Foot Locker Plumets 30% on Weak FY22 Outlook Despite Q4 Beat

American retailer of athletic shoes and apparel, Foot Locker, Inc. (FL) crashed 29.8% closing at $29.07 on February 25, after the company issued poor fiscal year 2022 guidance, which fell below expectations.

Despite outpacing analyst estimates on the earnings front by a huge margin and missing revenue estimates by a minuscule margin, the company’s shares collapsed, marking an all-year low of $26.36 on the same day.

Its shares have lost 34.6% year-to-date, mostly due to weak guidance. As of January 29, 2022, FL operated 2,858 stores across 28 countries namely North America, Europe, Asia, Australia, and New Zealand.

Mixed Q4 Results

Foot Locker’s Q4 adjusted earnings of $1.67 per share came in 19 cents better than analysts’ estimates of $1.48 per share. The number was 7.7% higher than earnings of $1.55 per share for Q4FY20.

However, Foot Locker’s quarterly sales of $2.34 billion climbed 6.9% compared to the prior-year period and marginally missed the analyst estimate of $2.36 billion. Q4 comparable sales remained almost flat, growing 0.8%, with apparel sales outpacing footwear sales.

For full-year fiscal 2021, sales leaped 18.7% to $8.96 billion and annual adjusted earnings advanced a whopping 176.5% to $7.77 per share. Further, FY21 comparable sales increased 15.4% annually.

Rewarding Shareholders

Foot Locker also announced that its Board of Directors has approved a new $1.2 billion share buyback program.

Additionally, the board also increased its quarterly common dividend by 33% to $0.40 per share back to its pre-pandemic levels. The dividend is payable on April 29, to shareholders on record as of April 14.

CEO Comments

Happy with the results, Chairman and CEO of Foot Locker, Richard Johnson, said, “We made significant progress diversifying our brands, categories, and channels in 2021, as well as expanding our customer base across demographics and high-growth geographies with the acquisitions of WSS and atmos.”

“We also invested in our omni-channel platform to accelerate our DTC strategy and enhance the customer experience with new speed and convenience capabilities. And we continue to expand our private label merchandise offerings, including the most recent launch of our new womenswear brand… We look forward to continuing to build on the important areas of success from the past year that strengthen our position at the heart of the youth, sports, and sneaker communities,” the CEO added.

Poor FY22 Guidance

The company is undertaking certain strategic initiatives in 2022 to accelerate its growth. These include reducing single vendor representation to 55% of total supplier spend, diversifying its assortments, focusing on off-mall presence, and enhancing omni-channel capabilities.

Based on these steps and its current business momentum, Foot Locker has guided for FY22 sales growth down by 4% to 6% and comparable sales growth down by 8% to 10%.

Additionally, FL has guided FY22 adjusted earnings to fall in the range of $4.25 per share to $4.60 per share, much lower than the consensus estimate of $6.49 per share.

Analysts’ View

Responding to Foot Locker’s Q4 performance, Guggenheim analyst Robert Drbul maintained a Buy rating on the stock, but lowered the price target to $36 (23.8% upside potential) from $70 in tandem, by reducing his 2022 and 2023 EPS projections to $4.35 and $4.00, respectively, from his prior forecast of $7.30 and $7.55.

Commenting on his view, Drbul said, “While Foot Locker will remain a strategic partner to Nike, FL announced that its partnership with Nike will become more restricted beginning in 4Q22. While this has been widely anticipated and a concern for many years, we finally have received clarity on the future of the partnership.”

“FL aims to replace its reduced Nike offering and support its business with, among other initiatives, exclusive Reebok basketball product by Shaq and Allen Iverson and LaMelo Ball Puma product, a very tall task,” Drbul added.

Overall, the FL stock has a Moderate Buy consensus rating based on 6 Buys, 7 Holds, and 1 Sell. The average Foot Locker price target of $52.17 implies 79.5% upside potential to current levels.

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