Foot Locker (FL, Financial) stock is experiencing a significant drop today, with the company's share price currently down by 10.73%. The decline comes amidst the release of their second-quarter results, which initially appeared to exceed Wall Street expectations.
Foot Locker reported a loss of $0.05 per share on sales of $1.9 billion, outperforming analysts' forecasts of a $0.07 loss per share on revenue of $1.89 billion. The company also saw its overall revenue rise by 1.9% year-over-year, marking a return to annual sales growth. Additionally, same-store sales grew by 2.6%, beating the average Wall Street target of 1%, and the gross margin improved by 50 basis points from the same quarter last year.
Despite these positive metrics, Foot Locker's forward guidance and strategic plans seem to have raised concerns among investors. The company reaffirmed its non-GAAP adjusted earnings guidance for the full year, projecting earnings between $1.50 and $1.70 per share, which is above the average analyst estimate of $1.54 per share. However, full-year revenue is expected to range from a 1% decline to a 1% increase, indicating uncertainty in achieving consistent growth.
Foot Locker's strategic plan to close its stores and e-commerce operations in South Korea, Denmark, Norway, and Sweden, along with transferring operations in Greece and Romania to Fourlis Holdings Societe Anonyme, has added to investor anxiety. The company also plans to open 30 new stores this year but will close 140 stores in Asia and 629 stores in Europe by 2025, highlighting potential challenges in achieving overall sales growth next year.
In terms of stock valuation, Foot Locker (FL, Financial) has a GF Value of $30.71, which suggests that the stock is fairly valued. The company's price-to-sales ratio stands at 0.32, close to its one-year high of 0.41. The stock is relatively attractive with a price-to-tangible book value ratio of 1.6. However, several warning signs persist, such as a high dividend payout ratio of 0.85, indicating potential sustainability issues with its dividends, and a low Piotroski F-Score of 3, suggesting poor business operation.
On the financial strength front, Foot Locker has an Altman Z-Score of 2.08, placing it in the grey area and indicating some level of financial stress. The gross margin has been in long-term decline, with an average annual decline rate of -1.4%. The company's return on invested capital (ROIC) is also less than its weighted average cost of capital (WACC), pointing to inefficiency in capital usage.
Foot Locker has a market capitalization of $2.77 billion and an enterprise value of $5.75 billion. With a current ratio of 1.68 and a quick ratio of 0.5, the company seems to have adequate short-term liquidity but may face challenges in covering its immediate liabilities.
Overall, while Foot Locker (FL, Financial) has shown some positive financial metrics and growth potential, its forward guidance, strategic restructuring, and several warning signs present a mixed outlook that investors are responding to cautiously.
