FL Stock Forecast: Foot Locker Shares Have Best Performance In 40 Years – Will The Rebound Last?

The article was written by Aline Rzetelna, a Financial Analyst at I Know First.

“In tennis, you strike a ball just after the rebound for the fastest return. It’s the same with investment.” 

Masayoshi Son

FL Stock Forecast

Summary:

  • FL Shares Have Best Performance in 40 Years
  • Foot Locker & Peers: Will FL’s Rebound Last?
  • Foot Locker Strategies
  • I Know First Bullish Forecast on FL

Foot Locker, Inc. is a leading global athletic footwear and apparel retailer. Founded in 1879, the company operates over 3,000 stores, in more than 20 countries in North America, Europe, Asia, and the Middle East. Headquartered in New York City, Foot Locker also operates a direct-to-customer business offering athletic footwear, apparel, and equipment through its internet, mobile and catalog channels. Foot Locker’s brands include Foot Locker, Champs Sports, Kid Foot Locker, Footaction, SIX:02, Lady Foot Locker, Runners Point, and Sidestep.

FL Shares Have The Best Performance In 40 Years

On November 17, 2017, Foot Locker reported financial results for its Q3 ended October 28, 2017. FL’s net income for the third quarter was $102 million, or $0.81 per share. These results included a $13 million charge related to reducing and reorganizing corporate and division staff. Therefore, for the non-GAAP statements, FL net income was $110 million, and its earnings per share were $0.87. Moreover, despite the decrease in total sales, the results surpassed expectations reaching $1.87 billion this quarter.

After the release of stronger-than-expected results, Foot Locker’s shares had their best daily performance in 40 years, spiking 28% on that day.

According to the Chairman and Chief Executive Officer: “Despite the highly promotional environment we still see in the marketplace, the availability of premium product is gradually improving compared to the first half of the year, and we believe we can achieve, and perhaps modestly exceed, the top- and bottom-line guidance we gave for the fourth quarter back in August.”

Furthermore, FL’s Executive Vice President and Chief Financial Officer, Lauren Petters, added that the company also accelerated at a significant pace the share repurchases in the quarter given the price of FL’s shares, spending $304 million to repurchase 8.69 million shares during the quarter.

Foot Locker’s Board of Directors declared a quarterly cash dividend on the company’s common stock of $0.31 per share. It will be paid on February 2, 2018 to shareholders of record on January 19, 2018.

Foot Locker & Peers: Will FL’s Rebound Last?

After the release of the better-than-expected results for the third quarter, FL stock was the most actively traded among the stocks listed on the NYSE. In comparison with its competitors, FL drove the sportswear market on November 17th, 2017, showing an incredible increase of 28%. As you can see below, right behind the leader, DSW and Nike remained in the second and third positions, with 9.7% and 3.4% increase in its stock price, respectively.

 

FL stock which almost reached $80 at the beginning of the year dropped drastically to under $30 after the release of worse-than-expected results for the second quarter fiscal year. The recent turnover, where the stock showed an enormous increase of 28%, came at a time of bankruptcies of many of the FL peers. Therefore, the question that remains is the following: Will Foot Locker’s rebound last?

As some athletic brand companies, such as Nike, are pushing to a direct selling strategy, selling through their own stores and channels, FL’s peers, Sports Authority and Sports Chalet have gone bankrupt, while trying to beat the e-commerce competition. Alongside FL, there is Dicks Sporting Goods Inc, Hibbett Sports Inc., and Finish Line Inc, to give a few examples, under this pressure.

Even so, Foot Locker revealed a strong partnership with Nike recently. The two companies are joining forces to offer industry-leading experiences to consumers through innovative in-store and pop-up opportunities, including exclusive products. The Nike and Foot Locker partnership includes opening a pop-up store in New York City later this year. Called Sneakeasy NYC, the store will feature exclusive Nike and Jordan products and services. The first Sneakeasy launch is the Special Field Air Force-1 Mid “OBJ”, with a retail price of $160.

Moreover, House of Hoops by Foot Locker is offering the opportunity for customers to get Nike and Jordan basketball sneakers seen straight off NBA games. The first one is Nike Kyrie 3 “Luck”, priced $120.

Furthermore, FL is hiring new employees, specially trained in “Nike Pro Athletes” and “Nike Pro Leads.” By offering an emotional connection to the top Nike products available in the market, Foot Locker is trying to drive elevated customer experiences. According to FL North America’s Vice President of Customer Experience and Sales, Tony Aversa: “These new NIKE Pro Athlete and Lead positions will allow for even more in-depth consumer connections for both Foot Locker and Nike.”

These huge collaborations between Nike and Foot Locker show that Nike still believes in FL’s potential, which places FL on solid ground, proving that the rebound is here to stay.

Foot Locker Strategies

Beyond the partnership with Nike, CEO and Chairman, Richard Johnson highlighted in the last Conference Call a few other strategies that FL is taking in order to align its in-store and online businesses and enhance its digital and supply chain capabilities.

First, the organizational changes, which includes giving all channel responsibility in the North America region to Jake Jacobs. According to Mr. Johnson, it is no longer the best approach to have the store division from New York and digital commerce team in Wisconsin managed separately. This integration aims to create a seamless brand experience. Unfortunately, Foot Locker’s reorganization efforts also included the necessary lay off of employees.

Moreover, FL is concentrating a significantly greater portion of their capital and operating spending on enhancing its digital capabilities. The company has made solid progress in particularly three fronts: new digital e-commerce platform, mobile-app platform development, and new point-of-sale technology.

As Mr. Johnson stated, Foot Locker is expecting to leverage greater visibility of the shopping and buying patterns of individual customers and households into much more effective loyalty and marketing program initiatives with those strategies.

Furthermore, FL is also making significant investments in their supply chain capabilities. First, they are reconfiguring their primary warehouse in Kansas, in order to be able to fulfill direct-to-consumer shipments. Also, Foot Locker will test the mini distribution hubs in certain major metropolitan areas, which will hold inventory to replenish stores more quickly and efficiently, promoting a faster delivery of products bought online.

Additionally, FL is not only closing underperforming stores, but also opening a few of them in pinnacle locations. Finally, Mr. Richard Johnson closed his statement saying that Foot Locker Inc is in this game to win.

I Know First Bullish Forecast on FL

FL seems to be putting strong effort in its strategies and key initiatives in order to reach their vision of being the leading global retailer of athletically inspired shoes and apparel. Moreover, the better-than-expected financial results shown by FL in the third quarter reiterates that it is indeed experiencing some progress.

Therefore, I do believe that Foot Locker’s rebound is here to stay. My rating is also confirmed by I Know First’s forecast, which shows an exceptionally strong signal for FL on the long run.

Past I Know First Success with FL

I Know First Algorithm has previously predicted the stock movement for FL such as in this forecast from November 10th, 2017 to November 17th, 2017. The forecast showed a bullish signal of 18.07 and a predictability of 0.24. Then, FL stock achieved a return of 33.36% in only 7 days.

I Know First to the current subscribers received this forecast on November 10th, 2017. To subscribe today click here.

I Know First Algorithm Heatmap Explanation

The sign of the signal tells in which direction the asset price is expected to go (positive = to go up = Long, negative = to drop = Short position), the signal strength is related to the magnitude of the expected return and is used for ranking purposes of the investment opportunities.

Predictability is the actual fitness function being optimized every day, and can be simplified explained as the correlation based quality measure of the signal. This is a unique indicator of the I Know First algorithm. This allows users to separate and focus on the most predictable assets according to the algorithm. Ranging between -1 and 1, one should focus on predictability levels significantly above 0 in order to fill confident about/trust the signal.

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