Running Out of Steam: Can Nike and Foot Locker Stock Recover?

Foot Locker (NYSE: FL) stock stumbled hard last week. Its stock fell about 12% — tripped up by an earnings report that also implicated Nike (NYSE: NKE).

Foot Locker’s earnings fell short by almost every measure, and its guidance for the remainder of the year was rough. 

The company booked EPS of $0.33 compared with the Wall Street consensus of $0.40, while revenue slid 1.4%, to $1.96 billion. And the forecast going forward was even gloomier.

The company expects a full-year sales decline of 1.5%–3.5%, compared with a gain of about 2% last year and an earlier forecast that was generally flat. The EPS estimate was reduced to a range of $1.20–$1.30 from a previous expectation of $1.50–$1.70.

Foot Locker attributed the bad report to two things — its close partnership with Nike and fickle consumers. Both are likely temporary, but if they prove to be more durable, longer-lasting trends, then that’s going to spell trouble. 

Nike is Foot Locker’s largest brand partner, accounting for about 60% of sales. So if Nike struggles, Foot Locker does, too. And Nike has been struggling for years. 

Once the dominant brand in athletic apparel Nike all but abdicated its throne in 2020 when it appointed tech executive John Donahoe as CEO. 

Donahoe was roundly criticized for sucking the soul out of Nike. He leaned heavily into digital sales, online advertising, apps, the metaverse and NFTs.

In so doing he abandoned key relationships with wholesalers, retailers, and even his own staff.

Key creative employees fled as chatbots proliferated. Shelf space was vacated for competitors to seize. Advertising was watered down from iconic campaigns that defined Nike’s brand to forgettable clickbait. 

As a result the company saw a massive decline in relevance, cultural cache, sales, market share, and ultimately, stock value. That is, Nike stock plunged 42% this year prior to Donahoe’s abrupt retirement in September. 

He’s since been replaced by longtime Nike ladder-climber Elliott Hill. Hill is tasked with getting Nike back on track, and he has the blessing of Foot Locker CEO Mary Dillon.

“We have a great relationship with him [and] feel very confident about where he and his team are going,” Dillon recently told CNBC. 

That may well be, but Nike has its work cut out for it. And its path back to dominance will be arduous if achievable at all. 

Meanwhile, consumers aren’t exactly spending lavishly on shoes these days.

According to Dillon, buyers are showing up for key shopping moments, like back-to-school sales, Black Friday, and Cyber Monday, but disappearing in the interim. 

That’s created the peaks and valleys that are undermining Foot Locker’s sales.

The bottom line, though, is that if something is going to change, it has to be Nike. If the house that Jordan built doesn’t find its way back to relevance, then both of these stocks will continue to lose ground.

I wouldn’t bet on them, or the return of a less-discerning customer, at any point in the near future.