- Foot Locker on Friday morning reported disappointing quarterly earnings.
- Some analysts this weekend lowered expectations for Nike.
Foot Locker, on Friday morning, reported an 11% drop in sales and a miss on revenue and profits.
Its disappointing earnings are hurting Nike, as the two companies spent the past few months touting their renewed partnership.
Wall Street analysts think Foot Locker's earnings report signals trouble for Nike, the company's biggest account and one of its largest wholesale partners, as well as problems for other big sneaker retailers and athletic footwear companies.
"Investor expectations are in the process of being reset even further to a tough 'macro' at Nike, Deckers, Dick's, and Academy Sports in particular," wrote Cowen analyst John Kernan in a note to investors.
Foot Locker purchased 65% of its inventory from Nike in 2022, according to Foot Locker's most recent annual report. In March, Foot Locker touted it had renewed the partnership after Nike had previously eased back on accounts of wholesale partners.
"I have spent a great deal of time with Nike, revitalizing our partnership, developing a shared vision of the future marketplace, aligning on growth plans in key strategic areas like basketball, kids, and sneaker culture," Mary Dillon, Foot Locker's CEO said during an investor day in March. "The fruits of our renewed commitment to one another will begin to show up in holiday this year."
Analysts embraced the message at Foot Locker's investor day, with the stocks of Nike and Foot Locker rising the next day.
"We think management laid out an interesting roadmap at the event, we're encouraged by the 'revitalization' of the Nike relationship, and we think CEO Mary Dillon is one of the most credible and capable executives in the industry," Wedbush analyst Tom Nikic wrote after the investor day.
But the tight connection comes with a downside.
Nike stock is down more than 6% since Foot Locker's lackluster Friday earnings reporting, including a more than 2% drop in early Monday trading.
Nike's next fiscal year starts June 1.
On Sunday, Stifel analyst Jim Duffy lowered his full-year revenue and earnings-per-share forecast for Nike, noting the "indications of a slowing US consumer" and other factors, including a "softer" business with Foot Locker.
"Nike's business in the US has become far more difficult than what was expected when (its last quarterly) earnings were reported in March," Williams Trading analyst Sam Poser wrote Sunday in a note to investors.
Poser downgraded Nike shares to "sell," noting he expected the company's US business to remain "challenged" through at least the first half of the company's next fiscal year.
Nike did a "stellar job" navigating the shift to digital and direct sales, Poser added, which corresponded with the early days of the pandemic, when many consumers ramped up online spending. But he said Nike appeared "unprepared to adjust to a return to in-person shopping."
"Nike has lost many senior people throughout the entire company with, now necessary, historical institutional knowledge of Nike," Poser wrote, referring to the exodus of Nike executives in the past few years, including through layoffs and attrition. "As such, Nike's game today is not as good as it was five years ago."