Citi Believes Foot Locker's New Leadership Can Deliver Significant Results

According to Citi, for the first time in several years, Foot Locker has undergone a major transformation under new leadership.

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According to Paul Lejuez, the stock may rise 25.4% over the next six months from where it closed Monday, based on the analysts' new price target of $50. Lejuez said the stock's momentum might improve till Friday, based on his new price target of $50.

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Foot Locker leadership talked about a renewed relationship with Nike despite reporting a decline in holiday-quarter earnings that they called "heavy". The CEO, Mary Dillon, was able to address how the company is focusing on the "sneaker culture."

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Lejuez also noted that, although the company beat Wall Street expectations for the quarter, its 2023 expectations were lowered. During the course of the year, he said, the company began to beat their own earnings expectations as well as raise their guidance for the following quarter as a result of this. It was also said that we should expect to see a performance that exceeded guidance for comparable store sales in 2023.

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After Monday's investor day, Foot Locker stock rose 3.2% in pre-market trading Tuesday, coming off a 5.5% year-to-date gain for its shares.

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Furthermore, Lejuez commented that Nike has been a good partner for the company, saying Dillon is doing the right thing by moving its stores away from malls and focusing on loyalty, digital, and kids programs instead of malls. Nevertheless, he noted that there is still a good chance that the loyalty program will succeed and that it has the potential to be a success, similar to what Ulta offers.

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Lejuez said in a note to clients on Tuesday that Dillon, who has been at ULTA for four years, brings a history of courting beauty brands, which makes her the perfect leader to lead this company at this moment in history.

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On the other hand, Lejuez said that in spite of Champs' challenges in terms of lack of differentiation, the company's plan to close the 125 Champs stores over the course of the year could result in a significant upside to the target price, So there is also an upside to the target price if management can execute its plan to grow sales.

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With management noting mergers and acquisitions are off the table and minority investments are not an option, Lejuez said excess cash may be returned to shareholders via dividends or share repurchase plans since the company's capital expenditures are lower than what he previously expected.

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As the business's "turnaround" unfolds, he added that the company's steady cash flow can also help cushion any downsides to the process as it goes forward.

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There were many analysts who were impressed with Lejuez, but he wasn't the only one. A stock analyst at Evercore ISI, Warren Cheng, upgraded the stock from in line to outperform and raised his price target from $32 to $60, claiming the retailer has finally understood how to differentiate itself from mono brands like Nike and Under Armour, and how to build a moat as a retailer by differentiated themselves from these mono brands.