Stock markets were mixed in mid-afternoon trading on Monday. Gains for the Nasdaq Composite stood in stark contrast to triple-digit declines for the Dow Jones Industrials, and worries about the ongoing stalemate in debt ceiling discussions seemed to weigh on certain sectors of the economy but not others.
Last week, Foot Locker (FL -0.18%) announced its latest financial results, and the athletic footwear and apparel retailer's stock fell sharply. However, further declines came on Monday for Foot Locker, and that had some looking beyond the retailer to supplier Nike (NKE 0.95%) as a possible drag on markets as well. Below, you'll find out why both Nike and Foot Locker are tumbling again.
Foot Locker has analysts feeling more doubtful
Shares of Foot Locker slumped another 8% Monday afternoon, adding to its 27% plunge on Friday. Bad news for the athletic apparel and footwear business is now weighing on the entire industry, and stock analysts aren't certain how quickly Foot Locker will be able to bounce back from its current adversity.
Foot Locker's Friday declines came when first-quarter revenue fell more than 11% on a 9.1% drop in comparable-store sales. That reversed a modest gain in comps in the 2022 holiday quarter, and profits fell by more than 70% year over year. Foot Locker also reined in its expectations for the remainder of 2023 and beyond.
On Monday, a host of analysts weighed in negatively on Foot Locker's stock, with price target cuts and downgrades. Among them, TD Cowen seemed most bearish, slashing its target by a third to $26 per share. Analysts at Citigroup downgraded the stock from buy to neutral, while Williams Trading's professionals took the retail stock's rating from hold to sell.
In the long run, value investors are hopeful that Foot Locker will be able to return to a more solid growth trajectory. However, with signs that apparel and footwear manufacturers are increasingly seeking to circumvent third-party retailers like Foot Locker in favor of implementing their own direct-to-consumer distribution channels, it could be a long road ahead for impatient shareholders.
Is Nike vulnerable?
Shares of Nike dropped almost 3%, leading Dow decliners on the day. Two Wall Street analysts also had negative things to say about the athletic footwear pioneer's stock, which had already sagged in light of Foot Locker's guidance.
Analysts at Williams Trading cut Nike stock from hold to sell, reducing its price target on the stock by $25 per share to $95. Williams has concerns that a lot has changed since Nike reported its latest financial results two months ago, and it therefore sees the potential for bad news when it next issues a financial report in late June. In particular, challenges in the U.S. could worsen, and the recovery in China hasn't been as robust as some had hoped.
Meanwhile, Citi started what it called a "downside catalyst watch" on Nike shares. The move is often a precursor to a full downgrade of a stock, as the same pressures that are weighing on Foot Locker's business could also affect Nike.
Consumers have largely continued to keep spending, and companies like Nike that have high brand value have seen their customers remain relatively resilient. Even so, there's only so long that consumers can keep up their spending if macroeconomic conditions deteriorate. That could bring about additional challenges for Nike in the near future, even if it doesn't change the shoemaker's long-term prospects.
