SECTOR: Hedgeye Retail (@HedgeyeRetail)
Foot Locker has had its share of near-term problems as it struggled with sales and its European business. We’ve been bullish on the long-term TAIL duration of this stock as the company works its way around the European business climate and focuses on growth. We got bullish on the company before it reported Q1 earnings based on strength in domestic trends and came in above our consensus estimate.
With Q2, we expect the company to put aside any issues that have been plaguing it for some time, paving the way for a better second half of 2012. With domestic trends coming in well above expectations, we think that FL has the gusto to beat Q2 earnings estimates. Also, coming out of Q2, FL’s sales/inventory spread improved on the margin which is a positive for gross margins. Coupled with the top-line coming in ahead of expectations should result in materially higher EPS numbers this year and next. Basically, the best is yet to come for FL. Have patience with this one.