Foot Locker Stock's Troubles Continue After Q2 Earnings

looking into a Foot Locker store in New York — (Image credit: Stephanie Keith/Bloomberg via Getty Images)

Foot Locker (FL) stock is down by double-digit percentage points Wednesday even after the athletic footwear and apparel retailer beat top- and bottom-line expectations for its second quarter.

In the quarter ended August 3, Foot Locker's revenue increased 1.9% year-over-year to $1.9 billion, driven by global comparable-store sales growth of 2.6%. The company reported a net loss of 5 cents per share compared with net earnings of 4 cents per share in the year-ago period.

"The Lace Up Plan is working, as evidenced by our return to positive total and comparable sales growth as well as gross margin expansion in the second quarter" said Foot Locker CEO Mary Dillon in a statement. "Our top line trends strengthened as we moved through the quarter, including a solid start to Back-to-School. We were also particularly pleased to deliver stabilization in our Champs Sports banner."

From just $107.88 $24.99 for Kiplinger Personal Finance

Become a smarter, better informed investor. Subscribe from just ~~$107.88~~ $24.99, plus get up to 4 Special Issues

CLICK FOR FREE ISSUE

https://cdn.mos.cms.futurecdn.net/flexiimages/y99mlvgqmn1763972420.png

Sign up for Kiplinger’s Free Newsletters

Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.

Profit and prosper with the best of expert advice - straight to your e-mail.

The results beat analysts' expectations. Wall Street was anticipating revenue of $1.89 billion and a net loss of 7 cents per share, according to CNBC.

Foot Locker also reaffirmed its outlook for the full fiscal year. The company continues to expect revenue to range from a decline of 1% to a gain of 1%, comparable-store sales growth between 1% to 3% and earnings per share of $1.50 to $1.70.

However, the retailer lowered its gross margin outlook for the full year, to a range of 29.5% to 29.7% from the prior guidance of 29.8% to 30.0%, which could explain today's slump.

Additionally, Foot Locker said it is closing stores and e-commerce operations in several countries, including South Korea and Denmark, and moving its global headquarters to St. Petersburg, Florida, from New York City.

"I remain confident that we are taking the right actions to position the Company for its next 50 years of profitable growth and create long-term shareholder value," Dillon said.

Is Foot Locker stock a buy, sell or hold?

It's already been tough sledding for Foot Locker stock, which was down 5% for the year to date heading into today's session – lagging the S&P 500's 19% return.

Unsurprisingly, Wall Street is on the sidelines when it comes to the small-cap stock. According to S&P Global Market Intelligence, the consensus analyst target price for FL stock is $28.27, which is right around where the stock trades today. Meanwhile, the consensus recommendation is Hold.

Financial services firm UBS Global Research has a Neutral rating (equivalent to a Hold) and a $29 price target on FL stock.

"We think FL faces structural challenges due to increasing competition from strong athletic brands like Nike (NKE)," said UBS analyst Jay Sole in an August 12 note. Still, the analyst says he's neutral-rated given the balanced risk-reward setup he currently sees for the stock.

Additionally, Sole sees "a reasonable probability FL's relationship with Nike improves over the next 12 months and FL's investments in technology, digital, and brand building may help improve its financial performance."

Joey Solitro is a freelance financial journalist at Kiplinger with more than a decade of experience. A longtime equity analyst, Joey has covered a range of industries for media outlets including The Motley Fool, Seeking Alpha, Market Realist, and TipRanks. Joey holds a bachelor's degree in business administration.