Foot Locker has a spring in its step

Foot Locker will release its third-quarter figures on Friday 21 November before the market opens.

A Foot Locker branch
Source: Bloomberg

The sportswear store is riding high as profits jumped 39% in August; a drop in demand for its clothing line was more than offset by the resilience in its footwear division. In the previous quarter sales of basketball shoes leapt by 17%; the firm now depends on footwear for more than 75% of its income.

Even though leisure wear is becoming more popular in the US, Foot Locker’s apparel business slumped in the most recent period. The rise of hoodies and the popularity of yoga pants is something Foot Locker hopes to capitalise on. The company stated the clothing business is growing but is taking longer than it initially thought to build up. Traders will be looking for a strategy to expand in this area.

The second-quarter figures impressed traders; revenue was $1.64 billion, higher than analysts' expectations $1.57 billion, and the EPS was $0.64, beating the estimated $0.54.

Equity analysts are very bullish on Foot Locker; out of the 22 ratings, 15 are buys the remaining seven are holds, and the average target price is $59.90 which would be a record high.

Since the second-quarter results were announced in August, the number of short positions on the stock has increased by 55%, and the short interest on the stock is now at its highest level this year.

Traders are expecting third-quarter revenue to be $1.72 billion and EPS to be $0.78, compared with last year’s revenue and EPS of $1.62 and $0.7 respectively.

The retailer will reveal its full-year numbers in February 2015, and the consensus is for revenue of $7.11 billion and EPS $3.44. The forecast is considerably higher than last year’s revenue and EPS which came in at $6.5 billion and $2.87. A reassurance of full guidance will be required to justify buying the stock. 

Foot Locker’s share price has been rising steadily since the end of 2008. The price has accelerated this year and is up 32% year-to-date. The share price hit a record high of $58.69 in September but has failed to make another attempt at that level. It is receiving support at $52, and a drop below that would put the 200-day moving average of $49.71 on the radar; $48 would be the next support level. To the upside, $58 is the initial target; if that is cleared then $60 will be in the cross hairs. 

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