Foot Locker (NYSE:FL) has just reported on its most anticipated earnings reports in company history. The sentiment on the name and the sector has been extremely negative. There is a palpable belief that retail is dead, and very few retailer stocks have done well this year given the fears over Amazon (AMZN) taking over the world. All footwear and sporting goods related stocks have perhaps been hit the absolute hardest. That said, Foot Locker shares are rallying.
What a reversal from the travesty that was the second quarter. In this column, we will discuss where weaknesses persist that have impacted our long thesis, while also highlighting where the company has notable strengths within those perceived weaknesses. In addition, we discuss a very bullish new partnership with (NKE) that investors absolutely must be aware of.
Let’s talk about everything you need to know starting with one of the key weaknesses for the company right now. One of the issues that crushed the stock was declining comparable sales, which began back in Q1:
As we look into the Q3 results, we see that comparable sales once again declined 3.7%. This is a fundamental weakness for the company. Our general rule is that negative comparable sales are a red flag and usually we will avoid the stock when the company is experiencing such weakness. In fact, we see the largest issue with Foot Locker being its decline in same-store sales. This is a key indicator, and had been great for many quarters up until the last few months. What is going on here?
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