Foot Locker (FL) FQ1 Earnings Preview / Trade Ideas

by Dan May 23, 2019 2:20 pm • Trade Ideas

Tomorrow morning before the open Foot Locker (FL) will report their Q1 earnings, the options market is implying about a 10% one day move tomorrow, which is shy to the 12.5% average one-day post-earnings move over the last four quarters.

With with the stock at $53.10, the May 24th (tomorrow expiration) 53 straddle (the call premium + the put premium) is offered at $5,50, if you bought that and thus the implied move for earnings tomorrow, you would need a rally above $58.50, or a decline below $46.50 on tomorrow’s close to make money.

With today’s decline, the stock is flat on the year, quickly approaching support near $50 which happens to correspond with the uptrend from its 2018 lows.

Back on March 1st Foot Locker made a new 52-week high, closing up 6% after reporting better than expected Q4 results, with comp store sales nearing 10%. The company is actively reducing poorly performing stores and doing a better job managing inventories.

Shares of FL trade about 9x earnings, which are supposed to be down low single digits in the current fiscal year on a 3% expected sales increase. Earlier this year FL also made a $100 million investment in online sneaker re-seller/ marketplace GOAT, which also owns high-end sneaker shop Flight Club, I suspect this might be the sort of partnership which is ever expanding. We discussed on CNBC’s Fast Money the other night (watch here), and watch GOAT Founder and CEO Eddy Lu discuss the deal back in February on CNBC after it was struck:

So what’s the trade? If the company were to beat and raise, I suspect the stock is easily up in line with the implied move of 10%, while a miss and guide lower also places it down 10%. Trading the weeklies for a directional move of that size is binary, to make an at the money one-day bet by you would need to risk $2.75, or about 5%, get the direction wrong tomorrow and it is a total loss.

If I were inclined to play from the long side I might consider call spreads in June, for instance…

Bullish Trade Idea: FL ($53.10) Buy June 55 / 62.50 call spread for $2

-Buy to open 1 June 55 call for $2.60

-Sell to open 1 June 62.50 call at 60 cents

Break-even on June expiration:

Profits of up to 5.50 between 57 and 62,50 with max gain above 62.50

Losses of up to 2 between 57 and 59 with max loss below 55


Or If I were inclined to play for a greater than expected move to the downside, I might consider the following put spread in June:

Bearish Trade Idea: FL ($53.10) Buy June 52.50 / 42.50 put spread for $2.80

-Buy to open 1 June 52,50 put for 3.20

-Sell to open 1 June 42.50 at 40 cents

Break-even on June expiration :

Profits of up to 7.80 between 49.20 and 42.50 with max gain below 42.50

Losses of up to 2.80 between 49.70 and 52.50 with max loss of 2.80 above 52.50