Foot Locker, Inc. (FL - Get Rating) in New York City operates as an athletic footwear and apparel retailer. The company has announced a new and enhanced partnership with Adidas AG (ADDYY) built around product innovation, elevated experiences, and deeper consumer connectivity. Its current dividend yields 4.91%. It has paid a quarterly dividend of $0.40 per share, totaling $38 million during the first quarter of 2022.

ADDYY reported mixed first-quarter results. While its sales for the quarter missed the 1.9% consensus estimate by 1.9%, its adjusted EPS beat the Street’s estimate by 8.8%.

The stock has declined 26.9% in price over the past six months to close yesterday’s trading session at $32.59. In addition, it is currently trading 49.1% below its 52-week high of $63.98, which it hit on June 25, 2021.

Here is what could influence FL’s performance in the upcoming months:

Discounted Valuation

In terms of forward P/B, FL’s 0.98x is 59.5% lower than the 2.42x industry average. Its 0.37x forward P/S is 58.7% lower than the 0.89x industry average. Furthermore, the stock’s 7.27x and 0.70x respective forward non-GAAP P/E and EV/S are lower than the 12.17x and 1.10x industry averages.

Top Line Growth Does Not Translate into Bottom Line Improvement

For its fiscal first quarter, ended April 30, 2022, FL’s sales surged 1% year-over-year to $2.18 billion. However, its operating income declined 23% year-over-year to $217 million, while its adjusted net income came in at $155 million, representing a 24.4% year-over-year decrease. Also, its adjusted EPS was $1.60, down 18.4% year-over-year.

Low Profitability

In terms of trailing-12-month CAPEX/Sales, FL’s 2.33% is 18.4% lower than the 2.85% industry average. Its 34.02% trailing-12-month gross profit margin is 6% lower than the 36.18%  industry average.

Unfavorable Analyst Estimates

For the quarter ending July 31, 2022, analysts expect FL’s EPS and revenue to decline 60.6% and 7.7%, respectively,  year-over-year to $0.87 and $2.10 billion.

POWR Ratings Do not Indicate Enough Upside

FL has an overall C rating, which equates to a Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. The stock has a D grade for Sentiment. This is justified because analysts expect its EPS to decline in the near term. In addition, FL has a C grade for Stability, which is consistent with its 1.27 beta.

FL is ranked #28 of 37 stocks in the Athletics & Recreation industry. Click here to access FL’s ratings for Value and Momentum.

Bottom Line

FL could continue retreating in the near term due to concerns over supply-chain disruption and high inflation. So, we think it could be wise to wait for a better entry point in the stock.

How Does Foot Locker (FL) Stack Up Against its Peers?

While FL has an overall POWR Rating of C, one might want to consider investing in the following Athletics & Recreation stocks with a B (Buy) rating: Vista Outdoor Inc. (VSTO - Get Rating), MarineMax, Inc. (HZO - Get Rating), and MasterCraft Boat Holdings, Inc. (MCFT - Get Rating).

FL shares were trading at $33.07 per share on Thursday afternoon, up $0.48 (+1.47%). Year-to-date, FL has declined -22.62%, versus a -12.21% rise in the benchmark S&P 500 index during the same period.

About the Author: Nimesh Jaiswal

Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles. More...

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