Shares of Foot Locker (NYSE: FL) soared nearly 30% on Friday after the athletic footwear and apparel retailer posted a third-quarter earnings beat. Its revenue fell 1.1% annually to $1.87 billion, but that still beat expectations by $40 million. Non-GAAP earnings fell 23% to $0.87 per share, but topped estimates by $0.07 per share.

The key facts

Foot Locker beat analysts' low expectations, but its core growth figures weren't that impressive. Comparable-store sales fell 3.7%, its gross margin fell 290 basis points annually to 31%, and its sales, general, and administrative expense rate climbed 30 basis points to 19.7%. But on the bright side, its inventories fell 3.4% annually to $1.32 billion. It also closed 10 stores during the quarter, bringing its total store count to 3,349.

CEO Richard Johnson stated that the results "were broadly in line with our expectations" amid a "highly promotional environment," and that the arrival of new premium products would help it achieve or "modestly exceed" the guidance (a comps decline of 3% to 4%) it previously offered for the current quarter. Analysts currently expect Foot Locker's revenue and earnings will drop 0.5% and 17%, respectively, this year.

The bottom line

Foot Locker's post-earnings bounce was encouraging, but the stock remains down more than 40% for the year. That's because an excess inventory of athletic footwear and sportswear in the U.S., combined with the trend of major brands expanding their direct-to-consumer channels and selling through first-party brick-and-mortar stores could still sink retailers like Foot Locker and rival Finish Line (NASDAQ: FINL) -- which is down nearly 50% this year.

Therefore, Foot Locker still has a lot of work to do before it can be considered a comeback play, and investors should think twice before chasing this rally.

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The author(s) may have a position in any stocks mentioned.

 

 

Leo Sun has no position in any of the stocks mentioned.

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