Foot Locker (FL) - Get Foot Locker, Inc. Report shares stumbled Thursday after Bank of America analysts reinstated coverage of the sports apparel retailer with an underperform rating and $45 price target, citing supply-chain issues and waning stimulus dollars.
Shares of the New York company at last check were down 6.7% to $46.06.
"We think supply chain issues and lapping the high levels of stimulus dollars create a difficult catalyst path for the stock," analyst Lorraine Hutchinson said in a research note.
The athletic footwear and apparel company cited supply-chain issues that it said were hampering the movement of goods from Asia to North America.
"FL’s sales exposure to Nike is 70% to 75%, so we expect these supply-chain challenges to make their way to FL," Hutchinson said.
"Nike continues to prioritize its differentiated wholesale accounts that share its digitally led vision, and more aggressively deemphasize others."
The analyst said that this will help Foot Locker obtain product during these challenges.
"That said, we don’t think any partner will be immune to the lack of supply, especially as NKE looks to channel inventory through its own, higher margin e-commerce channel," Hutchinson said.
Historically, the analyst said Foot Locker’s customer has been quick to spend tax refunds and stimulus checks to buy sneakers.
"We see risk to estimates in fiscal 2022 from waning stimulus dollars as the U.S. laps nearly $800 billion of payments," she said.
"This includes one-time stimulus checks, expanded unemployment insurance benefits and enhanced child tax credits."
Hutchinson noted that Congress is negotiating a new spending package, which could be passed by the end of this year, and President Joe Biden's includes $855 billion of expanded tax credit extensions over 10 years.
"Even if this passes, the material reduction in stimulus will hit the U.S. consumer (U.S. was 74% of FL’s 2020 revenue) and add another risk to consensus 2022 estimates," she said.
In August, Foot Locker said it would spend a total of about $1.1 billion in cash to buy Los Angeles-based athletic retailer WSS and Japan-based sneaker and streetwear retailer Atmos.
Hutchinson said that while Foot Locker's balance sheet is still strong, "these transactions remove the firepower for larger buybacks or shareholder returns."
"The stock is relatively inexpensive, but with estimates at risk, we see downside," she said.
Foot Locker surged in August after posting much better-than-expected second-quarter earnings.
Hutchison also on Thursday cut her rating on Kohl's (KSS) - Get Kohl's Corporation (KSS) Report by two notches, to underperform, with a $48 price target, citing the impact of supply chain disruptions that could hit the retailer's planned recovery.