Foot Locker Highlights Standout Sneaker Trade

Most retail stocks are well below their 52-week highs, but one niche in particular is breaking out: sneaker and footwear companies.

Foot Locker’s (FL) blowout quarter today is the latest example of the trend. Not only did earnings and revenue beat estimates. The key same-store sales metric was also more than twice the expected amount, a sign of successful merchandising and customer engagement.

The stock rallied about 6 percent to $63 and has entered a so-called bearish gap from May 17. If traders look for the shares to “fill that gap,” it could imply a level closer to $70.

In some ways, the news wasn’t a huge surprise. FL telegraphed the strength of its business back on February 20 by announcing almost $500 million in capital expenditures in the next two years. A lot of the money would target expansion in Asia.

Foot Locker (FL) chart with 50-day moving average and price gap from May 2017.

Industry juggernaut Nike (NKE) is also growing quickly across the Pacific, with Chinese sales up 26 percent last quarter. It also sneaked to new highs today, partially lifted by the strong FL results. (FL is a big seller of NKE merchandise.) Investors now have three weeks to prepare for NKE’s earnings report on March 21.

Another sneaker and footwear name hit a new 52-week high today: Sketchers USA (SKX). It’s been running since February 7, when profit crushed estimates and guidance was better than expected. SKX has also been emphasizing growth in Asian markets like China and India.

Genesco (GCO) is a fourth name in the group. The owner of stores like Journeys and Lids, has drifted in a range for the last year despite some better-than-expected quarterly results. Its numbers are due on March 14.

In conclusion, shoe and footwear names have been running as other retailers struggle. Growth in Asia and strong customer interest seem to be driving the trend. Traders may want to keep an eye on this consumer niche throughout 2019.

This article was written by David Russell, TradeStation Securities, Inc., part of the Monex Group Inc, published on 01/03/2019.

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