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Foot Locker (FL) Loses Ground, Price Target, Ratings Cut at Susquehanna

Posted on Friday, January 10th, 2020 by Steve Anderson

Foot Locker (FL)  Loses Ground, Price Target, Ratings Cut at Susquehanna

For a while, things were looking fairly optimistic out at Foot Locker (NYSE: FL). There was a building business case for buying in as recently as late November. New partnerships were emerging, and a genuinely worthwhile long-term case was building for the company. New word out of Susquehanna,  however, suggests that the good times that were building for Foot Locker have already started to sour.

Same-Store Sales Issues Prompt Concern

Susquehanna, the reports note, ran a set of “proprietary checks,” which offered some insight into Foot Locker's current operations. The news came back like an oil dipstick that comes out dry.

One of the biggest problems came with same-store sales issues. Reports suggested that Foot Locker may be the next brand to post a same-store sales loss with the concluded 2019 holiday shopping season. The checks Susquehanna ran found potential troubles on several fronts, including issues with some of the store's major brand connections like Adidas (Xetra:ADS) and Nike (NYSE: NKE). Apparently, the sales made on these brands likely weren't sufficient to drive sales enough to surpass levels seen in 2018.

That would be bad enough by itself, but the troubles continued from there. The analysis found that the updates that Foot Locker made didn't have quite the impact that was originally projected, which further hamstrung Foot Locker's fortunes.

Perhaps worst of all, new competition emerged for Foot Locker in the form of UK import JD Sports, which has been actively retooling its business model to better compete in the US market. With JD Sports about to open a Times Square store in New York—just like Target (NYSE: TGT) was looking to do—that's going to put particular pressure on Foot Locker going forward. Word that JD Sports (LSE: JD.L) was also poised to get exclusive shoes and the like from both Nike and Adidas, meanwhile, proved to be the icing on an already-unpleasant cake for Foot Locker.

A Troubling Forecast, But Not Insurmountable

Analysts at Susquehanna subsequently cut not only Foot Locker's rating—dropping it from “positive” to “neutral”—the analysts also took aim at Foot Locker's price target, dropping it from $47 per share to $41.  The news wasn't all bad, however, as the analysts noted that Foot Locker was likely to miss its fourth-quarter 2019 guidance figures, but achieve the full-year target, albeit on the lower end.

Even the silver lining is a bit tarnished; Foot Locker's miss is from relatively flat guidance, to begin with, so it's not like the company just wildly overestimated and came out ahead, but not as ahead as expected. Worse, the full-year guidance wasn't exactly a ball of fire either, with low-single-digit projections.

Things certainly aren't all bad at Foot Locker. The stock in early trading was actually up a bit off its previous close as of this writing. It also has some positives going for it; just back in November, we were looking to Foot Locker as a potential buy thanks to Amazon's loss of Nike products.

The Mall Curse Continues

If there's one thing we've seen out of 2019 in retail—and we're starting to see it in 2020 too—it's that the mall curse seems to be well in play and carrying on. We've seen Children's Place (NASDAQ: PLCE) take a beating with its Gymboree relaunch failures, and we've seen American Eagle (NYSE: AEO) look downright bedraggled in recent days. Yet meanwhile, and probably just down the street, Target has made an almost staggering come back with a greater focus on online selling and the use of its store network as a faster and easier fulfillment center.

Malls—and by extension mall stores—just don't have the draw they once did. Like the classic video arcade, they've been replaced by wholly home-based equivalents, and there's just not much need to drive somewhere to experience the latest offerings. Retailers are making some adjustments to help here—Target is still living proof of that—but the adjustments aren't being seen all over and are having disparate effects accordingly.

The future of retail is increasingly online, and while astute brick-and-mortar shops are making changes accordingly, some retailers are likely to find themselves on the short end of this particular stick.

Companies Mentioned in This Article

CompanyCurrent PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Nike (NKE)$104.53flat0.94%36.55Buy$106.53
Foot Locker (FL)$39.60flat3.84%8.57Buy$53.89
Childrens Place (PLCE)$64.75flat3.46%16.65Buy$75.70
American Eagle Outfitters (AEO)$14.70flat3.74%9.67Hold$19.46

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