What Happened?
Shares of footwear and apparel retailer Foot Locker (NYSE: FL) jumped 85.2% in the morning session after the company agreed to be acquired by DICK'S for an equity value of approximately $2.4 billion (enterprise value of $2.5 billion). The offer of $24 per share in cash or 0.1168 shares of DICK'S stock represented a substantial 66% premium over Foot Locker's average trading price for the previous 60 days.
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What The Market Is Telling Us
Foot Locker’s shares are extremely volatile and have had 30 moves greater than 5% over the last year. But moves this big are rare even for Foot Locker and indicate this news significantly impacted the market’s perception of the business.
The biggest move we wrote about over the last year was 12 months ago when the stock gained 28.2% on the news that the company reported first-quarter results that blew past analysts' EPS expectations. While Comparable sales decreased, this was mostly driven by the continued repositioning of the Champs Sports banner. Core banners strengthened as Global Foot Locker and Kids Foot Locker comparable sales increased 1.1%. Inventory levels improved, with merchandise inventories down 5.6%, indicating a better handle on stock management, which should potentially mitigate the risk of future markdowns.
Guidance was likewise solid as its full-year earnings guidance exceeded Wall Street's estimates. In line with the company's retail strategy, Footlocker planned to open four more locations during the year, which could be a sign that the growth and turnaround strategy were working as planned. Zooming out, we think this was a fantastic quarter that should have shareholders cheering.
Foot Locker is up 9.7% since the beginning of the year, but at $23.77 per share, it is still trading 27.9% below its 52-week high of $32.96 from August 2024. Investors who bought $1,000 worth of Foot Locker’s shares 5 years ago would now be looking at an investment worth $935.15.
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