Analysts at UBS reaffirmed their Sell rating on Foot Locker, Inc. (NYSE:FL) noting that the company’s challenges are more than macro-related.
UBS also said that it has lowered its price target 27% to $22.
“We see downside risk to FL's approximately $2.00 to $2.25 FY23 EPS guidance and sell-side consensus estimates based on two factors: 1) The consumer spending deteriorating further and more than the market expects; 2) More margin pressure than what we think is priced in,” said UBS analysts in a note to clients.
“Our FY23E EPS is 35% below consensus. FL's 32% drop since the print and 33-45% FY23 EPS guide down may make the stock appear cheap, but we think it can go lower and thus reiterate our Sell rating. The market, in our view, responds more to "rate of change" than valuation.”
UBS added that it did not see any indicators pointing to an inflection for Foot Locker’s fundamentals in the near future.
Foot Locker noted the consumer slowdown in March and April challenged comps more than expected in its previous outlook. Moreover, consumers are less willing to buy at full price and UBS says the company will need to increase promotional activity to drive traffic and clear inventory.
“At the same time, we believe FL is also losing market share. We believe this will further pressure sales and weigh heavily on margins over the long term,” said the analysts.
“We are bullish on athletic footwear, particularly with brands like On, Hoka, Skechers, and Nike. However, these brands and others with strong DTC capabilities appear to be taking share from retailers like Foot Locker. We think this trend will prevail beyond FY23.”
New York City-based Foot Locker is an American sportswear and footwear retailer with a footprint in 28 countries.
Contact the author Uttara Choudhury at uttara@proactiveinvestors.com
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