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Foot Locker cut to 'Sell' as Citi sees downside risk

Published 11/27/2023, 07:51 AM
Updated 11/27/2023, 07:54 AM
© Reuters. Foot Locker (FL) cut to 'Sell' as Citi sees downside risk

Shares of Foot Locker (NYSE:FL) declined after it was downgraded to “Sell” at Citi Research. Citi issued a price target of $18, suggesting downside of 22%. Analysts said they think the company will focus on cleaning up inventory by the end of the year at the expense of margins.

Analysts explained, “We believe a weakening macro/still elevated inventory levels are driving FL to be more promotional than plan this fall/holiday.”

Citi Research’s earnings estimate for the fourth quarter is $0.16 is below consensus of $0.33 due to concerns about weaker sales and margins.

“We believe FL will sacrifice margin near-term to get clean on inventory by year-end,” said analysts, “With ~64% of sales coming from NKE product, FL is not completely in control of its own destiny. As we look to F24, a complex macro backdrop makes it tough to execute a turnaround. Our F24E of $1.15 is below cons $1.98 based on weaker comps (-2% vs cons +2%). At current levels, we believe the risk/reward skews to the downside.”

Shares of Foot Locker climbed about 14% in the past 30 days, but they are sharply lower year-to-date, down 38%. The stock declined 3.5% shortly after Citi’s downgrade was published.

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