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Foot Locker: Double-Digit Growth in Q2 2018?

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Adjusted EPS estimate

Foot Locker (FL) is scheduled to announce its second fiscal quarter results on August 24. The adjusted EPS estimate is $0.70—compared to $0.62 reported in the same quarter of fiscal 2017. The lower tax rate and higher sales are expected to cushion the company’s bottom-line performance.

Analysts expect Foot Locker to report an adjusted gross margin of 30.1%, which represents an expansion of 50 basis points on a YoY basis for the second fiscal quarter. Analysts expect the adjusted SG&A (selling, general, and administrative) expenses to increase 10.8% to $375.7 million due to ongoing investments.

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Foot Locker hasn’t provided an EPS outlook for the second fiscal quarter. However, management expects that the gross margin could rise by 20–50 basis points due to the improved merchandise margin. Ongoing investments will likely cause the SG&A expense rate to increase by 110–140 basis points in the second quarter.

First-quarter numbers were impressive

In the first fiscal quarter, Foot Locker’s adjusted EPS was $1.45, which beat analysts’ consensus estimate of $1.25 and rose 6.6% on a YoY (year-over-year) basis. On the other hand, the gross margin contracted by 110 basis points to 32.9%. The SG&A expenses rose 3.8%, while the corresponding expense rate rose by 50 basis points to 19%.

The operating income declined 16.4% to $224 million due to higher expenses, while the operating margin contracted by 230 basis points to 11.1%.

Other footwear retailers

Deckers Outdoor’s (DECK) adjusted EPS in the first fiscal quarter of 2019 reached -$0.98—compared to analysts’ estimate of -$1.42. Increasing sales and share buybacks cushioned the company’s bottom line. Deckers Outdoor’s loss was narrower than the adjusted EPS of -$1.28 reported in the first fiscal quarter of 2018.

Skechers (SKX) delivered an adjusted EPS of $0.36 for the second quarter, which missed analysts’ estimate of $0.41 and reflected a 5.3% decline on a YoY basis. Substantial increases in the SG&A expenses marred the bottom-line numbers.

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