What happened
Shares of Foot Locker (NYSE: FL) were rising today in tandem with two fellow footwear stocks, Caleres (NYSE: CAL) and Genesco (NYSE: GCO), which reported better-than-expected earnings reports today.
While there was no company-specific news out on Foot Locker, the gains at Caleres and Genesco seemed to signal a potential turnaround in the footwear retail sector after recent struggles.
Foot Locker stock closed up 5.8%, while Caleres gained 16% and Genseco jumped 17.6%.
So what
Caleres, which owns Famous Footwear, and Genesco, which owns Journeys, Schuh, and Johnston & Murphy, both reported declining sales in their second quarters but topped estimates on the bottom line and offered solid guidance.
While they're not the closest competitors to Foot Locker, which specializes in sneakers and has a close relationship with Nike, their results and the market's response signal that the footwear sector may be poised for a comeback after a sustained decline.
All three stocks are subject to similar industry trends, including customer demand, supply chain issues, and competitor actions.
Foot Locker itself already reported Q2 earnings, and the stock tumbled on the news after sharply lowering its guidance and pausing its dividend.
Now what
Foot Locker's quarterly results were worse than those at Caleres and Genesco, but the company has historically been much more profitable than its current forecast calls for it to be, and investors may be responding to that turnaround potential under new CEO Mary Dillon.
While Genesco and Caleres didn't indicate much of an improvement in the macroenvironment, their jumps today are a sign that these stocks may have gotten too cheap to ignore.
After today's gains, Foot Locker stock trades at a forward price-to-earnings (P/E) ratio of 14, which looks like a good price if you believe the company's earnings are only temporarily impaired.
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Jeremy Bowman has positions in Nike. The Motley Fool has positions in and recommends Nike. The Motley Fool recommends Foot Locker and recommends the following options: long January 2025 $47.50 calls on Nike. The Motley Fool has a disclosure policy.
