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Telsey upgrades Foot Locker to Outperform; Sees investor day as catalyst

Published 03/16/2023, 01:14 PM
Updated 03/16/2023, 01:33 PM
© Reuters.  Telsey upgrades Foot Locker (FL) to Outperform; sees investor day as catalyst

By Michael Elkins

Telsey Advisory Group upgraded Foot Locker (NYSE:FL) to an Outperform rating (from Market Perform) and raised the price target on the stock to $50.00 (from $39.00) ahead of the company’s 4Q earnings release and investor day.

The retailer is expected to release results on Monday, March 20th, ahead of their investor day where they will discuss strategic priorities, growth initiatives, and financial objectives. Telsey expects presentations from President and CEO Mary Dillon and other new members of the leadership team.

Analysts wrote in a note, “We believe Monday's investor day could serve as a catalyst for the stock, as new CEO Mary Dillon outlines her transformation plan and financial objectives. In her six months in the role, she has made changes to the leadership team and simplified the business by exiting international operations, while focusing on the “core” Foot Locker and Champs banners and its “growth” concepts.”

They expect Foot Locker’s investor day to focus on a “consumer first” approach. Foot Locker has lost some relevance with the consumer to brands’ DTC channels, specialty sneaker concepts, and national retailers that have gained access to premium footwear. To reverse course, they expect a sharper focus on products and closer relationships with brand partners, a revamped loyalty program, improved online and store experiences, and fresh marketing.

Telsey anticipates FL will continue to diversify its sales and lean on its expanded partnerships with Adidas (OTC:ADDYY), Puma (OTC:PMMAF), and Reebok and the addition of Hoka and On Running. However, it will be important for Foot Locker to demonstrate its ties with Nike (NYSE:NKE) remain strong. Any sign the Nike relationship has improved will instill greater confidence in the story.

Telsey expects Foot Locker to provide financial targets through 2025, which align with CEO Dillon's employment contract. The analysts foresee EPS in 2023 closer to $4.00 and have reduced Telsey’s EPS estimate to $3.95 from $4.20 previously vs. FS at $4.14 to reflect a more discerning consumer, higher promotions, and the need for investments.

Shares of FL are up 6.19% in mid-day trading on Thursday.

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