Foot Locker Inc. (FL) received a Neutral rating and a price target of $19 from Piper Sandler analyst Abbie Zvejnieks.
Zvejnieks notes that Foot Locker has been struggling with forecasting and inventory management.
With a decrease in discretionary spending by its lower-income customers and an increase in inventory, Foot Locker may have to rely on promotions to maintain its business.
The analyst mentions that 47% of Foot Locker’s customers fall into the lower income bracket and are feeling the impact of inflation and the lack of stimulus.
Compared to the same quarter in 2019, Foot Locker’s inventory has grown by 49% while sales have only grown by 5%, making it one of the worst offenders in terms of excess inventory in the U.S. wholesale channel.
Although Zvejnieks is optimistic about the increased presence of non-Nike brands, they note the challenges of Foot Locker’s partnership with Nike. As Nike focuses on its direct channels and connected partners for high-demand products, Foot Locker may face difficulties in accessing these items.
While there is potential for profitability improvement as the management team optimizes and streamlines the business, the current valuation is considered fair given the uncertainties ahead.
The analyst estimates that Foot Locker will generate $7.97 billion in revenue and earnings per share (EPS) of $1.35 in FY23. In FY24, revenue is projected to reach $8.09 billion with an EPS of $2.09.
Price Action: On Tuesday, Foot Locker’s shares were trading at $17.02, reflecting a 2.41% decrease.