There are two very distinct sides to this Foot Locker guide down. I’m short FL, but I don’t think this guide is a validator. In a way, I think it’s KATE and DKS bullish. Yah…I just said that.
Bearish: On one hand, this is only FL’s second negative preannouncement since 1Q07. This is the quarter we should see the impact of Nike pumping higher priced product into FL bc its e-comm slowed, its wholesale is evaporating, and it has to get its new platforms out to market. There was every chance that FL came out with a +8% comp this quarter. Maybe we can debate the negative preannouncement not being as severe as the headline. But there is definite absence of FL crushing it at the precise time it should have. Earnings are decelerating – period. Last four years 1Q EPS growth = 22.0%, 16.2%, 7.8%, 0.0%. #fact
Bullish: There’s no doubt that the Street botched the Easter shift for most retailers. Check out KATE. Reported a -2% comp, but the real underlying 2-year trend is +7-+8%. There’s a very plausible (and analytical) likelihood that we see an acceleration in 2Q across the board – including FL.
Punchline: Would I press the short in this? In fairness, I would not. Conversely, if DKS trades down on this, I’d buy it full stop. It’s more immune to shifts in timing associated with holidays – and the stars are aligning for Dicks on almost every line of the P&L – real estate, comp sustainability, GM/occupancy leverage, and SG&A decline to no more dupe ecomm costs. That’s one of my top ideas right now, and the FL announcement does not change that.
