These Two Battle-Scarred Retailers Have More Downside To Come

Beaten-up retail stocks offer investors either a compelling investment opportunity or should be completely avoided amid further downside — depending on who you ask.

The Expert

Cowen's David Seaburg.

The Strategy

Investors should either be selling their position in Foot Locker, Inc. FL and Dicks Sporting Goods Inc DKS heading into their respective earnings reports or even short-selling the stock, Seaburg said. 

The Thesis

Notable retailers, including Foot Locker and Dicks Sporting Goods, are on deck to report their earnings this week, Seaburg said during a recent CNBC "Trading Nation" segment. Bullish investors should understand that sentiment heading into earnings is poor, as there is "absolute risk" of both companies slashing their guidance, the analyst saiud. 

Foot Locker, which reports Nov. 17, and Dicks, which reports Nov. 14, continue to face cyclical and structural pressures as major brands like Nike Inc NKE continue to place less emphasis on selling their products through physical retailers, Seaburg said.

Nike made it clear during its investor day presentation that it wants to build out its own direct-to-consumer channel, which will obviously place "significant pressure on the wholesale channel," the Cowen analyst said. 

Disappointing results from Foot Locker could push the stock lower from its current $30 level to $28, and Dicks' stock could move from its $26 level to as low as $22, Seaburg said.

Nike is also at risk, as poor results from the athletic retailers could result in Nike's stock moving lower from a "sentiment perspective," he said. 

Price Action

Shares of Foot Locker were trading lower by around 1 percent on Monday, while Dicks' stock lost nearly 2.5 percent.

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