Death of FL Greatly Exaggerated

In advance of today’s Nike analyst day, it’s first meeting in three years, there was much speculation about an unveiling of a major company-owned retail rollout.  Taking this a bit further, there was also a belief that this announcement would be detrimental to Footlocker and its efforts to ultimately compete with Nike, it’s largest vendor.  Now that the presentation is complete, we remain confident that this speculative threat in the domestic market was greatly exaggerated.

 

The bottom line here is that Nike plans to add 280 stores, of varying formats, sizes, and product offerings on a GLOBAL basis over the next five years.  Management went on to further clarify that the North American market will likely see less owned-retail growth as Nike is mindful of an already advanced wholesale/retail partnership network here.  Overall, we heard nothing that would impair Foot Locker’s ability to achieve and potentially surpass its EBIT margin goals of 7.5+% over the next few years. 

 

Importantly, there were subtleties that stood out that may benefit FL and its relationship with Nike.  First, we heard a thorough discussion about the company’s sophisticated tools which allow Nike to analyze specific markets and potential sales opportunities across all points of distribution (not just Nike owned stores).  Secondly, we also heard the mention of House of Hoops as an example of how they can work with a partner to specifically target a local market with a very specific product offering and merchandising message.  While these are just little anecdotes, we continue to believe this is indicative of the positive transformation in the relationship and collaboration between the two companies.

 

Overall, our view on Foot Locker remains unchanged and favorable following what we heard today.  Nike’s product driven initiatives and investments in infrastructure will benefit the 3,500 unit chain well beyond the potential challenges Foot Locker may face from an uptick in Nike owned retail.  Importantly, the speculative threat centered on massive retail growth was overdone.

 

Eric Levine

Director


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