Footwear and apparel retailer Foot Locker, Inc. (NYSE: FL) is entering the final weeks of 2020 with many of its stores closed, and its long-term post-pandemic outlook has its own separate headwinds, according to Piper Sandler.
The Foot Locker Analyst: Erinn Murphy downgraded Foot Locker from Neutral to Underweight with a price target lifted from $25 to $29.
The Foot Locker Thesis: Foot Locker's near-term outlook is impacted by growing COVID-19 cases worldwide, and one out of 10 stores across the world are currently closed, Murphy said in a downgrade note.
In Europe, 50% of stores are temporarily closed, and the company doesn't have an advanced digital business there as it does in the U.S., the analyst said.
The retailer faces a "soft start" to the quarter, and its ability to recover lost sales in Europe is a challenging proposition, she said.
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Over the long-term, Foot Locker faces a separate set of challenges as Nike Inc (NYSE: NKE) continues to emphasize its own digital business, Murphy said.
Put in perspective, Nike's digital business is modeled to exceed $7 billion in 2020 versus Foot Locker's total expected sales of $7.6 billion, the analyst said.
The risk to Foot Locker is that it loses exposure to the Nike brand, which accounts for 71% of Foot Locker's sales, she said.
While Foot Locker is still Nike's largest wholesale partner, consumer trends are shifting toward Nike's digital business, which is expected to generate an incremental $2.6 billion in sales this year, Murphy said.
"Despite the favorable tide that appears to be lifting all boats in the athletic space this year, we see FL as having a tougher time to returning to a sustainable positive L/MSD comp-growth rate on the other side of the pandemic."
FL Price Action: Shares of Foot Locker were down by 2.37% at $38.35 at last check Monday.
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