On Friday, Citi made an adjustment to its stance on Foot Locker (NYSE:FL) shares, upgrading the stock from Sell to Neutral and setting a price target of $24.00. The decision follows recent developments from Nike (NYSE:NKE), which indicated a shift in its distribution strategy that could potentially benefit the retail chain.
Nike, during its third-quarter earnings call, acknowledged an overemphasis on its digital channel growth at the expense of its wholesale partners, particularly in North America.
Moving forward, Nike plans to refocus on innovation within its distribution and has signaled an intent to allocate more new products to its wholesale channel, including marketing investments. This strategic pivot aims to utilize wholesale partners to help expand the overall market and increase unit sales.
Foot Locker, which had not been receiving favorable product allocation from Nike in comparison to other partners like Dick's Sporting Goods (NYSE:DKS) and JD (NASDAQ:JD) Sports, may now have a chance to benefit from Nike's revised approach.
Although there is no certainty that Foot Locker will see improved product allocation, the potential for a more favorable outcome seems to have increased.
Citi's upgrade comes in the wake of a significant drop in Foot Locker's stock price, which has seen a decline of over 30% recently. The analyst from Citi believes that the new strategy from Nike could result in a more balanced risk/reward scenario for Foot Locker, prompting the change to a Neutral rating on the stock.
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