On Wednesday, JPMorgan (NYSE:JPM) adjusted its outlook on Foot Locker (NYSE:FL), reducing the price target from $27.00 to $23.00 while maintaining an Underweight rating on the stock.
The firm's analyst cited a series of financial misses in the company's third-quarter results, including a 20% shortfall in adjusted earnings per share (EPS), which came in at $0.33 compared to the Street's expectation of $0.41.
Foot Locker's gross profit growth missed targets by 500 basis points, registering 7% below the anticipated 12%. The company's total revenue saw a 1.4% decrease, which was under the expected 1.1% increase. Same-store sales also fell short of expectations at 2.4%, compared to the Street's forecast of 2.9% and the analyst's own more conservative projection of 2.0%.
The company's gross margin percentage increased by 230 basis points year-over-year to 29.7%, yet this was still below the Street's prediction of 30.4%. Consequently, EBIT margins were reported at 2.5%, lower than the anticipated 3.1%.
Looking forward, Foot Locker's management provided a fourth-quarter EPS guidance of $0.70 to $0.80, which is approximately 20% below the Street's estimate of $0.95. This outlook is based on expected revenue declines of 3.5% to 1.5%, compared to the Street's forecast of a 1.7% decrease.
Predicted same-store sales growth of 1.5% to 3.5% also falls short of the 2.9% anticipated by the Street. Gross margins are projected to be between 29.0% and 29.2%, which is 180 basis points below the Street's expectation of 30.9%.
Management attributes the cautious outlook to a more promotional environment and softer consumer demand outside of key selling periods. Notably, early November trends indicated that consumer spending was below expectations as people held back ahead of the holiday season.
As a result of these factors, Foot Locker's full-year fiscal 2024 EPS outlook has been revised downward to $1.20-$1.30, from the prior guidance of $1.50-$1.70. Revenue is now anticipated to decline between 1.5% to 1.0%, which is below the previous guidance range of a 1% decrease to a 1% increase. Same-store sales growth expectations have been adjusted to 1.0%-1.5%, a decrease from the prior 1%-3% guidance, while gross margins are expected to be between 28.7% and 28.8%, lower than the earlier guide of 29.5%-29.7%. EBIT margins are also forecasted to be between 2.3% and 2.5%, down from the previous 2.8%-3.2% guidance.
In other recent news, Piper Sandler reduced its price target from $30.00 to $28.00, maintaining a Neutral rating. Williams Trading upgraded Foot Locker's shares from Sell to Hold, citing the retailer's diversified product mix as a strength. Telsey Advisory Group maintained a Market Perform rating, expressing caution due to increased promotional activities. Evercore ISI reduced its price target but kept an Outperform rating, while Needham initiated coverage with a Buy rating.
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