September looms as a risk month for stocks, Yardeni says
Friday, Jefferies maintained a Hold rating on Foot Locker stock (NYSE:FL) with a set price target of $19.00. The stock, currently trading at $16.01, sits near its 52-week low of $14.98 and has declined over 43% in the past six months. According to InvestingPro analysis, 15 analysts have recently revised their earnings expectations downward for the upcoming period. The firm’s analyst, Corey Tarlowe, provided insights following recent financial disclosures from Nike (NYSE:NKE), which reported third-quarter results that slightly exceeded expectations, although revenues fell by 9% year-over-year (YoY). The decline was attributed to a 12% drop in Nike Direct sales and a 7% decrease in wholesale. In North America, Nike’s footwear sales dipped by 9% YoY, while apparel and equipment categories saw increases of 7% and 10%, respectively.
Gross margin for Nike contracted by 330 basis points YoY, impacted by a combination of higher discounts, increased inventory reserves, elevated product costs, and changes in channel mix, which were partially offset by prescription charges. Looking forward, Nike has forecasted its fourth-quarter revenue to drop in the mid-teens to high-teens percentage range and anticipates gross margin to decline by 400-500 basis points.
For Foot Locker, which maintains a healthy liquidity position with a current ratio of 1.7 and generates annual revenue of $7.99 billion, the implications of Nike’s performance and strategies are significant, considering Nike’s efforts to manage inventory through increased markdowns. InvestingPro subscribers can access detailed financial health scores and comprehensive analysis of Foot Locker’s operational metrics through the platform’s exclusive Pro Research Report. Nike’s ’Win Now’ strategic initiatives aim to enhance and expand the marketplace, offering discounts to retail partners and reallocating inventory to its value and factory locations. These measures are expected to yield positive results in the coming quarters as Nike introduces new products and seeks to improve full-price sales.
Despite the challenges posed by Nike’s current situation, which is not expected to resolve immediately, there are positive signs in the partnership between Nike and Foot Locker, with initiatives such as the "Home Court" and "The Clinic" experiences. With a gross profit margin of 29.07% and a market capitalization of $1.52 billion, Foot Locker’s growth is bolstered by strong performance from other brands in its portfolio, including adidas, New Balance, ASICS, On, HOKA, UGG, and Timberland. While the company maintains a relatively high P/E ratio of 124.52, InvestingPro analysis indicates the stock is currently trading close to its Fair Value. Due to Nike’s substantial share of Foot Locker’s total sales, Jefferies has decided to maintain its Hold rating on the retailer’s stock.
In other recent news, Foot Locker’s fourth-quarter 2024 results have exceeded expectations, with comparable store sales and gross margins surpassing projections. However, analysts have expressed concerns about the company’s future performance, leading to several firms lowering their price targets. Piper Sandler cut its target to $19, citing a challenging outlook for 2025 and skepticism about improvement in comparable sales. Similarly, Jefferies adjusted its target to $19, noting positive results but cautioning about consumer hesitancy and potential impacts from Nike’s promotional strategies.
Telsey Advisory Group reduced its target to $20, pointing to a 2025 outlook that did not meet expectations and challenges from store closures and ongoing investments. BofA Securities also lowered its target to $20, maintaining a Neutral rating while acknowledging Foot Locker’s positive relationship with Nike and improved inventory levels. Williams Trading decreased its target to $18, highlighting competitive pressures from JD Sports and Dick’s Sporting Goods (NYSE:DKS) and concerns about Foot Locker’s broad consumer strategy. These recent developments reflect a cautious sentiment among analysts regarding Foot Locker’s near-term prospects.
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