Foot Locker's Q1 2026 Earnings: Navigating Conflicting Signals for Long-Term Growth

Investors in Foot Locker (FL) face a paradox ahead of its Q1 2026 earnings report: conflicting signals from Zacks' analytical tools suggest near-term risks, yet the company's long-term growth initiatives—such as store refreshes and digital expansion—hint at resilience. While Zacks' negative Earnings ESP (-26.99%) and a Zacks Rank #4 (Sell) may deter short-term traders, the case for FL as a strategic buy hinges on its operational progress, cost discipline, and the potential for clarity from management's earnings call. Here's why investors should prioritize the latter over the former.

The Near-Term Storm: Earnings Outlook and Zacks' Contradictions

Foot Locker is expected to report a Q1 2026 EPS loss of $0.05, a 122.7% decline from the prior year, with revenues falling 2.8% to $1.83 billion. Analysts have slashed estimates by nearly 50% over the past month, driving Zacks' Earnings ESP to a deeply pessimistic -26.99%. This metric suggests a high probability of missing expectations—a stark contrast to the company's strong track record of beating EPS in three of the last four quarters, including a +17.8% surprise in Q4 2025.

Meanwhile, FL's Zacks Rank #4 (Sell) amplifies the uncertainty. Historically, stocks with negative ESP and low Zacks Ranks struggle to deliver earnings surprises, and FL's share price has underperformed the broader market despite a +102.1% surge over the past month (vs. the S&P 500's +8.2% gain).

Why the Bulls Still Have Ground to Stand On

1. Operational Turnaround in Motion

Foot Locker's “Reimagined” store initiative—targeting 80 new locations in 2025—is proving financially transformative. These stores, designed to generate $4–$5 million in annual sales with 20% EBITDA margins, have already revitalized 400+ locations. Combined with $100 million in annualized cost savings from operational efficiencies, these moves are stabilizing margins. Gross margins expanded to 29.6% in Q4 2024, up 300 basis points year-over-year, despite revenue headwinds.

2. Digital Growth and Customer Engagement

The company's digital initiatives are delivering tangible results. Global digital comparable sales rose 12.4% in Q4 2024, fueled by new mobile apps for Champs Sports and Kids Foot Locker. These tools, part of the FLX loyalty program, are boosting retention and full-price sales—a critical lever in reducing markdowns and improving profitability.

3. Strategic Focus on High-Return Markets

Foot Locker is rationalizing its store footprint, closing underperforming locations in Europe and shifting resources to high-growth regions. While total stores dropped to 2,465, the company prioritized North America and key international markets, aligning with its “off-mall expansion” strategy. This geographic focus, paired with disciplined inventory management, positions FL to capitalize on consumer demand for premium footwear.

The Elephant in the Room: Tariffs and the Dick's Acquisition

Two risks loom large: international tariff exposure and the pending $2.5 billion acquisition by Dick's Sporting Goods. While the latter introduces strategic uncertainty, it also creates synergies—Dick's could leverage FL's brand strength to boost its own apparel sales, while FL gains scale to offset tariff impacts.

Tariffs, mentioned in Dick's guidance but not explicitly detailed for FL, remain a wildcard. However, FL's focus on direct-to-consumer sales (now $320 million) and domestic manufacturing partnerships may mitigate supply chain risks.

The Earnings Call: A Make-or-Break Moment

Investors must watch for three key takeaways from FL's May 29 earnings call:
1. Cost Savings and Margin Expansion: Management's ability to sustain the $100 million annual savings and hit its 40–80 basis point gross margin growth target for 2026.
2. Store Strategy Clarity: Details on Reimagined store rollouts and how geographic rationalization will boost per-store sales.
3. Acquisition Implications: Guidance on how the Dick's deal will align with FL's operational goals and whether synergies will offset near-term volatility.

Final Analysis: Buy the Dip, but Wait for Clarity

Despite Zacks' bearish signals, FL's long-term catalysts—operational discipline, digital innovation, and high-margin store models—outweigh near-term earnings misses. The stock's +102% monthly surge suggests investors are already pricing in some of these positives, but the earnings call could unlock further upside if management delivers on its strategic vision.

Action to Take: Initiate a long position in FL ahead of earnings, with a focus on buying the dip if the report triggers a Zacks-driven sell-off. Pair this with a tight stop-loss until post-call guidance emerges. For the patient investor, FL's transformational initiatives position it to thrive in a post-acquisition environment—and that's a bet worth making.

Data as of May 26, 2025. Past performance does not guarantee future results.