Shares of Foot Locker, Inc. (FL Quick Quote – ) fell 29.8% during trading hours on February 25, despite reporting strong fourth quarter fiscal 2021 results. Both the top line and summary increased year-over-year and exceeded their respective Zacks Consensus estimates. FL reported its seventh consecutive profit and fourth consecutive sales surprise in the reported quarter.

Beginning in the fourth quarter of fiscal 2022, Foot Locker does not expect any suppliers to account for more than 55 percent of total supplier spending. This is down from 65 percent in the same period last year. This change reflects Nike's strategic shift to direct-to-consumer and Foot Locker's continued brand and category diversification initiatives. This, coupled with a weaker view for fiscal 2022, is likely to have dampened investor sentiment.

Over the past six months, Foot Locker's stock has fallen 17.8 percent, compared with a 9.8 percent decline for the latter.

Fourth quarter indicators

The athletic footwear and apparel retailer reported adjusted earnings per share of $1.67, beating the Zacks Consensus Estimate of $1.43. Profit rose 7.7 percent compared with adjusted earnings of $1.55 per share recorded in the same period last year.

Total sales increased 6.9 percent to $2,341 million, above the $2,314 million widely expected. Excluding the impact of foreign currency fluctuations, total sales increased 8.2 percent. Digital penetration was 21.6 percent, compared with 27.4 percent in fiscal 2020 and 18.7 percent in fiscal 2019.

Comparable store sales (comps) increased 0.8 percent in the quarter, with apparel primarily outpacing footwear. Its store metrics grew 8.8 percent and store traffic increased nearly 25 percent, while conversions for teens declined. North America declined 4.5 percent, while EMEA grew in the teens and Asia Pacific grew more than 20 percent, with stable performance in the Pacific and Asia regions.

In the reported quarter, 97 percent of Foot Locker's global store fleet was open, compared to 87 percent in the previous fiscal year.

Profit Insight

Foot Locker's gross margin declined 10 basis points (bps) in the reported quarter compared to the same quarter last year. Strong merchandise margin growth was offset by occupancy deleverage, which primarily reflected higher rent reductions in the year-ago quarter.

The SG&A rate was 22.4 percent, deleveraging approximately 140 basis points due to higher labor costs, marketing and technology expenses.

Store Updates

In the fourth fiscal quarter, Foot Locker opened 60 stores, acquired 38 atmos stores and remodeled or relocated 115 stores. FL closed 76 stores and 120 Footaction stores, 45 of which were converted to other banners.

As of January 29, 2022, Foot Locker operated 2,956 stores in 27 countries in North America, Europe, Asia, Australia and New Zealand. In addition, FL has 142 franchised stores in the Middle East and Asia.

Following the success of its first 50 global community and power stores, management plans to expand to approximately 300 locations over the next three years. Management expects to open approximately 100 stores in fiscal 2022, including 40 community and power outlets, 27 WSS stores and 9 atmos stores, while closing nearly 190 stores.

Other financial details

The current Zacks Rank 3 (Hold) player ended the fourth quarter with cash and cash equivalents of $804 million. Long-term debt and obligations under finance leases were $451 million and shareholders' equity was $3,243 million. Commodity stock was $1,266 million as of January 29, 2022, an increase of 37.2% from the end of the prior year period.

During the quarter, Foot Locker repurchased 4 million shares of stock for $178 million. FL also paid a quarterly dividend of 30 cents per share or a total cash payment of $29 million. Foot Locker invested $325 million to acquire atmos and repaid $98 million in debt.

For fiscal year 2022, Foot Locker's Board of Directors approved a $275 million capital expenditure program. FL also declared a quarterly cash dividend of 40 cents per share, a 33 percent increase over the previous dividend payment. This payment will be made on April 29, 2022 to shareholders of record as of April 14. The Board of Directors approved a new stock repurchase program to repurchase up to $1.2 billion of outstanding common stock.

Long Term Plan

Foot Locker is focused on enhancing the customer experience, investing in long-term growth and improving productivity. In this regard, management will accelerate efforts including diversifying the merchandise and supplier mix, accelerating the shift to non-mall and launching significant growth banners, advancing omnichannel efforts and implementing cost savings programs.

As part of Foot Locker's investment in GOAT Group, the two companies are actively discussing design initiatives to enhance the value proposition and consumer experience. In addition, management expects WSS to reach $1 billion in annual sales by 2024, driven by higher store openings and same-store sales growth. In addition, FL expects atmos' annual sales to grow 50 percent to approximately $300 million over the next three years, by expanding in existing markets and strengthening the same internationally.

Appearance

Management moved out of fiscal 2021 on a solid note, reflecting the momentum of the business. Going into fiscal 2022, Foot Locker continues to benefit from the tremendous flexibility of its real estate portfolio, store footprint and omnichannel product optimization. For the full fiscal year, management expects sales to decline 4-6 percent and comparable sales to decline 8-10 percent.

Gross margin is expected to be in the range of 30.1-30.3% and SG&A rate is expected to be 20.2-20.4%. Gross margin is likely to decline 410-430 basis points driven by occupancy deleverage and higher supply chain costs. SG&A is expected to leverage 30-50 basis points in fiscal 2022.

Foot Locker expects adjusted earnings per share of $4.25-$4.60 for the current fiscal year. The Zacks Consensus Estimate for fiscal 2022 earnings is currently fixed at $6.13 and could see a downward revision in the coming days.

3 Hot Stocks to Consider

Here are three of the better ranked stocks, Capri Holdings (CPRI Quick Quote -), ing Goods (DKS Quick Quote -) and Dollar Tree (DLTR Quick Quote -).

Capri Holdings, a global fashion luxury group, currently carries a Zacks Rank #1 (Strong Buy). Over the past four quarters, CPRI's summary has significantly exceeded the Zacks Consensus Estimate. As you can see.

The Zacks Consensus Estimate for Capri Holdings' current fiscal year sales and earnings per share indicate growth of 37.1% and 215.8%, respectively, compared to the figures reported for the same period last year. CPRI expects earnings per share growth of 30.9 percent over the next three five years.

DICK'S Sporting Goods, which operates as a sporting goods retailer, currently owns the Zacks Rank #2 (Buy). DKS has averaged a 104.2% earnings surprise over the past four quarters.

The Zacks Consensus Estimate for DICK'S Sporting Goods' sales and earnings per share for the current fiscal year indicates an increase of 27.6% and 151.6%, respectively, compared to the figures reported for the same period last year. DKS expects earnings per share growth of 11.7 percent over the next three five years.

Dollar Tree is an operator of discount variety retail stores and currently has a Zacks Rank #2. DLTR's average earnings surprise over the past four quarters has been 8.8%. DLTR expects earnings per share growth of 12.2% over three to five years.

The Zacks Consensus Estimate for DLTR's current fiscal year sales indicates a 3.4 percent increase over the figure reported for the same period last year.