By Foot Locker Inc (NYSE: FL) cited “softness” at Nike as it reported disappointing results for its third financial quarter on Wednesday.
Nike is currently the retailer’s largest brand partner, representing about 60% of its sales.
Weakness at Nike, therefore, inevitably weighs on Foot Locker.
Foot Locker stock lost as much as 20% in premarket today.
Why has Nike struggled in 2024?
Nike has been a laggard this year partially because it hasn’t innovated enough.
It continues to rely heavily on legacy products instead of launching new ones.
This has hurt their brand appeal, especially among younger consumers.
Weakness in China and a less than stellar execution of its direct-to-consumer strategy have also weighed on Nike stock in 2024.
And from what Foot Locker told CNBC in an interview today, it looks like Nike is scheduled for another disappointing quarterly report on December 19.
If the expected softness does indeed come to pass, shares of the footwear giant may tumble further into the next year.
Nike challenges make Foot Locker trim guidance
Nike is known for its premium pricing strategy that may also be standing in its way of driving sales now that the consumer is turning more cost-conscious.
Mary Dillon – the chief executive of Foot Locker substantiated that contention in an interview today, saying consumers showed up at the stores for promotions and pulled back when they were over in Q3.
She cited pressure on lower-income consumer and continued challenges at Nike as she issued muted guidance for the holiday period as well.
Foot Locker now expects sales to be down up to 3.5% in its current quarter versus up 2.0% a year ago.
FL also trimmed its outlook for the full year on Wednesday.
Foot Locker stock is now down about 40% versus its year-to-date high in late February.
Is Foot Locker stock worth buying on the weakness?
It’s been more than a month since Nike named veteran Elliott Hill its new chief executive – but the markets are yet to get more colour on how he intends to fix the ongoing challenges.
Still, Foot Locker values its long-standing relationship with Nike and remains convinced that it will get past the slowdown in 2025.
We have a great relationship with him [Elliott Hill] and feel very confident about where he and his team are going. I think we’re going to work through all that, that’s the thing.
Nonetheless, analysts at Morgan Stanley rate Foot Locker stock at “underweight”.
They have a $17 price target on it that warns of another 15% downside from current levels.
Shares of Foot Locker Inc remain unattractive for income investors as well since they do not pay a dividend at writing.
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