We are exiting our holdings in Foot Locker, selling 750 shares for approximately $25.64 per share. After Thursday’s transaction, Jim Cramer’s charitable trust will no longer hold any shares in FL. In addition to making room for a new stock in the club portfolio, Next Tracker, we are concerned that Foot Locker could see a significant further upside in the near term. Here’s why: In tandem with the company’s fourth-quarter fiscal 2023 earnings in March, management extended its operating margin target of 8.5% to 9% by two years. In response, we downgraded Foot Locker shares to a 4 rating, meaning we will not take any action on the stock until we have more information. That more information has certainly come, and it has been positive. The company’s first-quarter fiscal 2024 earnings, released last month, were indeed strong, and we have elected to raise our rating to a 2 rating. The company’s stock price surged more than 20% in the days following the release of its first-quarter earnings, but has since given up about half of that gain and is still not where it was before the company cut its earnings outlook in the fourth-quarter earnings call. The decline is a signal that investors are not going to give management credit for a turnaround anytime soon. While the economy continues to perform well and consumers have remained fairly resilient so far, we have to admit that consumers are becoming more value-conscious, which poses risks for full-price retailers like Foot Locker. This is why we continue to view off-price giant TJX Companies, which includes TJ Maxx, Marshalls, and HomeGoods, as the best way to play in the retail space. Remember, we originally acquired Foot Locker because of the turnaround that CEO Mary Dillion was planning. Dillion has a track record of doing the same thing while she was president of Ulta Beauty. Foot Locker’s turnaround will take time and will not be a linear one. We may reconsider the stock in the future when we are more confident that the business is on stronger footing. Foot Locker, Florida Year to Date Thursday’s withdrawal of Foot Locker has resulted in a loss of about 37%. This is a hard truth to swallow, but it’s important to remember that in investing, you don’t have to make gains the same way you lost. We believe there are better opportunities elsewhere, such as new stock Nextracker and other portfolio stocks, that have more near-term upside and are less dependent on consumer firmness. The opportunity cost of holding Foot Locker at this point is too high, so it’s time to move on. From a portfolio management perspective, there are better uses of time and resources than hanging on to a stock with such a small weighting. In fact, the smallest weighting is about 0.57%, less than half the weighting of the next smallest holding. (Jim Cramer’s Charitable Trust is long FL, NXT. See here for a complete list of stocks.) As a subscriber to Jim Cramer’s CNBC Investment Club, you will receive trade alerts before Jim makes the trade. Jim will buy and sell shares in the Charitable Trust’s portfolio 45 minutes after he sends you the trade alert. If Jim talks about a stock on CNBC TV, we will execute the trade 72 hours after issuing the trade alert. The above Investment Club information is subject to our Terms of Use and Privacy Policy and Disclaimer. Receipt of any information provided in connection with the Investment Club does not create any fiduciary duty or liability. No specific results or benefits are guaranteed.
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