Why Specialty Athletic Retailer Foot Locker’s (FL) Shares Are Surging Today – Foot Locker (NYSE:FL)

Foot Locker Inc (NYSE: FL) shares are on the rise after the company reported its third-quarter FY23 earnings results. Despite a sales decline, the company beat analyst expectations and provided updated guidance for the remainder of the fiscal year.

FL reported a third-quarter FY23 sales decline of 8.6% year-on-year to $1.99 billion. However, this beat the analyst consensus estimate of $1.97 billion. Adjusted EPS came in at $0.30, surpassing the consensus estimate of $0.25.

The decline in sales was primarily driven by ongoing consumer softness, changing vendor mix, and a negative impact from the repositioning of Champs Sports. Comparable store sales decreased by 8% compared to the previous year.

The gross margin contracted by 470 basis points, mainly due to higher markdowns, occupancy deleverage, and higher shrink. However, selling, general, and administrative expenses fell 4.5% year-on-year to $446 million.

The operating margin was 2.4%, and operating income for the quarter declined by 70% to $47 million. The company had $187 million in cash and equivalents as of October 28, 2023, and merchandise inventories were $1.9 billion, representing a 10.5% year-on-year increase.

Foot Locker operates 2,607 stores in 26 countries as of October 28, 2023. During the third quarter, the company opened 22 new stores, remodeled or relocated 36 stores, and closed 14 stores.

Looking ahead, Foot Locker updated its FY23 comparable sales guidance from a decline of 9%-10% to a decline of 8.5%-9%. Sales guidance was revised from a decline of 8%-9% to a decline of 8%-8.5%. The company also adjusted its gross margin guidance from 27.8%-28.0% to 27.8%-27.9%.

The top end of the adjusted EPS outlook was trimmed, with the revised range now at $1.30-$1.40, compared to the consensus estimate of $1.28.

For the fourth quarter, Foot Locker expects sales to decline by 2%-4% and comparable sales to decrease by 7%-9%. The company forecasts adjusted EPS in the range of $0.26-$0.36, with the consensus estimate at $0.32.

As of the last check on Wednesday, FL shares were trading 21% higher at $28.86.

Overall, despite the sales decline, Foot Locker’s better-than-expected earnings and updated guidance indicate some positive momentum for the specialty athletic retailer. Investors have responded positively to the news, driving the stock price higher.