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Foot Locker (FL) Q1 Earnings: Will the Stock Disappoint?

Foot Locker, Inc. FL is slated to release first-quarter fiscal 2016 results on May 20. The big question facing investors is, whether this retailer of athletic shoes and apparel will be able to continue with its positive earnings surprise streak in the quarter to be reported. In the trailing four quarters, the company outperformed the Zacks Consensus Estimate by an average of 9.4%. Let’s see how things are shaping up for this announcement.

Zacks Model Shows Unlikely Earnings Beat

Our proven model does not conclusively show that Foot Locker is likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. Foot Locker has an Earnings ESP of 0.00% as the Most Accurate estimate and the Zacks Consensus Estimate both stand at $1.40. Moreover, the company carries a Zacks Rank #4 (Sell). We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Factors Influencing this Quarter

We believe that Foot Locker is likely to benefit by continually exploiting opportunities like kids’ and women’s business, shop-in-shop expansion in collaboration with its vendors, store banner.com business, store refurbishment and enhancement of assortments. The company is also well positioned to reap the benefits from the so-called “athleisure” trend that has been sweeping the retail sector as consumers are now opting for more comfortable and athletic style products.

However, fashion obsolescence remains the main concern for Foot Locker’s business model, which involves a sustained focus on product and design innovation. The company’s pioneering position may be hurt by delays in its product launches. Moreover, Foot Locker generates a significant amount of net sales outside the U.S. Due to high exposure to international markets, the company remains prone to currency fluctuations. The weakening of foreign currencies against the U.S. dollar may require the company to either raise prices or reduce profit margins in locations outside the U.S. An increase in prices may have an adverse impact on the demand for Foot Locker’s products.

Stocks Poised to Beat Earnings Estimates

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

The Home Depot, Inc. HD has an Earnings ESP of +1.50% and a Zacks Rank #2 (Buy).

Lowe's Companies, Inc. LOW has an Earnings ESP of +2.38% and a Zacks Rank #2.

Best Buy Co., Inc. BBY has an Earnings ESP of +2.94% and a Zacks Rank #2.

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