Foot Locker cut to Sell at Goldman Sachs, retailer is seen losing comp and market share

Analysts at Goldman Sachs downgraded shares of Foot Locker (NYSE:) to a Sell rating (from Neutral) with $18 Price Target, highlighting several factors that could drive “downside to current valuation.”

In their latest note on sports and footwear retailer, the Goldman Sachs analysts see three key factors overhanging on the stock:

1. Repositioning of the Champs Sports is likely to “continue to weigh on the comp.”
   “Management is working to differentiate Champs from Foot Locker in an effort to drive incremental customers in fitness and lifestyle categories, the apparel category, and footwear under $100… While undergoing this transformation, however, there is a possibility that FL loses some of its existing customers as it shifts focus and decreases its store footprint.”
2. Market share unpredictability following recent changes at Nike.
   “With a lower allocation of Nike product and a resulting negative impact on FL comps, it will be difficult for FL to maintain its current market share position, while competitors (such as DKS) have an opportunity to gain share.”
3. Relatively high valuation at present.
   “With the stock trading at ~12.0x NTM PE, vs. its 3-year/5-year average of 9.3x/9.4x, FL’s elevated valuation increases the risk of downside if demand trends remain soft in the near-term.”

As such, the analysts downgrade the shares to a Sell rating with $18 Price Target, implying 18% downside from yesterday’s closing price of $21.94.