“Mall Is Still Not Dead” as Foot Locker Earnings Send Share Price Up +20%
On Friday May 25, Foot Locker (FL) reported same sales stores declined just -2.8% YoY (analysts expected -3.6%) in Q1 ‘18, sending shares of the stock rising by +20% (to $55.81). Foot Locker buys 65-70% of the product it carries from Nike, so the brand continues to drive the brick and mortar retailer’s sales (+1.2% to $2.03 billion); but sales of Fila, Vans and Champion sneakers/apparel also contributed meaningful revenue to the company’s bottom line (-8.3% YoY, $165 million). While Nike and Adidas are increasing DTC sales, Foot Locker has managed to offset the reduced sales volume by increasing sales of higher priced products. CNBC’s Jim Cramer was so encouraged by the company’s quarterly results that he proclaimed the “mall is still not dead.”
Howie Long-Short: Friday’s report and resulting pop was welcomed news for shareholders fearful of a pending Amazon takeover (as a sneaker/apparel e-tailer) and Nike/Adidas cutting off access to premium products. Of course, FL is hardly out of the woods on the second front; the company acknowledged that while tighter distribution has coincided with an increase in full price sales, the reduced allocations will “continue to be a top line headwind over the next few quarters.”
As for Cramer’s comment, why does FL have plans to close 110 under-productive stores in 2018 - after closing 147 locations in 2017 - if establishing residency in a mall still made sense? FL said back in March that it was working to reduce its exposure to “deteriorating malls”, instead focusing on opening up 40 more “select, high-profile” stores (the company opened 94 in ’17). If/when malls figure out how they’re going to replace anchor tenants like Sears and J.C. Penney, I’ll buy Cramer’s story; until then, I’ll maintain mall owners should consider repurposing their properties as data centers, schools or micro apartment complexes.
Fan Marino: Hibbett Sports (HIBB) released its first Q1 ’18 earnings report on Friday 5.25 too, but investors weren’t nearly as pleased with the results. Analysts had expected the company to report a same store sales increase of +1.2% YoY, but the company reported a -.03% YoY decline. Shares dropped -15.6% by Friday’s close, but rebounded +6.5% on Tuesday (to $26.00).
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