Nike Air Max and Fila Sold Well at Foot Locker But Will Basketball Sneakers Threaten Future Fortunes?

Foot Locker is off to a running start going into the homestretch of 2018, reporting third-quarter earnings and profits that beat analyst expectations.

The sneaker specialist’s stock rose 15 percent on Wednesday following the strong results: earnings per share were 95 cents on an adjusted basis, topping the consensus forecast of 92 cents, while same-store sales rose 2.9 percent, higher than the 1.9 percent predicted by Wall Street. Digital sales in particular were a bright spot, up 5.9 percent over the same period in 2017.

“The beat and raise is evidence that Foot Locker’s operational discipline and strategic investments, particularly in digital, are beginning to bear fruit,” said Susquehanna Financial Group analyst Sam Poser in a note.

“We believe the digital investments Foot Locker is making are a critical component to connecting with customers, breeding loyalty to the brand, and ultimately driving same-store sales,” he continued.

Of critical importance to the retailer is its partnership with Nike, since the brand’s products account for about 67 percent of all purchases. When the brand is performing well, this can be great for Foot Locker’s bottom line: the Origins and Frequency Air Max packs were both among the quarter’s best sellers, the company said, and in the fourth quarter it is looking forward to the 20th anniversary of the Air Max Plus, a style CEO Richard Johnson said it has sold “millions upon millions of pairs” of.

Still, not all analysts believe the relationship is wholly positive. “The overwhelming reliance on premium Nike sneakers, especially premium basketball, concerns us as our channel checks and observations point to a slowdown in basketball footwear sales,” said Cowen analyst John Kernan in a note. Indeed, sales of men’s basketball styles fell by mid-single digits in the third quarter, though this was an improvement on the trend from previous quarters.

Johnson also pointed to some of the smaller brands in Foot Locker’s inventory as highlights in recent seasons, including Vans, Fila and K-Swiss. An early investment in the ’90s-inspired Fila Distruptor sneaker even helped the company turn positive sales in Europe, a region in which many retailers are currently struggling.

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