What Happened?

Shares of footwear and apparel retailer Foot Locker (NYSE:FL) jumped 10.3% in the morning session after the company put up a decent fourth-quarter 2024 result, beating expectations on earnings and gross margins. But sales took a hit, and the outlook for the full year came in a bit light. Revenue was down about 6%, though part of that was tied to a calendar shift, as the previous year had an extra week. On the bright side, comparable sales grew. Moving to the bottom line, the company managed to keep costs in check while benefiting from better pricing on merchandise and steady occupancy expenses. That helped earnings exceed estimates. That said, the full-year guidance wasn't as optimistic. Management signaled only modest sales growth and slight margin expansion, which likely indicated some lingering challenges in the retail space. Overall, this was a mixed yet decent quarter.

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What The Market Is Telling Us

Foot Locker’s shares are very volatile and have had 26 moves greater than 5% over the last year. But moves this big are rare even for Foot Locker and indicate this news significantly impacted the market’s perception of the business. 

The biggest move we wrote about over the last year was 9 months ago when the stock gained 28.2% on the news that the company reported strong first-quarter results that blew past analysts' EPS expectations. While Comparable sales decreased, this was mostly driven by the continued repositioning of the Champs Sports banner. Core banners strengthened as Global Foot Locker and Kids Foot Locker comparable sales increased 1.1%. Inventory levels improved, with merchandise inventories down 5.6%, indicating a better handle on stock management. 

Guidance was likewise solid as its full-year earnings guidance exceeded Wall Street's estimates. In line with the company's retail strategy, Footlocker planned to open four more locations this year, which could be a sign that the growth and turnaround strategy are working as planned. Zooming out, we think this was a fantastic quarter that should have shareholders cheering.

Foot Locker is down 15.3% since the beginning of the year, and at $18.37 per share, it is trading 46.5% below its 52-week high of $34.31 from March 2024. Investors who bought $1,000 worth of Foot Locker’s shares 5 years ago would now be looking at an investment worth $599.77.

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