Foot Locker: Morgan Stanley cuts PT on turnaround doubts after Q3 earnings miss

Investing.com– Morgan Stanley (NYSE:MS) reduced its price target for Foot Locker Inc (NYSE:FL), citing continued concerns over the retailer’s ability to execute a turnaround, after its disappointing third-quarter earnings and a downgrade to full-year guidance.

Foot Locker’s third-quarter results missed expectations, with earnings per share falling short due to weak comparable sales and gross margin performance. While some categories, such as children’s footwear, showed modest gains, Morgan Stanley characterized these improvements as primarily promotion-driven.

Morgan Stanley lowered its price target to $16 from $17, maintains “Underweight” rating on Foot Locker.

Management lowered its full-year earnings guidance to a range of $1.20 to $1.30 per share, down from previous forecasts, a revision Morgan Stanley described as more severe than the third-quarter earnings shortfall alone.

The brokerage also lowered Foot Locker’s earnings guidance to $1.20 per share, below its previous expectation of $1.36 apiece.

Morgan Stanley analysts said they were skeptic about Foot Locker’s optimistic projections for the fourth quarter, especially in light of ongoing promotional pressures and a challenging holiday retail environment.

The investment bank also flagged structural issues that could weigh on company’s long-term growth. These include the shift toward direct-to-consumer strategies by major brands like Nike (NYSE:NKE), limited e-commerce penetration, and the challenges of managing a large store footprint in a declining mall-based retail environment.

The firm remains “Underweight” on Foot Locker, citing risks to earnings for both the near and medium term.

Foot Locker is scheduled to report fourth-quarter earnings in early 2025, with analysts watching closely for signs of stabilization or further headwinds.