This Analyst Is 'Throwing In The Towel' On Foot Locker

On the Baird Equity Research roster, Foot Locker, Inc. FL might just be the best player on the other team.

The stock slid nearly 30 percent Friday on significant earnings misses, prompting analyst Jonathan Komp to downgrade shares Monday. The new Neutral rating reflects Baird's perception of absent earnings visibility, broad category and general economic headwinds, negative operating leverage and the potential of market oversaturation.

"We previously viewed FL as trading at an extraordinary value for a dominant specialty retailer that stands to remain the category winner long term, but Friday's report raises too many questions about the comps/earnings outlook to keep our positive rating," Komp wrote in a morning note.

Foot Locker reported same store sales of -6 percent against guidance and quarterly precedents in the low single digits. Management attributed the miss to accelerated shifts in trends, weak core platforms and scale limitations for up-and-coming platforms.

This ultimately led to an earnings-per-share miss of about 32 percent and second-half guide downs between 20 and 30 percent.

"While we are hopeful comps bottomed in June-July, the sharpness of the fall-off makes us question how long the pressures may last (prior comps downturns were multi-year)," Komp wrote. "Further, the broad-based weakness for many athletic/sporting goods retailers raises the risk that the industry at retail may be in a zero-sum environment (or worse) with the brands better positioned to manage through shifting consumption preferences and distribution changes."

Baird had factored deteriorating sell-throughs into its prior thesis but had not accounted fully for effects in existing and emerging platforms.

"Although trends could quickly recover, we now fear top-line pressures will persist longer than anticipated, resulting in further material EPS resets," Komp wrote. "While we hate to punt following a bad call, we also want to shift defensively to avoid being caught in a value trap."

Baird nearly halved its price target from $65 to $37, and at the time of publication, Foot Locker was trading around $33.05, down almost 4 percent off the open.

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Breaking Down The Footwear Sector: Adidas Pipeline Still Strong, Under Armour Under Pressure ____________ Image Credit: By ErasmusOfParis (Italie 2) [CC BY-SA 2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Wikimedia Commons