited availability of innovative new products in the market,” as explained by Foot Locker’s president and CEO, Richard Johnson. Its footwear sales fell the most with comps falling at a mid-single-digit rate.
Even during the first quarter, Foot Locker’s sales comps fell short of the expectation. The sales comps rose 0.5% compared to the expectation of 1.4% growth. Management blamed the vendors. The company said there was lack of in-demand kid’s footwear since the vendors didn’t provide the popular styles.
Dick’s Sporting Goods (DKS) also posted weaker-than-expected comps during its last reported quarter. Its comparable sales rose 0.1% and missed the consensus expectations of a 1.8% rise.
Revenue drivers are expected to be limited in 2H17. The company will likely struggle with uninspired product lines. Management expects comparable sales to fall 3%–4% in the third and fourth quarters.
Foot Locker is looking to close at least 135 stores–compared to 100 stores in its previous announcement. The threat of Amazon (AMZN) growing its market share and Foot Locker’s vendor partners like Nike (NKE) and Adidas (ADDYY) expanding their direct-to-customer channels also looms over Foot Locker’s future.
Investors looking for exposure to Foot Locker can consider the First Trust Consumer Discretionary AlphaDEX Fund ETF (FXD), which invests 3% of its portfolio in the company.