Foot Locker Selected as Bearish Fresh Pick Trading Call by Baird

Baird has maintained a Neutral rating on Foot Locker (NYSE: FL) and has introduced a Bearish Fresh Pick short-term trading call through November, indicating potential downside risks for the stock.

The investment firm has also lowered its target price from $35 to $27. Analysts at Baird expressed their cautious outlook for short-term trading due to recent softer spending in the U.S. and anticipated reduced sales visibility in the coming months.

As a result, they have adjusted their expectations for comparable sales growth in the second half of fiscal year 2024 to 1%, down from the consensus estimate of 3%, and have adopted a more conservative approach for their fiscal year 2025 estimates.

Despite the stock seeing a 9% increase since early July, outperforming the S&P 1500’s 5% gain, Baird remains concerned about the potential for volatile sales performance and the challenges posed by tougher year-over-year comparisons in the October-December period.

Additionally, a shorter holiday shopping season and an anticipated leadership change at Nike, one of Foot Locker’s key suppliers, could contribute to the uncertainty.

Analysts noted that they foresee near-term downside risks for the stock, projecting it could drop toward the low $20s by applying a revised NTM P/E of 12.5-13X to their adjusted estimates, signaling an unfavorable short-term setup.

They have also lowered their fiscal year 2024 earnings per share (EPS) estimate for Foot Locker by $0.15 to $1.40, which is below the company’s guidance range of $1.50 to $1.70 and the consensus estimate of $1.59.

Baird highlights a more than 400 basis point sequential deceleration in U.S. comparable sales based on third-party data. The revised estimate reflects conservative assumptions for second-half comparable sales growth and gross margin, partially offset by lower expected growth in selling, general, and administrative expenses.

For fiscal year 2025, Baird has taken a more cautious stance, reducing its EPS estimate to $2.00 from $2.75, which is below the consensus estimate of $2.09. While acknowledging Foot Locker’s potential to work toward its fiscal year 2028 margin target of 8.5-9.0%, the firm expects only gradual progress due to substantial near-term investments and ongoing macroeconomic uncertainties.