Sports Retailers Fall Following Foot Locker's Weak Q2 Earnings Report
Athletic apparel and footwear retailers are down after Foot Locker (FL) reported weaker than expected earnings for the second quarter.
EARNINGS AND GUIDANCE: Foot Locker reported Q2 earnings per share, excluding a $50M pre-tax litigation charge, of 62c on revenue of $1.7B compared to analyst estimates of 90c and $1.8B, respectively. The company also reported a decrease of 6% in same-store sales for the quarter. CEO Richard Johnson said, "sales of some recent top styles fell well short of our expectations and impacted this quarter's results. At the same time, we were affected by the limited availability of innovative new products in the market. We believe these industry dynamics will persist through 2017, and we expect comparable sales to be down 3% to 4% over the remainder of the year." On Foot Locker's Q2 earnings conference call, the company said it will devote an increasing share of capital expenditures to digital as well as invest to create a more modern supply chain. The company also said it expects to reduce fiscal year 2018 CapEx level and to close up to 135 stores in 2017. In addition, the company expects gross margin to decline 230-250 basis points in Q3, gross margin to decline 150-170bps in Q4 and second half 2017 EPS to decline 20%-30%.
ANALYST OPINION: After the report, Citi analyst Kate McShane said Foot Locker's Q2 results and outlook "greatly" disappoint. She said the company posted its first negative comp since Q4 of 2009 and along with Foot Locker, she expects weakness primarily in shares of Nike (NKE) and Finish Line (FINL) but also Under Armour (UAA, UA) and Dick's Sporting Goods (DKS). McShane currently has a Buy rating and an $81 price target on Foot Locker. In addition, Piper Jaffray analyst Erinn Murphy said earnings were "well below expectations" due to weak sales of top styles and limited availability of new products, which she expects to continue during FY18. While the company is working on expense reductions, she said she considers Foot Locker to already be a lean operator and she remains cautious on domestic athletic retailers. Murphy holds a Neutral rating on the stock and a $60 price target.
HIBBETT EARNINGS AND GUIDANCE: Foot Locker peer Hibbett Sports (HIBB) also reported Q2 earnings Friday morning, posting a loss per share of (15c) on a revenue of 188M, compared to analyst estimates of a loss per share of (20c) and revenue of $190.16M. The company's SSS also decreased 11.7% for the quarter. Hibbett also cut its FY18 EPS view to $1.25-$1.35 from $2.35-$2.55, compared to estimates of $1.74, and said it sees SSS in the negative mid to high single-digit range. CEO Jeff Rosenthal said, "Looking forward, we expect the external environment to remain challenging, although we are encouraged with the progress we are making on our internal initiatives, most notably our new e-commerce website... We will continue our efforts to grow our online business aggressively in the future, while continuing to improve our stores to provide a great overall customer experience." Following the report, Baird analyst Peter Benedict lowered his price target on the stock to $10 from $15 and kept a Neutral rating. While a FY17 earnings guidance cut was expected, the magnitude was more severe on continued top-line weakness and even more pronounced margin pressure, Benedict said.
UNDER ARMOUR EARNINGS: On Aug. 1, Under Armour reported a Q2 loss per share of (3c) on a revenue of $1.1B, compared to analyst estimates of a loss of (6c) and a revenue of $1.08B. The company also lowered its FY17 revenue growth view to 9%-11% from 11%-12% and said it expects FY17 adjusted EPS of 37c-40c. The company also approved a restructuring plan to better align its financial resources to support the company's efforts as the consumer landscape shifts.
PRICE ACTION: In late morning trading, shares of Foot Locker were down 26.6% to $35.01, Under Armour dropped 4.7%, Nike fell 4.5%, Hibbett Sports dropped 13.9%, Finish Line fell 5.05%, Dick's Sporting Goods dropped 2.2%, and adidas (ADDYY) fell 1.3%.