Earnings preview: Foot Locker set to deliver mixed Q2 results amid weak outlook

Foot Locker (NYSE: FL) disappointed investors when it reported weaker-than-expected results for the first quarter a few months ago, sending the stock into a free fall. When the specialty athletic retailer unveils its second-quarter numbers, the market will be looking for updates on the management’s full-year target which was lowered amid concerns of softening margin growth. The results will be published on Friday at 6:45 am ET.

Analysts predict an 11% decrease in earnings to $0.67 per share. The estimate for revenue is $1.83 billion, which represents a 2.5% year-over-year increase. Earnings surpassed estimates in three of the trailing four quarters.

Q1 Outcome

In the first quarter, net sales grew 2.6% to $2.07 billion. At $1.53 per share, earnings were up 6% year-over-year. The results, however, missed the estimates and the management slashed its full-year view. It needs to be seen whether the company will be able to stay resilient to the recent tariff hikes on Chinese imports and growing competition.

Like most of its peers in the retail sector, Foot Locker has been investing heavily in the e-commerce platform and physical stores, leading to cost escalation. The prospects of the retail chain meeting its full-year target will depend on how it fares during the upcoming holiday season. In recent years, margin growth as a percentage of sales slowed significantly.

Innovation Holds the Key

In the to-be-reported quarter, the top-line might have benefitted from the ongoing growth initiatives, including the efforts to enhance store experience, ramp up the direct-to-customer channel and adoption of new technology. The innovations are expected to encourage customers to do in-store shopping rather than choosing the direct-to-customer platforms.

 Also see: Can Dick’s Sporting retain momentum in Q2

While upgrading Foot Locker to Equal-weight from Underweight, Morgan Stanley earlier this month said that a reasonably healthy comparable store performance in the second quarter will have a positive effect on the stock.

Competition

Foot Locker’s rival Dick’s Sporting Goods (DKS) will be announcing its second-quarter results Thursday early morning. Analysts are looking for earnings of $1.2 per share on revenues of $2.21 billion, which is almost in line with last year’s numbers.

Related: Foot LockerQ1 2019 Earnings Call Transcript

Last week, Foot Locker shares slipped to a 10-month low, continuing the downturn that began in the final week of May. The stock lost 38% so far this year and 19% in the last twelve months.

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