Foot Locker Inc. (FL) are looking to expand brand partnerships in the second half to boost the company brand and halt its steep slide on earnings.
The shares sank over 13% on Friday as of 11:57 a.m. in New York, despite a beat on earnings per share and revenue.
On the earnings call, the highlighted brand partnerships with companies likes of Nike, Inc. (NKE) , Asics Corporation (ASCCF) , and Adidas AG (ADS) .
"Not only do we anticipate more innovative product from our vendor partners, we will also introduce unique footwear and apparel exclusives and collaborations with multiple brands throughout the back half,"CEO Robert Johnson told analysts this morning.
'Important Partner to Nike'
Notable among the announced partnerships so far is the company's recent agreement with Nike.
"This week we announced the 'Discover Your Air' campaign with Nike featuring Jayson Tatum and exclusive Nike Air sneakers," Johnson said. "We believe these types of introductions will further enhance our leadership position in the marketplace."
Jefferies Financial Group Inc (JEF) analyst Janine Stichter noted Foot Locker's exclusive deal as indicative of the company's remaining importance to manufacturers.
"This underscores a key tenet of our thesis: despite Nike's push toward a consumer direct strategy, FL is still a very important partner to Nike, and will only become more important as they condense their base of retailers," she wrote in a note on August 22. "We continue to believe the resurgence in NKE will ultimately translate to improvement at FL."
She issued a buy rating on the stock along with a price target of $65 per share, noting that momentum is building into the second half of the year as back-to-school and holiday seasons buoy prospects.
Inventory Concerns
Company management specifically referenced inventory management and tailwinds available for continued growth in the second half in the earnings presentation this morning.
"On a constant currency basis inventory decreased 2.4% compared to a 3.9% total sales increase," CFO Lauren Peters explained. "This disciplined approach combined with an improving flow of product is making our inventory more productive overall and we feel that we are well positioned to drive stronger results in the back half of 2018."
Trimming retail locations and inventory management of product brands and overall supply was also picked up on by Pivotal Research analyst Mitch Kummetz.
"We remain optimistic that the year will be better than FL's plan, as the product pipeline improves, down-trending franchises become less of a pressure point, and margins recover on cleaner inventory," he said in advance of earnings' release.
Skepticism Surfaces
Reliance on a business model that acts as a middle-man between the show manufacturers and the customer is certainly at risk of disruption as both online retail and outlet stores threaten results moving forward.
Morgan Stanley (MS) analyst Lauren Cassell pointed to just how significant a risk that is, given Nike's stated business strategy of providing more sales direct to its consumers.
"NKE is increasingly focused on its direct-to-consumer strategy, particularly online, and our analysis suggests 46% of Nike.com SKUs are not available on FootLocker.com," she wrote in a note on August 20. "Given Nike products represent 67% of FL's merchandise, even small declines could materially impact FL's profit and loss."
The big drop in the share price so far shows there are still questions about how Foot Locker can capture customers' attention and maintain earnings momentum going forward.
