What happened
Shares of Foot Locker (FL +0.00%) were sharply up on Tuesday morning because it appears sporting-goods retail trends are improving. Hibbett Sports (HIBB +0.00%) just gave an encouraging quarterly sales update, confirming the trend. And because of this, Deutsche Bank thinks Foot Locker stock is one to buy.
As of 11:15 a.m. EDT, Foot Locker stock was up 8%. But it was trading 10% higher earlier in the session.
Image source: Getty Images.
So what
According to the Census Bureau, retail sales were up in June. The report showed a 20.6% year-over-year sales increase for sporting-goods, hobby, musical-instrument, and book stores. That's a broad category. But it strongly suggested a surge in sporting-goods sales.
A surge is exactly what Hibbett Sports is seeing. The company expects total second-quarter comparable sales to be up 70% from last year, with digital comparable sales up 200%. Interestingly, this phenomenal comp-sales growth was helped out by a sharp increase in new Hibbett Sports customers.
The gains reported by the Census Bureau suggest Hibbett Sports isn't the only company experiencing this sales trend. According to The Fly, Deutsche Bank has done some digging and found Foot Locker is moving merchandise, especially shoes. Not only will this be good for the company's upcoming results, but it will also help decrease inventory which is a good thing longer term. Foot Locker's stock is rising today on this optimism.
Now what
Shares of Foot Locker are still down in 2020, and I thought it traded at a value-stock valuation to start with. So the stock could be an extremely good value here. If sales trends are truly improving, that would unquestionably be a good short-term catalyst for Foot Locker stock. And if it's experiencing anything remotely similar to Hibbett Sports, I would expect its bottom-line profit to improve as it gains operating leverage from higher sales volume.
However, to truly be a good long-term investment, Foot Locker management will need to prudently allocate those extra profits and present a plan for sustaining new customer acquisitions. Those are two things I'd specifically listen for when the company reports earnings next month.
