Foot Locker Q3 Earnings: Is FL Cheap at 8.8x Forward P/E?

in EARNINGS/INVESTING IDEAS by

Foot Locker, Inc. (NYSE:FL) is scheduled to report Q3 earnings results for its third quarter ended November 2, 2019, before the U.S. markets open on Friday, November 22, 2019. The company is expected to report earnings of $1.08/share on revenue of $1.942 billion. The consensus earnings per share (EPS) of $1.08/share is based on a poll of 22 analysts and represents a growth of 13.7% over the same quarter last year when the company reported earnings of $0.95/share.

The revenue forecast of $1.942 billion based on a poll of 19 analysts implies a year-over-year (YoY) growth of 4.4%. Last year the company reported $1.86 billion in revenue for the quarter.

Expected to report EPS growth of $0.13/share for Q3, 2019
Metric Expected Prior Year YoY Change
Revenue $1,942.00 $1,860.00 4.4%
EPS $1.08 $0.95 13.7%

The company declared a dividend earlier this week. Foot Locker’s Board of Directors declared a quarterly cash dividend on the company’s common stock of $0.38/share, which will be payable on January 31, 2020, to shareholders of record on January 17, 2020.

Earnings Call Trends

Historically, management has exceeded analyst expectations 6 out of the last 8 tracked quarters, and missed expectations 2 quarters. What are your expectations from Foot Locker for earnings this quarter? Let us know in the comments!

Analyst Expected vs Reported EPS
Quarter Expected Reported Surprise Result
Q2, 2020 $0.67 $0.66 -1.2% Missed
Q1, 2020 $1.61 $1.53 -4.9% Missed
Q4, 2019 $1.39 $1.56 12.2% Beat
Q3, 2019 $0.92 $0.95 3.3% Beat
Q2, 2019 $0.70 $0.75 7.1% Beat
Q1, 2019 $1.23 $1.45 17.7% Beat
Q4, 2018 $1.25 $1.26 0.4% Beat
Q3, 2018 $0.80 $0.87 8.7% Beat

One question we always consider here at the Bankers’ Tribune is how important are earnings reports to Foot Locker’s stock price performance? It’s more important for some companies than for others.

In the following table, we summarize the company’s stock price movements after earnings releases. The “Price Day Prior” column shows the closing stock price on the day before the earnings report, and the “Price Next Day” column shows the stock price at the end of the trading day after the earnings report. After the last earnings report for the period ending August 3, 2019, the stock price reacted by falling by -18.9%.

Stock Price Performance After Earnings
Report Date Price Day Prior Price Next Day Change % Result
2019-08-23 $41.93 $34 -18.9% Decline
2019-05-24 $52.83 $44.40 -16.0% Decline
2019-03-01 $59.52 $63.07 6.0% Increase
2018-11-20 $48.81 $52.96 8.5% Increase

Fundamentals And Technical Analysis

Foot Locker is currently trading at $42.24/share, down -0.3% for the day. The company is trading at approximately 62% of its 52-week high of $68/share. The company’s stock price is up 24.2% since the last earnings report and down -7.4% over the previous week. The company’s 14 Day Relative Price Index (RSI) of 54.67 suggests the company is trading in technically neutral territory. The RSI is considered overbought when above 70 and oversold when below 30.

FootLocker Revenues Gross Margin-Watermarked

The current share price implies a price-to-earnings (P/E) multiple of 9.2x and a forward P/E multiple of 8.8x. Foot Locker’s current share price also implies a price-to-book (P/B) multiple of 1.9x. The following table summarizes some other key fundamental ratios:

Data as of November 21, 2019
Metric Value
Last Fiscal Period FY2020.Q2
Period End Date August 3, 2019
Stock Price (Current) $42.24
P/E Ratio 9.2x
P/E Ratio (Fwd) 8.8x
PEG Ratio 32.7
Total Debt to Capital (%) 41.2%
Levered Free Cash Flow $529 million
Enterprise Value / EBITDA 8.2x

Source: Finbox

Company Profile: Foot Locker, Inc.

Foot Locker, Inc. is a mid-cap stock with a market capitalization of $4.535 billion and a total enterprise value of $6.966 billion. The company operates in the Consumer Discretionary sector and Specialty Retail industry. Foot Locker, Inc., through its subsidiaries, operates as an athletic shoe and apparel retailer. The company operates in two segments, North America and International. The company retails athletic footwear, apparel, accessories, and equipment under various formats, including Foot Locker, Kids Foot Locker, Lady Foot Locker, Champs Sports, Footaction, Runners Point, Sidestep, and SIX:02. It also sells team licensed merchandise for high school and other athletes.

In addition, it operates sites for eastbay.com, final-score.com, and eastbayteamsales.com, as well as footlocker.com, ladyfootlocker.com, six02.com, kidsfootlocker.com, champssports.com, footaction.com, footlocker.ca, footlocker.eu, footlocker.com.au, runnerspoint.com, sidestep-shoes.com, footlocker.hk, footlocker.sg, and footlocker.my.

As of May 4, 2019, the company operated 3,201 stores in 27 countries in North America, Europe, Asia, Australia, and New Zealand; and franchised 119 Foot Locker stores in the Middle East, as well as 10 Runners Point,  franchised stores in Germany.

Foot Locker, Inc. has a strategic partnership with Adidas to develop Adidas Made For (AM4) shoes. The company was founded in 1879 and is headquartered in New York, New York.

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