Foot Locker's (FL) positive results from its third quarter and continued confidence in expansion is bolstered by a strong connection to a potentially resilient Nike (NKE) .
Shares of both companies were rising shortly after Wednesday's open with Foot Locker sprinting ahead by double digits.
"FL remains our favorite way to play Nike's resurgence in North America, while we view concerns over Nike's shift to a direct strategy as overblown," Jefferies analyst Janine Stichter wrote in a note on Wednesday. "Management's commentary around the strength of their relationship with NKE should help to quell some fears [about Nike's DTC push]."
She noted that she expects the two sports retail giants to continue collaborating as the direct to consumer strategy at Nike encounters further problems.
Stichter raised her price target from $60 to $62 per share on the anticipation of further growth.
Nike currently represents 67% of Foot Locker's sales which puts the supplier well ahead of secondary partner Adidas (ADDYY) in terms of vitality to the continued success.
As a positive sign for investors, the collaboration with Foot Locker's key partner is set to expand.
"Close collaboration with Nike allows us to deliver incredible and distinct products, services and experiences that are relevant to the consumers we serve," CEO Dick Johnson said in his statement explaining the company's pursuit of youth consumers.
Johnson highlighted the company's Nike Pro Athletes program as a sign of the stronger ties between the companies.
"These Foot Locker associates who have been trained by Nike to be deeply knowledgeable and passionate about the Nike brand and premium products allow for an even more immersive customer connection and drive elevated experiences at Foot Locker," he explained. "They are delivering measurable results with incremental sales gains at stores where this program has been rolled out."
Johnson also noted the company's "House of Hoops Courtside" mobile pop-up shop that provides exclusive launches from Nike to consumers and its new 25,000 square foot Jumpman store in Los Angeles, which marks a co-investment with Nike's Jordan brand.
The increased momentum and co-investment alongside its biggest partner should serve to bolster the company's sales in quarters to come, according to analysts.
"The company's collaborations and exclusive products and experiences are allowing it to capitalize on strong demand for athletic apparel and footwear," Cristina Fernandez, senior research analyst at Telsey Advisory, wrote in a note.
Fernandez maintained her "Buy" rating for the stock and set a $60 price target, up from her previous $58 per share estimate.
That said, reliance on Nike for about two thirds of sales is certainly a concentration risk.
"The overwhelming reliance on premium Nike sneakers, especially premium basketball, concerns us as our channel checks and observations point to a slowdown in basketball footwear sales," Cowen analyst John Kernan wrote.
He added that while Nike's direct to consumer strategy has stalled so far, the planned move to this business model hampers Foot Locker's ability to grow.
Kernan set a $56 price target and a "Market Perform" rating for the stock based on the concentration risk.
The company has highlighted its plans to expand partnerships with companies like its number two partner Adidas, but this concentration risk certainly poses a problem should Nike encounter any snags.
Heading into Black Friday, the partnership appears a profitable one, as both stocks accelerate into the super-sized sales day at week's end and outrun analyst concerns.
Shares of Foot Locker have run up as much as 18% in morning trading while Nike has jumped as much as 2.4%.