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Nov 17, 2017

Sports retail stocks jump after upbeat earnings

Foot Locker has breakout quarter, says Q4 will beat expectations

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 Shares of sports retailers soared on better-than-expected earnings from Foot Locker Inc, Shoe Carnival Inc and Hibbett Sports Inc as the companies sold more premium shoes and cut stocks of low-margin ones.

Shares of the retailers jumped 19-22 per cent in pre-market trading. Foot Locker was the most actively traded among stocks listed on the New York Stock Exchange. It was trading up more than 22 per cent as of 10:53 a.m. ET. 

Brokerages Jefferies raised price target on Shoe Carnival's shares by US$2 to US$22 and Wedbush to US$27 on expectations of better performance in 2018.

"It is clear to us the Shoe Carnival team is managing its business exceptionally well," Susquehanna analyst Sam Poser said.

"SCVL's willingness to plan purchases appropriately (boots are planned down 10 per cent for the season) resulted in inventory levels down 4.3 per cent on a per-store basis at 3Q17-end." The strong results come at a time when many of its peers such as Sports Authority and Sports Chalet have gone bankrupt trying to beat competition from ecommerce sites that are forcing retailers to cut prices and clear excess stocks.

Nike's decision to sell directly through ecommerce giant Amazon too has put pressure on brick-and-mortar retailers to slash prices and remain competitive.

Wedbush analysts said companies such as Shoe Carnival would benefit from better brand mix, conservative inventory planning, store closings and improved digital efforts.

Shoe Carnival and Hibbett have raised their same-store sales forecasts, while Foot Locker said it expects to achieve or modestly exceed top- and bottom-line guidance for the fourth quarter provided earlier in August.

"We look for an improvement in traffic and more top-line consistency to become more positive," Jefferies analyst Randal Konik said, referring to Shoe Carnival.