Analyst: Foot Locker's Elevated Inventory Could Weigh

Foot Locker is set to report earnings before Wednesday's open

Deputy Editor
Nov 27, 2023 at 10:40 AM
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Foot Locker Inc (NYSE:FL) stock is 2.7% lower at $22.68 this morning, after Citi downgraded the shares to "sell" from "neutral." In its bear note, the Wall Street analyst cited elevated inventory in a tough environment, saying its believes the retailer "will sacrifice margin near-term to get clean on inventory by year-end." 

This bear note comes ahead of Foot Locker's third-quarter earnings report, due out before the open on Wednesday, Nov. 29. Analysts anticipate the company to post earnings of 22 cents per share, with a fall in quarterly revenue.

A look at the FL's history of post-earnings reactions over the past two years shows  mostly negative responses, including three-straight next-day losses over the last three quarter. The stock averages a post-earnings swing of 17% the last eight quarters, regardless of direction. This time around, the options market is pricing in a larger move of 20.9%. 

Coming into today, the majority of analysts were already bearish on FL. In fact, just three of 18 covering brokerages recommended a "strong buy," while the rest said "hold" or worse. Short interest fell by 17.2% over the last month, yet the 12.54 million shares sold short account for 13.6% of Foot Locker stock's total available float. 

The equity's normally quiet options pits are seeing an uptick in activity as well. Already today, 1,662 bullish bets have crossed the tape, or double the intraday average volume. Most popular by far is the weekly 12/1 30-strike call. 

Today's drop has FL trading 40% lower in 2023, though it's up nearly 31% in the fourth quarter. The security is still recovering from an Aug. 23, nearly 13-year low of $14.84, and is trading above a confluence of key short-term moving averages. However, the 140-day trendline remains in place as stiff resistance. 

 

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