Foot Locker Inc. (NYSE: FL) released its Q4 2021 earnings and revenue results on Friday, February 25, 2021, in which the company reported solid results reflecting the momentum the company has created amid changing market conditions.
What to look for: The company indicated that it would no longer be able to sell many products from Nike, its top vendor. The footwear retailer indicated that from Q4 2022, no single vendor would account for more than 55% of purchases relative to 65% a year before. For FY 2022, the company doesn't expect Nike supplies to exceed 60% of its total purchase. This comes as Nike ramps up its direct-to-consumer efforts in a bid to earn high-profit margins. Management said that Foot Locker would be leaning toward its current relationships with other brands such as Puma, Timberland, Addidas, and Crocs.
Earnings: Stockearnings’s estimated EPS was $1.44, but the company posted adjusted earnings of $1.67 per share. Net income for the quarter was $102 million or $1.02 per share, dropping from $123 million or $1.17 per share a year ago. Foot Locker reported a net income of $893 million or $8.61 per share in FY 2021, a YoY increase of 179.5%. On a non-GAAP basis, the company has earnings of $7.71 per share for the whole year, increasing from $2.81 a year before. Historical EPS Performance for the past 12 quarters shows that the company has topped estimates 29 times (78%), matched once (2%), and missed seven times (18%).
Revenue: Sales were up 6.9% in the fourth quarter to $2.34 billion, topping estimates of $2.33 billion. For the whole year, comparable-store sales were up 15.4% YoY. Foot Locker reported total sales of $9 billion in FY 2021 compared to $7.5 billion a year before, representing a YoY increase of 18.7%. The company issued a bleak outlook for FY 2022, stating that it expects sales to drop 4% to 6%, with comparable-store sales expected to drop 8% to 10%. Analysts were looking for YoY revenue growth of 2%.
Stock movement: Foot Locker shares have lost 29.8% since the company released its last earnings release. Interestingly, following the earnings release, the company’s shares have been UP 27 times in the past 47 quarters. So, the historical price reaction suggests a 57% probability of the share price going UP following the earnings release. According to the Stockearning algorithm, the predicted volatility on the first day is +/-8%, while the predicted volatility on the seventh day is +/-8%.
What analysts are saying: Seaport Global analyst Mitch Kummetz downgraded the stock from Buy to Hold, stating that his Nike risk thesis was flawed, and he is unconvinced in the figures and story. According to the analyst, Foot Locker missed Q4 sales and EBIT, but EPS topped consensus thanks to a 20c GOAT profit and a lower-than-expected tax rate. The company also gave a full-year estimate for 2022 that was substantially below consensus and pre-COVID levels. The major news, in his perspective, is that the company's Nike purchases are declining, which Kummetz did not anticipate. This danger was the analyst's principal bearish forecast on Foot Locker hence his bull thesis was predicated on the exaggerated risk.
Morgan Stanley’s Kimberly Greenberger downgraded the stock from Hold to Sell and also slashed her price target from $47 to $23 after the company announced a strategy shift to diversify vendor and merchandise mix. She said that Nike's shift to DTC strategy impairs the company's cash generation potential, which might affect revenue.
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