Wall St. Analysts Surveyed The Sneakers Market; And Here's What Happened

In a report published Thursday, Cowen and Company analysts initiated

with a Market Perform rating and a price target of $23, saying that there was uncertainty about the timing of an improvement in same-store sales (SSS) and consequently about the direction of GM and ROIC. Cowen's proprietary survey of 2,500 consumers suggested that Foot Locker "is the destination of choice for sneakers across demographics," while also indicating that Amazon and Zappos continue to expand their presence in the category of premium brands in running. In the report Cowen and Company noted, "Ultimately the survey highlighted over 140 concepts which consumers consider their preferred choice to shop for sneakers. Only 5% of total respondents considered Finish Line their destination of choice for sneakers." A slowdown in the company's SSS due to "weakness in running shoes and a potential lull in the premium running product cycle" will prolong markdown risk, the analysts said. "December's flat SSS (through 12/21) and FINL's product margin in Q3 (-150bps y/y), the most product margin pressure the company has seen in over five years, suggests there could be downside to consensus gross margin expectations into next year." The analysts expressed caution over the company's initial guidance for 2016, in view of their recent store and online checks, which indicate a significant increase in promotions. "We assume FY16 SSS +2% and fairly flat operating margin with EPS of $1.71 vs. consensus of $1.83." Although the company's shares have lost 14% since the Q3 results were announced, "caution surrounding the competitive environment leaves us nervous on the direction of sales, margins and returns on capital which should constrain valuation, the analysts wrote.