Wells Fargo Upgrades Foot Locker On Nike Developments, Projects Comp Acceleration

After Nike, Inc. NKE’s launch of new advertising and an improved brand assortment, Wells Fargo is turning bullish on partner Foot Locker, Inc. FL

The Analyst

Wells Fargo's Tom Nikic upgraded Foot Locker from Market Perform to Outperform and raised the price target from $50 to $58.

The Thesis

Headwinds tied to the Jordan brand and Europe have abated for Foot Locker, Nikic said in the upgrade note. (See his track record here.)

“As a result, we believe FL will show accelerating positive comps in the second half (2 percent in Q3 and 3 percent in Q4) and we believe sustained improvement in the Nike assortment can drive 3-4-percent comp growth over the subsequent 12-24 months (even if their second-largest supplier Adidas were to turn negative),” the analyst said. 

While noting the debate surrounding Nike's product distribution to Foot Locker, Nikic highlighted the following points Monday:

• Foot Locker’s struggles in recent years were directly related to growth deceleration at Nike.com; therefore, Foot Locker’s issues were product-based rather than channel-based.
• Only 40 of Nike’s 30,000 wholesale partners were considered strategic partners, “and one of them is FL (with NKE management continually expressing FL’s importance to the brand — as evidenced by recent initiatives within FL’s stores and recent exclusive product launches),” Nikic said.
• Nike’s reduction in wholesale partners presents a huge market share opportunity for partners such as Foot Locker.

Price Action

Foot Locker shares were up 2.7 percent at $48 premarket Monday.

Related Links

What The Kaepernick Campaign Means For Nike

Retail Analyst: Foot Locker, Skechers And Steve Madden Poised To Run Higher

Photo by Dwight Burdette/Wikimedia.