Why Foot Locker’s Earnings Are Expected to Fall in 3Q17
Foot Locker’s earnings
Foot Locker (FL), which is expected to post its 3Q17 results on November 17, will likely report an EPS (earnings per share) of $0.80—down 29% from the same quarter last year. The company posted a 2.2% and 34% YoY (year-over-year) fall in the EPS during the first and second quarters of the current fiscal year.
Increased promotional activity in the direct-to-customer and online channels caused Foot Locker’s merchandise rate to fall during the first half of the year. As a result, Foot Locker’s gross margin fell by 309 basis points and 340 basis points during 1Q17 and 2Q17.
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Dick’s Sporting Goods (DKS) also witnessed lower margins in the first two quarters of the current fiscal year. Its gross margin fell by 170 basis points and 82 basis points during 1Q17 and 2Q17.
Disappointing trend could continue
Foot Locker’s EPS is expected to fall 20%–30% during 2H17. Management expects the gross margin to contract by 230 basis points–250 basis points in 3Q17 and 150 basis points–170 basis points in 4Q17.
According to Lauren Peters, Foot Locker’s executive vice president and CFO, “the proportion of occupancy deleverage and lower merchandise margins, as we saw in the second quarter, should be similar in the second half.”
The SG&A (selling, general and administrative) expenses are projected to rise by 70 basis points–100 basis points in 2H17. Although the company attempted to alter its variable expenses during the second quarter, the considerable decline in its sales caused the SG&A expenses to increase to 19.9% of its sales in 2Q17—up by 20 basis points YoY.
Investors looking for exposure to Foot Locker could consider the iShares Edge MSCI Multifactor Consumer Discretionary ETF (CNDF), which invests 2.7% of its portfolio in the company.