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Foot Locker Is Still The Best House On The Retail Block, Could Be Amazon-Immune

Footlocker Inc NYSE:FL, Amazon.com, Inc. NASDAQ:AMZN - Foot Locker Is Still The Best House On The Retail Block, Could Be Amazon-Immune

Foot Locker, Inc. FL 3.22% is expected to report its first-quarter numbers on May 20, and Susquehanna expects EPS of $1.38, a penny below the Street's view. The brokerage also noted that the retailer is the least affected by Amazon.com, Inc. AMZN 0.1% within the retail sector.

Analyst Christopher Svezia, who has a Positive rating on the stock, expects comps to grow 4–5 percent for the quarter.

"While one-time costs may cause deleverage in 1Q (in line with guidance), we believe earnings growth can accelerate given solid comp momentum, easing f/x and normalized SG&A," Svezia wrote in a note.

Amazon-Immune?

Noting that Foot Locker would benefit from athletic footwear demand, the analyst said the retailer continues to have "one of the strongest business models yielding profitable comp outperformance."

Svezia highlighted that unlike other retailers in the space, Foot Locker is not impacted by Amazon's threat. "We argue that the way brands allocate product leaves FL significantly less susceptible to AMZN than other apparel dependent retailers."

Brands mostly decide the allocation and merchandising strategy, and most Foot Locker brands do not sell directly to Amazon. The analyst cited an example of the Curry 2.5, which will only be available at Under Armour Inc UA 0.08%, DTC and Foot Locker locations.

Looking Forward

The analyst also noted that the company's FY16 outlook of double-digit earnings growth and mid-single-digit comp is "achievable." This compares to consensus at +10.7 percent and +4.9 percent at the print. In addition, the company's long-term forecast (about $6.00-$7.00 EPS by 2020) also "looks good."

In addition, Svezia said the second-quarter comp may increase in low single digit, which shouldn't be a surprise given a tough compare last year (double-digit growth).

The analyst believes that comp should improve following first-quarter earnings on "comparable Jordan launches and solid other footwear launches above ~$150 that have consistently sold out (NMD, Ultra Boost, Curry 2.5, Olympics related, etc.)."

Despite, shares having dropped 14 percent since the fourth-quarter results, the analyst sees Foot Locker trading at "attractive ~5.5x EV/EBITDA (~10 percent discount to historical average) given solid total return visibility (+DD EPS + 1.9 percent dividend)."

Commenting on the options movement, Svezia noted, "The options appear to be pricing in a +/- ~6 percent move for the company's upcoming earnings release, on the higher side when compared to the +/- 3.5 percent average move seen over the company's last eight releases."

At time of writing, Foot Locker was trading up 3.13 percent at $59.26, with about 20 minutes left in Monday's regular trading session. The analyst has a price target of $82 on the stock.

DateFirmActionFromTo
May 2016Deutsche BankMaintainsBuy
Apr 2016Cowen & CompanyDowngradesOutperformMarket Perform
Apr 2016Piper JaffrayUpgradesNeutralOverweight

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