Foot Locker Inc. has become the go-to shop for sneakers, but shoppers are looking for workout gear and comfortable clothes for lounging around their homes during coronavirus lockdowns, according to analysts.
Foot Locker
FL,
reported wider-than-expected losses and a revenue decline during the first quarter, though the retailer got a boost from its e-commerce portal, which processed 200,000 orders in a single day, according to Richard Johnson, Foot Locker’s chief executive.
It was Foot Locker’s focus on shoes that may have squeezed results, analysts say.
“Before the pandemic hit, its apparel business was lackluster and lacked cohesion,” said Neil Saunders, managing director at GlobalData Retail. “This is one of the reasons why sales fell in many of its clothing categories. A much more disciplined approach to merchandising and the assortment was required.”
Hibbett Sports Inc.
HIBB,
, which reported adjusted earnings per share and revenue that beat expectations on Tuesday, said its apparel business helped strengthen its first-quarter results.
“[W]e have high-demand categories to capitalize on the current consumer trends, most notably fashion, athletic apparel,” said Mike Longo, chief executive of Hibbett Sports, on the earnings call, according to a FactSet transcript.
Even before the full impact of the coronavirus pandemic was felt, men’s apparel had experienced “significant growth” and women’s and kids clothing “saw a return to growth,” said Jared Briskin, chief merchant at Hibbett, speaking on the Tuesday call.
Read:Target beats first-quarter earnings expectations, with digital sales up 141%
Mass retailers like Target Corp.
TGT,
have talked about a return of consumer spending to discretionary items like apparel as the quarter wore on. However, with few places to go even as states reopen and more people exercising at home, experts have said that athleisure will continue to be a predominant fashion trend.
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Foot Locker is also facing the challenge of heightened competition, even from brands like Nike Inc.
NKE,
and Adidas AG
ADS,
that it carries in its stores and on its website.
“Consumers increasingly go direct to brands like Nike, Adidas, and Under Armour rather than to third-party sellers,” wrote GlobalData’s Saunders. “Some of this has been encouraged by the brands themselves, but much is down to the cleaner and more engaging shopping experience offered by those sites, plus the ability to get all the new releases.”
Susquehanna Financial Group says JD Sports and Finish Line are also shaping up to be strong competitors.
Many Foot Locker stores are located in malls, which is another challenge. As of Friday, Foot Locker had reopened about 45% of its store fleet, about 1,400 shops. As of May 2, the company had 3,113 stores around the world.
“The lack of momentum entering FY20 coupled with a primarily mall-based store fleet has caused the COVID-19 crisis to inflict more pain on Foot Locker than most retailers in our coverage universe,” wrote Susquehanna analysts led by Sam Poser.
Analysts note that the lack of momentum heading into the year was caused by weakness in apparel the year prior.
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“As a mall-based retailer, Foot Locker faces an especially difficult road ahead,” Susquehanna said. “Mall owners dictate when stores will reopen and visibility into when and to what degree consumers will return to malls remains exceptionally murky. Further, many of Foot Locker’s biggest markets, including NYC and LA, remain shuttered, which will continue to have a material drag on same-store sales.”
Susquehanna rates Foot Locker stock neutral with a $25 price target down from $28.
Raymond James analysts are more upbeat about Foot Locker, despite its focus on shoes.
“We believe Foot Locker is the single best global physical distribution point for premium athletic footwear and could likely gain further market share during the COVID-19 induced retail shakeout,” analysts led by Matthew McClintock wrote.
“We note that stores/malls that more heavily rely on tourism are suffering slower recovery than more community driven Foot Locker stores. We expect comps should begin to accelerate during 2Q benefiting from pent-up demand, stimulus and tax refund checks, and continuing strength in basketball/ running sneakers.”
Raymond James rates Foot Locker stock outperform with a $30 price target.
Foot Locker shares climbed 5.2% on Tuesday, but have tumbled 27.6% for the year to date.
Hibbett Sports stock fell 4% on Tuesday, but down 33.2% for 2020 so far.
And the S&P 500 index
SPX,
has fallen 7.4% for 2020 so far.