Foot Locker (FL) relies on diversification to maintain sales. Is the stock a buy?

Foot Locker, Inc. (NYSE: FL) is a popular sportswear retailer, offering a wide range of products including sneakers and activewear. Like most brick-and-mortar store operators, the company is facing pressure from the widespread shift to online shopping and is changing its business model to better align with new trends.

There has been a slowdown in Foot Locker sales since Nike, Inc. (NYSE: NKE) recently pulled some of its products from the former’s stores. The slowdown is expected to persist for the foreseeable future as Nike products account for approximately two-thirds of Foot Locker’s total sales.

Buy FL?

The company’s stakeholders will be watching the upcoming earnings event closely to gauge the latest sales trend. It should be noted that quarterly earnings have consistently exceeded market expectations for the past two years. When it comes to investing in Foot Locker, it makes sense to wait until the picture becomes clearer.

Read management/analyst comments on Foot Locker’s fourth quarter 2021 results

In February, shares of Foot Locker fell around 30% after Nike revealed plans to move certain products to its direct sales channel, in a bid to avoid middlemen. Although the stock has rallied slightly since then, it is trading below multi-year highs seen a year ago. On the positive side, the stock has become cheaper and more affordable after the drop. Also, experts predict a noticeable improvement from current levels as the year progresses.

Foot Locker has an impressive history of returning value to shareholders through stock buybacks and dividends. With a sustainable yield of over 5%, it remains an attractive bet for income investors and those looking for a long-term commitment. The board of directors this week declared a dividend of $0.40 per share, payable July 29 to shareholders of record July 15.

Way to go

Given its heavy reliance on Nike and the recent shift in inventory position, Foot Locker needs to significantly expand offerings from other brands such as Crocs, Inc. (NASDAQ: CROX) and Adidas to regain momentum in sales. Or maybe it’s time for the company to revise its business strategy. Management expects single-digit sales decline for the year exercise and seeks to diversify the mix.

From Foot Locker’s fourth quarter 2021 earnings conference call:

“As we remix our business, 2022 will reflect an acceleration of pre-existing strategies that are well underway and have already paid off. including new brands and growing brands and categories where we are under-penetrated.We continue to strengthen our breach of consumer concept to deliver exclusive product storytelling based on our deep consumer insights.

Q1 report on tap

Foot Locker is expected to announce first quarter results on May 20 before the opening bell. Analysts are predicting a double-digit drop in earnings to $1.52 per share on revenue of $2.19 billion. In the last three months of fiscal 2021, same-store sales remained nearly flat, extending recent weakness. Net sales edged up to $2.3 billion and match Street View. At $1.67 per share, adjusted earnings were up 8% year over year and beat estimates.

Infographic: Highlights from Under Armor’s March Quarter Earnings Report

FL has lost around 31% since the start of the year and continues to trade significantly below its 52-week average. The stock closed the last trading session down.

James T. Quintero