Foot Locker (FL) investors were in for a rude awakening this Wednesday morning as the company reported fiscal second-quarter earnings that featured another step backward on the full-year guidance.
While the company’s earnings were right on target with what analysts were looking for (4 cents adjusted), revenue slid below the analyst consensus ($1.86 billion compared to $1.88 billion expected). Sales declined nearly 10% in the quarter.
This was accompanied by a $5 million loss – a dramatic difference from this time last year when the sneaker giant reported a profit of $94 million. As a result of all this, the company was forced to once again lower its outlook for the full year.
Previously, Foot Locker was anticipating a sales decline of 6.5% to 8%. Now, they’re forecasting a decline of at least 8% and as much as 9%. Along with this, Foot Locker has suspended its quarterly cash dividend (beyond the October payout of 40 cents/share).
CEO Mary Dillon attributes these troubles to softening consumer demand amidst an uncertain economic climate. Price-sensitive individuals are not treating themselves to new kicks, and Foot Locker is feeling it.
The company has tried to use promotions as a means of burgeoning demand, but it hasn’t worked as well as they’d hoped – while also causing them to bleed profits. But other factors like theft and damage are proving to be a burden as well.
When we last wrote about Foot Locker in May of this year, shares had fallen almost as much as they did today – down 27% after a weak quarter and abandoning the full-year outlook.
This is deja vu for investors who weathered the storm last quarter. Shares have slid nearly 60% in the past year after today’s disastrous trading session.
That being said, is there any reason to believe this company can turn things around and recover these monstrous losses? Or, is it officially time to sound the alarm and cut losses on FL?
We’ve taken a look through the VectorVest stock analyzing software and have 3 things you need to see that will help you make your next move with complete confidence and clarity.
Despite Very Good Upside Potential, FL Has Poor Safety and Very Poor Timing
The VectorVest system simplifies your trading strategy by giving you clear, actionable insights in just 3 ratings: relative value (RV), relative safety (RS), and relative timing (RT).
Each of these ratings sits on its own scale of 0.00-2.00, with 1.00 being the average. This allows for effortless interpretation - but it gets even easier. Because based on the overall VST rating for a given stock, the system offers a clear buy, sell, or hold recommendation at any given time. As for FL, here’s the current situation:
- Very Good Upside Potential: The RV rating is a comparison between a stock’s long-term price appreciation potential and AAA corporate bond rates & risk. As for FL, the RV rating of 1.34 is actually very good. Plus, the stock is considered undervalued in the VectorVest system with a current value of $28.15.
- Poor Safety: The RS rating offers insights into risk through an analysis of the company’s financial consistency & predictability, debt-to-equity ratio, and business longevity. Right now, the RS rating of 0.74 is considered poor for FL.
- Very Poor Timing: The biggest issue for FL is the very strong negative price trend that’s been gripping the stock for most of this year. The RT rating of 0.30 is very poor. It’s based on the direction, dynamics, and magnitude of the stock’s price movement day over day, week over week, quarter over quarter, and year over year.
In weighing these three ratings, the overall VST rating of 0.85 is a ways below the average for FL - but deemed fair nonetheless. Where does that leave you as an investor - is it time to cut losses or is there any reason to hold onto hope?
Don’t let emotion influence your decision-making - get a free stock analysis today for a clear buy, sell, or hold recommendation on FL. Trust us, you’re not going to want to miss this one!
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VectorVest advocates buying safe, undervalued stocks, rising in price. After a second quarter of weakening sales and cutting the full-year guidance, FL has poor safety and very poor timing - but the stock does have very good upside potential.
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