Baird maintained a Neutral rating on Foot Locker (NYSE:FL) and introduced a Bearish Fresh Pick short-term trading call through November, signaling potential downside risks for the stock.
The investment firm also trimmed its target price from $35 to $27.
Analysts at Baird voiced a cautious short-term trading view due to softer recent spending in the U.S. and potential reduced sales visibility in the upcoming months.
As such, they have adjusted its second half of fiscal year 2024 comparable sales growth estimates to 1%, down from the consensus of 3%, and has also embedded more conservatism into its fiscal year 2025 estimates.
While the stock has seen a 9% increase since early July, outperforming the S&P 1500's 5% gain, Baird is concerned about volatile sales performance and the impact of tougher year-over-year comparisons in the October-December period.
A shorter holiday shopping season and an expected leadership change at Nike, one of Foot Locker's key suppliers, could also add to the uncertainty, Baird notes.
“Accordingly, we see near-term downside risks for the stock toward the low-$20s applying the Julylow NTM P/E of 12.5-13X to our reduced estimates, and we are signaling our view of an unfavorable short-term setup,” analysts said.
They have also lowered its fiscal year 2024 earnings per share (EPS) estimate for Foot Locker by $0.15 to $1.40, which is below both the company's guidance range of $1.50 to $1.70 and the consensus estimate of $1.59.
Baird cites a greater than 400 basis point sequential deceleration in U.S. comparable sales as indicated by third-party data. The revised estimate reflects a more conservative assumption for the second half comparable sales growth and gross margin, partially offset by lower anticipated selling, general, and administrative (SG&A) growth.
For fiscal year 2025, Baird has adopted a more conservative stance, reducing its EPS estimate to $2.00 from the previous $2.75, which is below the consensus of $2.09. The firm acknowledges Foot Locker's potential to progress towards its fiscal year 2028 margin target of 8.5-9.0%, but expects measured progress considering the elevated near-term investments and ongoing macroeconomic uncertainties.