Foot Locker (NYSE:FL) was in a strange position for most of the pandemic. Sure, people need shoes, but people need shoes less when their ability to leave the house is limited at best. With much of Foot Locker's trade focused on mall-facing retail, and many malls spending a large portion of 2020 shut down or heavily restricted, that left the company in a bad position. Its fourth-quarter earnings report, recently revealed, shows that the company did indeed take a few hits, but also made some headway.
A Half-Worn Earnings Report
It was good news and bad news for Foot Locker in the fourth quarter, which is supposed to be the quarter in which retailers shine the brightest amid some of the biggest gift-giving holidays of the year. Adjusted earnings per share for Foot Locker came in at $1.55, which readily beat the expected consensus figure of $1.37 advanced by FactSet. While a beat is a beat, it was also one of the only beats Foot Locker would generate.
Group revenues dropped to $2.19 billion for the quarter, down 1.4% against the same time the preceding year. Analysts were looking for $2.29 billion, however, which hurt the company's prospects further. Moreover, the company issued no guidance for 2021, again citing the now-familiar bugaboo of uncertainties surrounding the pandemic.
Word from the company's CEO, Richard Johnson, notes that customers responded positively to efforts to draw attention in the fourth quarter, like new product lines and improved online presence to address those who didn't yet feel safe going into a store. Yet ongoing COVID-19-related store closures and supply chain struggles didn't help Foot Locker much, especially as one of its primary revenue drivers, Nike (NYSE:NKE) continued to look for revenue beyond the storefronts of other companies and go direct to the consumer.
An Increasingly Bullish Fit from Analysts
Despite the issues that Foot Locker faces, the word from the broader analyst community—as determined by our latest research—only gets more bullish the farther out you go. The company has held a “buy” recommendation for the last three months, and for the last six months, has improved toward the bullish in every period measured.
Tracking the progression shows a clear slant upward toward bullishness; six months ago, the company had one “sell” rating, eight “hold” and eight “buy” to its credit. The company then broke through from consensus “hold” to consensus “buy”, offering up two “sell” ratings, six “hold” and 13 “buy.” That support remained steady a month ago as the company went to two “sell”, six “hold” and 14 “buy”. Now, we're at two “sell”, six “hold” and 16 “buy” ratings, proving that analysts are increasingly coming in on Foot Locker's side here.
The price target, meanwhile, has been steadily trending upward as well. Six months ago, it sat at $32.07. Three months ago, it jumped to $39.21. Another jump came a month ago with $42.35, and today, one more jump is added to the roster, taking the price to $48.77. The company has been adding a lot of support recently, with several price target hikes and upgrades outright taking place just in the month of February.
A Strange Picture Overall
So now we're left to decipher the pieces we've gathered so far. Mall traffic is starting to come back as lockdowns relent across the nation, even in places where some might have thought they'd go on forever. Vaccines and therapeutics are decreasing the need for lockdowns beyond the point the science and data can justify, and the analyst community is eager to pick up more Foot Locker shares. Foot Locker has also been seen offering up a $200 million pledge to support black communities in the United States, which should help provide extra positive word of mouth and press relations in some of its stronger markets.
Yet at the same time, the increasingly direct-to-consumer focus that Nike has taken—and it's not alone on this front—make it strange to consider how further gains can be fielded from Foot Locker. If other shoe companies start following suit and cutting out the middleman, that's going to seriously hurt Foot Locker.
In order to succeed, Foot Locker will have to demonstrate to its customers that it's worth continuing to shop there, and programs like its $200 million pledge should help on that front. It also has to demonstrate to its suppliers that it's worth not going over Foot Locker's head and going direct to the consumer instead, and that may be a tougher haul. There seems to be more than enough confidence that Foot Locker can thread the needle, however, so consider buying in on this retail comeback story.
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