Why Foot Locker (FL) Stock Is Nosediving

What Happened:

Shares of footwear and apparel retailer Foot Locker (NYSE:FL) fell 16.4% in the morning session after the company reported second-quarter earnings results. The results revealed the company is shrinking its footprint in the Asia Pacific and European markets, with store closures announced in South Korea, Denmark, Norway, and Sweden. While management attributed the move to a part of a broader strategy to streamline its operations, the move might raise concerns about the demand for Footlocker's offerings and competitive pressure in these regions. In addition, revenue was underwhelming during the quarter, as sales narrowly surpassed Wall Street's expectations. Lastly, the company reported losses of -$0.05 per share (vs. profits of 0.04/share), bucking the run of bottom-line profits recorded in recent quarters. Overall, this was a challenging quarter for the company.

The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy Foot Locker? Access our full analysis report here, it’s free.

What is the market telling us:

Foot Locker’s shares are somewhat volatile and over the last year have had 34 moves greater than 5%. But moves this big are very rare even for Foot Locker and that is indicating to us that this news had a significant impact on the market’s perception of the business. 

The biggest move we wrote about over the last year was 3 months ago, when the stock gained 28.2% on the news that the company reported first-quarter results that blew past analysts' EPS expectations. While Comparable sales decreased, this was mostly driven by the continued repositioning of the Champs Sports banner. Core banners strengthened as Global Foot Locker and Kids Foot Locker comparable sales increased 1.1%. Inventory levels improved, with merchandise inventories down 5.6%, indicating a better handle on stock management, which should potentially mitigate the risk of future markdowns. 

Guidance was likewise solid as its full-year earnings guidance exceeded Wall Street's estimates. In line with the company's retail strategy, Footlocker plans to open four more locations this year, which could be a sign that the growth and turnaround strategy are working as planned. Zooming out, we think this was a fantastic quarter that should have shareholders cheering.

Foot Locker is down 7.6% since the beginning of the year, and at $28.49 per share it is trading 18.9% below its 52-week high of $35.15 from February 2024. Investors who bought $1,000 worth of Foot Locker’s shares 5 years ago would now be looking at an investment worth $797.44.

Here at StockStory, we certainly understand the potential of thematic investing. Diverse winners from Microsoft (MSFT) to Alphabet (GOOG), Coca-Cola (KO) to Monster Beverage (MNST) could all have been identified as promising growth stories with a megatrend driving the growth. So, in that spirit, we’ve identified a relatively under-the-radar profitable growth stock benefitting from the rise of AI, available to you FREE via this link.