Foot Locker (FL) Q1 Earnings: Factors Shaping The Outcome

Foot Locker, Inc. (NYSE:FL) is slated to release first-quarter fiscal 2018 results on May 25. Well the obvious question that comes to mind is whether this retailer of athletic shoes and apparel will be able to deliver a positive earnings surprise in the quarter to be reported.

In the trailing four quarters, the company missed the Zacks Consensus Estimate by an average of 5.8%. Nonetheless, the company outpaced the consensus mark by a penny in the last reported quarter, resulting in a positive earnings surprise of 0.8%.

The Zacks Consensus Estimate for the quarter under review has increased by a cent in the past seven days and is currently pegged at $1.25.

Let’s analyze the factors influencing the company’s performance.

Factors at Play

Foot Locker is trying to improve performance through operational and financial initiatives. The company is focusing on development of supply chain, improvement of mobile and web platforms, implementation of new point-of-sale software worldwide, and expansion of data analytics capabilities. Apart from these, the company plans to spend a major portion of the capital on its fleet of stores, including revamping and remodeling of the same. Further, it is exploring off-mall retail formats opportunities and executing shop-in-shop spaces in collaboration with vendors.

Despite these endeavors, analysts polled by Zacks expect first-quarter revenue to come in at $1,974 million, down marginally by 1.4% year over year. This follows an increase of 4.6% witnessed in the final quarter of fiscal 2017.

Management had earlier guided that comparable-store sales (comps) during the first quarter are likely to decline in line with or more than actually registered in the second half of fiscal 2017. The Zacks Consensus Estimate for the same is 3.6%. Comps had declined 3.7% in the fourth quarter of fiscal 2017.

Foot Locker had previously projected gross margin to decline in the range of 150-175 basis points in the first quarter of fiscal 2018 on account of high promotional activity and deleverage of occupancy expenses. Gross margin had contracted 230, 290, 340 and 100 basis points in the fourth, third, second and first quarter of fiscal 2017, respectively.

As a result, the bottom line is likely to decline in the quarter. The current Zacks Consensus Estimate of $1.25 for the quarter under review shows a sharp decline from earnings of $1.36 per share reported in the year-ago period. The quarterly earnings had declined 8%, 23%, 34% and 2.2% in the fourth, third, second and first quarter of fiscal 2017, respectively.

What the Zacks Model Unveils?

Our proven model shows that Foot Locker is likely to beat estimates this quarter. A stock needs to have both a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Foot Locker carries a Zacks Rank #3 but an Earnings ESP of -1.53%, thus making surprise prediction difficult.

Stocks With Favorable Combination

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Best Buy (NYSE:BBY) has an Earnings ESP of +2.01% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Costco (NASDAQ:COST) has an Earnings ESP of +1.39% and a Zacks Rank #3.

Kroger (NYSE:KR) has an Earnings ESP of +3.94% and a Zacks Rank #3.

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