Analysts say Nike stock could take a hit as Foot Locker falters

Nike (NKE) may have a problem with Foot Locker (FL).

After Foot Locker slashed its full-year sales forecast amid what it described as a “harsh macroeconomic backdrop,” there is growing concern on Wall Street that Nike may also be in the crosshairs.

“We are lowering NIKE’s estimates to reflect signs of slowing US consumer spending and an imbalance in US sneaker channels,” Stifel analyst Jim Duffy wrote in a note to clients. “Foot Locker Findings and Commentary Highlight Adverse Expectations.”

Foot Locker’s first-quarter release before the bell on Friday sent the stock down more than 30% over two trading sessions. He highlighted the drop in same-store sales that could happen Down as much as 9% this year and “above average” stocks in the first quarter.

Nike accounts for more than 70% of Foot Locker sales and is now seeing its inventory on the Foot Locker edition drop, with shares down almost 3% on Monday.

Foot Locker reported non-Nike penetration increased to 35% in the first quarter, which equals a decline in Nike sales in the mid-teens, driven largely by poor lifestyle, according to Wedbush securities analyst Tom Nikic.

But it’s not just about performance in the last quarter. On a call with investors on Friday, Foot Locker indicated it was liquidating inventory and ramping up promotions through the end of the year to finally give its stores freshness.

With sporting goods lately The worst performing segment in monthly retail sales, Foot Locker overshadowed demand in this segment. In a note titled “Watching the 90-Day Catalyst for the Downside,” City analyst Paul LeGuise wrote that a slowdown in consumers and overstocking in the North American sportswear market reflected poorly on Nike’s fiscal year outlook.

“Given the seemingly high inventory levels in the channel (in shoes in particular) following the downturn in spending from lower-income consumers, we believe that margin setup may not be as adequate as previously thought,” Lejueze wrote.

Nike shoes are displayed at a sporting goods store in New York City, New York, US, May 14, 2019. REUTERS/Mike Segar

What does “slowing consumer spending” mean for Nike?

Besides the inventory equation, analysts say Nike is also facing issues from a general general slowdown in discretionary spending.

“Sneaker brands have reported excess inventory in the channel. Some have assumed the increase is coming from brands other than Nike,” UBS analyst Jay Sole wrote in a note to clients Friday. “However, with FL news of comp and downturn, the market is likely to conclude that Nike is also feeling the effects of a soft slowdown in healthy consumer spending that began in March.”

Retail analyst Sam Bowser at Williams Trading downgraded the stock from neutral to sell on Monday. Poser believes the issues go beyond inventories at wholesale and stem from a slowdown in Direct-to-consumer demand for some of Nike’s traditionally popular shoes.

The company, which has built its digital brand around exclusive drops and now burgeoning interest in sneaker culture, may be facing consumers “trained to look for promotions.” Poser suggests that StockX and secondary sellers now sell Nike shoes for less than the manufacturer’s suggested price, thus becoming competitive with Nike’s own business.

“Nike, both online and at its outlets, Nike promotes many styles designed for premium distribution at sub-$100 prices that now compete with shoes sold on the Family Shoe Channel,” Boozer writes. “Now, family shoe retailers are promoting their Nike styles, at least in part because of the pressure.”

Nike is expected to report its latest quarterly results on June 20.

Josh is Yahoo Finance Correspondent.

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