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Foot Locker Inc. shares jumped 7.3% in Monday trading after the athletic retailer said it expected better-than-expected fiscal second-quarter earnings, but analysts are concerned that once the government stimulus funds dry up, so will demand.
For the second quarter ending August 1, Foot Locker FL, +6.20% expects same-store sales to rise 18%. Earnings per share are expected to be 38 cents to 42 cents, and adjusted EPS is expected to be 66 cents to 70 cents.
The FactSet consensus was for a same-store sales decline of 23.6% and a loss of 40 cents per share.
“As we continued to reopen stores throughout the quarter, we saw a strong customer response to our assortments, which we believe was aided by pent-up demand and the effect of fiscal stimulus,” said Richard Johnson, chief executive of Foot Locker, in a statement.
Foot Locker is scheduled to report fiscal second-quarter earnings on August 21.
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“While encouraged to see Foot Locker take advantage of a better near-term environment, the results directionally do not appear surprising given several tailwinds during May-to-June (pent-up demand, fiscal stimulus) which were well documented by others (Hibbett Sports/NPD Group) and seem likely to prove temporary,” wrote Baird analysts led by Jonathan Komp.
Hibbett Sports Inc. HIBB, +0.84% gave a business update in July that shows second-quarter same-store sales on track for a 70% same-store sales increase.
Still, Baird analysts note a recent slowdown in sales at major retailers and brands, including Foot Locker, after a strong June and early July.
“We also are uncertain at this stage of how potential executive actions cutting the weekly federal unemployment payout to $400/week from $600/week previously and providing the option for a temporary payroll tax holiday through year-end (likely less impactful than Cares Act checks) may impact overall spending, with [Foot Locker] in our view highly sensitive to discretionary spending conditions,” Baird wrote.
Baird rates Foot Locker stock neutral with a $29 price target, up from $24.
A Stifel report also shows that athletic spending is likely tied to government stimulus over the coming months, with sports and lifestyle stocks remaining “largely rangebound” after reporting their most recent earnings.
“Underwhelming response from the market, we believe, reflects indications that the consumer recovery has hit a glass ceiling in July and August,” wrote analysts led by Jim Duffy. “Further stimulus is needed to support consumer discretionary fundamentals through an unconventional back-to-school period and holiday.”
For the near-term, Stifel analysts favor names including Nike Inc. NKE, +4.30% , Lululemon Athletica Inc. LULU, +0.64% , Crocs Inc. CROX, -1.29% and Yeti Holdings Inc. YETI, -4.78%
Raymond James analysts are more upbeat about Foot Locker’s preannouncement.
“Consumer demand is hot right now and not just in the United States due to brand strength in Nike’s basketball/running sneakers (Air Force One and Air Jordans), growing usage athleisure and comfort apparel, pent-up demand from deferred spending in March and April, stimulus checks, and other competitors remaining closed,” wrote Matthew McClintock.
“We believe Foot Locker should be the dominant beneficiary of Nike’s decision to focus on a few global key retail partners and the COVID-19 pandemic likely accelerated Nike and Foot Locker’s partnership.”
Raymond James rates Foot Locker stock outperform with a $35 price target, up from $30.
Foot Locker stock is down 24.7% for the year to date while the Consumer Discretionary Select Sector SPDR ETF XLY, +1.14% is up 12.8% and the S&P 500 index SPX, +0.18% has gained 3.7% for the period.
