Foot Locker (FL, Financial) surged 4% after reporting a double-digit earnings increase in Q4, driven by its Lace Up turnaround plan. However, the company faces challenges as consumer caution affected its QTD numbers in February. FL forecasts weak FY26 figures, with adjusted EPS and revenues below consensus. Positively, FL anticipates 1.0-2.5% same-store sales growth this year, aligning with estimates.
Key highlights from FL's Q4 report include:
Positive comps in Q4 with a 2.6% increase, supported by a 3.6% rise across Foot Locker and Kids Foot Locker banners. Champs Sports also posted positive comp growth for the second consecutive quarter. Total revenue declined 5.7% year-over-year to $2.25 billion, slightly missing analyst expectations due to the absence of a 53rd week, FX challenges, and store closures.
Gross margins expanded by 300 basis points year-over-year in Q4, driven by merchandise margin recovery. FL's cost-savings plan contributed $35 million in savings, leading to an adjusted EPS of $0.86, exceeding the company's outlook of $0.70-0.80.
The Lace Up plan shows promising progress, with positive enterprise comp growth, gross margin expansion, and positive free cash flow in FY25, expected to continue in FY26. The plan includes opening reimagined stores, enhancing existing locations, updating the loyalty program, and achieving further savings.
FL reports success with its reimagined stores and improved rewards program, leading to increased purchase frequency and a higher sales capture rate in Q4. The company plans to accelerate store openings, complete 300 additional refreshes, enhance its rewards program, and achieve $60-70 million in savings by 2025.
Despite these advancements, FL remains cautious due to the economic climate. Consumers are spending cautiously between major shopping events, prompting FL to slow some technology investments to prioritize its Lace Up strategies.
Foot Locker's Q4 results and Lace Up plan indicate positive momentum, though the challenging economic environment may limit immediate growth potential for the stock.