Foot Locker jumps after Piper Sandler upgrades rating of shoe retailer

Investing.com -- Shares in Foot Locker (NYSE:FL) surged in early trading in New York on Thursday after analysts at Piper Sandler improved their rating of the shoe seller to "overweight" from "neutral."

In a note to clients, the analysts argued that the retail chain known for its employees' referree-like uniforms is on track to post greater than 180 points of operating margin expansion next year.

Margins have faced pressure throughout 2023 due to higher promotions, the analysts said. Like many retailers, Foot Locker has recently introduced steeper discounts to entice customer spending during a time of high inflation and elevated interest rates.

The Piper Sandler analysts added that new products in 2024 should help Foot Locker sell more items at full price, although headwinds may come from the roll-out of the company's FLX membership rewards program.

"We do acknowledge that the pace of recovery on markdowns will largely be dictated by macro[economic conditions], but cleaner inventory levels broadly should be a tailwind," the analysts said.

When reporting its third-quarter results in November, Foot Locker said it was on pace to end the year with inventory flat to slightly down on an annual basis. The company also unveiled a forecast for adjusted full-year profit that topped market expectations at the mid-point.